Two Wins in a Row: Mayer Brown Obtains Sale Orders in Recent Compulsory Sale Cases
Mayer Brown represented applicants in obtaining orders for the compulsory sale of (1) the State Theatre Building in Orient Sea Investments Ltd & Others v Cheung Wing Ching & Others (LDCS 27000/2018)1, and (2) a Civil Servants’ Co-op Building Society Scheme Development2 in Fuller Holdings Ltd & Another v Hsu Ling Ling & Others (LDCS 13000/2019).
In late August 2020, the Lands Tribunal handed down judgments that gave the green light in both cases to proceed with public auction. The Tribunal examined certain distinguishable features in both cases and confirmed the applicability of the Land (Compulsory Sale for Redevelopment) Ordinance (Cap.545) (the Ordinance) in the following scenarios:
- Whether the Ordinance applies to historic buildings under the Government's administrative grading system.
- Whether the Ordinance applies to buildings developed under Civil Servants' Co-operative Building Society Scheme.
Orient Sea case (State Theatre Building)
The site in question comprises a ground floor retail arcade and two blocks (a high block and a low block) on top of the arcade. The low block was listed as a “Grade 1 historic building” by the Antiquities and Monuments Board, a statutory body established under the Antiquities and Monuments Ordinance (Cap.53), in 2017.
The Tribunal held that the AAB’s grading system, which grades historic buildings as Grade 1, Grade 2 or Grade 3 buildings, is only an administrative measure of the Government which does not engage the statutory protection to be declared monuments imposed by the Antiquities and Monument Ordinance.
The Tribunal confirmed that the legal criteria for determining whether an order for sale should be granted are provided in section 4(2) of the Ordinance; and held that whether or not a "Grade 1" status of an existing building will affect future redevelopment of the lots is not a relevant consideration when the Tribunal determines whether to grant an order for sale.
This case also stands out as Hong Kong's largest compulsory sale application in terms of redevelopment value at HK$4.78 billion, which was also set as the reserved price for public auction.
Fuller Holdings case (Civil Servants' Co-operative Building Society)
The site in question involves two six-storey residential buildings at Nos.2, 4, 6 and 8 Mount Parker Road developed under the then Government's Civil Servants' Co-operative Building Society Scheme (the Co-op Scheme) in 1973, which allowed land to be granted at a concessionary premium.
The Land Grant incorporates an alienation restriction clause, prohibiting an owner of the lots from assigning, underletting or parting with possession of or otherwise disposing of any interest unless and until that owner has paid to the Government either (a) an amount equal to two-thirds of the existing use land value of his unit or (b) (if the lot is economically suitable for redevelopment at a relevant date) an amount equal to two-thirds of such sum as the Director of Lands shall, on a fair and impartial valuation, certify the same to be the full market value of such relevant interest at the said date.
The lot was originally granted to The Mount Parker Road Co-operative Building Society Limited, which subsequently assigned unto its former members, including the two respondents in this case, undivided shares subject to a deed of mutual covenant, on the condition that each of them executed a legal charge in favour of the Financial Secretary Incorporated for securing their payment of the premium to the Government.
The Tribunal held that the Ordinance also applies to the Co-op Scheme, having considered, among others, the following :-
- It was argued that the respondents should have the freedom not to release the relevant alienation restriction, and a compulsory sale of their properties could cause "hardship" for them. However, the Tribunal considered that section 4(2) of the Ordinance is clear on what the Tribunal should consider in granting an order for sale and the Tribunal enjoys no residual discretion grounded on “undue hardship” under section 4(2) of the Ordinance or elsewhere.
- Compulsory Sale may create hardship for some owners, whether or not their development was subject to the Co-op Scheme. However, if the Government's intention was to protect the civil servants or former civil servants under the Co-op Scheme particularly, then the Secretary for Development could have made such regulations under section 12 of the Ordinance to include specific matters to be taken into account when determining whether to make an order for sale concerning Co-op Scheme developments. Nevertheless, the Tribunal observed that no such regulation has been made so far to provide any special consideration to minority owners under the Co-op Scheme or to deal with any perceived hardship that minority owners may face as a result of early triggering of the discharge of the Legal Charge.
We welcome the decisions in both cases, which have brought about greater clarity over the applicability of the Ordinance. It may well instil greater confidence and certainty in potential compulsory sale applicants when assessing whether to target special types of sites for redevelopment purposes.
1 Please see a copy of the Judgment dated 24 August 2020 at https://legalref.judiciary.hk/lrs/common/ju/ju_frame.jsp?DIS=130367&currpage=T
2 Please see a copy of the Judgment dated 27 August 2020 at https://legalref.judiciary.hk/lrs/common/ju/ju_frame.jsp?DIS=130455&currpage=T.