Extension of Government Leases Bill

Important Achievements / Opinions

"Extending Government Leases Bill" Simplifies The Process Of Extension

The land policy announced by the Government in 1997 has laid down a solid foundation for its handling of land lease matters. Elaborating the policy, a government official has said: "Clear, consistent, and definitive land leases are essential to the effective operation of the real estate sector, especially in the field of property development and investment".

Hong Kong has over 1.3 million property owners. Whether they are able to renew their leases successfully or need to pay land premiums will directly affect property values and investor confidence. The case of the Pokfulam Gardens lease expiry highlighted this issue. Over 1,000 owners spent a huge sum of money and energy dealing with legal issues related to their lease expiry. For those with mortgages, they had to handle the bank's requirements for a renewal of the mortgage documents.

The Government has always emphasised its role as the landowner as they asserted their absolute authority. However, the Pokfulam Gardens case has finally prompted the Government to decide to implement a clear, consistent, and efficient way of lease renewal, ensuring necessary protection of the rights of property owners. Therefore, I welcome the Extension of Government Leases Bill (the "Bill"), which offers a simple and orderly way to process lease renewals in batches, thus avoiding the complicated process of individual property owners signing new leases with the government.

Submitted Opinions Considered By The Government

I have followed the issue closely since I became a legislator. Before proposing the Bill, the Government has consulted the industry. The Real Estate Developers Association of Hong Kong, which I represent, has submitted to the Government for its consideration.

During the scrutiny of the Bill, the Bills Committee has proposed improvements to the lease renewal procedure. The suggestions were adopted by the Government. They include:

Firstly, requiring lease "Extension Notice" and "Non-Extension List" to be published in both Chinese and English newspapers in Hong Kong and the "Non-Extension List" to be posted in prominent locations on the relevant land or buildings. Doing so will help inform affected citizens their leases may not be renewed.

Secondly, allowing tenants to file an "Opt-out Memorandum" with the Hong Kong Land Registry, which must be signed by a witness for greater protection.

Thirdly, the court can order the cancellation of the memorandum's legislation if it found the "Opt-out Memorandum" involves fraud, error, or omission. The lease will then be renewed according to the renewal notice.

I hope the Government will prolong the spirit behind the Extending Government Leases Bill in land management, aiming for clarity, consistency, flexibility, and efficiency.

Conducive To Stable Business Environment

In line with the existing land policy, the Bill allows general-purpose leases to be renewed for 50 years with no land premiums, but an annual rent equivalent to 3% of the rateable value of the land. The Bill ensures lease renewals are handled clearly, efficiently and orderly, which is conducive to a stable business environment.

The Bill also eases concerns about the issue of "2047 deadline". Mortgages that go beyond 2047 will have a clearer legal basis, providing reassurance to the entire market. The new arrangement will also benefit the Government's "trawl for talents" programs and make long-term property investors feel more secure about buying and holding property in Hong Kong.

Land is wealth. Land lease is vitally important to landowners. Land is an important resource of Hong Kong. To ensure land resources are fully utilised to benefit the economy and the general public, the Government must protect these resources in a flexible and efficient manner. This should apply not only to lease renewals but also to the terms set in land leases. The Government could simplify terms and use existing legal frameworks to manage land planning, construction, and environmental matters, allowing property owners to maximize the use of their land without having to constantly apply for lease modifications due to minor changes.

I hope the Government will prolong the spirit behind the Extending Government Leases Bill in land management, aiming for clarity, consistency, flexibility, and efficiency.

Further Suggestions

Room for improvement in the Bill.

The Six-year Notice Period Prior To Lease Expiration Is Too Short

The primary goal of the Bill is to provide certainty for lease renewals. But the Bill stipulates that notices regarding lease renewals will only be published six years before the lease expires. A period of six years is not enough. During the period of consultation with the industry, the Hong Kong Real Estate Developers Association pointed out that typical property mortgages last 20 to 30 years, and international practice generally considers leases with at least 12 years remaining as an indicator of investment value. The certainty of lease renewal affects developers, owners, investors, and even financial institutions that issue property mortgages. They need early confirmation of lease renewals.

I had previously suggested that the Government should consider the example of the New Territories Leases (Extension) Ordinance 1988, which extended the notification period to nine years before lease expiry. Unfortunately, the Government only accepted part of my suggestion by increasing the period from three years to six years. If the Government agrees that an announcement about whether a lease would be renewed earlier, it would better protect property owners' interests, boost investor confidence, and contribute to the overall economic development of Hong Kong.

Optimising The Special Purpose Lease Extension Mechanism

On the basis of the 1997 land policy, the treatment of special-purpose leases should generally be consistent with the treatment of leases that do not qualify for renewal, except for those under four special circumstances. The proposed renewal mechanism under the Bill, however, does not cover special-purpose leases for sectors such as education, social welfare, religion, and specific industries. Under the Bill, the Lands Department needs to consult with the relevant policy bureaus to review each special-purpose lease before negotiating renewal terms with the tenants.

Many of these special-purpose leaseholders, particularly the social welfare organizations, have been providing valuable services to the community for many years. They are not professional investors, but will have to spend enormous resources on the negotiations of lease renewals with government departments. I have previously suggested at the Bill Committee meetings that the Government should consider including certain special-purpose leases in the Bill, with clearer and more definite renewal procedures, to help these organizations understand renewal matters sooner. Unfortunately, my suggestion was not adopted.

On the other hand, the Bill's extension mechanism does not apply to special-purpose leases. The Lands Department will review the extension of such leases with the relevant policy bureaus. The Lands Department has already published a list of special-purpose leases in the Gazette for property owners' reference. The Real Estate Developers Association of Hong Kong (REDA) has noticed that many special-purpose leaseholders are social welfare organizations serving the community. The association hopes that the Government can create a more predictable system for these leases to allow these organizations to continue their important work without uncertainty.

Background / Latest Developments

What Is Land Ownership

Land ownership can be divided into two categories, namely "perpetual ownership" and " leasehold". In Hong Kong, all land is leasehold, except for the St. John's Cathedral in Central. Under "leasehold", the land is leased by the Government to tenants for them to develop it as lessees. Each land lease contract has a term that defines the period during which the lessee can use the land.

There are generally three types of land leases, covering terms of 75, 99 or 999 years respectively. The term of leases in a small part of Hong Kong Island and old leases in Kowloon is 999 years. The other parts of Hong Kong Island and Kowloon Peninsula have a standardised lease period of 75 years, which can be renewed at a re-assessed annual rent under the provisions of the old Crown Leases Ordinance. Leases for land in the New Territories and New Kowloon were normally sold for the residue of a term of 99 years, less three days from July 1, 1898.

Hong Kong's Land Lease System And Land Policy

From May 27, 1985 when the Sino-British Joint Declaration took effect to June 30, 1997, the then government formulated its land grants and leases policy in accordance with the provisions under Annex III of the Joint Declaration. In general, the terms of expiry of land granted cannot go beyond June 30, 2047. Land lease renewal was granted up to June 30, 1997 upon a premium and nominal government rent and an annual government rent equivalent to 3% of the rateable value of the property after that date. Leases that expired before June 30, 1997, with the exception of short-term tenancies and leases for special purposes, can be extended to 2047 in accordance with the provisions of the Joint Declaration.

On July 15, 1997, the Executive Council approved a series of arrangements regarding land leases granted by the Hong Kong Special Administrative Region (HKSAR) Government and related matters. According to the policy statement announced by the SAR Government on the same day, leases without renewal rights (excluding short-term leases and special-purpose leases) could be renewed for 50 years without paying land premiums, requiring only the payment of annual rent equivalent to 3% of the land's rateable value.

Since the establishment of the Hong Kong SAR, the Government has been handling the renewal of expired land leases in accordance with the policy mentioned above. But the complicated procedures have been a subject of criticism. The most well-known case is the lease renewal of Pokfulam Gardens, where the land lease expired in 2006. The Government chose to renew the lease for 50 years without requiring a land premium, only charging 3% of the revalued rates as ground rent. Since the land lease is a contract document, every property owner on the site had to sign documents with the Lands Department, and after signing the new documents, they had to sign mortgage documents with the bank. The whole process was cumbersome.

The issue of expiry of land leases before June 30, 2047, has sparked market concerns. The Lands Department has stated that at least 30,000 land leases in Hong Kong will expire in 2047, with an additional 2,400 leases expiring in 2025. The issue of the "2047 deadline" has become a subject of much speculation in the market. Some commentators have pointed out that since the longest mortgage term for banks is 30 years, this means that the deadline has already straddled 2047, when the land use rights are due to expire. Since the land contract will not be 100% certain that it will be unconditionally renewed by that time, banks may face increased risk of undertaking 30-year mortgages.

Latest Developments

To streamline the renewal process for leases without renewal rights (excluding short-term and special-purpose leases), the Extension of Government Leases Bill was passed on June 26, 2024. The related ordinance that provides a new mechanism for lease renewals came into effect on July 5, 2024.

Except for leases included in the "Non-Extension List" (a negative list approach), the Lands Department will regularly publish renewal announcements in the government Gazette six years before a lease is due to expire, informing property owners whether the lease will be renewed. This will simplify the process, eliminate the need for property owners to sign individual renewal documents and pay associated fees, making the lease renewal process more convenient. In addition, the new measure addresses the public's concerns over thousands of government leases expiring in 2047.

Although the Bill does not specify the reasons for non-renewal, the Development Bureau has indicated at the Legislative Council that, unless there are public interest considerations, leases will generally be renewed. Continuous or repeated violations of the lease conditions by the tenant may be grounds for non-renewal.

If a property owner does not want an automatic renewal of their leases by the Government or disagrees with the Government's decision not to renew their lease, they may, within a specified timeframe, either register an "Opt-out Memorandum" with the Land Registry or file a "Reviewing Assessment Result" for non-renewal with the Lands Department. Following an administrative review, the Government can amend the "Non-Extension List" by issuing a "Non-extension List (Removal) Notice" or "Non-extension List (Inclusion) Notice" announcement, adjusting which leases are listed.

For leases that are renewed, the original terms will remain unchanged in the renewed lease. The new law also stipulates the addition of three new provisions: (1) granting the Director of Lands the power to enter the relevant land and buildings to ensure compliance with the renewal lease's terms and conditions; (2) requiring tenants to comply with the Town Planning Ordinance and Building Ordinance; and (3) granting the Government the right to repossess the land if the tenant fails to comply with the lease's terms.