Law firms expect a wave of ‘see you in court’ as landlords sue distressed tenants for unpaid rent
- Lawyers say enquiries on unpaid rent have surged with businesses overwhelmed by protests and pandemic
- Some of the companies involved in rent disputes with landlords include Bonjour and Prince Jewellery & Watch
Lawsuits relating to unpaid rents are on the rise as dozens of retailers hit by the economic downturn shut shop, with law firms in Hong Kong witnessing a massive uptick in enquiries seeking advice on recovery of arrears.
Lilian Chiang, senior partner and head of the property department at law firm Deacons, said requests were pouring in from landlords pursuing overdue rent and distressed tenants seeking to exit leases. Nearly 80 per cent of the those looking for advice were retail tenants and the rest lessees of offices, she said.
Such cases were “rare” last year, amounting to about one a month, but these have been slowly rising after the protests, turning into a torrent after the outbreak of Covid-19, Chiang said. “Some tenants can’t pay even after rents were reduced,” prompting landlords to seize their deposits, she added.
Hong Kong’s retail sales slumped 37 per cent in the first quarter – a record drop – as the Covid-19 crisis dampened consumer sentiment in the city. The poor retail sales were reflected in the first quarter gross domestic product, which contracted by 8.9 per cent year on year – the worst on record. The economy is expected to shrink by 4 per cent to 7 per cent for the full year.
The Hong Kong Retail Management Association, which counts thousands of retailers as members, says a quick rebound is unlikely because of the total collapse in tourism and the depressed economy.
Polly Chu, partner at law firm Withers, said legal action relating to rent arrears will rise as aggrieved tenants and landlords rush to the courts to file cases after operations resumed earlier this month. The courts were closed for about three months due to the coronavirus outbreak.
Chu said she had noticed a 20 to 30 per cent increase in enquiries relating to unpaid rents. “Social unrest and Covid-19 are major contributing factors,” said Chu.
Some of the companies involved in legal disputes are listed in Hong Kong, including cosmetics retailer Bonjour, and Hop Hing Group Holdings, parent of Japanese restaurant chain Yoshinoya and book retailer Popular, according to court filings. Others include well-known names such as Prince Jewellery & Watch, dessert chain Hui Lau Shan, noodle chain Eat Together, and Hoixe Cake Shop.
According to writs of summons issued by the High Court, Popular, which operated 16 book stores before it ceased operations in March, has been sued for unpaid rent, while the landlord of a shop leased to Prince Jewellery & Watch in Tsim Sha Tsui is seeking rent arrears and other expenses totalling HK$5.01 million.
Legal action is also being taken against Bonjour over rent arrears and building management fees for at least three shops. One of it involves HK$7.91 million.
Popular’s liquidator Deloitte said that since the company was insolvent, the landlords who are owed money will have seek repayment as unsecured creditors, meaning it cannot lay claim to any of the debtor’s assets.
Lush, which was also involved in such litigation, has paid outstanding rent last week for its shops in Lockhart Road and Telford Plaza, a company official said. The writs have since been withdrawn.
A Yoshinoya spokeswoman said it was not appropriate for the company to comment on rental agreements at the moment. Other companies did not respond to requests for comment.
Diamond Shea, chairman of Hong Kong Owners Club, an association of landlords, said it was quite common to see disputes over unpaid rents as businesses often run into trouble. However, Shea added that some lessees were resorting to absurd excuses such as cockroach infestations to avoid paying rent, prompting landlords to take legal action.
Shea said that since the courts reopened this month after the pandemic measures, there have been long queues of people waiting to file cases for the past several days.
“It was ridiculous”, Shea said, referring to the crowds at the court.
More pain is in store for retailers, with many listed companies issuing profit warnings amid a record slump in the city’s retail sales and restaurant receipts. These include restaurant operators Palace Banquet Holdings and Tsui Wah Holdings, fast-food chains Cafe de Coral Holdings and Fairwood Holdings, snack retailer Best Mart 360 and cosmetics retailer Sa Sa International Holdings.
