Published: 00:26, July 10, 2024
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Lease renewals: New mechanisms provide certainty, clarity and confidence
By Grenville Cross

In the chief executive’s Policy Address 2023 (Oct 25), there was a commitment to streamline the procedures for the extension of land leases expiring on or after July 5, 2024.

The Extension of Government Leases Bill (the Bill) was then gazetted on Dec 8, 2023, and received its first reading in the Legislative Council five days later. The legislation was prioritized, and, having been passed by lawmakers on June 26, 2024, the Extension of Government Leases Ordinance (the Ordinance) was gazetted on July 5. Although not widely publicized, it is of huge significance for investors, the property market and banks handling mortgages.

When the Bill was introduced, the Development Bureau explained that land leases “underpin the daily life and business operations of the general public”, and that the proposals “positively responded to stakeholders’ concern for earlier certainty on extension of leases”. It added that the “new mechanism for extension of leases will bring about significant facilitation for both the public and businesses”. The government hoped the Bill could “be passed and implemented as soon as possible”, which was achieved.

Although the Basic Law (Art’s 120-123) provides the government with the authority to extend land leases beyond 2047, fears still persisted that property owners might lose their assets on June 30 that year. This was despite the Hong Kong Monetary Authority indicating that banks could issue mortgages extending beyond 2047.

On the crunch date — June 30, 2047 — the 50-year extensions to many New Territories and Kowloon leases will end. However, the question of how expired leases would be handled remained unanswered until the Bill was gazetted. Also up in the air was the related issue of how a mass of renewal requests would be processed.

By way of background, the leases of about 2,400 general-purpose lots will expire between June 2025 and June 29, 2047. In addition, the leases of about 300,000 general-purpose lots will expire on June 30, 2047 (mainly in the New Territories). The scale, therefore, is vast, and the concerns expressed over how leases would be handled in future prompted the government to propose measures that would not only pacify leaseholders but also facilitate renewal mechanisms.

The secretary for development, Bernadette Linn Hon-ho, says the Ordinance “upholds the land policy made in 1997 and simplifies the arrangement for extension of land leases”.

The Ordinance only applies to nonrenewable general-purpose leases that are due to expire after its enactment, and does not cover short-term tenancies or special purpose leases. It provides that expiring leases will be automatically rolled over for another 50 years, unless the owners decide to opt out through a new statutory procedure. Therefore, the leases of commercial, industrial and residential premises that are due to expire on June 30, 2047, will now qualify for automatic extension for another 50 years.

In addition to the leases themselves, the encumbrances, interests and rights from the original lease, including mortgages, will also be carried over to the extended leases.

In other words, there will now be far greater market certainty, which is exactly what investors want. Linn has explained that the new renewal mechanism will help maintain the confidence of property owners and investors alike, and that this “creates more favorable conditions for Hong Kong to pursue economic growth”.

She also expects “very few” property owners to use the opt-out option, although they can certainly do so. The government will generally extend expiring leases unless the public interest requires otherwise, such as where lease conditions have been repeatedly breached.

The Ordinance also allows lease renewals to be handled more efficiently, with minimal bureaucracy. Whereas, for example, the traditional practice is for a new lease to be executed individually for every owner, the government will handle them in batches, announcing the extensions in gazette notices six years before they expire. The first batch of leases to be automatically renewed will expire before Dec 31, 2030, and the gazette notice of their renewal was already published on July 5.

Renewals will also be published on the Lands Department’s website, and the public will be informed through the news media, in both Chinese and English.

Moreover, when leases are renewed, land premiums will not have to be paid; instead, they will be subject to an annual rent equivalent to 3 percent of the ratable value of the land.

If foreign entities own properties, lease extensions will require the approval of the Commissioner’s Office of China’s Foreign Ministry in the Hong Kong Special Administrative Region, although there is no reason to suppose this will be problematic.

Apart from bringing greater certainty to lease renewals, the Ordinance introduces more clarity and simplicity into a system described as “arduous, complex and cumbersome”, which can only be for the good. It will also reduce the administrative costs involved in lease renewals, which will please many.

The Legislative Council’s Bills Committee that scrutinized the government’s proposals was chaired by the legislator, Jeffrey Lam Kin-fung, who was in no doubt about their impact. He said they will “give investors, especially newcomers, a shot in the arm in confidence in Hong Kong’s long-term investments”. He explained this was “particularly important at a time when the city wants to attract more family offices and promote the Greater Bay Area market”, and few would demur.

Anything that can bring greater stability to the property market is good for Hong Kong’s prosperity, including its economic and investment environment. The Ordinance promotes certainty, clarity and confidence, and should be applauded. Even if, as is customary, Western governments have nothing positive to say, their investors will be delighted, as will everybody who believes in the endurability of the “one country, two systems” governing policy.

The author is a senior counsel and law professor, and was previously the director of public prosecutions of the Hong Kong Special Administrative Region.

The views do not necessarily reflect those of China Daily.