Speech – Improving property management and operation of owners’ corporations (Priscilla Leung)

President, there is this old saying that “the ancients who wished to order well their states, they first regulated their families”. In ancient times, one must manage to govern a prefecture or county well before he could run a state properly. In present-day Hong Kong, communities must be managed properly before social stability can be achieved, and in order for communities to be managed well, our buildings must be managed properly.

Of the requests for assistance handled by me over the past five years since I became a Member of the Legislative Council, nearly 70% involved disputes relating to owners’ corporations (OCs). Moreover, there are countless problems involving OCs. For instance, in Whampoa Garden, one of the large housing estates in Kowloon West served by me, some small property owners have recently received lawyer’s letters for criticizing the management company of Whampoa Garden for mismanagement. Given the disparity in financial power between the strong and the weak, I consider such an act grossly unfair to small property owners. Since the management fees are borne by small property owners, majority owners should not issue lawyer’s letters to small property owners indiscriminately to prevent the latter from making remarks to criticize the management company for mismanagement. In my opinion, the party which is financially sound should respect the views of small property owners and improve the services, provided that the criticism made by small property owners is reasonable. To my understanding, people living in middle-class housing estates, such as Whampoa Garden, will normally not voice out unless something special happens. The large consortium should conduct a self-review to see if it has performed its management work properly rather than suing small property owners in the first instance.

Like other large housing estates in Hong Kong, Whampoa Garden can set up one OC only because it has just one Deed of Mutual Covenant (DMC). However, an OC can still not be set up there, though it has 88 buildings in total and more than 30 000 households. Furthermore, if an OC is set up, this housing estate with 30 000-odd residents will be managed by a group of voluntary small property owners. As the expenses incurred, such as maintenance expenses, might add up to more than $100 million at any time, many residents are concerned whether there are effective ways to monitor the operational problems arising from the setting up of an OC. Since this knot cannot be untied, coupled with the disparity between the small property owners and the property developer in terms of powers, the former are often compelled to resort to more radical means to fight for slight improvements to services provided in the housing estate. I consider this phenomenon most unhealthy.

In December last year, the Complaints Division of the Legislative Council received a request for assistance from the property owners of Chevalier Garden in Ma On Shan who alleged that their OC was suspected of contravening the requirements of the Building Management Ordinance (BMO)(Cap. 344), including failing to comply with the procedures during a re-election. In December 2010, the property owners of Siu Hin Court in Tuen Mun sought assistance from Members of this Council on the ground that their OC had failed to submit a financial report to the residents on a regular basis under Cap. 344. Not only have different property owners approached the Home Affairs Department (HAD), the police and the Independent Commission Against Corruption respectively for assistance, some elderly property owners who feel incapable of managing the OC have even approached the HAD for intervention in order to dissolve the OC but to no avail.

President, the concept of individual owners dates back to the 1950s. With the sale of individual flats becoming the mainstream, the Government enacted the Multi-storey Buildings (Owners Incorporation) Ordinance in June 1970 to provide a preliminary legal framework for the formation of OCs, in order to protect the interests of small property owners and define the roles of property owners, developers and managers. The Lands Department also issued the Guidelines for drafting of deeds of mutual covenant in 1987, requiring property
developers to draft DMCs accordingly. Subsequently, the Multi-storey Buildings (Owners Incorporation) Ordinance evolved into the BMO which was passed in 1993. Although the BMO was amended in 1998, 2000 and 2007, it is still unable to tackle the management problems pertaining to some housing estates the DMCs of which were signed with property  evelopers prior to 1987. As a result, the management problems of old housing estates, such as Whampoa Garden, have never been resolved.

Although OCs are its brainchild, the Government has failed to take good care of the operation of its child, as is written here in this placard in my hands. The Government must not shirk its responsibility for the establishment and operation of OCs entirely to small property owners, because quite a number of small property owners in many private housing estates in Hong Kong are elderly people. The Government can definitely not play the role of the midwife only; instead, it must assist in bringing up the child. Speaking of the frequently-discussed “powdered formula restriction order”, I would like to present this baby sling to the Government as a gift …… some elderly people have told me that OCs and the management problems of housing estates must be given good care.

President, I would like to summarize the various problems that have emerged since the commencement of the BMO 20 years ago as follows:

First, since property developers have an overwhelmingly undivided share through their ownership of the common parts of car parks, shopping arcades, clubhouses and even Mass Transit Railway stations, small property owners are in a disadvantaged position and are thus unable to secure adequate support for the setting up of OCs.

Second, owing to the procedures laid down in outdated DMCs, small property owners must accept the bundled arrangements made by property developers, including the management companies appointed by them. Hence, it is getting harder and harder for residents to replace the management companies.

Third, the requirement that a housing estate, especially a large housing estate, can have only one DMC and set up one OC is simply too rigid. In particular, given the actual conditions of such large housing estates, the residents find it hard to set up an OC and equally hard not to do so. On the one hand, they worry that the setting up of an OC will “repel the wolf but bring in the tiger” but on the other, they suffer wrongs every day if an OC is not set up. Therefore, I think that the Government must step in and play a clear role. For instance, it can draw up House Rules in compliance with DMCs, akin to rules being drawn up for the House Committee, for housing estates without OCs. Small property owners and the management companies may enter into more reasonable charters to, for instance, compel the management companies to respect the decisions made by small property owners, or modernize outdated management attitudes. Insofar as present-day management services are concerned, even some large housing estates in the Mainland emphasize the happiness of their clients and residents. Hence, if a clearer mechanism can enable a consensus to be reached, the Government should facilitate its establishment rather than just setting up an OC and thinking
that it has fulfilled its responsibility once the OC is formed. The Government should be ready at any time to offer assistance to housing estates where there are no OCs. In particular, the Government should take the initiative to step in when these housing estates are facing litigations.

Fourth, there is indeed insufficient regulation by the Home Affairs Bureau as the competent authority. As a result, there are frequent cases of non-compliance by the OCs of quite a number of tenement buildings. For instance, there are incessant cases of bid-rigging because there are no designated agencies responsible for investigations and law enforcement.

Fifth, since Hong Kong absolutely lacks an effective mechanism for resolving disputes, small property owners can only fight for their due rights and interests through the law. The disparity between small property owners and major consortia confronting one another in court over property management disputes is so great that the former are like fighting a hopeless battle.

Between 2007 and 2011, Panels of Advisors on Building Management Disputes were set up under the District Offices in various districts offices. Thanks to the efforts of the Legislative Council of the last term, the HAD has been very supportive of resolving disputes by means of mediation, provided that mediation is not legally binding. Moreover, mediation is possible only when both parties are willing to accept it. If any one of the parties rejects mediation, they can submit the matter to the Lands Tribunal (LT) or opt for legal actions.
Moreover, I must point out that the decision of the LT is by no means final. Any one of the parties, especially the one with strong financial strength, can continue to fight the legal battle, and the other party, that is, the small property owners, will be compelled to follow suit. In the end, many of them will incur huge debts or even go bankrupt. Not only will the problem drag on endlessly, but money and manpower will also be wasted.

The Interim Report published the day before yesterday by the Review Committee on the Building Management Ordinance considers that the role of the new Building Affairs Tribunal might overlap with that of the existing Tribunal. Furthermore, the Report envisages that the proposed arbitration mechanism might even lead to constitutional problems. I can absolutely not accept this point of view. Later on, I will cite some overseas examples for reference in the hope that Members can continue to adopt an open attitude in considering better solutions to such problems. I call on the authorities concerned to borrow the existing arbitration mechanism for resolving commercial or trade disputes by introducing
an ad hoc and binding arbitration system to deal with building management disputes, because this will give more choices to small property owners, developers or corporations, so that disputes can be resolved once and for all in a fairer and more reasonable manner.

Pinpointing the aforesaid drawbacks, I hope the authorities can reconsider the relevant proposal. Today, I would like to share some overseas experience with Members as reference. In Singapore, prior to the sale of a new development, the developer must submit a proposal on the distribution of ownership to the relevant department for scrutiny by a special commissioner for architecture, to ensure that ownership is distributed in a fair and reasonable manner. In New South Wales, Australia, a regime for the recruitment of managers of DMCs is in place. Under the Community Land Management Act 1989, the agreement signed by the developer as the owner corporate and a third party prior to the sale of a new development has to be terminated at the owners’ first annual meeting. If the new OC is willing to accept the requirements of the original agreement, or the contents of the original agreement are fully disclosed, the new OC may decide not to terminate the agreement. The legislative intent is to prevent owners from being tied by the management agreement signed between the developer and the management company.

There is also a crucial principle in the precedent in New South Wales (the Arrow case) that developers have fiduciary duty towards the OC subsequently formed, thereby preventing them from signing management contracts not beneficial to the owners. In fact, the objective is to prohibit or prevent majority owners from making some grossly unreasonable provisions through the DMCs and the first management contracts, or they will have to bear the legal consequences of failing to discharge their fiduciary duty. Such a trust
relationship is recognized in the United States, too. Under a consolidated bill on joint ownership enacted subsequently in the United States, management contracts
signed by developers and management companies can be terminated by owners upon the service of a 90-day advance notice.

The third example is the setting up of an office in Florida, the United States, to monitor joint ownership groups. Operating somewhat like an ombudsman system, this office, headed by the Governor of Florida, is responsible for assigning government officials to deal with problems faced by owners whose rights and interests have been infringed upon, especially problems involving proceedings and disputes. The monitoring officials can also regulate the elections and meetings of joint ownership groups, as well as their process, through a joint ownership bureau. Furthermore, thanks to the Senate Bill 1184 enacted in Florida, the rights of small and majority owners against joint ownership groups are further expanded, and the holding of meetings (meetings held by owners’ committees), elections, safeguards for the rights of participation and audience, and even the rights of inspection of records, are specifically provided, too. Moreover, owners are empowered to dismiss the officers-in-charge. In New South Wales, Australia, a fair trade bureau has also been put in place for the provision of protection for small owners through the mediation and arbitration mechanism. Hence, I absolutely do not believe that the setting up of an arbitration mechanism is unconstitutional. In my opinion, what really matters is sincerity. In fact, there is still a lot of practical experience for reference by Members. Owing to the time constraints, I cannot list them here one by one.

President, there is a saying that “ruling a country is just like cooking a small fish”, and the same goes for the management of housing estates, which has to be done in a detailed and reasonable manner to make the people living there happy. I hope the committee can administer the right cure in its next stage of work in 2013, so that Hong Kong people will not be disappointed. While I support all the amendments today, I would also like to call on the Government to adopt an open attitude in considering these proposals which can improve  people’s livelihood as well as property management.

I move that the motion, as printed on the Agenda, be passed.

President, I so submit.