April 2022

The Government has gazetted the Temporary Protection Measures for Business Tenants (COVID-19 Pandemic) Bill (“the Bill”) to provide business tenants of specified sectors with temporary protection measures in the form of a rental enforcement moratorium. The moratorium barring landlords from taking proceedings during a three-month “protection period” against their tenants in specified premises for failure to pay outstanding rent under the tenancy for the period from 1 January 2022 to the end of the protection period is just one end. Another moratorium is also provided under the Bill to bar lenders from taking proceedings against landlords for a default in the related secured loan repayment arising from tenants' failure to pay rent.

Here are some salient features of the Bill:

  1. The barred actions are specified in section 5(7) which comprise actions for. inter alia, termination of tenancy, distraint, re-entry or forfeiture of tenancy and generally “bringing an action in a court (including a tribunal) against a tenant”. Further, the actions for a landlord to deduct the outstanding rent from the deposit or to demand a tenant to make good any shortfall in the deposit are also barred. Interestingly, an action to “suspend” the provision of utility services, which supposed to be gas, electricity and water supplies, or other services in relation to the premises is also barred.
  2. For the rented premises to be qualified, the premises have to be wholly or primarily used as the specified premises set out in the schedule to the Bill. The specified premises cover those premises being used for catering businesses, travel and employment agencies, certain schools and tutorial centres, retail shops (excluding supermarkets), arts and cultural performances as well as hobby classes.
  3. On barring enforcement of security on certain premises, where a security created on any premises (or any interest or rent receivable in respect of the premises) in favour of a lender by the landlord of the premises for a secured loan, the lender of the loan is barred from taking or continuing to take the specified actions in respect of the repayment default. The paramount condition, as required under section 7(1), is that the landlord having regard to the factors specified in section 7(2) which include (i) the nature and magnitude of the tenant’s failure and repayment default; and (ii) the overall financial condition of the landlord, can “reasonably establish” that the landlord’s default is the “sole reason” or a “significant reason” for the landlord’s inability to avoid the repayment default. This test must give rise to arguments but in any event it should be an objective test based on factual evidence to be submitted by the landlord to the lender in each case.
  4. The barred actions for enforcement of security on the premises cover nearly all kinds of recovery actions relating to the subject premises as laid down in section 7(5). The enforcement of collateral securities for the secured loan is also barred. As the usual securities for bank loans in Hong Kong encompass landed properties and rented premises, the mortgagees’ actions may come to a halt meanwhile.
  5. Any contravention of the legislation, whether by the landlord or by the lender, commits an offence and is liable on conviction on indictment to a fine. The scale is fixed on twice the amount of the rent or repayment default claimed and a fine of not less than HK$50,000 unless the court considers that imposing a lower fine is just and equitable in the circumstances of the case.

The legislation should be an unprecedented “default protection” legislation in Hong Kong. Similar statutes, with some localized conditions and modifications, have been enacted during the pandemic in other jurisdictions such as the United Kingdom, United States, Australia and Singapore. In the UK, a practice code “Code of practice for commercial property relationship following the Covid-19 pandemic” has been published to assist landlords and tenants to reach settlement of rental disputes caused by the pandemic. The code provides assistance as to how to compute appropriate rent abatement and rental loss and it works like a mediation pack to the parties for reaching out a fair settlement without the need to go back to courts after the protection period. No such code or practice direction seems to be available in Hong Kong yet.

The proposed moratorium under the Bill is purported to be a panadol for business tenants of specified sectors who are in financial trouble caused by the pandemic but the deferred obligation never extinguishes but shall revive after the protection period. The Bill serves to give a short dormancy of the enforcement actions. The claims will still be there and only adjourned to a later date to be commenced and continued, possibly causing a longer queue in courts.