Circular No. 05-02 (CR)
Takeover of tenancy / business

The Estate Agents Authority (EAA) has on several occasions received complaints about practitioners arranging for the transfer of a tenancy held by a client to another party, or arranging for the client's takeover of such a tenancy. The subject matter to be transferred may be the tenancy only, or may include also a business currently carried on at the tenanted premises.

In many of these cases, the practitioner's handling of the matter led subsequently to damage suffered by the client, and eventually to disciplinary action by the EAA. A common point illustrated by these cases (hence one important for all practitioners to note) is that any takeover of tenancy is potentially a complicated matter. Even at its simplest, a so-called "transfer" will most likely involve the termination of the existing tenancy held by the "transferor" and, thereafter, the grant of a new tenancy in favour of the "transferee", both requiring the landlord's consent. Where the intended takeover involves furthermore an existing business or the payment of a premium, even greater will be the degree of complication of the transaction, hence legal risk for all parties involved. For adequately protecting the parties' interest, comprehensive legal documentation is usually required, while a standard-form tenancy agreement will normally not suffice.

Indeed, except for the part involving the grant of a new tenancy, the rest of the so-called "takeover of tenancy/business" arrangement actually fallsoutside the scope of "estate agency work" as defined under the Estate Agents Ordinance. Strictly speaking, therefore, a practitioner has no duty to put together such an arrangement for a client. Where a client indicates an intention to effect a takeover of tenancy/business, a practitioner should, as a measure of prudence, advise the client to consult a lawyer before implementing such arrangement, in order to avoid any legal risk.

If a practitioner is found to have arranged for a takeover of tenancy or business without advising his client to obtain legal advice, which arrangement resulted in a loss suffered by the client, this may affect his being a fit and proper person to hold a licence. Consequently, he may be subject to disciplinary action by the Authority and if the case is serious, his licence may be revoked.

May 2005


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