Land and Property Law — Lands Tribunal rules on the inclusion of 100%-owned lots in compulsory sale applications for calculating average ownership in multiple lots with buildings connected by common staircase
Land and Property Law
The Land (Compulsory Sale for Redevelopment) Ordinance (Cap. 545) (“the Ordinance”) allows an owner of at least 80% of the undivided shares of a lot or lots to apply to the Lands Tribunal for an order for sale of the lot(s) by way of public auction.
In a case of two old tenement buildings straddling two lots and connected by a common staircase, it is not uncommon for a developer applicant to own 100% of one of the lots and less than 80% in the other lot.
In Ever Great Development Limited v Fong Yau Shun & others [2023] HKLdT 50, the Lands Tribunal considered the issue of whether a 100%-owned lot can be included in the application and used to calculate the average ownership to meet the statutory percentage. Emily Ting acted for the 5th Respondent in the trial of these proceedings.
| Reference: | Ever Great Development Limited v Fong Yau Shun & others, LDCS 6000/2020, [2023] HKLdT 50 |
| Court: | Lands Tribunal |
| Before: | Deputy District Judge S.H. Lee, Presiding Officer of the Lands Tribunal, and Mr. Alex Ng, Member of the Lands Tribunal |
| Appearance: | Emily Ting, instructed by Messrs. Tai, Tang & Chong, acted for the 5th Respondent |
| Date of Decision: | 31 July 2023 |
The debate on 100%-owned Lots
Under ss.3(2) and 3(2)(a) Ordinance, applicant(s) must meet a statutory ownership threshold of the undivided shares in a lot (which is currently 80%) before they may make an application to the tribunal for an order to sell all the undivided shares in the lot for redevelopment.
In a situation where one or more buildings, straddling two or more lots, are governed by separate Deeds of Mutual Covenant, and are connected by a staircase intended for common use, s.3(2)(b) of the Ordinance allows an applicant to rely on the average ownership in each lot for the purpose of meeting the statutory ownership threshold.
In Bond Star Development Ltd v Capital Well Ltd [2004] 2 HKLRD 855 (“Bond Star”), the Court of Appeal ruled that the Ordinance’s focus is to resolve disputes between majority and minority owners, and therefore is not intended to permit an application where there is no minority owner when the applicant already owns 100% of the lot.
The issue of whether a 100%-owned lot can be included in an application brought pursuant to s.3(2)(b) has been the subject of recent judgments by the Lands Tribunal:
– In Max Win Development (HK) Limited v Lam Ngor Hing & Others [2022] HKLdT 51 (LDCS 37000/2019, 30 September 2022) (“Max Win”), the Tribunal applied the rationale of Bond Star to s.3(2)(b), holding that the applicant was not entitled to rely on the average ownership where one or more subject lots on which buildings connected by a common staircase was 100%-owned.
– In Winmark Properties Limited & another v Prime Way Investment Co Ltd [2022] HKLdT 62 (LDCS 4000/2020, 21 November 2022) (“Winmark Properties”), the Tribunal ruled that the rationale of Bond Star does not apply to the s.3(2)(b) scenario.
Factual background in Ever Great
In the present case, the Applicant applied for an order for 8 lots (“Lots”) to be sold by public auction. A pair of 6-storey old tenement buildings was erected on each pair of lots, with 4 pairs of buildings on 4 pairs of lots, and one unit per floor on each lot. Each pair of buildings was connected by a common staircase at the front.
At the time the application was taken out, the Applicant owned 100% of Lots 1, 4, and 8, and 66.67% in Lot 6. The Applicant relied on s.3(2)(b), averaging its ownership in Lots 1 and 2, Lots 3 and 4, Lots 5 and 6 and Lots 7 and 8 respectively to satisfy the 80% ownership threshold in each pair of lots. By the time of the trial, the Applicant had successfully acquired 100% of Lots 1, 2, 3, 4, 5, 7 and 8, and 66.67% in Lot 6.
The 5th Respondent argued that since the 100%-owned Lot 5 had been excluded from the scope of the Ordinance by operation of the rationale in Bond Star and the 66.67%-owned Lot 6 did not reach the 80% threshold, the Applicant was not entitled to rely on the average calculated pursuant to s.3(2)(b) of the Ordinance to apply for an order for sale for these two Lots.
The Tribunal’s Analysis in Ever Great
The Tribunal was of the view that the rationale of Bond Star, which only excluded 100%-owned lots in s.3(2)(a) applications, should not apply to s.3(2)(b) applications. In respect of s.3(2)(b) applications, including the application over Lots 5 and 6, Bond Star was not binding on the Lands Tribunal. The rationale in prohibiting wholly-owned lot applications under s.3(2)(a) does not apply with the same force to s.3(2)(b) applications, because 3(2)(b) is a “special route” which only applies to multi-lot applications in scenarios in which buildings are connected to each other by a common staircase.
Adopting a purposive construction of the Ordinance, the Tribunal noted that including wholly-owned lots in s.3(2)(b) applications would serve legitimate purpose and further the policy objectives of the Ordinance:
– The scenario of pairs of old 6-storey tenement buildings (with each unit of each building being allocated 1/6 undivided shares of the lot) in this case is not uncommon. If an applicant is unable to acquire 2 out of 6 (66.67%) undivided shares of building A, it would not be able to apply for an order for sale unless it could “average” with the majority ownership percentage of the building B. The use of the “less stringent” “averaging” requirement designed by the legislature would be much limited if 100%-owned lots were not allowed to be included for the “averaging” calculation.
– If 100%-owned lots were allowed to be joined in the applications, it would ensure that all the lots over which the connected buildings are built could be sold to the same purchaser and redeveloped together as a composite site.
The Tribunal further noted the consequences if 100%-owned lots were not allowed to be included in a s.3(2)(b) application. An applicant contemplating composite site redevelopment would be subject to the “ransom power” of minority owners if it could only apply for compulsory sale of a lot it does not fully own. An applicant might decide not to acquire all undivided shares in an adjoining lot after achieving the statutory threshold in order that the application would cover the adjoining lot, which would not be in line with the statutory requirement in s.4(2)(b) of the Ordinance requiring an applicant to take reasonable steps to acquire all undivided shares in the lot, a duty which extends until the trial of the application.
As to how 100%-owned lots could be included when the wording of “majority owner” and “minority owner” is used in s.3(2)(b)(ii), the Tribunal held that “majority owner” is defined by reference to the status of the applicant(s), highlighting that the ownership threshold refers to a minimum percentage to be attained but does not prescribe a maximum percentage to be avoided. The Tribunal acknowledged the recurring theme of contest between majority and minority owners throughout the Ordinance highlighted by Max Win and Bond Star, but departed from Max Win and Bond Star and took the view that such a contest could still exist and function effectively in multiple-lot applications under s.3(2)(b) where the applicant(s) own some subject lots wholly, as long as there remains at least one single lot not wholly owned by the applicant(s).
In the present case, therefore, the Tribunal ruled that although the Applicant had acquired 100% of the undivided shares of Lot 5, it was still entitled to continue the application for all the undivided shares of Lots 5 and 6 for redevelopment purposes under the s.3(2)(b) “special route”.
Conclusion
The decision in Ever Great adds to the previous decision of Winmark Properties in deciding that fully-owned lots are allowed to be included in s.3(2)(b) applications. At the same time, the contradictory decision in Max Win that an applicant is not entitled to rely on a 100%-owned lot to compute the average ownership under s.3(2)(b) should be noted. These decisions are not binding on each other until the issue is determined by an appellate court or addressed by amendment to the Ordinance.
It remains to be seen whether the issue will be clarified by amendment to the Ordinance. The Development Bureau’s recent proposal[1] on amending the Ordinance includes a suggestion to permit applications to encompass wholly-owned adjoining lots under majority ownership, regardless of common staircase connections between buildings, for computing average percentage of ownership of undivided shares.
[1] Presented to the Legislative Council Panel on Development on 22 November 2022.
| Emily Ting
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Before joining Chambers in September 2020, Emily was a Judicial Assistant at the Court of Final Appeal between 2019 and 2020, where she assisted judges in appeals, leave applications and other research and publications.
Emily is developing a broad civil practice and accepts instructions in all areas of Chambers’ work. She is active in the area of land law (including land compulsory sale applications, adverse possession, landlord and tenant disputes and building planning) and has co-authored the articles Summary possession of land under Order 113: Practical tips (with Ross Yuen) and Exemption clauses in the Deed of Mutual Covenant: A built-in shield against liability for building managers? (with Isabel Tam).
Emily also regularly acts as sole advocate in and advises on land, trust and probate matters.
Find out more from Emily’s profile.
This article was first published on 10 August 2023.
Disclaimer: This article does not constitute legal advice and seeks to set out the general principles of the law. Detailed advice should therefore be sought from a legal professional relating to the individual merits and facts of a particular case. The photograph which appears in this article is included for decorative purposes only and should not be taken as a depiction of any matter to which the case is related.