Hong Kong is a small place inhabited by a large population, with most citizens living in multi-storey buildings. When people purchase a flat in a multi-storey building, not only do they own the flat, but they also co-own the common parts of the building with the other flat owners. Therefore, every owner of every flat in a multi-storey building is responsible for managing and maintaining the common parts of the building.

Owners of units in a building or estate may form an owners’ corporation, whose management legally represents all of the building’s owners. The owners’ corporation of a building or estate is, therefore, a legal entity with collective responsibility, meaning that all owners of the building/estate are liable for every action carried out by the corporation, or lack of action. But the existence of an owners’ corporation does not exonerate each owner from responsibility or liability in the management and maintenance of the commons parts.

Many Hong Kong citizens may have heard of the Court case involving the building Albert House. In 1994, a concrete canopy on the external wall of Albert House collapsed, killing one person and injuring seven. The Incorporated Owners of Albert House were found to be liable and had to pay substantial damages. Unfortunately, the Incorporated Owners were not covered by third party liability insurance. This eventually led to the winding-up of the Incorporated Owners, which meant that each individual owner of a flat in Albert House had to contribute to the damages according to his/her respective share in the building.

This case highlights the importance of third party insurance in relation to the maintenance of the common parts of buildings. The Hong Kong Government subsequently imposed a mandatory duty on all owners’ corporations to keep in force an insurance policy in respect of third party risks in relation to the common parts of the building and property of the corporation.

The Building Management Ordinance ( Cap. 344 of the Laws of Hong Kong) and the Building Management (Third Party Risks Insurance) Regulation ( Cap. 344B of the Laws of Hong Kong) require an owners’ corporation (OC) to buy third party risks insurance in order to reduce the risk of large compensation faced by owners in case of accidents and, at the same time, offer better protection for members of the public.

Third party risks insurance provides compensation for financial loss in the case of the death of, or bodily injury to, a third party in relation to common parts and facilities (such as lifts, staircases, fire service installations, etc.) of the building. If compensation is required, it is paid by the insurance company.

A. Duty of the OC to procure third party risks insurance

Under section 28 of the Building Management Ordinance ( Cap. 344 of the Laws of Hong Kong), the OC is required to procure and keep in force a policy of third party risks insurance in relation to the common parts of the building, facilities and property.

The Building Management Ordinance ( Cap. 344 ) requires the OC to procure insurance which provides coverage of no less than HK$10 million for an accident in relation to the common parts and facilities of the building resulting bodily injury or death.

The OC has a legal obligation to procure a policy of third party risks insurance.  Therefore, the OC must be at least one of the insured parties of the policy. If the property management company has already procured a policy of third party risks insurnace for the building, the OC may request that the property management company and the insurance company add the OC as one of the insured parties of the existing policy or take out another policy in the name of the OC.

If the policy is procured in the joint names of the OC and the property management company, the policy must satisfy the legal requirement by providing not less than HK$10 million insurance cover for third party bodily injury or death claims.

B. Liabilities to be covered by third party risks insurance

Third party risks insurance is required to cover liabilities that may be incurred by the OC in relation to the common parts of the building (e.g. external walls, passageways, corridors, staircases, roofs and lifts) and property in respect of the bodily injury to, and/or the death of, a third party.

Third parties include owners, tenants, occupiers, visitors, staff of the property management company, or trespassers of the building.

Direct employees of the OC are not regarded as a third party.

The third party risks insurance does not need to cover property damage. However, the OC is at liberty to insure against property damage. Although such insurance is not mandatory, the OC is liable for compensation if damage is done to a third party’s property due to the negligence of the OC.

The OC does not have the legal obligation to take out an insurance policy to cover liabilities arising from unauthorised building works. It is not a mandatory requirement. BUT if the court finds that the OC is responsible for an accident caused by unauthorised building works, the OC and/or the owners are liable for all the civil liabilities incurred.

Generally speaking, insurance companies do not provide insurance for unauthorised building works. If there are unauthorised building works in the building, the OC should remove them for the benefit of the OC, building owners and third parties who may be affected by the unauthorised works.

C. Minimum insured amount

The minimum insured amount of each policy must be $10 million per event.

D. Notice to owners

After the OC has procured third party risks insurance, the insurance company issues a notice of insurance giving the particulars of the policy.

The OC is required to display the notice of insurance in a prominent place in the building as long as the policy is in effect.

E. Report to the Land Registrar

The secretary of the management committee of the OC must, within 28 days after the insurance policy takes effect, give notice of the name and address of the insurance company and the period covered by the insurance policy to the Land Registrar.

F. Legal liability for failure to procure third party risks insurance

If the OC fails to procure third party risks insurance, every member of the management committee of the OC is guilty of an offence and is liable on conviction to a maximum fine of HK$50,000.

It would be a defence for members of the management committee of the OC if they could demonstrate that they had exercised all due diligence to procure insurance.

G. Protection for the OC and third parties

Duty of the OC to give information as to insurance

If a third party makes a claim against the OC, the OC must state whether it is insured in respect of the claim and give particulars of the policy within 10 days after receiving a written request.

Avoidance of restrictions in policies

The restriction will have no effect on any compensation paid by the insurance company if a policy restricts the OC’s insurance in any of the following ways:

1. the number of claims that may be made during the period the policy is in effect or any part of that period;
2. the age of the building to which the policy relates;
3. the condition or maintenance of the building;
4. the number of flats in the building;
5. the use of the building or parts thereof; or
6. the existence of a statutory instrument in relation to the building.

However, if the insurance policy includes terms relating to the above matters 1 to 6, the insurance company can make a claim against the OC after the insurance company pays compensation for bodily injury to, or the death of, a third party.

Avoidance of certain agreements or arrangements regarding liability to a third party

Any agreement between the OC and a third party that purports to negate or restrict any liability to the third party will be of no effect.

Winding up of the OC

If the OC becomes insolvent and is wound up, this will not affect the OC’s liability covered by the third party insurance policy.

There is no question that ageing buildings which lack proper management and maintenance can pose danger to the public. In order to deal with this problem, the Hong Kong Government introduced the Mandatory Building Inspection Scheme (MBIS) in 2012.

Under the MBIS:

1. Buildings which are at least 30 years old (except domestic buildings not exceeding three storeys), and served statutory notices are required to appoint a Registered Inspector to carry out certain prescribed inspections and supervise the prescribed repair works found necessary of the common parts, external walls and projections or signboards of the buildings.
2. For a building or estate which does not have an owners’ corporation, the owners of all flats in the building or estate are expected to work together to comply with the statutory notice.
3. The scope of the inspection includes external elements, physical elements, structural elements, fire safety elements, drainage systems, unauthorized building works, and so forth.
4. If the Registered Inspector finds that the building requires repair works, the collective owners of the building must appoint a Registered General Building Contractor (RGBC) or a Registered Minor Works Contractor (RMWC) to carry out the prescribed repair works under the Registered Inspector’s supervision.
5. Upon completion of the inspection and repair works, the Registered Inspector will submit an inspection report, a completion report, and a certificate in the specified form to the Building Department for record purposes.
6. Any owners or owners’ corporation that fails to comply with the statutory notice for building inspection without a reasonable excuse may be prosecuted and are/is liable upon conviction to a fine of $50,000 and imprisonment for one year, plus a fine of $5,000 for each day the offence continues.
7. After a notice (the preceding notice) has been complied with, the owner will not receive another notice in respect of the same part of the building within 10 years.

In order to assist property owners who may have queries about the statutory requirements for maintaining their residential building and those who may have financial difficulty in doing so, the Government launched the Integrated Building Maintenance Assistance Scheme (operated by the Urban Renewal Authority). The Scheme comprises subsidies, loans and/or grants in various forms to cater for different needs. For details, owners can contact the following statutory bodies:

Urban Renewal Authority

Website: https://brplatform.org.hk/en/subsidy-and-assistance/integrated-building-rehabilitation-assistance-scheme
Telephone hotline: 3188 1188

Under the Integrated Building Maintenance Assistance Scheme, the Government offers a wide variety of subsidies, loans and/or grants to the public to cater for different situations. A list of the major subsidies, loans and/or grants is set out below:

• Mandatory Building Inspection Subsidy Scheme
• Common Area Repair Works Subsidy
• Operation Building Bright 2.0
• Preventive Maintenance Subsidy Scheme
• Fire Safety Improvement Works Subsidy Scheme
• Lift Modernisation Subsidy Scheme
• Smart Tender ─ Building Rehabilitation Facilitating Services
• Home Renovation Interest-free Loan
• Building Safety Loan Scheme
• Building Maintenance Grant Scheme for Needy Owners
• Building Drainage System Repair Subsidy Scheme
• Water Safety Plan Subsidy Scheme

The Common Area Repair Works Subsidy is a maintenance subsidy provided to encourage owners or owners’ corporations to carry out comprehensive maintenance works to the common areas of buildings.

Eligibility

The Subsidy aims primarily to assist owners of private residential or composite (i.e. commercial and residential) buildings at least 30 years old. One further criterion is that the average rateable value per residential unit at the building must not exceed $187,000 per annum for properties in the urban area (including Shatin, Kwai Tsing and Tsuen Wan) or $143,000 per annum for properties in the New Territories. The buildings under the Subsidy must concurrently join “Smart Tender” Building Rehabilitation Facilitates Services which is subsided by Government. Buildings with single ownership or of three storeys or below are not eligible for the Subsidy.

Buildings with or without an owners’ corporation

For buildings with an owners’ corporation, the management committee has to pass a resolution resolving to apply for the Common Area Repair Works Subsidy and to authorize a representative to sign the relevant documents. The owners’ corporation should be the applicant submitting the application to the Urban Renewal Authority.

For buildings without an owners’ corporation, the Government considers applications from owners on a case-by-case basis. Generally speaking, the owners of the building should hold a meeting to resolve to apply for the Subsidy and to authorize at least two representatives to sign the relevant documents.

Use of the Subsidy

The Subsidy is to be applied to common areas works relating to structural safety, sanitary facilities and environmental friendly provisions.

The maximum amount of the Subsidy depends on the total number of units in the subject building:

If the maintenance works include green/ environmental friendly works, the building will enjoy the following subsidy (the Green Item Subsidy):

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Number of units

Subsidy amount

20 units or below

30% of the approved cost of green items and related consultancy fee, up to $75,000

21 – 49 units

20% of the approved cost of green items and related consultancy fee, up to $75,000

50 or above

20% of the approved cost of green items and related consultancy fee; or not more than $1,500 per unit, up to $600,000

In order to offer financial assistance to needy owner-occupiers, including the elderly, to repair and maintain their self-occupied flats and common areas, and to maintain building safety, the Government introduced the Building Maintenance Grant Scheme for Needy Owners (BMGSNO). The BMGSNO provides a maximum grant of HK$80,000 for each eligible needy elderly owner-occupier and his/her spouse (if married).

Eligibility

The basic criteria for the BMGSNO are as follows:

• The applicant must be a holder of a valid Hong Kong Identity Card and aged 60 or above;
• The applicant must be the owner of a residential flat in a private domestic building or composite building;
• The applicant and his/her spouse (if married) must be residing in the subject property; and
• The applicant must fall within the following income and asset limits (or be receiving Comprehensive Social Security Assistance or Old Age Living Allowance):

Use of the Grant

The Grant can be used not only for building safety related to maintenance works in the building’s common areas, but also in the applicant’s residential flat. Common examples include:

• Improvements to structural aspects of the building: e.g. repair to loose, cracked, spalled or otherwise defective concrete;
• Improvements related to the safety of the external elevations of the building: e.g. repair to defective rendering or mosaic tiles;
• Repair or replacement of defective windows;
• Removal of unauthorized building works or illegal rooftop structures;
• Repair, maintenance or replacement of lifts, fire services installations and equipment, electrical wiring, gas risers, defective waste pipes, soil pipes, rainwater pipes, fresh water pipes, vent pipes or underground drainage; or
• Repair of waterproofing membranes on rooftops and flat roofs, or works to alleviate water seepage problems.

Applicants can also use the Grant to repay their outstanding loan with the Government in relation to building maintenance, and/or de-register the relevant legal charge/charging order.

The Building Safety Loan Scheme (BSLS) focuses primarily on financial assistance in relation to maintenance and repair works to reinstate or improve the safety conditions of a building and/or private slope.

Eligibility

Since the purpose of the loan is to improve safety conditions, the BSLS is open to all owners of units in private buildings, be they domestic, composite, commercial or industrial buildings. Both individual owners and company owners are eligible to apply for the BSLS.

Use of the BSLS

The loan must be used for building maintenance works, such as improvements to the structure of the building, fire services installations and equipment, building and sanitary services, or slopes and retaining walls.

The maximum loan amount for each unit is $1,000,000. For any loan of $50,000 or above, the applicant must provide security in the form of Deed of indemnity, legal charge, or Letter of Guarantee issued by a licensed bank in Hong Kong. If the applicant is a company, it must provide security irrespective of the loan amount.

Interest?

The BSLS can be interest-bearing or interest-free. An interest-bearing loan has to be repaid over a period of not more than 36 months, while an interest-free loan has to be repaid over a period of not more than 72 months. For an interest-bearing loan, the applicant is not required to undergo a means tests; to be eligible for an interest-free loan, the applicant has to be:

• a recipient of the Comprehensive Social Security Assistance;
• a recipient of the Old Age Allowance (OALA); or
• earning income and possessing assets (including those of other household member(s)) within the following limits:

For applicants aged 60 or above

For applicants below the age of 60

1. Why is it important for the owners’ corporation to have Third Party Risks Insurance?

In 1994, the canopy of a seafood restaurant situated at Albert House in Aberdeen collapsed. One passer-by was killed and 13 others were injured in the incident. The High Court held that the owners’ corporation, property management company, restaurant, licencee of the restaurant, owner of the unit at which the restaurant was situated and contractor that had built the canopy were liable for compensation to the victims, which amounted to more than HK$30 million. Since the owners’ corporation of Albert House did not have third party risks insurance, it was unable to pay the compensation. Eventually, the owners’ corporation had to be wound up. Pursuant to the Building Management Ordinance ( Cap. 344 of the Laws of Hong Kong), each of the individual owners was liable and had to pay a portion of the compensation for his/her share of the liability.

The message from this case is that compensation must be paid if the court rules that the victim must be compensated. If the OC does not have third party risks insurance, it has to make full compensation. If it does not have sufficient funds to pay compensation and has to be wound up, each individual owner becomes personally liable for the compensation. If individual owners are unable to pay compensation, they may be forced into bankruptcy. Procuring third party risks insurance protects the owners and any potential third party victims, thus reducing the financial risks faced by the owners should an accident occur.

For more about Owners Corporations and Third Party Risks Insurance, please visit Properties Arrangements > Maintenance and safety of real property > Third party insurance .

2. Does the owners’ corporation (OC) have the legal obligation to take out an insurance policy to cover liabilities arising from unauthorised building works?

No, it is not a mandatory requirement. But if the court finds that the OC is responsible for an accident caused by unauthorised building works, the OC and/or the owners are liable for all the civil liabilities incurred.

Generally speaking, insurance companies do not provide insurance for unauthorised building works. If there are unauthorised building works in the building, the OC should remove them for the benefit of the OC, building owners and third parties who may be affected by the unauthorised works.

For more about Owners Corporations and Third Party Risks Insurance, please visit Properties Arrangements > Maintenance and safety of real property > Third party insurance .

3. What are the Mandatory Building Inspection Scheme (MBIS) and a Mandatory Window Inspection Scheme (MWIS)?

In order to ensure that building owners take full and continuous responsibility for building maintenance and safety, the Government amended the Buildings Ordinance ( Cap. 123 of the Laws of Hong Kong) and enacted the Building (Inspection and Repair) Regulation ( Cap. 123P of the Laws of Hong Kong) to introduce a Mandatory Building Inspection Scheme (MBIS) and a Mandatory Window Inspection Scheme (MWIS). Each year, 2000 buildings are selected for both the MBIS and MWIS, to be carried out concurrently, and another 3800 buildings are selected for only the MWIS. The Buildings Department (BD) issues statutory notices to the owners of buildings targeted to carry out of the prescribed inspection and any repairs that may be required.

Under MBIS, owners of buildings at least 30 years old (except domestic buildings not exceeding three storeys) are required to carry out the prescribed inspection of the common parts, external walls and projections or signboards of the buildings once every 10 years.

Under MWIS, owners of buildings at least 10 years old (except domestic buildings not exceeding three storeys) are required to carry out the prescribed inspection of all windows of the buildings once every five years.

For more about MBIS and MWIS, please visit Properties Arrangements > Maintenance and safety of real property > Mandatory Building Inspection Scheme and Mandatory Window Inspection Scheme .

4. What can the Government do if the statutory notice under MBIS/MWIS is not complied with?

The Government may prosecute the owners/OC who do not comply with a statutory notice for mandatory building inspection or mandatory window inspection. The BD may also arrange for the required inspection and repair works to be carried out by a consultant and contractor, respectively, of its choice and then recover the cost of inspection and repair works, as well as a supervision charge, from the owners/OC, together with a surcharge not exceeding 20% of the cost.

For more about MBIS and MWIS, please visit Properties Arrangements > Maintenance and safety of real property > Mandatory Building Inspection Scheme and Mandatory Window Inspection Scheme .

5. Does the Government provide subsidy, loan or grant to assist property owners to carry out maintenance or repair works?

In order to assist property owners who may have queries about the statutory requirements for maintaining their residential building and those who may have financial difficulty in doing so, the Government launched the Integrated Building Maintenance Assistance Scheme (operated by the Urban Renewal Authority). The Scheme comprises subsidies, loans and/or grants in various forms to cater for different needs. For more details, owners can call the hotline at 3188 1188.

For a list of the major subsidies, loans and/or grants, please visit Properties Arrangements > Maintenance and safety of real property > Government subsidy, loan and/or grant .