With ferry fares set to rise once again on 4 January, 2015, it is important to remember that a fast, convenient and comfortable ferry service to Central District is one of the pillars upon which the success of Discovery Bay rests.
The value of the ferry service has been highlighted once again in recent weeks, as Occupy Central has disrupted traffic across Hong Kong Island and Kowloon. All of us in Discovery Bay continue to enjoy the ferry to reach Central as though nothing has happened.
The sustainability of the ferry service has been an issue ever since the first residents moved in to Discovery Bay in 1983. Faced with mounting losses with the sharp spike in oil prices in 2007-08, the developer unveiled a sweeping “Revamp” of the ferry service in October 2008.
Fortunately, through the hard work of a number of volunteers who served on the Passenger Liaison Group (PLG) — and despite such fierce resistance from the senior executives of Hong Kong Resort Company Limited (HKR) that the head of the ferry company, Eric Chu, lost his job — a more rational fare increase and service adjustment was finally agreed.
The members of the PLG were drawn from the City Owners’ Committee (COC) and Village Owners’ Committees (VOC) at that time. HKR deems that all VOC chairpersons (ie, COC members) are members of the PLG, unless the VOC submits the name of an alternate representative.
Many of the arguments put forward in 2008-09 continue to surface each time a fare increase is proposed. In order to avoid repeating the past, it is useful to have a record of the events of 2008-09. In this post, I present the proposal made by the developer in October 2008, and the response from the Passenger Liaison Group in December 2008. Additional documents will be made available later.
The share regime has not always been followed in the past. I previously detailed the misallocation of undivided shares at Peninsula and Greenvale villages.
Fortunately, it was possible to track back these variances by reviewing the original documents. In the case of both Peninsula and Greenvale villages, the total number of Residential Development Undivided Shares allocated to each village is stated clearly in the sub-DMC.
The newest developments in DB — Phase 14 (Amalfi), Phase 15 (Positano) and Phase 16 (future) — similarly fall under one sub-DMC and several sub-sub-DMCs. Regrettably, with these phases, Hong Kong Resort Company Limited (HKR) has omitted any reference to the types of undivided shares allocated to the village.
The Amalfi Sub-DMC for phases 14, 15 and 16 was executed on 31 May, 2013. As may be seen from Section I, Undivided Shares and Reserved Rights, a total of 3,683 undivided shares was allocated to the Reserved Development Areas (ie, the future development areas) in the sub-DMC. As may also be seen, this treatment ignores the share regime under the DMC as neither use nor share type is specified.
As we saw at Siena 2a, the solicitor responsible for the development, Messrs. Kao, Lee & Yip, vouchsafed for the allocation of Retained Area Undivided Shares to Residential Units. It is important to note that Kao, Lee & Yip was also the solicitor of record for the Amalfi and Positano developments.
Will the treatment of undivided shares that Messrs. Kao, Lee & Yip applied at Siena 2a now be extended to all future residential phases in DB?
Given that, according to the share regime specified in the DMC, HKR should now be sub-allocating Reserve Undivided Shares to Residential Units, and given that the number of such shares is strictly limited, the allocation of undivided shares should be even more transparent now than it has been in the past — not less transparent.
If Messrs. Kao, Lee & Yip’s interpretation is allowed to stand and all unallocated Retained Area and Common Area Undivided Shares are used for residential development, HKR could increase the ultimate gross floor area for residential development in DB by 50% or more.
In many ways, Greenvale Village mirrors Peninsula Village. Both villages cover an extensive area, and have a large number of residential units. Both villages were developed in phases, with several sub-sub-DMCs. And in both villages, Hong Kong Resort Company Limited (HKR) ran out of Residential Development Undivided Shares to allocate to the development.
However, there the similarity ends. Unlike Peninsula Village, development continued at Greenvale even though HKR had no Residential Development Undivided Shares to assign to owners upon sale of the flats.
A total of 10,000 Residential Development Undivided Shares were allocated to Greenvale Village in the Sub-DMC, of which 3,252 undivided shares were sub-allocated to Greenery, Greenburg and Greenfield courts, and 2,166 to Greenish, Greenland and Greendale courts. That left 4,582 undivided shares for the remaining three towers, Greenwood, Greenmont and Greenbelt (Greenvale 7C2b).
Using the formula from the DMC to allocate Management Units (MU) to individual residential units, HKR allocated a total of 4,896 MU to the final three towers at Greenvale.
The Legal Advisory and Conveyancing Office (LACO) under Lands Department will normally require that MU and undivided shares are allocated to units on a 1:1 basis. With only 4,582 Residential Development Undivided Shares in hand, HKR therefore had insufficient shares to sub-allocate to all units. The solution was to sub-allocate one less Residential Development Undivided Share to each unit than the number of MU allocated to that unit, as may be seen from the Schedule from the Greenvale 7C2b Sub-Sub-DMC.
As there are 576 Residential Units at Greenvale 7C2b, HKR thus saved 576 Residential Development Undivided Shares. This allowed HKR to paper over the shortfall of 314 undivided shares at Greenvale 7C2b, and still retain 262 Residential Development Undivided Shares at Greenvale Village for future use.
Master Plan 6.0E1 converted the entire area at Discovery Bay North to Housing and Residents’ Club use (Area N1 on MP 6.0E1). Siena 1 was developed first, on the valley floor. And then came Siena 2, on the slope leading up to Discovery Bay Road.
But, Siena 2 reveals a rather strange anomaly. Siena 2 is divided into 2a and 2b, with 2a flanked by 2b on both sides – much like East and West Pakistan upon partition of India in 1947.
How was that possible, you ask? After all, there were only 262 Residential Development Undivided Shares remaining in Greenvale.
I wondered about that too, and sought an explanation from LACO. Completely unaware of the requirements of the share regime under the DMC, LACO responded that the developer’s legal advisors, Messrs. Kao, Lee & Yip, had affirmed that the shortfall in shares was made up through the re-allocation of 905 shares from the 9,000 shares allotted to the “Village Retained Areas”.
Here is the share regime from the DMC. Readers will note from Clause 1 that only Residential Development Undivided Shares or Reserve Undivided Shares may be sub-allocated to the Residential Development. Residential Development is defined in the DMC as follows:
All the buildings erected or to be erected on the Lot intended for residential use in accordance with the Master Plans.
Under no circumstances may Village Retained Area Undivided Shares be sub-allocated instead.
Thus, not only did Greenvale owners lose their “Peninsula Garden”, Siena 2a owners were saddled with Village Retained Area Undivided Shares that do not carry with them any rights to own a residential unit on the Lot. Furthermore, the shares of all other property owners in DB have been diluted through the building of residential units without sufficient Residential Development Undivided Shares allocated to these developments.
Peninsula Garden is a hidden gem, an extensive multi-level open space between Crestmont and Coastline, with sitting out areas, water features, playgrounds, community garden and meandering paths. It is a wonderful, shaded woodland with mature trees — yet probably unknown to most DB residents outside of Peninsula Village.
However, even while they enjoy this beautiful spot, many Peninsula residents worry that it is too good to last. The area lies outside all individual developments within Peninsula Village, on land that is defined as Reserved Development Area in the Peninsula Sub-DMC. They worry that Hong Kong Resort Company Limited (HKR) could develop the area at any time.
If Peninsula residents and owners understand the share regime under the DMC, they can set their minds at ease. This area can never be developed for residential housing, as long as the share regime described in the Deed of Mutual Covenant (DMC) is respected.
As explained previously, a set number of undivided shares has been allocated to each use on the Lot in the DMC, with Reserve Undivided Shares standing by to top-up as needed. Accordingly, in the Peninsula Sub-DMC, a set number of undivided shares of each use has been allocated to the Village. Once the Sub-DMC was issued, shares could not be added or subtracted; shares could not be changed from one use to another.
In the Peninsula Sub-DMC, a total of 4,740 Residential Development Undivided Shares were sub-allocated to residential units prior to sale, while a further 8,460 Residential Development Undivided Shares were allocated to the Village but held for sub-allocation to residential units to be built in subsequent phases. No Reserve Undivided Shares were allocated to the Village.
The last phase to be developed in Peninsula was Coastline. The authority that is in charge of approving DMCs, the Legal Advisory and Conveyancing Office (LACO) under Lands Department, will normally require that Management Units (MU) and undivided shares are allocated to units on a 1:1 basis. For whatever reason, at Coastline HKR found itself with fewer Residential Undivided Shares than needed to meet this ratio. In other words, HKR had not allocated sufficient Residential Undivided Shares to Peninsula Village in the Sub-DMC.
Fortunately for HKR, LACO allows sub-sub-DMCs to be approved under an accelerated process. In addition, no statutory declaration was deposited in the Land Registry by the solicitors representing the development. HKR was able to issue a sub-sub-DMC that allocated less than one undivided share per MU, as may be seen in the schedule from the Coastline Sub-Sub-DMC.
This means that all Coastline Owners own fewer undivided shares in the Lot in proportion to the size of their units than most other owners in Discovery Bay. On the other hand, this treatment shows that HKR recognised that it could not use, for example, Retained Area Undivided Shares to make up the shortfall.
It also means that there are no Residential Development Undivided Shares left to allocate to Residential Units in Peninsula Village.
And that is why Peninsula Village residents and owners can continue to enjoy Peninsula Garden, safe in the knowledge that no further residential development may take place within their Village.
Anyone who follows Government land sales knows that Government leases always contain strict limits on total allowable gross floor area (GFA) and site use. Always … except for Discovery Bay.
In DB, there are no limits on development contained in the lease. Land use and the development parameters of each phase are controlled through the Master Plan. The developer may at any time apply to the Government to modify the Master Plan and the development on the Lot. The developer may go back again, and again and again — without limit.
This flexible arrangement requires an equally flexible Deed of Mutual Covenant (DMC). And, indeed, the Discovery Bay DMC provides great flexibility to the developer when planning the development on the Lot.
But, at the same time, the DMC places a strict cap on development, thus providing protection to the assigns of the developer — the 8,300 plus owners of residential properties. This cap is set by the share allocation and sub-allocation regime.
It is thus essential to understand the share regime under the DMC, and to ensure that it is implemented faithfully.
How the share regime works
Upon the execution of the DMC in 1982, the Lot was “notionally divided” into 250,000 undivided shares. At this time, these undivided shares were allocated to various uses (see table at page 7 of the DMC). As the Lot is developed, shares are sub-allocated from this defined usage pool according to the regime described at Section III, Undivided Shares (pages 15-17 of the DMC).
No undivided shares were sub-allocated or assigned in the DMC, other than the shares to the First Purchaser. Rather, the DMC established a framework within which future development (and share sub-allocation) could take place.
The key concept that must be understood is that, as the Lot is developed, the undivided shares that were allocated to the various uses upon the execution of the DMC may only be sub-allocated in line with these same uses. The sub-allocation regime described at Section III specifically forbids the transfer of shares from one use to another (except that any unneeded shares within a given use may always be deemed to be Common Area/Facilities shares).
This regime provides the flexibility necessary to accommodate the unique arrangement stipulated in the lease. At the same time, this regime limits the extent and type of development on the Lot, as described below.
Number of shares available for Residential Development
The undivided shares available for sub-allocation to any given use are limited. For example, only 56,500 of the total of 250,000 undivided shares were allocated to Residential Development use when the DMC was executed. Once these shares were fully sub-allocated and assigned to owners of residential properties – and they were fully so used with the development of Neo Horizon in 2000 – further residential development may only take place through the sub-allocation of so-called Reserve Undivided Shares.
Once all of the Reserve Undivided Shares are fully utilised, no further residential development may take place on the Lot. No other undivided shares (Hotel, Commercial, Retained Area, etc.) associated with the Lot may be sub-allocated for Residential Development use.
It is also important to note that Reserve Undivided Shares are not exclusively for sub-allocation to Residential Development use. Under the regime described at Section III, Reserve Undivided Shares may be sub-allocated to any use. They specifically must be sub-allocated to the “Service Area and Other Units”.
Given that future residential development is limited by the number of Reserve Undivided Shares remaining to be sub-allocated to Residential Development use, it is essential to maintain an accurate record of the sub-allocation of all Reserve Undivided Shares to all parts of the development.
Ideally, this record should be maintained in the Land Registry.
Unfortunately, no such record exists.
To make matters worse, it appears that until recently no one in Lands Department understood the share regime in Discovery Bay. There have been no proper controls in the past, and shares have been mis-allocated throughout the history of Discovery Bay.
Unless we return to the regime described in the DMC, it will be very easy for HKR to over-allocate undivided shares to the Residential Development on the Lot. That would in effect dilute the value of the shares of all the residential property owners in Discovery Bay, by enabling more development on the Lot than is allowed under the DMC.
Prior to development of Discovery Bay North (Siena, Chianti, Amalfi, etc) Hong Kong Resort Company Limited (HKR) was required to conduct a detailed Environmental Impact Assessment (EIA) of the proposed development area. The following extracts are taken from the chapter on Ecology from the final EIA report:
7.3.1 The initial studies were conducted in autumn 1994 to identify the key ecological issues. Field surveys were performed on the proposed Discovery Bay North development site on 17 and 23 November, 1994. The rocky shore of Yi Pak Wan and Yi Pak Hill were surveyed non-systematically. Major habitats of terrestrial vegetation were noted and dominant flora were recorded. The objective was to establish the conservation significance of the study area, and particularly to determine whether species of plants which are protected by local regulations or international convention occur in the study area. Plants were identified to species level where possible.
… and, a few pages later, the Consultant wrote:
7.4.2 In general, the site is a frequently disturbed area. Much of the vegetation in the area has been subject to surface disturbance by construction or fire in recent years. The most recent fire occurred between November 14 to 16, 1994. This fire extensively burned the study area including Tai Che Tung, Yi Pak Au and down to Lau Fa Tung. Only the relatively mesic habitats such as the backshore, ravine, riparian and foothill regions survived the fire. The plant species recorded during the 1994 and 1995 surveys are listed in Table 7.1.