Compulsory Sale: Lands Tribunal rules on applicability of Court of Appeal’s Bond Star judgment to computing average ownership in buildings connected by a common staircase
Hong Kong Land Law
A prerequisite for applications under the Land (Compulsory Sale for Redevelopment) Ordinance (Cap. 545) (“the Ordinance”) is to meet the statutory ownership threshold of undivided shares in each subject lot, currently a minimum of 80%. The Court of Appeal held in Bond Star Development Ltd v Capital Well Ltd [2004] 2 HKLRD 855 (“Bond Star”) that the Ordinance excludes land 100% owned by the applicant.
In the case of an old tenement building which straddles 2 or more lots governed by separate Deeds of Mutual Covenant, section 3(2)(b) of the Ordinance expressly provides that the applicant may rely on the average ownership in each lot for the purpose of meeting the statutory ownership threshold. In light of the Bond Star judgment, if one of the lots is 100% owned, can this lot be included to compute the average ownership under section 3(2)(b)?
Recently, this issue was answered affirmatively in Winmark Properties Ltd and Another v. Prime Way Investment Co Ltd (LDCS4000/2020) [2022] HKLdT 62, where the Lands Tribunal ruled that section 3(2)(b) provides an exception for a building which covers multiple lots connected by a common staircase and where the average percentage of undivided shares satisfies the statutory threshold. Ross M. Y. Yuen and Valerie Tang acted for the 1st and 2nd Applicants.
Overview
To make an application under the Land (Compulsory Sale for Redevelopment) Ordinance (Cap.545), one of the prerequisites is to meet the statutory ownership threshold of undivided shares in each subject lot (currently a minimum of 80%) under Sections 3(1) and 3(2)(a). It is however common in Hong Kong that an old tenement building is in fact straddling 2 (or even more) lots sharing a common staircase with one unit on each lot on each floor. The most interesting feature of this type of old tenement building is that while it is in fact a single building physically, it is divided into two notionally or legally with two separate Deed of Mutual Covenants executed for each lot. To facilitate redevelopment of this type of building, Section 3(2)(b) of Cap.545 expressly provides that the applicant may rely on the average ownership in each lot of the building for the purpose of meeting the statutory ownership threshold.
The operation of Section 3(2)(b) as to how to calculate the overall average was however thrown into doubt recently. The background is that it was held by the Court of Appeal in Bond Star Development Ltd v Capital Well Ltd [2004] 2 HKLRD 855 (“Bond Star”) that 100% owned lot should be excluded from a compulsory sale application. The question then arises: in a Section 3(2)(b) situation, if one of the lots is 100% owned, can the applicant still include this lot to compute the average ownership when this lot should be seemingly excluded according to Bond Star?
Factual Background
The Applicants applied for an order under Cap.545 for 4 lots (the “Lots”) to be put on sale by public auction. There are 2 buildings erected on the Lots, each straddling two of the lots. Each building is served by 1 common staircase, but the two buildings are not connected.
At the time the application was taken out, regarding the 1st building, the Applicants owned 62.5% of Lot 1, and 100% of Lot 2. For the 2nd building, the Applicants owned 92.86% of Lot 3 and Lot 4. In the run-up towards the trial, the Applicants acquired further interests in the Lots, and as a result owned 75% of Lot 1, and 100% of Lot 2; and 100% of Lot 3 and Lot 4.
In view of the change in ownership, the 1st Respondent applied to amend its Notice of Opposition to argue that the Applicants are not entitled to bring/continue the proceedings given that they have become 100% owners of Lot 2, Lot 3 and Lot 4. It was further argued that the Applicants only own 75% of Lot 1, which is below the statutory ownership threshold and hence the Applicants are not entitled to seek an order for sale of Lot 1 alone.
Due to the complexity of the legal question, the matter of entitlement was fixed to be determined by way of preliminary issue.
The Court’s Analysis
Regarding Lot 1 and Lot 2, the Tribunal found that on a purposive interpretation the rationale of Bond Star is not applicable to the exception under Section 3(2)(b) of Cap.545, in that they are connected by a common staircase and the average percentage of undivided shares owned by the Applicants (81.25% being the average of 75% and 100%) is over the statutory requirement.
Regarding Lot 3 and Lot 4, however, the Tribunal held that there was no longer a purpose in granting an order for sale as the Applicants owned 100% of the same. The part of the application for an order for sale of Lot 3 and Lot 4 was therefore dismissed.
Reading of Bond Star Judgment (Court of Appeal)
In arriving at its Decision, the Tribunal was of the view that Bond Star only covered Section 3(2)(a) of the Ordinance, but left open the scenario of Section 3(2)(b). Indeed, on the facts, the application before the Tribunal in Bond Star is made under Section 3(2)(a) and the subsequent appeal is also only against the ruling on Section 3(2)(a). It follows that the ruling by the Court of Appeal must then only cover Section 3(2)(a).
The Tribunal then went on to consider whether the rationale in Section 3(2)(a) of Bond Star, i.e. that 100% owned lots should be excluded, ought to apply to Section 3(2)(b).
Having regard first to the wordings of the subsection, the Tribunal observed that Section 3(2)(b) does not rule out the possibility of an applicant being the 100% owner of one lot in the scenario when the building thereon is connected to the building of the adjacent lot by common staircase.
Adopting the approach of purposive interpretation, the Tribunal further noted there must be a purpose for having Section 3(2)(b), and that must be for the lots upon which a connected building straddle to be more easily developed together. There is no reason to exclude an applicant who is the 100% owner of one of the lots under a Section 3(2)(b) scenario: on a proper construction, the shareholding of an applicant with, for example, 100% ownership of one lot and 95% of the other lot, would be the average of the 2 lots, and the applicant should technically not be treated as having 100% ownership in either lot.
Notwithstanding the above, practitioners should however be aware that another panel of the Tribunal had earlier in Max Win Development (HK) Limited v Lam Ngok Hing and Ors [2022] HKLdT 51 (“Max Win”) applied the rationale of Bond Star to Section 3(2)(b) and held that an applicant is not entitled to rely on the average ownership when one of the lot in such old tenement type building is 100% owned. The decision of Max Win was considered in the present case (Winmark) but was not followed.
Government Proposal to Amend Cap.545
As of now, the operation of Section 3(2)(b) still appears to be in flux as there is no determinative authority from a higher level of Court on the issue. Take note the government’s new proposal in the Chief Executive’s 2022 Policy Address may however resolve the “averaging issue” arising out of Bond Star above.[1] To allow flexibility to facilitate redevelopment of multiple adjoining lots as a package, the government has proposed to, inter alia: (i) allow an applicant to apply the averaging arrangement so long as the lots are adjoining in the same application regardless of whether the buildings erected thereon are connected by common staircases; and (ii) to allow a compulsory sale application to cover adjoining lots wholly owned by the applicant.
|
Takeaways • There is much uncertainty regarding the approach for calculating the average ownership of undivided shares for lots pursuant to Section 3(2)(b). At present, there are conflicting authorities on the Tribunal’s level. • Regardless, for applications made under Section 3(2)(a), it is clear that if the lots in question are wholly owned by an applicant, they will be excluded from a Cap.545 application as there is no longer any purpose for the Court to grant an order for sale. • The government has recently made new proposals to update the compulsory sale regime, and the “averaging problem” above may be resolved by way of legislative initiative. Practitioners should therefore be mindful of and be alert to any new developments on the matter.
|
||
[1] See Legislative Council paper LC Paper No. CB(1)776/2022(05) at https://www.legco.gov.hk/yr2022/english/panels/dev/papers/dev20221122cb1-776-5-e.pdf
|
Ross Yuen
Called to the Bar in 2008, Ross has developed a general civil practice with particular emphasis on land and commercial law. • Chin Ling Wah by her son and next friend Shum Lui v Shum Chau [2022] 3 HKLRD 372 (the Court allowed mentally incapacitated person’s next friend to obtain order for sale under the Partition Ordinance without making prior application under the Mental Health Ordinance) • Lead Harvest Group Ltd & Ors v Cheong Wing Electric Limited & Ors (LDCS 6000/2018) [2022] HKLdT 8, 7 Feb 2022 (the Tribunal set record breaking reserve price of over HK$5 Billion in compulsory sale application) • Hung Yip (HK) Engineering Co Ltd v. Kinli Civil Engineering Ltd [2021] 1 HKLRD 860 (applicant of injunction to restrain presentation of winding-up petition to demonstrate presentation would be abuse of process which is not the same as demonstrating bona fide defence on substantial grounds) • Gain Wealth Global Credit & Investment Ltd v Chan Suk Fong [2020] 4 HKLRD 831 (calculation of effective rate of interest to determine if maximum permitted under Money Lenders Ordinance had been exceeded and exercise of discretion under s.25(1), (2)(b) of the Ordinance) • Monat Investment Ltd v. All Person(s) in Occupation of Part of the Remaining Portion of Lot No 591 in Mui Wo D.D. 4 No.16 Ma Po Tsuen, Mui Wo, Lantau Island and Another [2020] 4 HKLRD 330, [2020] HKCFI 1970 (whether a squatter’s unlawful actions preclude his adverse possession claim from succeeding). Visit Ross’ profile for more details. |
|
Valerie Tang
Valerie was called to the Bar in 2019. Since joining Chambers, Valerie has established a broad civil practice with an emphasis on commercial and matrimonial matters. In Atkins China Limited v China State Construction Engineering (Hong Kong) Limited [2020] HKCFI 2092, Valerie successfully resisted an application for an interim injunction to stay arbitration proceedings concerning a dispute over the design of certain sections of the Hong Kong Zhuhai-Macau Bridge. More recently, Valerie obtained a return and non-removal order for children abducted from Hong Kong to a non-Hague Convention contracting state in MF v LJL (FCMC 655/2023). In addition, Valerie has experience in matters relating to mentally incapacitated persons. She has handled Part II inquiries as well as other contentious applications, such as the revocation of power of attorneys in Re HVD (HCMH 48/2021) and the removal of a committee in Re CKY (HCMP 2694/2006). Valerie also regularly acts as sole advocate in land, trust and probate matters. Valerie obtained her law degree from the Chinese University of Hong Kong and read International Relations at the London School of Economics and Political Science prior to her legal studies. She also served as a Legislative Council assistant from 2015 to 2018, during which she was involved in drafting various private bills. More details can be found in Valerie’s profile.
|
This article was first published on 27 March 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.