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What to know and do before signing a Preliminary Contract for renting a commercial office

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  1. #1

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    What to know and do before signing a Preliminary Contract for renting a commercial office

    Can anyone give any good advice before signing a preliminary contract for renting a commercial office space in Hong Kong?

    Am new to all this and am afraid we're being taken advantage of in terms and agreements because we're new to this and setting up a small business.

    How much information should be on the preliminary agreement for example?
    We've been given a preliminary agreement by our agent but there doesn't seem to be enough information on there.
    There is no mention about who pays Govt rent and rates or management fees for example (which the landlord has verbally agreed to pay)

    Landlord is asking for 3 months deposit with 1 month's rent in advance which seems a lot to us.

    Landlord is willing to give 3 weeks rental free as we will have a lot of renovations to do.
    Landlord will not do any renovations

    Landlord requests at least 18 months fixed rental period but we only want 12 months in case the business doesn't work out as well as hoped.
    .

    What are normal practices in Hong Kong?

    Any advice on this would be appreciated.

    Thanks


  2. #2

    Join Date
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    That sounds ok. 24 months is the norm.

    3 months deposit is normal too.

    I don't think it's out of ordinary and 3 weeks free is ok but try and get more on this as you can generally get 10 free anyway.

    Sent from my GT-I9300 using GeoClicks Mobile


  3. #3

    Does the signing of the preliminary contract involve handing over a deposit of sorts to show both parties mean business?

    The Deposits agreement should be treated as a separate issue to prelim contract and you need to ensure that you are happy with the T&Cs for handing over said deposit; so you will know exactly where you stand should the deal fall through for whatever reason. Otherwise you may feel that you have a weaker bargaining position if you have paid an 'unconditional deposit'. Good luck with it all...


  4. #4

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    So 3 months deposit is normal!
    That's a lot upfront.
    That'll be 4 months in total as it includes the 1 month in advance.

    The landlord has agreed to reduce the rental period to 1 year fixed 1 year option (I.e. less than usual 2 years fixed) in return for only 3 weeks free rental. We had assumed 1 month free rental was the norm (rather than 10 weeks).

    The preliminary agreement does have financial commitments stated, yes. It states if either party drop out of the agreement then we have to pay (1 and a half month's worth in rent as) compensation.


  5. #5

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    The Preliminary Agreement, should state clearly, who will pay management fees, rates & government rent.


  6. #6
    Quote Originally Posted by chips:
    The preliminary agreement does have financial commitments stated, yes. It states if either party drop out of the agreement then we have to pay (1 and a half month's worth in rent as) compensation.
    Are you sure this is correct? I can see the Landlord can be a wealthy man/woman through this!

  7. #7

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    Quote Originally Posted by dragon_simon:
    Are you sure this is correct? I can see the Landlord can be a wealthy man/woman through this!
    Whoops! I meant if we drop out we pay 1.5 months in compensation, but if Landlord drops out, it states the Landlord pays more for some reason I don't know.

    Should there be anything in the preliminary agreement about air cons, wooden flooring, lighting fixtures etc...?

  8. #8

    IANAL
    12 months fixed? - it used to be the whole 24 months was 'fixed', the LL even wanted our HQ directors to give a surety for the whole rental period!!!!

    Also be aware - when you move out you have to re-instate the emptiness of the office. If that means taking down roof tiles, lights walls and ripping up carpets for concrete floors... thats what you have to do.

    Also take photos - even minor scratches on window coatings... as you might just get nailed for the $30,000 to replace a window.


  9. #9

    Join Date
    Jun 2010
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    Another interesting tactic to adopt if you think the office space will meet your needs for the next few years is to offer to sign a longer contract - say 5 years but also at the same time ask for better inducements and insert clauses in your favour, such as a break clause exercisable in the 12/36 month. This guarantees you an exit option and you can always threaten to break the contract if there are problems with the building or if there is suddenly a flood of cheap office space in the market.


  10. #10
    Quote Originally Posted by popular:
    Another interesting tactic to adopt if you think the office space will meet your needs for the next few years is to offer to sign a longer contract - say 5 years but also at the same time ask for better inducements and insert clauses in your favour, such as a break clause exercisable in the 12/36 month. This guarantees you an exit option and you can always threaten to break the contract if there are problems with the building or if there is suddenly a flood of cheap office space in the market.
    An astute Landlord would want the Break clause you stated to work both ways, can the OP accept the risk of Landlord excersing this option after spending $$$ fitting out the premises? You could negotiate with LL a Tenant Break clause only but rent premium may be adjusted northwards!

    Quote Originally Posted by chips:
    Whoops! I meant if we drop out we pay 1.5 months in compensation, but if Landlord drops out, it states the Landlord pays more for some reason I don't know.

    Should there be anything in the preliminary agreement about air cons, wooden flooring, lighting fixtures etc...?
    What is the definition of 'drop out' and how do you quantify the Landlord 'pays more'?
    Yes, you could include a one liner at this stage to note that there will be an inventory list to be agreed.

    In addition to the cost issues noted by Oldtimer- have you thought about responsiblities for the building repairs/ maintenance and insurance which can ostensibly be hidden costs to you.

    Have you got a qualified lawyer acting for your interests? I know its only a short lease but I'm sure it will be your best investment. The advice I have given here are really intended as food for thought, you can take note of all the useful comments in this forum to formulate the right question to ask the lawyer.

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