Background

In Hong Kong, the Land (Compulsory Sale for Redevelopment) Ordinance (Cap.545) (“LCSRO”) provides a statutory scheme enabling the majority owner of a lot of land to make an application to the Lands Tribunal for a compulsory sale of land for redevelopment purpose.The purpose of LCSRO is to facilitate the redevelopment of aged buildings by alleviating the difficulties faced by the developer against the minority owners who may request an unreasonably high price or who may be nowhere to be found.

In Pacific Crown Enterprises Ltd v Man Yu On LDCS 32000/2011, Pacific Crown was the majority owner and took out an application for the compulsory sale of land against the minority owners (the “Main Application”).Topbase International Limited trading as New Kwok Wah Meat Co. (“Topbase”) was the tenant of two properties on the land concerned.Topbase applied to be joined as a respondent in the Main Application.

Procedural aspects

There are 4 distinct phrases in an application to the Lands Tribunal for a compulsory sale of land: (i) the application; (ii) the Tribunal’s determination; (iii) the sale; and (iv) the apportionment and application of the proceeds of sale.

(i) The application

In the first phase, a majority owner holding not less than 90% of the undivided shares in a lot of land can apply for the compulsory sale of the lot.However, for the following three classes of lot, the percentage threshold has been reduced to 80% since 1^st April 2010:

1.where each unit on the lot represents more than 10% of the undivided shares in the lot;

2.where each building on the lot is aged 50 years or more before the date of the application; and

3.where the lot is not located in an industrial zone and each building on the lot is an industrial building aged 30 years or more before the date of the application.

(ii) The Tribunal’s determination

In the second phase, the Tribunal will determine any dispute as to the valuation of the individual units comprising the lot.The Tribunal has to satisfy itself that the redevelopment of the lot is justified and that the majority owner has taken reasonable steps to acquire all the undivided shares in the lot before a compulsory sale order should be made.

(iii) The sale

In the third phase, the lot will be sold by public auction to the highest bidder, subject to a reserve price to be approved by the Tribunal.

(iv) The apportionment and application of the proceeds of sale

In the fourth phase, after deducting the sale expenses and legal costs, the trustees will apportion and distribute the proceeds to the majority and minority owners on a pro rata basis.

For a detailed discussion on the procedures for a compulsory sale application, please refer to our Property Newsletter published in May 2010.

Tenants’ position

In the Pacific Crown Enterprises Ltd case, the Lands Tribunal held that Topbase was not entitled to participate in the Main Application as a tenant. A mere tenant who does not own any undivided shares and only has a limited interest in the leased property is unlikely to be concerned with the redevelopment of the entire lot.Also, as a tenant is not the recipient of any offer from the majority owner for the acquisition of the property, it will not be in a position to judge whether the majority owner has taken reasonable steps to acquire the lot. Therefore, Topbase, a mere tenant, should not be involved in the Main Application.

Instead, Topbase should only be allowed to take out a “connected application”.Where the Tribunal makes an order for sale and the lot is sold, all tenancies on the lot will be deemed to be terminated immediately.It is obvious that tenants on the property will suffer some inconvenience in the process.Therefore, the Tribunal may order compensation to be paid to a tenant for termination of his tenancy under s.8(1)(b) LCSRO and the Tribunal will consider the representations of the tenants.If a tenant wishes to make representations on the compensation to be paid to him, he should file a connected application.The tenant will receive compensation from the proceeds of the sale.

Conclusion

When a majority owner applies to the Lands Tribunal for the compulsory sale of a lot of land, the tenants of the property are not entitled to join the main application.Instead, the natural forum for the tenants is in the connected application where they can make representations on the compensation to be paid.