CDotD: Your Security Deposit is NOT Guaranteed!

No one likes studying, but I have owned up to the task of the OLQE, and am steadily studying conveyancing and company law with the aid of a prep course (thank goodness for that).  Along the way, however, I learn all kinds of interesting things about Hong Kong law and history, get a sense of business and law practices here, heck, I even learn English by studying for this stuff!  All some good consequences of this awful exam.

Yesterday, as we were reviewing under guest lecturer Judith Sihombing, a prominent law professor at the Chinese U. and author of “A Student’s Guide to Hong Kong Conveyancing,” I brought up a curious thing I’d read in our course notes on security deposits.

Like whichever country you are reading from, HK landlords will collect a security deposit from tenants to protect their property from damage, and incentivize tenants to keep their rented property in good repair.  At the end of your tenancy, so long as the property has not been damaged beyond ordinary wear and tear, the landlord shall refund your deposit.  In HK, typical residential tenancies require 2 months’ security deposit.

However, what happens when your landlord sells your flat to a new purchaser? This is a very common occurrence, as flipping is prevalent, and the real estate market always seems to be hot here in HK.  The good news is that insofar as your lease goes, the new landlord must honor its term.  The bad news — any option to renew that has not been registered in the Lands Registry, needn’t be honored.  The worse news?  Your security deposit is gone!

That’s right!! No, the former landlord will not be transferring your security deposit over to the new landlord, nor does the new landlord have any obligation to hold your security deposit to be returned upon the end of your lease.  If you want it back, you have to find your original landlord (assuming he hasn’t moved to Canada or something), and request it or even sue him for it.

This is because the wonderful Hong Kong courts elected to follow some ancient English Privy Council case that held that security deposits did not run with the land, and were rather completely separate contracts between the tenant and landlord constrained under privity of contract.  For all you non-law people reading — it means that the security deposit remained a matter between you and your original landlord, and cannot transfer elsewhere even though you are now involved with a new landlord.

Being from an incredibly pro-tenant jurisdiction, I was just floored.  My heart felt actual physical strain as I tried to wrap my head over this grossly unfair practice.  Prof. Sihombing went onto explain that no, Hong Kong does not do much for its consumers, and no, the government doesn’t care to hear your complaints because no your vote doesn’t really count here.  What??

Apparently there is still much much more for me to learn (I think it’s going to take a while before I can explain Legco to you – stay tuned if that’s a foreign word to you), and I definitely have quite a ways to go before I can stop feeling like such an outsider!

However, just to be accurate — there are little things you might be able to do to try to protect your security deposit.  You can get your security deposit to be held on trust, but the issue is that the new purchaser must have bought with knowledge of this trust.   You might be able to get the new owner to agree to an assignment of the deposit (again, how is an unknowing unsuspecting tenant to know what’s even going on, or how on earth would this poor little third party get involved?).  Or the landlord, new owner, and tenant might enter into a novation agreement to otherwise get the new owner to assume liability to repay the deposit.  Of course, the same issues arise.  So, aside from these highly unlikely exceptions, most tenants are completely screwed when their landlord sells their flat — which seriously happens very commonly here in HK!

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