Unleashing Redevelopment Potential Of Hong Kong's Old Buildings: Proposal To Relax Requirements For Compulsory Sale Regime

• Published date: 29 November 2022
• Subject Matter: Real Estate and Construction, Real Estate, Landlord & Tenant - Leases
• Law Firm: Mayer Brown
• Author: Mr Peter Ho, Eugene Y. C. Wong, Jasmine Y. K. Chiu and Derek S. L. Leung

Tackling land shortage in Hong Kong has always been a top priority on the government's agenda, with numerous strategies deployed to increase land supply. One of the current initiatives, noted in the Chief Executive's 2022 Policy Address, is to consolidate property interests and expedite urban renewal¹. This Legal Update provides a brief summary of the government's proposed amendments to the compulsory sale regime² -- and its implications for developers.

Current Regime

Under the Land (Compulsory Sale for Redevelopment) Ordinance (Cap. 545) (the "LCSRO"), a person (other than as a mortgagee) owning not less than 90% of undivided shares in a lot may apply to the Lands Tribunal for compulsory sale of the whole lot for the purpose of redevelopment³.

In 2010, a reduced threshold from 90% to 80% was introduced for three classes of redevelopment, namely:

1. a lot with each of the units on it representing more than 10% of all the undivided shares in the lot;
2. the building erected on the lot aged at least 50 years; or
3. a lot not located within an industrial zone; and the building erected on the lot is an industrial building and aged at least 30 years⁴.

Proposed Amendments

A. Lowering the Thresholds for Compulsory Sale Applications

1. For private buildings aged 50 or above but less than 70: to reduce the application threshold to 70%. According to the relevant Code of Practice⁵, the design working life for general buildings in Hong Kong is 50 years; anything beyond this, without proper maintenance, could lead to safety concerns. Given it becomes increasingly expensive to carry out regular repair works on ageing buildings, redevelopment is a more sustainable and economical option in the long run.
   
   
2. For private buildings aged 70 or above: to reduce the application threshold to 60%. The government's reasoning for a lower figure is based on two observations. First 70% of private buildings aged 70 or above have four units or fewer Secondly, missing owners or defective title issues are common in aged buildings. For these reasons, failure to acquire even one unit could jeopardise the possibility of redeveloping buildings of this age. Over the last 12 years, only one application was ever submitted to the Lands Tribunal for this category of building Setting the threshold at 60% would incentivise developers to consider redeveloping them.
   
   
3. For industrial buildings aged 30 or above that are not located within industrial zones: to reduce the application threshold to 70%....