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VIII. Compulsory Sale

As at June 2011, Hong Kong had about 4,000 buildings aged 50 years or older. These buildings have reached their designed working life and usually lack proper repair and maintenance.

In order to encourage the redevelopment of dilapidated buildings, the Land (Compulsory Sale for Redevelopment) Ordinance ( Cap. 545 of the Laws of Hong Kong) was brought into force on 7th June 1999.

The Ordinance enables people who hold a specified majority of the undivided shares in a lot to make an application to the Lands Tribunal for an order to sell it for redevelopment.

The Ordinance provides a solution to the problem of property acquisition for redevelopment due to defective titles, untraceable owners, owners who died intestate or owners demanding unreasonably high prices.

A. Eligibility of applicants

When a developer sells individual units to individual owners, the owners jointly own the lot on which the building is situated with the developer and the other individual owners. Regarding the joint ownership of the lot, the individual owner is assigned a certain share of it. Under this arrangement, each owner owns a certain undivided share of the lot.

Generally speaking, a person or persons who own, without mortgage, not less than 90% of the undivided shares in a lot (i.e. the majority owner) may make an application to the Lands Tribunal for an order to sell all the undivided shares in the lot for the purpose of redevelopment.

On 1 April 2010, the Land (Compulsory Sale for Redevelopment) (Specification of Lower Percentage) Notice ( Cap. 545A of the Laws of Hong Kong) lowered the compulsory sale application threshold from 90% to 80% for the following three classes of lots:-

  • a lot with each of the units on the lot representing more than 10% of all the undivided shares in the lot;
  • a lot with all the buildings aged 50 years or older; or
  • a lot that is not located in an industrial zone and each of the buildings on the lot is an industrial building at least 30 years old.

B. Procedures for compulsory sale

The procedures for compulsory sale are set out in the Land (Compulsory Sale for Redevelopment) Ordinance ( Cap. 545 of the Laws of Hong Kong).

Stage 1 – Application

When making the application for compulsory sale, the majority owner must file a valuation report, prepared not earlier than three months before the application date, setting out the assessed market value of each property on the lot (1) on a vacant possession basis; (2) ignoring the possibility of a compulsory sale order; and (3) ignoring the redevelopment potential of the property or the lot.

The majority owner who has made the application must:

  1. serve a copy of the application on each minority owner;

  2. register a copy of the application under the Land Registration Ordinance ( Cap. 128 of the Laws of Hong Kong) against the lot;

  3. affix a notice in both Chinese and English upon a conspicuous part of the building on the lot (or upon a conspicuous part of the lot if there is no building on the lot); and

  4. publish a notice in not less than one Chinese language newspaper and one English language newspaper circulating generally in Hong Kong.

Stage 2 – Determination of application

Upon receipt of an application, the Lands Tribunal decides whether or not a compulsory sale order should be made.

First , if any minority owner disputes the value of any property as assessed in the valuation report, the Lands Tribunal must hear and determine the dispute.

If a minority owner cannot be found, the majority owner is required to show that the value of the minority owner's property, as assessed in the valuation report, is not less than fair and reasonable (including when compared with the value of the majority owner’s property).

If necessary, the Lands Tribunal may adjust the valuation in the light of the evidence.

Second , the majority owner must satisfy the Lands Tribunal that:-

  1. the redevelopment of the lot is justified due to the age or state of repair of the existing development on the lot; and

  2. the majority owner has taken reasonable steps to acquire all the undivided shares in the lot (including, in the case of a minority owner whose whereabouts are known, negotiating the purchase of the share owned by the minority owner on terms that are fair and reasonable)

Upon receiving the grant of the compulsory sale order, the majority owner must:

  1. serve a copy of the order on each minority owner;

  2. register a copy of the order with the Director of Lands; and

  3. publish a notice in not less than one Chinese language newspaper and one English language newspaper circulating generally in Hong Kong.

Stage 3 – The sale

If the Lands Tribunal decides to grant a compulsory sale order, it appoints trustees to conduct the sale.

The lot must be sold by public auction unless all the parties agree in writing to other means of sale approved by the Lands Tribunal.

If the lot is sold by public auction, the lot must be sold to the highest bidder of the lot, subject to a reserve price approved by the Lands Tribunal which takes into account the redevelopment potential of the lot.

Any person, including the majority and/or minority owners, can bid for the lot.

The lot must be sold within three months from the grant of the compulsory sale order. If the lot is not sold within this period, the trustee, the majority owner or a minority owner may apply to the Lands Tribunal for a further three months’ extension for compulsory sale. If the lot still cannot be sold within this period, the compulsory sale order becomes void.

Stage 4 – Apportionment and application of sale proceeds

The proceeds of sale and associated expenses are apportioned between the majority and minority owners on a pro rata basis in accordance with the value of the respective properties of each majority owner and each minority owner of the lot, as assessed in the valuation report, subject to any adjustments that may have been made by the Lands Tribunal.

The apportioned proceeds are then distributed by the trustees to the respective owners after (1) deducting the expenses of the auction (or other means of sale) and legal costs on assignment of the lot; (2) discharging any liability due to the Government and encumbrance affecting the lot; and (3) paying off any compensation due to existing tenants (if so ordered by the Lands Tribunal).

C. Mediation for compulsory sale cases

1. Practice Direction: Mediation for Compulsory Sale Cases Under the Land (Compulsory Sale for Redevelopment) Ordinance (Cap. 545)

A Practice Direction ( LTPD: CS No. 1/2011 ) has been issued to cover all compulsory sale cases under the Land (Compulsory Sale for Redevelopment) Ordinance ( Cap. 545 of the Laws of Hong Kong).

Under the Direction, parties in a compulsory sale case should attempt mediation to reach a settlement of any dispute arising out of the application for compulsory sale before their case is heard by the Lands Tribunal.

If the applicant (i.e. the majority owner) in a compulsory sale case unreasonably fails or refuses to attempt mediation with the minority owner,

  • the majority owner may not be considered by the Lands Tribunal as having taken all the reasonable steps to acquire all undivided shares of the lot; and
  • the Lands Tribunal is entitled to take into account such failure or refusal in determining whether an order for sale should be granted.

2. Land (Compulsory Sale for Redevelopment) Ordinance Pilot Mediation Scheme

In order to assist owners involved in or contemplating an application for compulsory sale for redevelopment, the Development Bureau provides financial support to the Pilot Mediation Scheme to help the owners undertake mediation on a voluntary basis.

The Development Bureau commissioned Joint Mediation Helpline Office Limited (“JMHO”) to set up and operate the Pilot Mediation Scheme up to January 2013.

Persons interested in mediation may join the Pilot Mediation Scheme.

Under the Pilot Mediation Scheme, it is anticipated that mediation session(s), including pre-mediation session(s) of no more than three hours, will not last longer than a total of 15 hours.

To assist users, a uniform application fee and mediator fee are charged for mediation under the Pilot Mediation Scheme. The fees are shared equally by all parties.

1. Application fee

HK$500 per party

2. Mediator fee

      Pre-mediation session (up to 3 hours)
      Subsequent mediation session (from 1 to 12 hours)

 

HK$3,000 per hour

HK$3,000 per hour


3. Grant of Mediator Fee for Elderly Minority Owners

An elderly minority owner undertaking mediation on a voluntary basis under the Pilot Mediation Scheme may apply to the JMHO for a grant which covers the share of the mediator fee for up to a total of 15 hours of mediation (including the pre-mediation session(s) of no more than three hours).

Eligibility criteria

The eligibility criteria for the grant are set out as follows:-

  • holder of a valid Hong Kong Identity Card;

  • aged 60 or above;

  • owner of a residential flat in a domestic building or composite building;

  • a minority owner involved in an application or prospective application to the Lands Tribunal for compulsory sale for redevelopment under the Land (Compulsory Sale for Redevelopment) Ordinance ( Cap. 545 of the Laws of Hong Kong);

  • residing in the subject property, with spouse if married; and

  • income and asset limits (or receiving Comprehensive Social Security Assistance (CSSA) or Normal Old Age Allowance (NOAA)) as below:-

 

Monthly Income Limit (Note 2)

Asset Limit (Note 3)

Singleton

HK$6,660

HK$372,000

Couple

HK$10,520

HK$562,000


Note 1 – The JMHO will not accept any application for grant of mediator fee from an elderly minority owner or his/her spouse who is a current owner/tenant of any form of subsidised housing or who is drawing related benefits.

Note 2 – In the calculation of income limit, the monthly contribution to the Mandatory Provident Fund, Disability Allowance, Old Age Allowance and mortgage repayment of the self-occupied property are not counted as income.

Note 3 – In the calculation of asset limit, the property in which the applicant resides and to which the grant relates is not counted.

Application procedures

An eligible elderly minority owner who wishes to apply for the mediator fee grant must submit an application to the JMHO prior to the commencement of his mediation session(s); otherwise, the application will not be considered.

Eligible elderly minority owner applicants are required to make a declaration that all supporting documents they submit to the JMHO are true by virtue of the provisions of the Oaths and Declarations Ordinance ( Cap. 11 of the Laws of Hong Kong).

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