March 17, 2021

Industrial Building Redevelopment in Hong Kong: Pilot Scheme to Charge Standard Rate Premiums - A Closer Look



On 5 March 2021, we published a Q&A on the Development Bureau's announcement for a two-year pilot scheme to charge land premiums at standard rates for lease modifications involving industrial building (IB) redevelopment.

On 15 March 2021, the Lands Department (LandsD) issued a Practice Note (Note)1 to provide further guidance on the initiative. This legal update takes a closer look at the operational details of the new scheme and how interested owners may make use of the scheme to plan for IB redevelopment.


The pilot scheme is an attempt to enhance certainty of the premium for lease modification and in-situ land exchange applications, and in turn expedite redevelopment of pre-1987 IBs. The scheme will run from 15 March 2021 to 14 March 2023.

Key Concepts

The Note sets a couple of important concepts/ criteria to clarify the applicability and scope of the scheme:

(i)  Industrial Building (IB)

A building built for industrial and/or godown use on an industrial lot.


  • special factories such as those located in industrial estates
  • storage premises in container terminals
  • flatted factories built by the Housing Authority
  • buildings on lots supporting special industries (e.g., cargo handling uses, ship building and repairing, etc.)
(ii)  Industrial Lot

 A lot which, under its land grant, shall not be used for any purpose other than for industrial or godown purposes or both

Also covers:

  • a lot that does not contain specific user restriction
  • vacant lot occupied by pre-1987 IBs immediately before becoming vacant
(iii)  Pre-1987 IB 

IB which was:

  • wholly or partly constructed on or before 1 March 1987; or
  • constructed as per building plans first submitted to the Building Authority for approval on or before 1 March 1987

Excludes IBs which completed wholesale conversion under IB revitalisation schemes introduced in 2010 or 2018. 


Option During the Two-Year Period

The scheme runs parallel and as an alternative to the conventional, case-by-case mechanism for premium assessment. Applicants who do not find the standard rates premiums attractive may opt for the existing conventional approach for premium assessment.

Such option may be made during the above two-year period, but has to be made no later than the acceptance of the Provisional Basic Terms Offer (PBTO) for the proposed lease modification or land exchange.

For straightforward cases, LandsD will normally issue a premium offer under the Binding Basic Terms Offer (BBTO) within five weeks from the day it receives an applicant's acceptance of the PBTO.

However, where a premium is offered under the BBTO, no appeal can be made against such offered premium. If the applicant decides not to proceed any further with the application, all application fees already paid will be forfeited.

Standard Rates

Under the scheme, the following set of standard rates has been promulgated for five geographical regions across Hong Kong (as broadly delineated in the plan at Appendix II of the Note) where the relevant lot is situated and three types of uses involved:

Region Before use After use
Industrial/godown Commercial/modern industrial Residential 
Hong Kong Island  HK$40,000/m2  HK$75,000/m2  HK$130,000/m2 
 Kowloon East  HK$40,000/m2  HK$65,000/m2  HK$100,000/m2
 Kowloon West  HK$35,000/m2  HK$60,000/m2  HK$110,000/m2
 New Territories South  HK$35,000/m2  HK$50,000/m2  HK$75,000/m2
 New Territories North  HK$20,000/m2  HK$30,000/m2  HK$55,000/m2

One can readily compute the chargeable premium based on a simple yet non-negotiable formula:

Premium = A x B – C x D

Denotations as follows:

  Descriptions   Additional Notes
A  Maximum total gross floor area (GFA) after the application 
  • For details regarding the determination of the maximum GFA, please refer to footnote 6 of the Note.
  • LandsD has absolute discretion in determining this figure. 
Applicable standard rate, as per the geographical location of the lot and the use after the application 
  • Residential rates are applicable to all applications not prohibiting private residential use, other than zones of "Comprehensive Development Area" (CDA) or "Other Specified Uses" (OU) for commercial-cum-residential uses.
  • For CDA or OU for commercial-cum-residential uses:
    • Residential rate is applicable to the GFA not prohibiting private residential use; and Commercial/modern
    • industrial rate is applicable to the remainder GFA
Hotel and hotel ancillary GFA will be treated as commercial use
C  GFA before the application, in relation to the pre-1987 IBs existing on the lot or existed immediately before the lot became vacant 
  • For details regarding the determination of the GFA, please refer to paragraph 4(iii) of the Note.
  • The relevant applicant shall provide a certificate issued by an Authorized Person or a Registered Professional Surveyor for certifying such GFA.
  • Alternatively, the applicant may choose to provide for LandsD's consideration a GFA figure upon redevelopment of the subject site. Such choice for alternative basis is irreversible.
  • Again, LandsD has absolute discretion in determining this figure. 
Applicable industrial/ godown standard rate, as per the geographical location of the lot  -


We again refer to the quick example cited in our earlier Q&A: the IB is situated in Hong Kong Island, with a GFA of 8,000 m2 for industrial/godown use before lease modification and a GFA of 6,000 m2 for residential use. The applicable premium shall be 

A x B – C x D

= 6,000 m2 x HK$130,000/m2 - 8,000 m2 x HK$40,000/m2

= HK$460 million

How to Apply?

Applicants may opt for premiums to be assessed at standard rates by completing and submitting a two-page Option Form at Appendix I of the Note.

Transitional Arrangements and LandsD's Discretion

For on-going lease modification or land exchange applications where the BBTO has yet to be accepted as of 15 March 2021 (the date of the Note), applicants will be invited to opt for premium to be assessed by standard rates by 30 April 2021 once. Applicants will not need to go through the process of re-submitting their applications nor bear the administrative fee once again.

It must be noted that LandsD will consider each and every request to opt for standard rate assessment by its own merits, and in its capacity as a landlord with absolute discretion to determine whether to process or approve the request. Decisions made by LandsD in this regard is final and binding on the applicants.


The new pilot scheme definitely offers greater flexibility and certainty to owners of pre-1987 IBs who are considering redevelopment of their sites and potential investors who are contemplating to acquire such IBs. This will allow them to budget a more accurate amount of capital investment for redevelopment. 

However, the clock is ticking: applicants whose lease modification or land exchange application is being processed but wish to opt for premium assessment by standards rates must make necessary submissions by 30 April 2021. Meanwhile, other interested owners of pre-1987 IBs are strongly advised to act swiftly and consult trusted land consultants and legal practitioners to fully explore their options under this special time-limited arrangement.

1 LandsD Lands Administration Office Practice Note No. 1/2021 "Pilot Scheme for Charging Land Premium at Standard Rates on Lease Modifications for Redevelopment of Industrial Buildings" (15 March 2021).

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