The Temporary Protection Measures for Business Tenants (COVID-19 Pandemic) Ordinance (Cap.644) (Ordinance) was passed by the Legislative Council in Hong Kong on 28 April 2022. Its commencement date was 1 May 2022.
The Ordinance aims to provide temporary protection measures for business tenants adversely affected by the COVID-19 pandemic with a rental moratorium for three months starting from 1 May 2022, which prohibits landlords from taking certain actions against tenants of certain premises for failure to pay rent during the period from 1 January 2022 to 31 July 2022.
Key Takeaways
(1) Effective date: 1 May 2022.
(2) Protection Period: 1 May 2022 to 31 July 2022.
(3) Relevant Rental Period: 1 January 2022 to 31 July 2022, see 5 below.
(4) Premises covered: Premises used wholly or primarily as “Specified Premises” at the beginning of the protection period (i.e. 1 May 2022).
“Specified Premises” are listed in Part 2 of the Schedule to the Ordinance (as may be amended from time to time), including scheduled premises under the Prevention and Control of Disease (Requirements and Directions) (Business and Premises) Regulation (Cap.599F), such as:
(a) food related business including catering and food business, caterers for schools, dishware washing businesses, fresh food wholesale business;
(b) child care and education including child care centre, kindergarten, private primary day school and private secondary day school, tutorial school, hobby classes;
(c) retail shop including supermarkets;
(d) travel related business including travel agencies, cruise ship businesses;
(e) art and culture including Pop concert organisers, performing arts;
(f) employment agency.
(5) Prohibited Actions: Landlords are barred from taking or continuing to take the following actions against tenants of the covered premises for their failure to pay rent during the period from 1 January 2022 to 31 July 2022:
In relation to the recovery of arrears:
(a) deducting outstanding rent from deposit held by the landlord;
(b) demanding the tenant to pay any shortfall in deposit deducted before the protection period in respect of rent due during the relevant rental period;
(c) recovering interest or surcharge on rent arrears.
In relation to enjoyment of the premises:
(d) suspending utility services or other services in relation to the premises;
(e) terminating the tenancy;
(f) exercising right of re-entry or forfeiture.
In relation to the commencement of legal actions:
(g) presenting bankruptcy or winding-up petition against the tenant;
(h) commencing arbitral proceedings against the tenant;
(i) commencing or leving an execution, distress or other legal proceedings against the tenant’s property;
(j) making an application under section 670 of the Companies Ordinance (Cap. 622) for a meeting of creditors to be summoned to agree to a compromise or an arrangement in relation to the tenant; and
(k) appointing a receiver or manager over the tenant’s property.
(6) Permitted actions: Landlords may take action or continue to take action against tenants on a ground other than failure to pay rent during the protection period.
(7) Rental moratorium ceases to apply in the following situations:
(a) a written agreement entered into during the protection period in respect of a tenancy with an agreed forbearance in respect of the amount of rent or the time when any rent is payable;
(b) the tenancy is terminated on a ground other than the tenant’s failure to pay rent;
(c) the tenancy expires or otherwise comes to an end without a renewal;
(d) the premises are no longer used wholly or primarily as specified premises.
(8) Relief to landlords: The Ordinance also protects landlords from certain actions by their lenders for failing to repay loans secured by any covered premises.
8.1. The landlord needs to establish that the rent moratorium is the sole or significant reason for his default in repaying loans.
8.2. The court will take into consideration the nature and magnitude of the tenant’s default and overall financial condition of the landlord.
8.3. Subject to the above, the lender is barred from taking or continue to take the following actions against the landlord for his default, during the affected period:
(a) enforcing security;
(b) suing for repayment of default sums;
(c) recovering interest or surcharge on default;
(d) bringing action in court or commencing arbitration against the landlord;
(e) presenting bankruptcy or winding up petition against the landlord.
8.4. The Ordinance ceases to apply if a written agreement is entered into during the protection period in respect of a loan and with an agreed forbearance in respect of the repayment schedule or the amount of any repayment.
(9) Stay of pending actions: All prohibited actions commenced before 1 May 2022 will be stayed, and landlords or lenders will have to put such actions on hold until the end of the protection period.
(10) Consequences of non-compliance
(a) A landlord or lender, who takes or continues to take any prohibited action in contravention of the Ordinance during the protection period, commits a criminal offence.
(b) An offending landlord is liable to a fine that is equal to twice the amount of rent claimed, and in any event not less than $50,000.
(c) An offending lender will be liable to a fine that is twice the amount of the repayment default claimed, and in any event not less than HK$50,000.
Practical Tips
The following are some practical tips to avoid any contravention of the Ordinance and related criminal liability:
(1) Contract Out. The relevant parties may contract out of this rental moratorium by entering into a written agreement during the protection period with an agreed alternative forbearance arrangement. So, an affected landlord or lender may try to discuss and agree on an alternative arrangement with his counterparty.
(2) Demand Letter. It appears that an affected landlord or lender may still issue a demand letter for outstanding rent or loan repayment, but no interest or surcharge may be “recovered” (追討), during the protection period.
(3) Uncertainties. If there are any uncertainties, such as (i) whether the premises are used wholly or primarily as “Specified Premises” or (ii) in case there is any breach of the tenancy agreement other than or in addition to default in payment of rent, an affected landlord may wish to err on the side of caution and withhold any action in respect of the tenant’s failure to pay rent during the protection period.
For further information, please contact:
Carmen Ng, Partner, Deacons
carmen.ng@deacons.com
