Background
The Residential Properties (First-hand Sales) Bill was released in November 2011 for a two-month public consultation.  In June 2012, the Residential Properties (First-hand Sales) Ordinance (Cap.621) (the “Ordinance”) was passed by the Legislative Council and shortly thereafter, in July 2012, the Ordinance was gazetted. 

The Ordinance is mainly an attempt by the government to tighten up regulations on property developers under which extensive statutory requirements are imposed on the developers in relation to the sale of first-hand residential properties. Certain provisions in the Ordinance came into operation on 2 April 2013. The whole Ordinance has taken effect on 29 April 2013. This article gives an introduction to the main features of the Ordinance.

Part 1: Preliminary
Part 1 generally contains provisions on the interpretation of different terms used in the Ordinance and the application of the Ordinance.

Application of the Ordinance
The Ordinance applies to both completed and uncompleted residential properties in Hong Kong where no preliminary or formal sale and purchase agreement and assignment have been entered into.  However, there are two exceptions. The Ordinance will not apply to, firstly, a development where at least 95% of the residential properties have been rented out for at least 36 months and secondly, an individual small house in the New Territories.

Saleable area
Saleable area is defined in section 8 of the Ordinance to mean the floor area of a residential property, including that of a balcony, a utility platform or a verandah to the extent that it forms part of the property. However, the definition expressly excludes the area of the items specified in Part 1 of Schedule 2 of the Ordinance, namely, air-conditioning plant room, bay window, cockloft, flat roof, garden, parking space, roof, stairhood, terrace and yard.

Part 2: Sales Practices
Part 2 contains detailed provisions on the statutory requirements regulating the sales practices of first-hand residential properties in different aspects, including sales brochure, price list, show flats, sales arrangements, sale and purchase agreements and register of transactions.  Contravention of the provisions will be an offence and will be liable to a fine. 

Sales brochure
For each development or phase, the vendor must prepare a sales brochure titled “Sales Brochure” in English and “售樓說明書” in Chinese with specified font size requirements.  No person except the vendor may prepare a sales brochure.

There are requirements on the contents and the order in which the information has to be set out. A sales brochure must first set out the steps that a person is advised to take for his own protection before deciding to purchase. Next, a sales brochure must set out the information in Part 1 of Schedule 1 of the Ordinance and in the order so specified, including information on the development, vendor, relationship between parties, location plan etc, just to name a few. Then, a sales brochure must set out the information in Part 2 of Schedule 1 of the Ordinance such as warning to purchasers, cross-section plan and information on common facilities etc. but the information under this part does not need to be set out in order.  A sales brochure must also set out relevant information that is known to the vendor but not to the general public which is likely to materially affect the enjoyment of the residential properties. Other than the information required under the Ordinance, a sales brochure must not set out any other information.

A sales brochure must be made available in hard copies for free public collection and on the vendor’s website designated for the development at least 7 days before the sale of the properties and on the date of sale.

Price list
For each development or phase, the vendor must prepare a price list. A residential property may only be sold at the price as set out in the price list. If there is a change to the price, the price list has to be revised.  The number of properties to be covered in a price list depends on the total number of properties in the development. 

Section 31 contains detailed requirements on the contents of a price list such as name and location of the development, total number of residential properties in the development and the printing date etc. In relation to each property, the price list must also set out the description, the saleable area, the price and the floor area etc. Other than the information required under section 31, a price list must not set out any other information.  A price list must be made available in hard copies for free public collection and on the vendor’s website designated for the development at least 3 days before the sale of the properties and on the date of sale. Before a price list is made available for public, the vendor must not seek, or must reject, any intent to purchase any residential properties.

Show flat
Under the Ordinance, it is not a must for the vendor to make a show flat. However, if a show flat is to be made, the vendor must first make an unmodified show flat before a modified show flat can be made. For both unmodified and modified show flat, dimensions of the show flat must be the same as those depicted in the sales brochure. Any balcony, utility platform or verandah must be provided with boundary walls or parapets. A plan showing the dimensions of the show flat must also be displayed. Internal partitions and fittings, finishes and appliances must be the same for an unmodified show flat but that do not have to be the same for a modified show flat. 

A show flat, either modified or unmodified, must not be viewed by the public before copies of the sales brochure have been made available for the public.  The vendor must not restrict the public from taking measurements.  For unmodified show flat, the public may also take photographs or video recordings.

Sales arrangements and other information
Sales arrangement documents must be made available in hard copies for free public collection and on the vendor’s website designated for the development at least 3 days before the sale of the properties and on the date of sale. Information required to be covered includes date, time and place of the sale, description and number of properties to be sold and method to determine the priority to select properties etc.

On the date of sale, other information required to be made available for public inspection includes outline zoning plan or development permission area plan, approved building plans, deed of mutual covenant, land grant and aerial photograph of the development.

Sale and purchase agreements
A preliminary deposit of 5% is payable upon signing of a preliminary sale and purchase agreement (“PSPA”). If there is any conflict or inconsistency between the statutory provision and the PSPA, the statutory provision will prevail. A PSPA must set out the mandatory provisions in Schedule 4 of the Ordinance while a formal sale and purchase agreement (“SPA”) must set out the mandatory provisions in Schedule 5, 6 or 7 of the Ordinance.

If a purchaser has entered into a PSPA, and he subsequently enters into the SPA within 5 working days after the signing of the PSPA, then the vendor must execute the SPA within 8 working days after the signing of the PSPA. If the purchaser does not execute the SPA within 5 working days, then the PSPA will be terminated, the 5% preliminary deposit will be forfeited and the vendor will not have further claim against the purchaser.

Register of transactions
For each development or phase, the vendor must keep a register of transaction. Section 59 sets out the information required to be stated in the register of transaction which includes dates or termination dates of PSPA and SPA, price, terms of payment and whether the purchaser is a related party to the vendor etc. 

There are strict time requirements on the entry of the information. After a PSPA or a SPA has been entered into, the vendor must enter the information within 24 hours or 1 working day respectively.  If a purchaser fails to enter into a SPA within 5 working days after signing a PSPA, then the vendor must indicate that fact in the register on the 6th working day from the date of the PSPA. If a SPA has been terminated, the vendor must enter the information within 1 working day after the date of termination.

Part 3: Advertisements
Part 3 contains provisions regulating advertisements purporting to promote the sale of first-hand residential properties.  Contravention of the provisions will be an offence and will be liable to a fine and/or imprisonment.

If applicable, an advertisement must state that the advertisement is published by or with the consent of the vendor. For uncompleted development or phase, or completed development or phase pending compliance, an advertisement must state the estimated material date. If a sales brochure has been made available for the public, an advertisement must also contain a statement advising a purchaser to refer to the sales brochure.  

An advertisement must not give information on the size or the unit price of the residential properties otherwise than by reference to the saleable area. Unit price refers to the price of a property per square foot or per square meter. Also, an advertisement must not contain false or misleading information.

For printed advertisements, in addition to the general requirements mentioned above, section 73 has set out the additional requirements.

Part 4: Misrepresentation and Dissemination of False or Misleading Information
Under Part 4, it will be an offence if a person makes a fraudulent or reckless misrepresentation. The person who makes the misrepresentation may also be liable to pay compensation to the person being misled. Dissemination of false or misleading information is also an offence under Part 4. Commission of the offences will be liable to a fine and imprisonment.

Part 5: Defence
For an offence under Part 2 or Part 3 (except the offence on false or misleading information in an advertisement), it is a defence to prove that the person has taken all reasonable precautions and has exercised all due diligence.   

For the offences in relation to false or misleading information, a defence is available to passive dissemination which includes 3 situations, namely, issue or reproduction of the information, re-transmission of the information and live broadcast of the information.

Conclusion
The Ordinance provides a comprehensive regulatory regime on various aspects in relation to the sale of first-hand residential properties by developers in Hong Kong.  In response to the concerns raised by the trade, the Sales of First-hand Residential Properties Authority (the “SRPA”) established under the Ordinance has issued guidelines[1] to provide more information for the trade. However, there are still areas of uncertainties and it has to be waited to see how the SRPA will enforce the Ordinance in the future.

[1]     The guidelines can be obtained at the website of the Transport and Housing Bureau at www.srpa.gov.hk/en/guidelines.html

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Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.