XV. Handover matters at expiry/termination of a lease
It is another common problem in Hong Kong that tenancy agreements do not explicitly provide for the conditions of the property to be handed over back to the landlord at the time of termination or expiry of the tenancy agreement. This often constitutes a source of litigation between parties as to whether and to what extent a tenant shall be obliged to incur costs in restoring the property back to the ‘original’ state.
Generally, a tenant is under no obligation to ‘improve’ the property into a better state than what was given to him at the commencement of the tenancy. It is also expected that the property may suffer from fair wear and tear as result of aging and normal use in which the landlord may have to reasonably accept at the time of handover.
It is common for tenancy agreements to list out the ‘landlord’s fixtures’ that the tenant shall be ‘handed back’ to the landlord at handover of the property at a reasonable status or replacements at equivalent value after depreciation (e.g. air-conditioners, electrical/cooking/heating appliances, bathing and sanitary fittings, built-in closets, doors and windows etc.).
For renovations carried out by the tenant within the property, it is a more complicated matter as to whether the landlord would be willing to accept delivery up of the property with such state given that renovations are often a matter of personal preference.
For commercial premises, it is often common for tenancy agreements to include an express obligation to delivery up of premises at a ‘bare-shell’ state to the reasonable satisfaction of the landlord (i.e. removal of all fixtures, including electrical/drainage appliances, ceilings, ground layers, sanitary fittings and fire-service installations, and leaving behind only the plastering/concrete surfaces).
There is no definitive indicator as to what constitutes ‘reasonable satisfaction of the landlord’ (which denotes a rather subjective and arbitrary standard). The duty to deliver up a ‘bare-shell’ is often an onerous and costly obligation for tenants to comply with. A tenant must quit earlier to allow sufficient time for restoration works to take place.
In practice, to avoid unnecessary disputes, it is often desirable for both parties to sign on a written acknowledgement about the state of handover of the property after inspection.