The Government is presently conducting a consultation exercise, to gather views on revision of the Building Management Ordinance (BMO) to address inadequacies in its implementation. This consultation is vitally important for Discovery Bay.

As highlighted previously, the DB Deed of Mutual Covenant (DMC) has been structured so as to accommodate the unique nature of the Government lease, which contains no fixed development scheme. A set of commentaries on this site has described how the share regime has been designed to accommodate this flexibility.

Flexibility is also shown through extensive use of sub-DMCs.

The residential portion of DB has been developed as a series of villages, each covered by its own sub-DMC. No residential phase was included in the DMC. In fact, the definition of “Village” in the DMC is: “Any part or parts of the City constructed or to be constructed on part or parts of the Lot separately designated and described by any Sub-Deed of Mutual Covenant.”

This approach is compatible with the open-ended nature of DB’s development. Villages can be erected anywhere on the Lot at any time and incorporated into the development through the execution of a new sub-DMC.

Most of the control over management of the residential properties rests in the villages — that is, in the sub-DMCs. Management fees are set at the village level. Security, cleaning, landscaping and maintenance are all controlled by the village. The reserve fund is collected and maintained in the name of each village. Major renovations are carried out by the village. Owners’ representatives are elected village by village. City expenses are apportioned to each village in line with the total number of Management Units allocated to the village.

The Building Management Ordinance (BMO) was enacted in 1993 in order to govern the management of buildings held in multiple ownership — ie, most residential buildings in Hong Kong. Key provisions of the Ordinance relate to the management of finances and election of owner representatives under a DMC.

The BMO includes two schedules that are of particular relevance to finances and elections, Schedules 7 and 8. Since 1993, these have been incorporated into all DMCs in Hong Kong, even those that were executed before 1993. The Government took the unusual decision to make application of these schedules retrospective in order to guard against misappropriation of owners’ funds by management companies and others in authority.

Schedule 7 covers such aspects as award of contracts; management of the special (reserve) fund; preparation of budgets; setting of management fees; the right to a separate bank account; etc. Schedule 7 also includes the procedure for replacement of a Manager appointed under a DMC.

Schedule 8 covers the procedures for elections and the conduct of owners’ meetings.

Unfortunately, the Government has decided that Schedules 7 and 8 of the BMO apply to a DMC only, and not to sub-DMCs. As such, most of the villages in DB are not covered and owners do not enjoy the protections introduced in 1993.

Nonetheless, the Government authority in charge of approving DMCs and sub-DMCs, the Legal Advisory and Conveyancing Office (LACO), recognised as far back as 2000 that the protection of the BMO should be applied to sub-DMCs in DB. Starting with Neo Horizon Village in 2000, Schedule 7 of the BMO has been explicitly incorporated into every new sub-DMC.

From Siena One Village in 2002, both Schedules 7 and 8 have been incorporated into every new sub-DMC. Yet, in the present consultation exercise, the Government once again reaffirms that the BMO should not apply to a sub-DMC (pages 37-38).

This is ludicrous.

In DB, every village developed before 2000 has no right to the protection under the BMO, while every village developed from 2000 enjoys such protection.

The Government states that there are “practical difficulties” in applying Schedules 7 and 8 of the BMO to a sub-DMC. But, as the schedules have already been applied to every sub-DMC in DB since 2000, this is clearly not the case for DB. It would be a simple matter for the Government to add a clause that states that, if Schedules 7 and 8 have been incorporated into any sub-DMC in a Building (as defined in the BMO), they shall be incorporated into all sub-DMCs in that Building.

It should be highlighted that, if Schedule 8 is incorporated into pre-2000 sub-DMCs, individual owners will no longer have to appear in person to elect their village representatives. Schedule 8 provides that an individual owner may appoint any person as a proxy; proxies are not restricted to family members, as is required by the sub-DMCs. It is worthwhile to quote the enabling provision as included in the Siena One Sub-DMC in full:

“The provisions of the Eighth Schedule to the Building Management Ordinance (Cap. 344) in force as at the date of this Sub-Deed shall, to the extent that they are consistent with the Principal Deed, be incorporated into this Sub-Deed (the “incorporated provisions”) and to the extent that any provision in this Sub-Deed is inconsistent with the incorporated provisions, the incorporated provisions shall prevail.”

You may make your views known by making a submission to the Home Affairs Department on or before 2 February 2015:

Division V, Home Affairs Department
31/F Southorn Centre
130 Hennessy Road
Wan Chai, Hong Kong

Fax:        2575-1009
Email:   bm_consultation@had.gov.hk

Details may be found at:
http://www.buildingmgt.gov.hk/en/whats_new/2_12.htm

For more information on dbConfidential, click on ‘About‘ in the top menu. On a mobile device or tablet, the top menu may be accessed from the three horizontal bar symbol next to the search icon on the right-hand side of the screen.

The Government is presently conducting a consultation exercise, to gather views on revision of the Building Management Ordinance (BMO) to address inadequacies in its implementation.

This prompted a resident of Mid Levels to write to the South China Morning Post on 29 December, 2014, under the heading Original Developer Must Not be Allowed to Manage Property. This insightful letter highlights the inherent conflict of interest involved when a subsidiary of the original developer manages an estate.

Given the clear conflicts of interest exposed on dbConfidential in the Open Letters to CM and other commentaries, many residents and owners in DB will be sympathetic to the views expressed in this letter.

The Government already recognises that owners may not be satisfied with the manager appointed by the developer under a DMC. The current version of the BMO provides a procedure to remove such manager: Owners must first form an Owners’ Corporation (OC) using the provisions of the BMO, and then apply the mechanism to remove the manager stipulated at Schedule 7, Paragraph 7.

However, in a classic Catch 22 scenario, the BMO makes it impossible for DB owners to form an OC. Unable to form an OC, DB owners thus have no means to remove City Management (CM).

To form an OC, a resolution in support of incorporation must be passed by a majority of the votes of owners represented at a meeting, and these supporting owners must hold not less than 30% of the shares in aggregate.

In DB, the total number of Residential Development Undivided Shares is only 56,500, while the number of shares in aggregate is 250,000. The developer controls over 70% of the undivided shares in the Lot, and no OC can be formed without the developer’s support.

The present BMO consultation seeks views on whether to reduce the requirement from 30% of shares in aggregate to 20%. This will not change matters for DB, however. The developer will still control over 70% of the undivided shares in the Lot, and no resolution to form an OC can be passed if the developer is opposed.

There is no procedure in the DB DMC to call a general meeting of all the owners of the Lot. By specifying the voting rights at a general meeting of owners,  the BMO has in fact given powers to the developer that the developer does not have in the DMC.

The only comparable procedure in the DMC relates to a meeting of the owners of a building in the event that such building becomes uninhabitable. In this event, only those owners holding undivided shares in the residential or commercial units in the building may vote — all other undivided shares are excluded.

It is also useful to know that, at the City Owners’ Committee (COC) — which is recognised as the Owners’ Committee under the DMC — the residential owners’ representatives are entitled to vote the Village Retained Area Undivided Shares (ie, the residential development retained area shares), not the developer.

It should further be pointed out that over 90% of the undivided shares held by the developer are not liable to pay management fees.

In the lead-up to the present BMO Consultation, many citizens’ groups proposed that shares that are not liable to pay management fees be excluded from voting on a resolution to set up an OC. This would provide a good solution for DB, ensuring that those who pay for the management of DB have the right to select their management company. However, the Government is hesitant to strip the voting rights from non-paying shares. Government’s view is stated in the Consultation as follows:

3.7 There is also suggestion that the counting of shares for the formation of OCs can make reference to that for the termination of appointment of DMC manager, whereby only the shares of owners who pay or who are liable to pay management fees relating to those shares shall be entitled to vote. However, it should be noted that owners who are not liable to pay management fees may still have the right to vote at an owners’ meeting under their respective DMCs. Therefore, it may not be entirely logical to exclude all of them from the counting of shares for the formation of OCs. 

With respect to DB, this is to call black white.

The Government will not disenfranchise shares that are not subject to management fees in order to protect the developer’s right to vote shares owned by him. Yet, under the DB DMC, the developer has no right to vote Village Retained Area Shares. The BMO has tilted the playing field in favour of the developer, against Government’s own policy to give owners more say in the management of their buildings.

To correct this gross distortion, Government must revise the BMO to ensure that, on any vote to form an OC, “only the shares of owners who pay or who are liable to pay management fees relating to those shares shall be entitled to vote“. This is the only just way forward.

You may make your views known by making a submission to the Home Affairs Department on or before 2 February 2015:

Division V, Home Affairs Department
31/F Southorn Centre
130 Hennessy Road
Wan Chai, Hong Kong

Fax:        2575-1009
Email:   bm_consultation@had.gov.hk

Details may be found at:
http://www.buildingmgt.gov.hk/en/whats_new/2_12.htm

The mandatory provisions in the Building Management Ordinance (BMO) are very important to Discovery Bay, due to the fact that  the DB Deed of Mutual Covenant (DMC) was written before the enactment of the original Ordinance in 1993.

The mandatory provisions provide protection to DB owners that was not provided in the DMC, for example, the requirement that any expenditure from the reserve fund must be approved by a resolution of the Owners’ Committee. City Management cannot spend from the Reserve Fund without this approval. This provides a much-needed check to ensure that funds for major projects are spent wisely.

The Hong Kong Government is presently conducting a consultation on the next revision to the BMO. This is our opportunity to provide input on issues that are important to us. The deadline for submissions is 2 February, 2015.

Please visit dbConfidential for updates on the relevance of the BMO to Discovery Bay. To find out more on the consultation, and download a copy of the consultation document, go to:

http://www.buildingmgt.gov.hk/en/whats_new/2_12.htm