Q5. Can the landlord and tenant negotiate freely on the break clause of a regulated tenancy?
The landlord and tenant are free to negotiate on the break clause of the regulated tenancy that can be exercised by the tenant.
However, Part IVA of the Landlord and Tenant (Consolidation) Ordinance (Cap. 7) stipulates that “without limiting any rights of the tenant to terminate the tenancy by notice under the tenancy”, the tenant can terminate the tenancy before the expiry of the term by giving the landlord prior notice in writing. Accordingly:
- the date of termination: must not be a date earlier than the last day of the first year of the term;
- the termination notice: must be given 30 days before the date of termination or earlier to the landlord.
In other words, notwithstanding the break clause provided in the tenancy agreement, the tenant can, at the earliest, by giving a termination notice to the landlord on the 30th day counting backwards from the last day of the first year of the term, terminate the tenancy on the last day of the first term.
Such statutory rights of the tenant implies that a break clause in the tenancy agreement can only be established if the break clause is consistent with the statutory right stipulated in the Ordinance, or if it offers more rights to the tenant than the Ordinance does.
Example 1: No break clause is provided in the tenancy agreement, which is commonly known as a “two-year fixed agreement”. Since the tenant can exercise the right to terminate the tenancy early in accordance with the Ordinance, the tenancy becomes essentially a commonly known “one-year flexible, one-year fixed” tenancy.
Example 2: A break clause provides that the tenant may terminate the tenancy on or after the last day of the first year of the tenancy by giving not less than 90 days’ prior notice. Since the tenant can exercise the statutory right to give shorter notice, the 30 days’ notice requirement prevails over the 90 days’ specified in the tenancy agreement.
Example 3: A break clause provides that the tenant can terminate the tenancy at any time by giving not less than 30 days’ notice, which is commonly known as the "two-year flexible agreement". Since it offers more rights to the tenants to terminate the tenancy early than the Ordinance does and there is no such occasion that the tenant will exercise the statutory right, the break clause in the tenancy agreement prevails.