Compulsory Sale Litigation in Hong Kong: Process and Practical Tips

In the fast-evolving landscape of Hong Kong’s real estate market, compulsory sale litigation stands as a crucial legal recourse, striking a balance between private property rights and the broader public interest. This legal process is governed by the Land (Compulsory Sale for Redevelopment) Ordinance and plays a pivotal role in facilitating urban redevelopment and addressing housing needs. In this article, we delve into the stages of compulsory sale litigation process in Hong Kong, shedding light on the procedures and implications, as well as practical tips for applicant and respondent teams.

What is the compulsory sale litigation process?

In general, the compulsory sale litigation process is akin to ordinary civil litigation, but with a strong focus on surveying expert evidence. In addition, respondents collaborate as a team with a coordinator, and their factual witnesses are usually not heavily challenged at trial. Site inspections of the subject lot occur during the first two days of trial. A significant portion of legal fees is allocated to expert fees (and counsel’s fees), and respondents generally receive costs if they successfully defend against the compulsory sale.

What are the main stages of compulsory sale litigation process?
1. Applicant Makes Offer

The Applicant is required to issue a pre-action offer letter to all remaining minority owners for acquiring their property.  The offered sum is normally based on the Applicant’s valuation expert report, and the valuation assessment will typically be provided together with the offer letter (but not the entire report).

2. Filing LDCS Application (Form 32)

If the minority owners refuse to accept the Applicant’s pre-action offer, Applicant would file a Notice of Application (Form 32) with the Lands Tribunal to commence the compulsory sales procedure and, inter alia, the full valuation report will be disclosed.  Mediation Certificate and Mediation Notice are normally served at the same time.

3. Filing Opposition (Form 33)

If minority owners choose not to accept the Applicant’s offer, they have to file a Notice of Opposition (Form 33) within 21 days.

The contents of the notice would set out the issues in dispute, including: –

  • Valuation;
  • Age and state of repair;
  • Reasonable step to acquire; and/or
  • No fair and reasonable offers made to minority owners.
4. Case Management Hearings

After filing of notice of opposition, Applicant may file an Application to List for Call-over Hearing. Applicant would: –

  • confirm with the Lands Tribunal as to service of roles
  • report the mediation progress with each Respondent
  • propose a set of case management directions

Proposed directions would include: –

  • Mediation
  • Respondents to agree to a single joint valuation expert
  • If state of repair is challenged, agreeing appointment of Building Condition Expert and Structural Engineering Expert
  • Exchange of witness statements and expert reports
  • Filing of rebuttal reports
  • Filing of updated Valuation Report

For Respondents, Lands Tribunal would appoint one party as the Coordinator. The Coordinator’s work will include: –

  • Liaising with experts;
  • Arranging inspection of respective Respondents’ flats;
  • Reporting case progress; and
  • Collection and payment of expert fees.
5. Pre-Trial Review Hearing

A Pre-Trial Review Hearing may be ordered to deal with: –

  • To confirm whether there are legal issues to be argued;
  • Usual trial preparation direction; and
  • Filing of updated valuation expert report on Redevelopment Value (RDV).

At this step, the Respondents may consider engaging joint Counsel.

6. Trial

If only valuation expert’s evidence is challenged, the case will be heard only by a Member (a qualified surveyor).  However, if legal issues are to be argued, the case will be heard by a Presiding Officer and a Member.  During the initial stages of the trial, typically the first or second day, the court may arrange a site inspection of the subject development, although not all individual flats may be inspected.  In most cases, witnesses as to facts (Respondents) will not be called for examination.  Instead, the examination predominantly centers around expert evidence and is highly technical.

7. Post-Trial

When a judgment is handed down, the Court would order: –

  • Whether there is an order for sale, and if so, what is the reserve price;
  • Appointment of trustees to conduct the sale; and
  • Costs.

The questions that minority owners would certainly ask: –

  • How much they will get after auction?

Put it very simply, the applied formula can be understood as follows: –

EUV of own unitXReserve Price=Owner’s entitlement
EUV of all units
  • When will be the auction?
  • When will they get the money?

Practical Tips for Managing Compulsory Sale Litigation Cases
For Applicant Teams:

  1. Prepare for Respondents’ Emotions – anticipate that Respondents might be upset and frustrated about the compulsory sale.
  2. Efficiently Acquire Minority Flats – strategize for the acquisition of minority flats to reach the required threshold for compulsory sale.
  3. Stay Updated on Market Trends – continuously monitor market trends and property values. Stay informed about current offers and potential counter-offers to anticipate Respondents’ negotiation positions.

For Respondent Teams:

  1. Expect Emotional Clients – be prepared to deal with clients who may be upset or distressed due to the compulsory sale.
  2. Property Maintenance – maintain your property in good repair and condition throughout the litigation process. A well-maintained property can positively impact valuation and negotiations.
  3. Rented Property – include a clause that addresses early termination or termination after judgment.
  4. Review Offers Continuously – act reasonably by consistently reviewing and assessing offers from the Applicant.
  5. Base your decisions on expert evidence to support your position.
  6. Collaborate with Surveying Experts – work closely with surveying experts to understand the variables and comparables used in property valuation.
  7. Explore the option of engaging legal counsel jointly
  8. Financial Preparedness – ensure you have sufficient funds available to cover legal expenses, expert fees, and any potential compensation.
  9. Document All Actions – keep meticulous records of all work done, correspondence, and negotiations.

Additionally, consider potential conflicts of interests, such as distinctions between commercial and residential use or the valuation of unauthorized building works. To address these conflicts effectively, consider obtaining separate legal representation and subjecting valuation experts to examination during the trial.

Disclaimer: This article is for reference only.  Nothing herein shall be construed as legal advice, whether generally or for any specific person. Oldham, Li & Nie shall not be held liable for any loss and/or damage incurred by any person acting as a result of the materials contained in this article.