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DNA Galleria buyer's ousting of tenants causes a shock

Ousting of Lau Chun-kai and other tenants of a Tsim Sha Tsui mall just before Christmas shows perils of short-term deals on shops

PUBLISHED : Wednesday, 07 November, 2012, 12:00am
UPDATED : Wednesday, 07 November, 2012, 3:16am
 

The day that Lau Chun-kai signed an agreement to lease a 500 square foot shop on the second floor of the DNA Galleria shopping mall in Tsim Sha Tsui in August was one the 24-year-old hoped to celebrate for years to come.

Lau, who was fulfilling a dream of running his own business for the first time in his life, had visions of a steady stream of customers shopping for the stylish gifts and decorative items he planned to sell during the coming festive season.

But within three months his dream turned into a nightmare. On October 30, Lau, along with another 68 tenants of the mall, were issued with notices to vacate their shops by December 5 at the latest.

The notices were issued after the owner of the mall, property investor Law Kar-po, sold the property to another investor, Wan Pak-kuen, for a reported HK$1.98 billion. The new owner has subdivided units in the mall for resale, and nine shops on the ground floor have already been sold for a total of HK$1.38 billion.

"I was shocked. I never expected that I could be asked to leave after just one month of opening," said Lau, who said he had spent HK$80,000 on fitting out his shop and another HK$150,000 on inventory.

However, the landlord, DNA Galleria Ltd, told Lau that the agreement he signed stipulated that when the proprietor required tenants to move out within a month, he must comply with the notice. "We have not even been offered any compensation," Lau said. He is now cutting the prices of his products to reduce his losses.

Only after receiving the notice, said Lau, did he realise the agreement he signed in late August was not a lease contract, but a licence agreement. (See land rights explanation below.)

DNA Galleria Limited could not be reached for comment yesterday.

A senior executive at a developer that runs shopping malls in Hong Kong said: "Licence agreements are commonly used in Hong Kong for short-term leasing of several weeks or months or a year. Sometimes a tenant may vacate a shop, and if a new tenant is not ready to move in we will sign licence agreements with short-term tenants on a monthly basis. Rent is fixed for a short period, usually one year, but tenants and landlords can end the relationship with one month's notice."

A property agent, speaking anonymously, said: "Some tenants might not have studied the terms of the agreements they signed and they did not expect that eviction could come so soon."

Rents for ground floor shops at the DNA Galleria were around HK$150 to HK$200 per square foot a month, while rents charged for shops on upper floors were lower.

A property agent said the current controversy at the DNA Galleria was not the first and would not be the last.

"In a booming property market when trading is active, it happens," he said. The agent said some tenants had been given just three days' notice during the previous property boom in 2008.

Lawrence Poon Wing-cheung, a senior lecturer in the division of building science and technology at City University, said that in a booming investment market, tenants could be asked to leave at short notice.

"When other tenants are willing to pay higher rents, existing tenants who can't afford the increased rents will be forced to leave," he said.

 


Land Rights

A simple way to explain the difference between a lease and a licence agreement is that a lease gives the lessee an interest in land while a licence agreement merely gives the licensee a personal right to use the property. On the face of it, both the lessee and the licensee have the right to occupy the property concerned, but a lessee's right is more secure.

For instance, if the lessor's land is resumed by the government or foreclosed by the lessor's mortgagee, the lessee's interest could be recognised and has to be dealt with as circumstances may warrant. This is not so with the licensee's right, as the licensee only has a contractual claim against the licensor.

Angela Lee is a consultant at Baker & McKenzie

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