The heyday of manufacturing industries in Hong Kong has long gone since the relocation of factories to the Mainland in the 1980s.  Many old industrial buildings are left either vacant or under-utilised.  In view of this, the Government has announced measures for owners to revitalise such buildings by applying for redevelopment or wholesale conversion. 

Background

In his 2009-2010 Policy Address, the Chief Executive put forward proposals,effective from 1 April 2010 for three years, to allow owners applyingfor redevelopment to pay premium according to the actual development density after redevelopment based on a “pay for what you build” approach and pay premium which exceeds $20 million by instalments over a five-year period at a fixed interest rate.Owners applying for wholesale conversion are exempted from paying the waiver fee for change of land use, if the age of property requirement is satisfied and planning permission is obtained.The latest Policy Address extended the above measures for a further three years to end of March 2016. Minor alterations to the frame of the industrial buildings will be allowed in future applications.

Application Procedures

Application for redevelopment or wholesale conversion of industrial lots or buildings should be submitted to the Lands Department (“the Department”). Applicants should refer to the Practice Note (Issue No. 1/2010) for a summary of the application procedures.When planning permission from the Town Planning Board (“TPB”) is required for the proposed use applied for, such permission should be obtained before an application for redevelopment or wholesale conversion is submitted to the Department.

Leases Modification/Land Exchange for Redevelopment

Owner of an industrial lot in a non-industrial zone (i.e. designated for use as “Other Specified Uses (Business)” (“OU(B)”), “Residential”, “Commercial” or “Comprehensive Development Area” according to the statutory town plans prepared pursuant to the Town Planning Ordinance (Cap. 131) (“statutory plans”) can apply for lease modification (or land exchange) for redevelopment of the relevant lot for non-industrial use permitted under the relevant statutory town plan or by TPB.Owners have to comply with the following requirements:

1. Maximum permissible development intensity:Application made should be up to or less than the maximum permissible development intensity permitted under the statutory plans or the Buildings Ordinance (Cap. 123) (“BO”).Usually proposed development intensity for redevelopment which is less than 60% of the maximum permissible development intensity will not be approved.The approved maximum development intensity will be specified as part of the terms and conditions of the lease modification letter.Any approved application would be subject to terms and conditions imposed or demanded by the Department, including payment of a premium.

2. Time frame: Building Covenant in the terms and conditions of the lease modification letter will specify that the redevelopment should be completed within five years from the date of the execution of the lease modification.

3. Amount of land premium payable: Land premium payable by the lot owner will be the difference between value of the land under previous lease conditions and its value under the modified lease conditions assessed by the Department.

4. Method of payment:

a. Lot owners may choose to pay 80% of premium which exceeds $20 million by annual instalments, payable in arrears, over a five-year period subject to payment of interest.In total, 20% of the premium should be paid as a down payment, 10% should be paid upon acceptance of binding basic terms offer and another 10% should be paid on execution of the lease modification letter.

b. If owners do not choose to pay by instalments, 10% of the premium should be paid upon acceptance of the binding basic terms offer and the balance should be paid upon execution of the lease modification letter.

5. Consent for alienation: Lot owners who opt for payment by instalments cannot apply for consent to sell or assign the lot or any part thereof or the building or any part of the building thereon, until all outstanding premium and interest have been paid or an irrevocable bank guarantee has been provided to guarantee such payment.

6. Administrative fee: Initial instalment of the administrative fee will be payable as and when demanded by the Department after submitting the application.The balance will be payable on acceptance of the binding basic terms offer.

Special Waiver for Wholesale Conversion

Owners of an industrial building in a zone designated for “Industrial”, “Commercial” or “OU(B)” uses according to the statutory plans can apply for special waiver at nil waiver fee for change of use of the entire industrial building for the lifetime of the existing building or until expiry or termination of the current lease, whichever is the earlier.The Government’s right to enforce the user restriction in the lease conditions for the existing building will be waived.Owners have to take note of the following requirements:

1. Age of building:The age of the existing industrial building should not be less than 15 years, calculated from the date of issue of the occupation permit for the entire building or from the date of issue of the latest occupation permit if more than one occupation permit has been issued for the same building(s) on the same lot.

2. Submitted by Owner: Application should be submitted by owner of the lot on which the building is erected or jointly by all existing owners if the building is in multiple ownership.

3. Mortgagees’ consent: Consent from all mortgagees, chargees and purchasers who have entered into an agreement for sale and purchase of the lot or building or any part thereof should be obtained and submitted together with the application.

4. Proposed uses: The proposed uses should fall within either uses always permitted in the respective planning zones or those which requires planning permission from TPB.In any case, the proposed uses should not include, among others, residential use.

5. Terms, covenants and conditions: Approval for the grant of special waiver may be subject to terms, covenants and conditions imposed by the Department which includes:

a. The existing building frame must be retained after the conversion.There should not be any variation in building height or building bulk.Any vertical extensions, horizontal extensions or additional floors or levels within the existing building should not exceed the accountable gross floor area (“GFA”) permitted under the building plans last approved for the existing building by the Building Authority before the application is made.In any event, the GFA of the existing building after conversion should not exceed the permitted GFA under the last approved building plans.For new applications after 2011-2012 Policy Address, minor alterations to the building frame will be allowed (details yet to be set out by the Department).

b. Conversion works required should in all respects comply with the current provisions of BO.

c. Any such required conversion works arising under or in relation to the special waiver must be completed within three years from the date of the special waiver letter.Documentary proof of completion of conversion works certified by an Authorised Person (“AP”) or other competent professional should be provided.

d. If an owner of a unit in the existing building sells, assigns or otherwise disposes of the same or any interest therein or enter into any agreement so to do, the owner should procure and submit to the Department an undertaking under seal in favour of the Government from the purchaser or assignee of such unit (“the Purchaser”) that the Purchaser shall observe, comply with and be bound by all terms, conditions and covenants in the special waiver, upon completion of the assignment.

e. During the validity period of the special waiver, no part of the building should be used for any uses other than those specified in the special waiver.

6. Execution: The special waiver should be executed in the form of a special waiver letter by the lot owner (single ownership) or jointly by all existing lot owners (multiple ownership) as well as by the mortgagees, chargees and purchasers.

7. Administrative fee: Owners should pay an administrative fee as and when demanded by the Department upon submission of the application.The fee paid is non-refundable if the applicant withdraws the application, rejects the Department’s offer or is unable to execute the special waiver letter for any reason.

8. Approvals/licences of relevant authorities: Owners should approach other relevant authorities and departments, such as TPB, Fire Services Department and the Building Authority, in relation to any other approvals or licences that are required under any Ordinances, by-laws or regulations that are in force from time to time, regardless of whether any structural or other alteration to the existing building will be involved.

9. Modification of lease conditions: If lot owner wants to modify any other terms contained in the land grant as a result of the application, a separate lease modification application should be submitted to the Department.A land premium at full market value (i.e. assessment will be made without the benefit of the special waiver) will be payable if any modification of any lease condition is applied for.

10. Change of special waiver conditions: If lot owner wants to change any special waiver conditions, including any change of uses permitted under the special waiver, application should be submitted to the Department which will impose certain terms and conditions if the Department has approved the application.