Paul had an 800 square feet property (property) in Tai Po. Paul wanted to rent out the property, so he signed an agency agreement with Mary, a licensed estate agent, to find him a tenant. The agency agreement stated that Mary could claim a commission from Paul when Paul successfully rented out the property.

Mary introduced Simon to Paul. Simon told Paul that he wanted to move into the property immediately. Paul, however, wanted to sign a formal tenancy agreement (which would take Paul one month to draft) before letting Simon move in. Mary suggested that before the conclusion of the formal tenancy agreement, they could sign a preliminary tenancy agreement (the preliminary), which according to Mary, was only a temporary arrangement until the conclusion of the formal tenancy agreement. In the preliminary, it was stated that the tenancy period was two years. (With a specified period stated in the agreement) The rent was HKD20,000 per month, and the deposit was HKD40,000. Paul and Simon signed on the preliminary. Simon then paid the rent and deposit and moved into the property.

After one month, Paul finalized the formal tenancy agreement and sent it to Simon for signature. However, Simon refused to sign the formal tenancy agreement as the terms were unfavorable to the tenant. Paul, therefore, asked Simon to leave the property. Simon, however, claimed that the preliminary was legally binding and there was no termination clause in the preliminary. Thus, the preliminary was a fixed-term contract, and Simon could stay in the property for two years. Paul asked Mary to help. Mary, however, refused to help as she had already completed her job. Further, Mary requested Paul to pay the commission according to the agency agreement. Advise Paul. You must support your advice with relevant Hong Kong case laws and/or legislation.