Up Again Hong Kong: Premises and Workplace

Employment

1. Should we divide people in groups and stagger their return to work?

Social distancing requirements may still be in place and should be observed. For example, at the time of publication there is currently a ban on gatherings of more than eight people in public places, but this does not apply to the workplace.

Some employers have already been implementing staggered/phased working operations, though there is no legal requirement to do so. If this has been working well without business interruption, then it would be sensible to continue these arrangements for an interim period.

Real Estate

2. Are there any specific obligations, liabilities or duties of conduct imposed on landlords, tenants or visitors with respect to the use or re-use and decontamination of premises; care, cleaning and maintenance of the exclusive and common areas; reporting requirements and/or measures in case of identified infections; health and safety issues - e.g. recommissioning water systems to avoid virus, installation of plexiglass screens, moving desks to comply with distancing. remodulation of fire prevention strategies (entrance/exit routes)? Is any distinction made between asset classes?

Specific and detailed obligations, liabilities and/or duties in respect of landlords/tenants/operators of businesses are imposed based on the type of business conducted and they are different for different industries.

These obligations, liabilities and duties are specified under a number of subsidiary legislations, including the Prevention and Control of Disease (Requirements and Directions) (Business and Premises) Regulation (Cap. 599F) and the Prevention and Control of Disease (Prohibition on Group Gathering) Regulation (Cap. 599G).

According to these subsidiary legislations, as at 8 May 2020, catering businesses (including restaurants, bar and pubs), amusement game centres, fitness centres, places of amusement, places of public entertainment, beauty parlours and massage establishments, club-houses, and mah-jong-tin kau premises may be open for business subject to specific regulations. Bathhouses, party rooms, clubs or nightclubs and karaoke establishments should remain closed. As at 8 May 2020, no restrictions are placed in respect of operating businesses other than those identified immediately above.

With respect to specific obligations, for example:

Catering businesses excluding bars and pubs (includes restaurants)

  • Customers must wear a mask except when consuming food/drink.
  • Screening of body temperature must be implemented.
  • Hand sanitiser must be provided.
  • Tables must be placed 1.5 meters apart from each other or must be effectively partitioned from each other.
  • Maximum headcount is eight per table.
  • Karaoke activities must remain suspended.

Bar and pubs

  • Subject to the same obligations as operators of other catering businesses plus the obligations set out below.
  • Maximum headcount is four per table.
  • Bars and pubs must be operating at no more than 50% of their respective seating capacities.
  • There should be no live performances or dancing.

Fitness centres

  • Customers must wear a mask except when they are exercising.
  • Screening of body temperature must be implemented.
  • Hand sanitiser must be provided.
  • Fitness stations, machines and equipment in use must be placed 1.5 meters apart from each other or must be effectively partitioned from each other.
  • Fitness station, machine and equipment must be cleaned and disinfected before and after each use.
  • There must be no more than eight people in each group training or classes, including the coach.
  • Steam and sauna facilities must remain closed.

Places of public entertainment

  • Customers must wear a mask except when they are doing exercises.
  • Screening of body temperature must be implemented.
  • Hand sanitiser must be provided.
  • Entertainment stations, machines and facilities next to one another must not be made available for use at the same time unless there is some form of effective partitioning between each.
  • For cinemas, in addition to the above:
    • Cinemas must be operating at no more than 50% of their respective seating capacity.
    • There should be no more than eight consecutive seats in the same row.
    • No eating or drinking inside a house.
    • Catering premises to comply with the applicable directions mentioned above.
    • Cleaning and disinfection of each house must be carried out after each screening.

The Centre for Health Protection, Department of Health of Hong Kong also issues non-binding advice on prevention of COVID-19 in relation to different businesses and workplaces, including recommendations on cleaning and maintenance of the premises.

3. Are there any rent suspension measures and/or stay of recourses and actions (including eviction) or any Government support initiatives such as a furloughed building grant scheme (if so, maybe only a part of the building should be re-occupied)? When rent suspension measures are available, what is the usual payment mechanism and timing agreed to by the parties?

There are no general rent suspension measures applicable to all tenants. However, the government of Hong Kong has provided some rental suspension or rental concession to specific groups of tenants:

  • Tenants and start-ups at the Hong Kong Science Park, industrial estates and Cyberport would have a six-month rental waiver (effective as of 1 April 2020).
  • Cruise lines and cruise terminal tenants would have a fee and rental reduction for a period of six months (as announced in the 2020-21 Budget).
  • Short-term tenancies tenants and holders of waivers for varying the terms of land grants under the Lands Department (such as catering facilities, shops, workshops, public fee-paying carparks, welfare facilities, depots for public transport operators, public utilities, petrol filling stations, driving schools, or advertising facilities) would have a 75% rental concession (from April to September 2020); if such tenants and waiver holders are ordered to close or have chosen to close due to the government’s closure orders or other restrictions for safeguarding public health, they may apply to the Lands Department for full rental or fee concession for the duration of the closure.
  • Tenants of EcoPark, country parks and Hong Kong Wetland Park have a rental concession of 75% from April to September 2020 (increased from 50% from October 2019 to March 2020).

Otherwise, rent suspension and/or rental concession is a matter freely negotiable between the landlord and the tenant. There is no definitive rule or overarching practice on the payment mechanism and the timing agreed between the landlord and the tenants. 

4. Are there specific tax reliefs on payment or collection of rent instalments? Do they apply subject to actual payment or regardless? Do they apply generally or only to specific asset classes?

There are no specific tax reliefs on payment or collection of rent instalments.

However, for the four quarters of 2020-2021, the rates of domestic properties are waived, subject to a ceiling of HKD1,500 per quarter, while the rates of non-domestic properties are waived subject to a ceiling of HKD5,000 per quarter in the first two quarters and HKD1,500 per quarter for the remaining two quarters (as announced in the 2020-21 Budget).

5. Are there any measures regarding relief from the performance of real estate-related contractual obligations?

There are no measures in this regard.

6. Are there any credit facilities in place to mitigate loss of income for landlords?

There are no official credit facilities offered to landlords to mitigate the loss of income.

The Hong Kong Monetary Authority (HKMA, the regulator of banks and money lending institutions in Hong Kong) introduced measures to increase the banking sector’s liquidity to support local economic activities. These measures include obtaining US dollars through repo transactions with the US Federal Reserve for lending to local banks, clarifying aspects of the HKMA’s Liquidity Facilities Framework to make it easier to use by banks, and further explaining HKMA’s supervisory expectations on liquidity regulatory requirements to encourage banks to deploy their liquidity buffers more flexibly to support lending and other business activities.

Also, the current level of regulatory reserves will be reduced by half to release a total of HKD200 billion of lending capacity, providing banks with more room on their balance sheets to cater for future financing needs. (As announced by the HKMA on 3 April 2020.)

Each bank has introduced its own measures including providing loans and/or other credit facilities, details of which are set out in each of their websites.

7. Is there any relief from loan repayments / enforcement of loans secured against properties?

There is no relief from loan repayments / enforcement of loans secured against properties.

However, the HKMA and the Banking Sector SME Lending Coordination Mechanism launched a Pre-approved Principal Payment Holiday Scheme for all corporate customers that have an annual sales turnover of HKD800 million or less and that have no outstanding loan payments overdue for more than 30 days. Under this scheme, all loan principal payments of eligible customers falling due within a six-month period between 1 May 2020 and 31 October 2020 will be pre-approved for deferment. Principal payments of loans (including revolving facilities) will generally be deferred by six months, whereas trade facilities, given their short-term nature, will be deferred by three months. (As announced by the HKMA on 17 April 2020).

Although not law, Authorised Institutions have introduced temporary relief for their customers which include principal “holidays” for residential and commercial mortgages, reduction of fees for credit cards and proposed restructuring of corporate loans through agreed repayment schedules. Each Authorised Institution has introduced their own measures which are available on their respective websites.

8. Are public services necessary to complete the sale, acquisition or other operation of real estate assets or companies or to establish the right to open for business (planning authorities, notary public, Land Registry, Companies’ Registry, etc.)?

As at 8 May 2020, the Buildings Department, the Lands Department, the Planning Department, the Land Registry, the Town Planning Board, the Companies Registry, the Inland Revenue Department and the Stamp Office are open for business. Details of special arrangements, if any, may be found on the respective websites of these bodies.

9. Are there any specific processes or protocols available to consummate real estate operations enabling them to comply with any required social distancing (e.g. electronic signature, etc.)?

There are no specific processes or protocols available to consummate real estate operations to enable compliance with social distancing rules.

For execution of documents, while electronic signatures and electronic execution of documents are recognised in a variety of contexts under the Electronic Transactions Ordinance (Cap. 553), electronic execution is not available and electronic signatures are not valid for executing any instrument which is required to be stamped or endorsed under the Stamp Duty Ordinance (Cap. 117), any deed, conveyance or other document or instrument in writing required to be filed to the Land Registry under Land Registration Ordinance (Cap. 128), any assignment, mortgage or legal charge within the meaning of Conveyancing and Property Ordinance (Cap. 219) or other contract relating to or effecting the disposition of immovable property or an interest in immovable property.

10. Are contractors who were carrying out works within the premises obliged to resume them? Can building sites reopen when they were closed down? Are there any specific provisions in relation to certain asset classes authorising continuation / resumption of works (e.g. healthcare structures)?

There was no mandatory cessation of carrying out works in premises, building sites or any other kind of property. The arrangements on carrying out works would be provided under the relevant contract. Contractors and employers may agree to make special arrangements in relation to carrying out works as they deem fit.

11. Are there remedies or contractual arrangements available to address impossibility or delay for a party to handover premises to another which are/were to be constructed or refurbished, or for such other party to take over those premises?

Force majeure

Depending on the specific contract involved, the duty to handover premises (which may or may not be required to be in a particular state) or to take over the premises may be suspended by an operation of a force majeure clause if the impossibility or delay is attributed to a force majeure event under such a clause.

There is no statutory or common law definition of force majeure, and Hong Kong law does not imply the concept of force majeure into commercial contracts. Parties may include a force majeure clause in their contract with their own definition of what would constitute a force majeure event. Such clauses are enforceable provided that they are not uncertain in their terms. The force majeure clauses must be construed in each case with due regard to the nature and general terms of the contract and, in particular, with regard to the precise words of the clause.

In general, even where there is such a clause in the relevant contract, a party may not be able to invoke the force majeure clause by reason of the COVID-19 pandemic, as clear words such as “pandemic” or “epidemic” in the force majeure clause are required for such an event to be covered. Detailed analysis of the specific contract is required to determine whether the force majeure clause could be applied with regards to the COVID-19 pandemic.

Frustration

If the handover of premises or the taking over of premises is made impossible due to the COVID-19 pandemic, a party may rely on the doctrine of frustration to discharge its duties under the contract.

Hong Kong law recognizes the doctrine of frustration, but practically it is difficult to demonstrate that a contract has been frustrated. The doctrine applies where a party is prevented from performing its obligations due to a supervening event and such event makes performance physically or commercially impossible, or the event has rendered further performance of the contract so radically or fundamentally different from that originally contemplated, such that the party may be discharged from its obligations under the contract.

Note, however, that where the parties have made other provisions, such as a force majeure clause, to apply to a supervening effect, the doctrine of frustration may have no application because such event may no longer be said to radically alter the basis or nature of the contract. However, these clauses will be construed strictly and if a force majeure clause is not deemed to apply, then the application of the doctrine of frustration will not be excluded.

Much would depend on how the force majeure clause (if any) is worded to determine if the doctrine of frustration has been excluded.

Even if the doctrine of frustration is not excluded, the mere change in the profitability of a contract or an increase of the burden upon a party to a contract is not enough to discharge a party from the performance of the contract.

Given that the hurdle of invoking the doctrine of frustration is high, that COVID-19 has only been a recent issue, and that Hong Kong did not prohibit construction and/or refurbishment to be carried out, unless there are more drastic events preventing the performance of the relevant contract, it is unlikely that the doctrine of frustration would apply.

12. Has the duration of validity of administrative authorisations pertaining to development/construction of real estate assets (in particular planning authorisations) been extended?

The Lands Department will offer extension of the period to complete development projects according to the relevant building covenant under a government lease at nil premium for up to six months for all leases with building covenants that have not yet been discharged as at 8 April 2020.

Litigation and Regulation

13. Is the use of disclaimers for visitors or others coming on to the site of business useful for limiting potential future COVID-19 claims?

A disclaimer itself cannot limit potential future COVID-19 claims.

Pursuant to the Control of Exemption Clauses Ordinance (Cap. 71), a person cannot by reference to a notice (such as a disclaimer) given to persons exclude or restrict their business liability for death or personal injury resulting from negligence. “Personal injury” includes any disease and any impairment of physical or mental condition, which would include being infected with COVID-19.

That said, the duty of care owed to a visitor or others coming on the site of a business is a duty to take such care as in all the circumstances of the case as is reasonable to see that the visitor will be reasonably safe in using the premises for the purposes for which they are invited or permitted by the occupier to be there. If the site of business follows local governmental rules/guidelines that are in force and adopt all mandatory/ recommended COVID-19 preventive measures, coupled with a disclaimer notice, it can be strong evidence that the business fulfilled their duty of care to the visitor.