Impact Of National Security Clause On Property Developers, Owners And Tenants In Hong Kong

• Law Firm: Withers LLP
• Subject Matter: Government, Public Sector, Real Estate and Construction, Terrorism, Homeland Security & Defence, Landlord & Tenant - Leases
• Author: Ms Polly Chu and Billy Yuen
• Published date: 28 February 2023

Recently, new provisions have been inserted by the Lands Department in their land sale tenders and short-term tenancies. This article will briefly outline these new provisions and discuss the potential impacts this will have on property developers, owners and tenants.

Background

The Hong Kong national security law was passed on 30 June 2020 with the purpose of safeguarding national security and preventing, suppressing and imposing punishment for the offences of succession, subversion, organisation and perpetration of terrorist activities, and collusion with a foreign country or with external elements to endanger national security in relation to the Hong Kong Special Administrative Region of the People's Republic of China ("HKSAR").

To ensure compliance with the national security law by suppliers and service providers, the HKSAR Government updated its Stores and Procurement Regulation (the "Regulation") in August 2022 to insert such national security provisions in all tenders it issued. The Regulation applies to all procurement tenders for goods and services supplied to the HKSAR Government, and took effect in November 2022.

The insertion was designed to underline that the national security requirements are one of the criteria, along with price and specification, in the Government procurement process.

Land sale tender

The newly inserted provision states that the HKSAR Government reserves the right to disqualify a tenderer on the following grounds: namely, that the tenderer or its parent company or his principal has engaged, is engaging, or is reasonably believed to have engaged or be engaging in any acts or activities that are likely to cause or constitute the occurrence of offences, endangering nations security. Alternatively, if the disqualification is necessary in the interest of national security, or is necessary to protect the public interest of Hong Kong, public morals, public order or public safety. There are concerns that this provision may affect the desire of developers or investors, in particular those from overseas, to join the land bidding. It is believed that this provision might not have an impact on a developer's desire to participate in land tenders as most land developers or investors primarily consider factors such as development costs, future revenue and income, strategic expansion of their portfolio, risk, funding, technical difficulties and ongoing management etc. before joining the land bidding. In fact, the first land sale project...