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Legal Update

Agricultural Land In The New Territories - Recent Decision Of The Court Of Final Appeal Results In Increased Values

12 February 2007
Mayer Brown JSM Legal Update

Summary

Since the decision in the Melhado case in 1983, land in the New Territories held under a lease containing a restriction against building could be used for a non agricultural purpose with the appropriate permission having been obtained under the Town Planning Ordinance. Such use is commonly known as "Melhado use" and includes the popular use of land in the New Territories for the open storage of containers. However, when assessing the value of such land (in particular in calculating compensation payable following resumption) it had previously been the case that the value of agricultural land would be reduced if the permission of the Town Planning Board was required to be obtained under section 16 of the Town Planning Ordinance.

In The Secretary for Transport v Delight World Limited (FACV No. 19 of 2005) ("Delight World") Hong Kong's Court of Final Appeal (CFA) held that where a piece of land requires the consent of the Town Planning Board prior to being put into Melhado use, the requirement for such consent need not be taken into account when calculating the compensation payable on the resumption of such land.

While the decision in Delight World will no doubt be welcomed by owners of agricultural land in the New Territories, this will have an impact on levels of compensation which will be required to be paid by the Government for the resumption of land required for infrastructure projects in Hong Kong.

Full Update

Delight World Limited owned a tract of land in Kam Tin which was zoned for agricultural use under the Kam Tin North Outline Zoning Plan (OZP). Use for open storage of containers was neither an existing use of the land nor a permitted use under the OZP. The land could not therefore have been put to a "Melhado use" without the permission of the Town Planning Board under section 16 of the Town Planning Ordinance.

In 2000, part of Delight World's land was resumed by the Government for the purposes of constructing the Kam Tin Bypass under the Roads (Works, Use and Compensation) Ordinance. A dispute arose between Delight World and the Government as to the amount of compensation which was payable to Delight World as a result of the resumption. The Lands Tribunal originally awarded HK$15.9 million in 2003, which disregarded the potential "Melhado use" of the land, on the ground that the permission of Town Planning Board had not previously been obtained.

Delight World however applied to the Tribunal for a review adducing new evidence and in 2004, the Tribunal made a fresh award of compensation of HK$52.5 million based on the value of the land with a "Melhado use", notwithstanding the absence of a section 16 permission.

The Government's appeal against the revised assessment was dismissed by the Court of Appeal in 2005. Government further appealed to the CFA.

The issue before the CFA was whether the requirement for section 16 permission before land could be put to a Melhado use was to be taken into account when assessing compensation payable for the resumption of such land.

The CFA reviewed the legislative history of the Lands Resumption Ordinance (under which the claim for compensation was to be assessed) and held that the purpose of section 12(aa) of the Ordinance was not aimed at diminishing a land owner's right to receive compensation by a zoning scheme under the Town Planning Ordinance. The CFA also recognised the protection of the right of individuals to the use of their land and their right to receive compensation under Article 105 of the Basic Law.

The CFA therefore dismissed the Government's appeal and held that the requirement for a section 16 permission for land to be put to a "Melhado use" should not be taken into account in assessing compensation payable on the resumption of such land by Government.

Commentary

The decision in Delight World will, no doubt, be welcomed by owners of agricultural land in the New Territories. Prior to the decision, it had always been assumed that the need for a section 16 permission would reduce the market value of land and compensation had been assessed on this basis.

The decision will have important ramifications for Government in the amount of compensation which will have to be paid for land required to be resumed for infrastructure projects in the New Territories including highways, railways and associated facilities.


For further information, please contact:

Name: Kevin R. Owen
Position: Partner
Phone: +852 2843 4408
Fax: +852 2103 5078

Name: Eugene Y.C. Wong
Position: Associate
Phone: +852 2843 2440
Fax: +852 2103 5417
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