Time for Revamping the Building Management Ordinance (Cap. 344)

In view of the increasing number of large-scale developments (such as Mei Foo Sun Chuen) in late 1960s, the Hong Kong Government promulgated the Multi-storey Buildings (Owners Incorporation) Ordinance (Cap. 344) in June 1970 to provide a basic legal framework for property owners to form owners’ corporations to manage their own buildings. The Ordinance was substantially “modernised” in 1993 and re-titled as the Building Management Ordinance (“BMO”) to facilitate the incorporation of owners and to provide them with specific powers and responsibilities regarding management of the common parts of the buildings. Since 1993, the BMO has not undergone substantial amendments, though review has been conducted from time to time.

Since the enactment of the BMO, the Government tried to persuade owners to form owners’ corporations to look after the day-to-day management of their buildings. The administration also delegates the Home Affairs Department to provide basic assistance to owners through the various District Lands Offices on the formation of owners’ corporations and owners’ meetings.

This article aims to pinpoint some of the characteristics and strengths of strata title management legislation in other countries, where the legislative provisions are more forward-looking and comprehensive. For the purpose of this article, strata management legislation of British Columbia (Strata Property Act), New South Wales (Strata Schemes Management Act 2015), Australian Capital Territory (Unit Titles (Management) Act 2011), Singapore (Building Maintenance and Strata Management Act (Chapter 30C)) and Malaysia (Strata Management Act 2013) are used as references. With the ageing problems of the buildings in the urban areas and the growing complexity of the building management issues, I hope that the Government can borrow other countries’ experiences and consider a more thorough revamping of the BMO.

Formation of Incorporated Owners (“IO”)

In British Columbia (“BC”) and Australian Capital Territory (“ACT”), strata corporation is established once a strata plan is deposited or registered in a land title office, unlike Hong Kong where formation of an owners’ corporation is purely voluntary. The present system that we have (buildings with owners’ corporations, with owners’ committees or neither of them) has made the building management framework more complicated for owners. In those jurisdictions where owners’ corporations are automatically formed upon registration of a strata plan, buildings with fewer units may by a special resolution exempt itself from the requirement under the legislation.

Meetings

Regulations regarding meeting of owners’ corporations in other jurisdictions tend to safeguard the overall interests of owners. For instance, in BC, before the first annual general meeting, any resolution requiring a ¾ majority vote can only be passed by a unanimous vote at a special general meeting. An annual general meeting must be held by a strata corporation unless a waiver is obtained from all the owners. In New South Wales (“NSW”), the original owner or developer is required to convene a meeting of the owners’ corporation after one-third of the units are sold and penalty is payable for breach. To guide the owners, matters to be discussed and documents to be produced at the first meeting are well defined in legislation. Electronic methods of meetings such as by telephone are allowed in some jurisdictions. In addition, if a meeting is attended by less than 50% of the strata corporation, any resolution passed by a ¾ majority vote shall be reconsidered at a special general meeting.

Obligations on developer

There is an increasing trend to impose obligations on the developer, in particular, on preparing the first budget and handing over the documents and plans regarding the building. In BC, a developer is required to establish and contribute to a contingency reserve fund. The contribution amount will depend on when the first conveyance of a strata lot takes place. The minimum contribution is five percent of the estimated operating expenses of the interim budget if the first conveyance occurs no later than one year after the deposit of the strata plan. To protect the individual homeowners, if the expenses accrued by the strata corporation for the period between the first day of the month following the month in which the first conveyance takes place until the date the first annual budget takes place are greater than the estimated operating expenses in the interim budget, the developer must pay the difference to the strata corporation within eight weeks after the first annual general meeting.

The developer is also under an obligation to produce to the strata corporation at the first annual general meeting plans, documents showing the actual location of facilities, all contracts entered into for and on behalf of strata corporation, names and addresses of all contractors and sub-contractors, all warranties, manuals, operating instructions etc. relating to the building. If the developer does not comply and if the strata corporation must pay to obtain those documents, the amount of money shall be a debt owed by the developer to the strata corporation. These kinds of documents and information are particularly important for owners in case of major renovation and repair, which usually will take place say 15-20 years after the completion of the building and by then, most owners’ corporations or building managers may find it difficult to obtain the records and plans from the developers.

Disclosure of personal interests by members of the management committee

The present provisions in the BMO do not explicitly require disclosure of personal interests by members of management or owners’ committees. In all the studied legislation, members of management committee are required to disclose conflict of interest to the management committee. The relevant member shall also be abstained from voting and leave the meeting while the transaction is discussed or put to vote. In some countries, if the member does not disclose the conflict of interest, the court will have power to set aside the transaction and require that member to pay to the strata corporation any profit.

Obligations on managers

Managers in some countries are under a statutory duty to provide a certificate to the purchaser and the contents of the certificate are prescribed in the legislation. This can standardize the kinds of important information to be given to a purchaser and to a certain extent reduce the risk of litigation between buyers and sellers on matters such as undisclosed renovation plans or illegal structures. Some also impose clear obligations on outgoing managers to deliver sets of records as set out in the legislation within a few weeks after the termination of the management contract and failing which, penalty is payable.

Joint owners to appoint representative

In Hong Kong, the BMO only looks at joint owners’ representation for meeting. In ACT, for joint ownership of a unit, owners must authorise an individual who must be one of the owners to be their representative. That representative can represent the other co-owners to do anything that an owner may do or is required to be done for day-to-day management of the building.

Owners’ corporation to prepare ten-year capital works fund plan

In NSW, owners’ corporations at law are required to prepare a plan of anticipated expenditure on capital works for a ten-year period commencing from the first annual general meeting of the owners’ corporation, with the assistance of experts.

Financial statement and accounting records of owners’ corporations

Section 27 of the BMO only requires the management committee to prepare financial statements which shall include an income and expenditure account and a balance sheet. There are no specific requirements on the details to be disclosed in the financial statements. In NSW, the legislation stipulates in detail what has to be contained in the financial statements (such as particulars and amount of each item of expenditure during a period) and also requires the treasurer of an owners’ corporation to keep transaction records for moneys received and disbursed.

Dispute resolution

Owners and owners’ corporations are reluctant to refer building management disputes to courts in view of the time and costs involved. In some jurisdictions such as NSW, their legislation clearly sets out types of disputes, orders and party who may apply for easy reference. In NSW, they adopt a three-tier dispute resolution system – namely, internal dispute resolution through a voluntary process developed by the owners’ corporation, structured mediation sessions and applications to their Civil and Administrative Tribunal. The Registrar of the Tribunal can refuse to deal with a matter if satisfied that mediation is more appropriate. In Singapore, Strata Title Boards (with building management professionals as board members) are set up to expedite resolution of building management disputes.

As half of the population in Hong Kong are living in private or subsidized housing (where building management is a real-life issue) and the fees on management, maintenance and renovation are on an unprecedented rise, I hope that the new administration could sense the urgency in improving the framework of building management and conduct a more ingrained study and reform the system. 

Jurisdictions: 

Reed Smith Richards Butler, Partner

Doreen’s primary area of practice is Hong Kong real estate sales and acquisition, leasing, real estate development and finance. She also frequently acts for clients in advisory matters involving land and real estate issues.

Her clients include multi-international clients, local listed companies, banks and financial institutions, developers and property investors.