Minority rights under the Land (Compulsory Sale for Redevelopment) Ordinance (Cap.545)

Developers have been somewhat active in recent years in making applications to the Lands Tribunal for compulsory sale of buildings that are 50 years old or more under the Land (Compulsory Sale for Redevelopment) Ordinance.  This is particularly so after the Land (Compulsory Sale for Redevelopment) (Specification of Lower Percentage) Notice came into operation to lower the threshold of applicant’s qualification to an ownership of 80% of the undivided shares of the building.  Man Fung Building situated at Nos. 101-102 Connaught Road West, Hong Kong was one of the examples of last year in which the Tribunal ordered it to be sold for the purpose of redevelopment and Po Fat Building situated at Nos. 34, 34A& 34B Belcher’s Street, Hong Kong was another.

In order to succeed in a compulsory sale application, the majority applicant has to (i) submit a valuation report that sets out the assessed market value of each and every unit in a multiple storey building to the Tribunal; (ii) satisfy the Tribunal that redevelopment of the building is justified on the ground of the age or state of repair of the building and; (iii) satisfy the Tribunal that it has taken reasonable steps to acquire all the undivided shares of the minority owners of the building.  Only if all the above conditions are met, would the Tribunal order a sale of the subject building by way of a public auction with a set reserve price and follow by deciding how the proceeds of sale are to be apportioned.

It would appear that the objective of the Land (Compulsory Sale for Redevelopment) Ordinance is to facilitate urban renewal, and in turn, to assist private developers to complete their acquisition of old and decrepit buildings for the purpose of redevelopment.  However, the Ordinance is also there to ensure that the property of minority owners would not be taken away from them unless and until the Tribunal is satisfied that there is justification for doing so and that in exchange there would be fair and reasonable compensation for these minority owners.

So what are the rights of the minority owners under the Land (Compulsory Sale for Redevelopment) Ordinance?  As explained above, the majority applicant has to submit a valuation report to the Tribunal.  If a minority owner is of the view that the market value of any of the property of the building has been overvalued or undervalued by the majority applicant, the minority owner has a right to dispute the value of such properties.  The effect is to ensure that one would have a fair and reasonable share of compensation when and if the Tribunal decides that the building is to be sold for redevelopment.          

Further, minority owners have the right to challenge the majority applicant as to whether it has proved that the age or state of repair of the building is such that it is justified for redevelopment and whether it has taken reasonable steps to acquire the property of the minority owners.  No matter how reasonable an offer from the majority applicant to acquire the property of the minority owner, the minority owner has the right to say “No!” and it is not a legal wrong.  A minority owner is only obliged to sell his or her property after the Tribunal decides that the building has to be sold for redevelopment.     

Lastly, it is also worth noting that land compulsory sale cases are not like usual litigation cases.  The minority owners have done nothing wrong in causing the majority applicant to make such a compulsory sale application.  On the other hand, it is the majority applicant who is taking advantage of the Ordinance to acquire all remaining units of the building.  Therefore, under normal circumstances, the majority applicant not only has to bear all costs he incurred in making the application, but also the costs incurred by the minority owners; this is even if the minority owner ‘has lost his case’ in the sense that the arguments made in relation to the valuation of the properties and/or to oppose the compulsory sale application were not accepted by the Tribunal.

Ophelia Chan

Solicitor

Hampton, Winter and Glynn

January 2016