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.
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