Refurbishment of flat and raising of rent

The ground floor of a block of flats has, for many years, been leased out to an elderly bachelor. The block's owner intends to demolish the entire building and rebuild it. Agreement was reached with the ground-floor tenant that, while he was to continue in the same lease (that is, after the block would have been rebuilt), the leased premises would be refurbished at the the owner's expense, and following the completion of the works, all the other conditions of the lease would remain unaltered.

After having examined the actual costs he would have to incur to complete the desired works, it transpired that the refurbishment would exceeds the owner's budget. The landlord is therefore now considering evicting the tenant to resume possession of the premises, or increase the rent of the premises when the refurbishment is completed. What is the position at law?

Presumably we are here dealing with a lease that has entered into the reletting stage and thus the relative provisions of the Reletting of Urban Property (Regulation) Ordinance shall apply.

For the owner to resume possession of the leased premises, he will have to apply to the Rent Regulation Board at the end of the current lease. From the facts of this case, there do not seem to be any suitable grounds upon which he may justify his request for evicting the tenant and resuming possession of the premises.

As regards the possibility of raising the rent, much depends on what the parties had originally agreed to and on the exact terms of any written private agreement between the parties. However, it seems rather unlikely that the parties agreed to leave the rent unalterable forever. At least, this never seemed to be the owner's intention.

According to section 7 of the Ordinance, where the lessor wishes to increase the value of the premises by works or alterations to be carried out at the termination of the lease, he must apply to the Rent Regulation Board for permission. If the application is granted, the board shall allow an increase in rent having regard to the cost and importance of such improvements and the increase in rent shall commence from the day of the completion of the works.

The law further provides that, if the lessor is bound to carry out or has reasonable cause for making alterations of works other than ordinary repairs to the leased premises, the board shall allow an increase in rent as it may deem justified, having regard to the benefit resulting from the alterations or works and any such increase shall take effect from the date of the completion of the alteration or works.

If the Rent Regulation Board were to agree to the owner's request, if the annual rent due is less than Lm40, the owner is to apply to the board at least one month before the expiration of the lease, for an increase in the rent. If, on the other hand, the rent exceeds Lm40, within one month, the owner is to give notice to the tenant, by means of a judicial letter, of his intention to increase the rent and if the tenant wishes to contest such proposed increase, he must apply before the board for the rejection of the increase. In default of such an application by the tenant, it shall be presumed that he would have accepted the increase suggested by the lessor.

If the landlord fails to bring an action before the board within the period mentioned above, the lease shall be deemed to be renewed at the same rent and on the former conditions for a period corresponding to a term of rent.

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