Stepping Up: How the Land (Compulsory Sale for Redevelopment) Ordinance (Cap 545) Now Addresses Staircase-Connected Lots

In this article, Eunice Lui and Ross Yuen will examine the nuts and bolts of an application of staircase-connected lots under the newly amended Land (Compulsory Sale for Redevelopment) Ordinance (Cap 545) (“the Ordinance”).

The amendments came into effect on 6 December 2024, and were explored in our previous article by Emily Ting generally. A few applications have been taken out since then. It is therefore high time to consider the impacts of the amendments on the new applications specifically.

The legislative intent of the new regime is to encourage redevelopment of aged private buildings in Hong Kong, as well as to update and streamline the old regime in four directions, namely (1) lowering the compulsory sale application thresholds; (2) facilitating multiple adjoining-lot compulsory sale applications; (3) streamlining the legal process of the compulsory sale regime; and (4) enhancing support for affected minority owners.[1]

A main theme of the amendments is to encourage comprehensive redevelopment by allowing applications to cover multiple adjoining lots. While it is permissible in the old regime insofar as the buildings are connected by common staircases, the new regime is much wider in scope and this type of application is specifically called “staircase-connected lots”.

Staircase-connected Lots and Wholly Owned Lots

According to the previous section 3(2)(b), applications can cover 2 or more lots if “one building is connected to another building by a staircase intended for common use by the occupiers of the buildings”. Indeed, these buildings are widespread in old tenement buildings in Hong Kong. It is particularly common in the post-war era for developers to construct buildings straddling across two adjacent land lots due to the limited size of land lots in the urban area. In this kind of buildings, there are usually two units per floor with each unit situated within its lot and a common staircase partially on each lot. These buildings, despite its appearance as one physical building, are actually two separate buildings as a matter of law since each building has their own DMC. In the new section 3(2)(b), the lots on which these building are erected are called “staircase-connected lots”. Further, in the new section 3(8), the definition is further expanded to cover any such buildings regardless of where the staircase is located.

The statutory requirement of the old regime (the previous section 3(2)(b)) clearly stated that the average of the applicant’s ownership percentage in each lot should not be less than the statutory threshold. Nonetheless, authorities have been inconsistent when one of the lots is wholly owned by the applicant. First, we have Max Win Development (HK) Ltd v Gain Excel Ltd and Anor [2022] HKLdT 51 (judgment delivered on 30 September 2022). In Max Wind, the full panel of the Tribunal relied on the Court of Appeal decision in Bond Star Development Ltd v Capital Well Ltd [2004] 2 HKLRD 855 in holding that where the developer owns 100% undivided shares in one lot, then this wholly owned lot should be excluded from the application. That is to say, even if the applicant owns 100% in one lot and 70% in another such that its average ownership is 85% (surpassing the statutory threshold of 80%), since the wholly owned lot should be excluded and the applicant only owns 70% of the other lot, the applicant’s ownership falls short of the requisite threshold. The application was consequently dismissed in Max Win.

However, less than a month after the judgment of Max Win was delivered, the Tribunal (with a Member sitting alone) in Apex Intelligence Ltd v Chan Hoi Kuen and Others [2022] HKLdT 55 (judgment delivered on 19 October 2022) ruled otherwise. Then, another month later on 21 November 2022, in Winmark Properties Ltd v Prime Way Investment Co. Ltd [2022] HKLdT 62 where Ross Yuen and Valerie Tang acted for the applicant, the Presiding Officer of the Tribunal decided not to follow Max Win upon hearing the full legal arguments again. Although the respondent in Winmark applied for leave to appeal to the Court of Appeal, the case was settled thereafter. Therefore, the Court of Appeal never had the chance to examine the two conflicting lines of authorities and clarify the matter once and for all.

Fortunately, this uncertainty has finally come to rest with the coming into force of the new regime, which allows the inclusion of wholly owned lots in a multiple adjoining lot application. In particular, the new section 3(2B) now provides that an application may cover more than one lot “even if any of the lots is wholly owned by the majority owner”.

Apportionment of Sale Proceeds

The amendments also brought changes to the apportionment of sale proceeds.

In the previous regime, Part 3 of Schedule 1 states that sale proceeds are apportioned in accordance with “the values of the respective properties of each majority owner and each minority owner of the lot as assessed … under section 3(1)”, i.e. by the percentage of the market value of each unit over the total market value of both lots. Such market value does not take into account the redevelopment potential of the lots and is conveniently called the EUV.

But under the new regime, paragraph 2 of Part 3 of Schedule 1 provides that for applications that cover more than one lot, the sale proceeds:-

“(a) are to be apportioned between the lots on a pro rata basis in accordance with, and subject to paragraph (c)—

(i) for a lot governed by a deed of mutual covenant covering that lot only, the redevelopment value of the lot as assessed in the application under section 1(b)(i) of Part 1A of this Schedule; and

(ii) for 2 or more lots governed by a single deed of mutual covenant, theredevelopment value of the lots as assessed jointly in the application under section 1(b)(ii) of Part 1A of this Schedule” (emphasis added)

In other words, sale proceeds are first divided by the redevelopment value (“the RDV”) between each individual lot, and then further divided by the percentage of the EUV of each unit over the total EUV of each lot. While the difference may sound subtle, the impact may be significant in appropriate cases. Take the case where one lot is a corner site while the other lot is sandwiched between the corner site and other buildings along the street as an example. According to s.18A of the Building Planning Regulations (Cap. 123F), a Class A site is a site that abuts on one or more specified street not less than 4.5m, while a Class B site is a site that abuts on 2 specified streets which are both not less than 4.5m wide. The implication of the difference in the classification of site is that generally, a Class B site has wider development parameters such as higher site coverage and plot ratio than that of a Class A site. In such a case, with other things being equal, the units in the corner site, being at least a Class B site, will have a higher EUV sharing percentage than those in the connected lot, which is a Class A site, since the Class B site on its own might have a higher redevelopment potential, and thus the RDV.

Preparation of Valuation Reports

Finally, the new regime imposed an additional requirement in the preparation of valuation reports. Under the previous regime, the Application Report need not include an RDV report. But under the new regime, in order to facilitate the new method of apportioning sale proceeds, each lot governed by a DMC should have its RDV individually assessed. But it should be noted that there is no requirement to include the RDV of the combined site.

Way Forward

As new applications were made after these amendments took effect, we shall keep a close watch on the actual impacts of the new regime on these applications as they proceed to trial.

[1] See The Government’s Commencement notice for Land (Compulsory Sale for Redevelopment) (Amendment) Ordinance 2024 dated 10 October 2024.

 

Ross Yuen

Ross has his practice mainly in property law (including Chancery, Trust and Probate) and commercial law. He regularly acts in compulsory sale and adverse possession cases.  Advising on other land related matters such as conveyancing, building management and tenancy is also his regular practice.

Visit Ross’s profile for more details.

Eunice Lui

Eunice was called to the Bar in 2024 and joined Chambers in the same year. Eunice is developing a broad civil practice, with particular emphasis on land-related matters. Eunice has recently appeared in two compulsory sale cases with Ross, in which one case concerns a building in Wong Nai Chung Road, and the other relating to a building erected under the old Civil Servants’ Cooperative Building Society Scheme. Eunice accepts instructions in all areas of Chambers’ work.

Visit Eunice’s profile for more details.

This article was first published on 28 April 2025.

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 photographs which appear in this article are included for decorative purposes only and should not be taken as a depiction of any matter to which the case is related. The views and opinions expressed in this article/material are solely those of the members authoring it and do not necessarily reflect the official policy or position of Denis Chang’s Chambers, or of any other member or members of Denis Chang’s Chambers.