B. Procedures for compulsory sale

B. Procedures for compulsory sale

The procedures for compulsory sale are set out in the Land (Compulsory Sale for Redevelopment) Ordinance (Cap. 545 of the Laws of Hong Kong).

Stage 1 – Application
When making the application for compulsory sale, the majority owner must file a valuation report, prepared not earlier than three months before the application date, setting out the assessed market value of each property on the lot (1) on a vacant possession basis; (2) ignoring the possibility of a compulsory sale order; and (3) ignoring the redevelopment potential of the property or the lot.

The majority owner who has made the application must:

1. serve a copy of the application on each minority owner;
2. register a copy of the application under the Land Registration Ordinance (Cap. 128 of the Laws of Hong Kong) against the lot;
3. affix a notice in both Chinese and English upon a conspicuous part of the building on the lot (or upon a conspicuous part of the lot if there is no building on the lot); and
4. publish a notice in not less than one Chinese language newspaper and one English language newspaper circulating generally in Hong Kong.

Stage 2 – Determination of application
Upon receipt of an application, the Lands Tribunal decides whether or not a compulsory sale order should be made. 

First , if any minority owner disputes the value of any property as assessed in the valuation report, the Lands Tribunal must hear and determine the dispute.

If a minority owner cannot be found, the majority owner is required to show that the value of the minority owner’s property, as assessed in the valuation report, is not less than fair and reasonable (including when compared with the value of the majority owner’s property).

If necessary, the Lands Tribunal may adjust the valuation in the light of the evidence.

Second , the majority owner must satisfy the Lands Tribunal that:

1. the redevelopment of the lot is justified due to the age or state of repair of the existing development on the lot; and
2. the majority owner has taken reasonable steps to acquire all the undivided shares in the lot (including, in the case of a minority owner whose whereabouts are known, negotiating the purchase of the share owned by the minority owner on terms that are fair and reasonable)

If the building erected on a lot is aged 50 or above and all minority owners do not object to redevelopment, the Lands Tribunal is not required to review whether the lot warrants redevelopment.

Upon receiving the grant of the compulsory sale order, the majority owner must:

1. serve a copy of the order on each minority owner;
2. register a copy of the order with the Director of Lands; and
3. publish a notice in not less than one Chinese language newspaper and one English language newspaper circulating generally in Hong Kong.
    

Stage 3 – The sale
If the Lands Tribunal decides to grant a compulsory sale order, it appoints trustees to conduct the sale.

The lot must be sold by public auction unless all the parties agree in writing to other means of sale approved by the Lands Tribunal.

If the lot is sold by public auction, the lot must be sold to the highest bidder of the lot, subject to a reserve price approved by the Lands Tribunal which takes into account the redevelopment potential of the lot.

Any person, including the majority and/or minority owners, can bid for the lot.

The lot must be sold within three months from the grant of the compulsory sale order. If the lot is not sold within this period, the trustee, the majority owner or a minority owner may apply to the Lands Tribunal for a further three months’ extension for compulsory sale. If the lot still cannot be sold within this period, the compulsory sale order becomes void.

Stage 4 – Apportionment and application of sale proceeds
The proceeds of sale and associated expenses are apportioned between the majority and minority owners on a pro rata basis in accordance with the value of the respective properties of each majority owner and each minority owner of the lot, as assessed in the valuation report, subject to any adjustments that may have been made by the Lands Tribunal.

The apportioned proceeds are then distributed by the trustees to the respective owners after (1) deducting the expenses of the auction (or other means of sale) and legal costs on assignment of the lot; (2) discharging any liability due to the Government and encumbrance affecting the lot; and (3) paying off any compensation due to existing tenants (if so ordered by the Lands Tribunal).