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Risks of Renting Industrial & Commercial Units for Living
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Whether you are an owner planning to convert an industrial building for rental or a tenant considering renting such a unit, you need to understand the relevant regulations (such as the Buildings Ordinance) and land deed restrictions. This article explains the risks associated using industrial and commercial buildings for residential purposes, as well as basic responses when receiving enforcement notices.
What are "industrial subdivided units" and "commercial-to-residential"?
In Hong Kong, when a building is completed, the Buildings Department issues an occupation permit (commonly known as the "OP"), and the land deed from the Lands Department specifies the permitted land use (e.g., industrial or commercial).
Industrial subdivided units: Units originally intended for industrial use are subdivided by adding partitions, toilets, or drainage facilities to create multiple living spaces.
Commercial-to-residential: Office or commercial units are used for residential purposes.
Without approval from relevant authorities (e.g., without applying for a land deed modification or obtaining approval from the Buildings Department for the works), the above situations may involve breaches of land deed conditions or the Buildings Ordinance.
Legal liabilities and risks for owners
Some owners carry out alterations and rentals without obtaining approval. If discovered by enforcement authorities, they may face the following consequences:
1. Violation of the Buildings Ordinance
If the alteration works constitute unauthorized building works (e.g., changes to partitions, drainage, or fire services), the Buildings Department may issue statutory orders (such as demolition orders) requiring restoration of the unit within a specified period.
Possible consequences:
- Failure to comply with orders may result in fines and criminal liability
- Ongoing violations may lead to daily fines
2. Breach of land deed conditions
Using industrial or commercial units for residential purposes may violate land use restrictions.
The Lands Department may take action, including:
- Issuing warning letters and registering them with the Land Registry (commonly known as "caveat")
- Affecting property resale or mortgage
In more serious or persistent cases of non-compliance, the government may consider further action under relevant regulations, including recovering the land interest.
Owners may therefore face significant financial impact.
3. Insurance and mortgage risks
If the property use does not match the insurance policy or mortgage terms:
- The insurance company may refuse part or all of a claim based on policy terms
- The bank may, in certain circumstances, require early repayment of the loan
Risks for tenants
Renting industrial subdivided units or commercial-to-residential units may also involve the following risks:
1. Safety risks
The design standards of industrial and commercial buildings are generally not based on residential use, for example:
- Fire services configuration
- Escape route design
- Ventilation and compartmentation arrangements
Past fire incidents involving industrial building units have highlighted these risks.
2. Possible need to move out
If the Buildings Department issues a demolition order or closure order, or if the unit is subject to enforcement action:
- Tenants may need to move out within a specified period
- The actual arrangements depend on the specific enforcement procedures and circumstances
3. Deposit risks
If the tenancy agreement involves a unit that does not comply with use regulations:
- The legal validity of the tenancy agreement may be affected
- Tenants may face difficulties in recovering deposits from the landlord
Basic checks before renting
To reduce risks, tenants and buyers can conduct basic checks before a transaction:
1. Check the land register
Through a land registry search, you can find out:
- Whether there are any outstanding Buildings Department orders (such as demolition orders)
- Whether there are any warning letters from the Lands Department
- Whether there are other legal documents
2. Check the occupation permit
Confirm the approved use of the property, for example, whether it is:
- "Domestic" use
Industrial subdivided units and "commercial-to-residential" units do exist in the market, but such arrangements may involve legal, contractual, and safety risks. Whether you are an owner or a tenant, before making a decision, you should fully understand the property use restrictions and related responsibilities, and conduct necessary checks to mitigate potential risks.
