2. I have let a residential property to a tenant and I recently found that the tenant is using the property as an office. Will this affect my interests or cause any liability to me as a landlord? If my tenant conducts criminal activities there, what further problems will I face?

A property that is used for a non-authorised purpose may create trouble for its owner (the landlord) in the following ways.

Breach of Government Lease

An interesting phenomenon in Hong Kong is that property owners do not really own their properties. All lands in Hong Kong (except the piece on which St. John's Cathedral is standing) are owned by the government, and landowners only lease their land . A typical owner of a flat in a building is therefore only a holder of shares in the land on which the building stands. When the government leases a piece of land to the "owner", a contract is signed. The contract, generally called a Government Lease, imposes various conditions on the "owners" and their successor in title. One commonly found condition is that the "owners" have to comply with the land use purpose specified in the Government Lease. If there is a breach of this condition, for example conducting business activities at a property designated for residential use, then the government is entitled to re-enter and take back the possession of the property. Although such a drastic measure is seldom used, the Lands Department may require the "owner" to apply for a temporary waiver and pay a waiver fee, so that the government will temporarily waive its rights of re-entry.

Breach of the Deed of Mutual Covenant

A deed of mutual covenant is a contract that is binding on all owners of a multi-unit or multi-storey building. It basically sets out the rules for the management of the building.

A standard deed of mutual covenant will state that a unit owner must comply with the terms of the relevant Government Lease and will use the property only for the authorised purpose(s). A unit owner will usually also be required to prevent the tenant or occupiers from breaching the relevant terms. Therefore, even though it may be the tenant who is in breach of the Government Lease and the deed of mutual covenant, the landlord can still be liable to legal action by the management company or the other unit owners of the building.

Liability to a third party

If a residential property is used for business, then one can naturally expect that more visitors than originally anticipated will frequent the property. The chance of such visitors suffering from accidents related to the property and thus claiming against the landlord will also increase. A well-drafted tenancy document will contain a clause which specifies that the tenant indemnifies the landlord from and against all claims and liabilities caused by the tenant’s breach of any agreements. However, if the landlord does not have a well-drafted tenancy document, there may be a vacuum in the terms of liability to be borne by the landlord or tenant. In such circumstances, the landlord may be entangled in totally unanticipated litigation.

Criminal liability

If the tenant is merely using the property for purpose(s) other than that authorised, then the worst that the landlord will face is monetary loss and damages. However, if the landlord knows that the tenant is using the property for criminal activities, e.g. as a gambling place or a vice establishment, and does nothing about it, the landlord could face criminal charges. The consequences will not be limited to monetary loss and damages, but may include a criminal record and imprisonment. Hence, a landlord who finds a tenant using the property for criminal activities should at once report the case to the police.

As a tenancy document is likely to contain a clause that designates the use of the property, e.g. residential, retail, or industrial, the tenant's breach of this clause will give rise to the landlord's right of forfeiture. The landlord may also want to seek professional legal advice about the landlord's rights and liabilities, which may vary under different circumstances. For instance, a tenant who uses a residential property as a home office may simply be using it as a business correspondence address with all business done on a computer, i.e. without visitors to the property and without storing goods at the property. There may not be any actual harm to the property or any actual negative effects to the landlord. In such circumstances, even though the tenant is technically in breach of the term of the tenancy document, the Court probably will have much sympathy towards the tenant.