To address the urgent need to promote urban redevelopment through private sector initiatives, the Land (Compulsory Sale for Redevelopment) (Amendment) Ordinance 2024 was passed on 18 July 2024 and is set to take effect on 6 December 2024. This ordinance aims to expedite the redevelopment of aged and dilapidated private buildings, tackle the safety risks posed by old buildings and improve living conditions for residents.

The amendment introduces four key changes to the existing compulsory sale regime under the Land (Compulsory Sale for Redevelopment) Ordinance (Cap. 545), which include reducing the thresholds required for compulsory sale applications, enabling the submission of applications for multiple adjoining lots, simplifying the legal procedures involved in the compulsory sale process, and providing better support for minority owners impacted by these sales.

Key changes

Reducing the thresholds required for compulsory sale applications

The amendment lowers the ownership percentage required to initiate a compulsory sale application. The threshold for buildings aged 50 to 59 years in designated areas is reduced from 80% to 70%. For those aged 60 to 69 years, it is further reduced to 65%. The introduction of designated areas, namely (i) Cheung Sha Wan, (ii) Ma Tau Kok, (iii) Mong Kok, (iv) Sai Ying Pun and Sheung Wan, (v) Tsuen Wan, (vi) Wan Chai and (vii) Yau Ma Tei, are identified considering the number of buildings aged 50 or more in the area and the number of buildings issued with notices under the Mandatory Building Inspection Scheme, which are reviewed regularly.

In non-designated areas, the threshold is reduced to 70% for buildings aged 60 to 69 years. For buildings aged 70 years or more, it is reduced to 65% regardless of area. As for industrial buildings more than 30 years old in non-industrial regions, the threshold is decreased from 80% to 70%.

Facilitating multiple adjoining lot applications

The current system operates on a "lot" basis, requiring applicants to meet application thresholds for each lot in a compulsory sale application. The exception is for buildings connected by a common staircase ("staircase-connected lots"), where the applicant can average the acquired undivided shares to meet the threshold. This regime is seen as too restrictive, hindering larger-scale redevelopment which can offer better building design and higher overall redevelopment value, benefiting minority owners. Additionally, the lack of clear provisions in the LCSRO for applications on wholly owned lots has caused disputes in past compulsory sale applications.

The amendment allows for the amalgamation of two or more adjoining lots for joint redevelopment, even if the buildings are not connected by a common staircase. This change aims to prevent inefficient "pencil-like buildings" and promote comprehensive redevelopment projects. The new provision permits averaging ownership across adjoining lots to meet the threshold, facilitating joint redevelopment. Specifically, an application can now cover multiple lots, including those that are staircase-connected, adjoining, or a combination of both, provided they form a cluster of lots bound by a continuous boundary. This includes the possibility of covering additional lots if they meet certain criteria, such as being part of a specified class of lots and having a majority ownership of at least 65%. Additionally, it clarifies that a compulsory sale application can cover multiple lots, even if some are wholly owned by the majority owner.

Furthermore, the amendment introduces specific requirements for the redevelopment of these lots, ensuring that they are redeveloped in a manner that forms one cohesive site or part of one site. This includes obtaining necessary approvals and consents from the Building Authority to commence building works in accordance with approved plans.

Streamlining the legal process of compulsory sale regime

Previously, the Tribunal must consider if redevelopment is justified based on the "age" and "state of repair" of the lot and resolve valuation disputes. Both applicants and minority owners typically engage experts to support their claims regarding the existing use value and redevelopment value of the properties. The average processing time for compulsory sale cases from 1999 to October 2023 was 564 days.¹ Despite new case management measures since late 2021, the process remains lengthy as the Tribunal must ensure redevelopment is justified, even if minority owners do not contest the need for redevelopment, requiring expert reports from both sides.

The amendment introduces a fast-track procedure for the Lands Tribunal to decide on granting an order for sale, dispensing with the requirement to justify redevelopment based on the age or state of repair of the buildings if they are at least 50 years old and all minority owners have submitted a Notice of No Objection, indicating that the Tribunal is not required to consider whether redevelopment is justified on grounds of age or condition of existing buildings. The government, as a minority owner holding undivided shares as bona vacantia, is deemed to have filed a Notice of No Objection. The process of compulsory sale could be expedited if the Lands Tribunal is satisfied that the majority owner has taken reasonable steps to acquire all the undivided shares in the lot.

Enhancing support to affected minority owners

The amendment includes provisions to offer better support and protection for minority owners. This includes allowing owner-occupiers to continue occupying their property for up to six months after the sale, provided they pay rent to the purchaser. Additionally, to coordinate and steer the follow-up work after enactment of the ordinance, the government’s Development Bureau has established the Dedicated Office of Support Services for Minority Owners under Compulsory Sale (DOSS) ²and the Support Service Centre for Minority Owners under Compulsory Sale (SMOCS)³to provide one-stop support services and encourage mediation of disputes.

The dedicated office will encourage minority owners to engage in mediation by providing independent valuation services, aiming to reduce the need for litigation, which is time-consuming and stressful. This office, under DEVB, will offer services such as legal advice, independent property valuation, mediation, counseling support, and assistance in finding replacement flats. Although reasonable fees for professional services are usually reimbursed by the applicant after the Tribunal's order, minority owners may face liquidity issues in paying upfront. A dedicated loan scheme with government guarantees could provide bridging loans to help minority owners manage these costs during compulsory sale litigation.

Conclusion

This 2024 amendment is expected to boost compulsory sale applications, supporting the government’s goals of accelerating urban renewal and boosting land supply by redeveloping aging buildings, improving living conditions, and stimulating private sector investment. This legislative change will transform Hong Kong’s urban landscape, leading to more efficient land use, safer environments, and a rejuvenated cityscape, distinguishing Hong Kong from jurisdictions like Singapore with higher application thresholds.⁴

The legislative proposals will help expedite the redevelopment of old and dilapidated buildings, thus arresting urban decay and bringing long-term benefits to the built and living environment. The resulting supply of new flats with modern design and safety standards will also improve the social well-being and living environment of families. Additionally, the proposals to lower thresholds in designated areas are intended to direct private investment and resources to older districts that need redevelopment the most. This will unlock the development potential of valuable urban land, addressing Hong Kong's long-term socio-economic needs in a sustainable way.

Acknowledgements to Trainee Solicitor Karen Lee for research and contribution to this article.

1. Legislative Council Brief
2. Dedicated Office of Support Services for Minority Owners under Compulsory Sale
3. Support Service Centre for Minority Owners under Compulsory Sale commences operation
4. In Singapore, the Land Titles (Strata) Act 1999 specifies that: For properties less than 10 years old, at least 90% of the owners must agree to the collective sale. For properties 10 years old or older, at least 80% of the owners must agree to the collective sale.