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LCQ13: Enforcement actions against breaches of land lease conditions in industrial buildings
     Following is a question by the Hon Nathan Law and a written reply by the Secretary for Development, Mr Paul Chan, in the Legislative Council today (November 9):


     Since April 2014, the Development Bureau has implemented a series of measures to revitalise old industrial buildings, with the aim of "encouraging owners to revitalise industrial buildings by ways of redevelopment and wholesale conversion" to better utilise vacant industrial building units, so as to release more space for use by small and medium enterprises as well as arts, culture, sports and charity organisations. Owners of industrial building units intending to use their units for uses other than those permitted under the lease must first apply to the Lands Department (LandsD) for temporary waiver permitting the intended use. If the application is approved, the applicant is required to pay a waiver fee and an administrative fee, and accept other terms stipulated in the waiver. However, some tenants of industrial building units consider that such revitalising measures have minimal effects and have instead fuelled speculations in industrial buildings. On the other hand, the LandsD has commenced the risk-based enforcement actions against breaches of land lease conditions in industrial buildings since August 29 this year in the wake of the No.4 alarm fire at an old industrial building in Kowloon Bay in June this year. However, quite a number of tenants of industrial building units have criticised the LandsD for being excessively stringent in law enforcement and ambiguous about the criteria for enforcement actions, causing worries among such tenants that they will be forced to move out of the industrial building units at any time. In this connection, will the Government inform this Council:

(1)    given that a survey conducted in late February 2015 by the LandsD on temporary waiver applications revealed that there were then approximately 1 000 valid temporary waivers applicable to industrial building units, of the respective original uses and approved new uses of those units, with a tabulated breakdown of the numbers of such cases by category of their approved new uses; the procedures and criteria adopted by the LandsD for vetting and approving applications for temporary waivers;

(2)    given that the LandsD charges fees for temporary waivers and the standard rate for industrial building units of Group B uses (i.e. uses other than those for residential purposes but excluding hotels; Group B uses cover those offices and operations that involve the direct provision of customer services or goods to the general public) in the urban area and Tsuen Wan/Kwai Tsing was $308/square metre (m2) per annum in 2003, of the reasons why the LandsD doubled the rate to $650/m2 in 2014; whether the LandsD has assessed if such a move has dampened the desire of owners of industrial building units to apply for temporary waivers and has hence deviated from the policy intent of the measures to revitalise industrial buildings; if the LandsD has, of the details, and whether the LandsD will provide more incentives for application for temporary waivers, including lowering the fee rates to a level affordable to tenants, so as to better utilise industrial building units;

(3)    given that some tenants of industrial building units who had placed television sets and sofas in their units were issued warning letters by the LandsD for suspicion of using the units for domestic purposes, whether the LandsD has assessed if such an enforcement force is excessively stringent; whether the LandsD has formulated guidelines on the enforcement actions for compliance by enforcement officers; if the LandsD has, of the details of the guidelines, and whether the LandsD will make public such guidelines; if not, whether the LandsD will formulate such guidelines expeditiously, and collect and take on board the views of tenants of industrial building units and other stakeholders when formulating the guidelines;

(4)    given that many non-profit-making organisations renting industrial building units have received warning letters one after another, whether enforcement officers are required to consider the social and cultural values inherited in the uses of the units concerned when taking enforcement actions;

(5)    whether the authorities have set up an inter-departmental meeting or working platform on ways to promote social functions, such as culture, sports and community services, etc., and included the related policies in their consideration of the policy regarding industrial buildings, so as to enable those tenants of industrial building units who cannot afford the rentals of commercial buildings but are engaged in businesses beneficial to the development of Hong Kong to rent industrial building units at reasonable rentals, thereby putting Hong Kong's land resources to more effective use for the development of local industries such as those related to culture, sports, design, etc; and

(6)    whether the LandsD will consider suspending the aforesaid enforcement actions for one year and consult the affected owners and tenants of industrial buildings before resuming the enforcement actions; if the LandsD will not, of the reasons for that?



     The Government has all along been encouraging and supporting the development of cultural, sports and community activities. Whilst the Development Bureau (DEVB) will endeavour to increase land supply, it will also continue to coordinate with the policies of the Home Affairs Bureau (HAB) and help provide space necessary for arts, cultural, sports and community activities through planning and other appropriate measures as long as they are in compliance with statutory and public safety requirements. Having consulted the HAB, my reply is as follows:

(1) and (2)Whether an industrial building unit used for the purposes of arts, cultural and sports purposes is in breach of the land lease depends on the actual operation and the lease conditions of the relevant lot. If the land lease stipulates that the lot shall only be used for "industrial" or "industrial and/or godown" purpose, arts, cultural and sports uses are in general in breach of the land lease, but owners may apply to the respective District Lands Offices (DLOs) under the Lands Department (LandsD) for a temporary waiver or lease modification permitting the intended use. In processing the applications, DLOs will consult the relevant departments including the Planning Department (PlanD) and the Fire Services Department (FSD). If the intended use complies with the requirements of the town plans and/or obtains the necessary planning permission, DLOs will, depending on the comments received, consider in the capacity of the landlord whether to issue a temporary waiver or modify the lease conditions to approve the use. If the application is approved, the applicant will have to pay a waiver fee/land premium and an administrative fee, and accept other terms and conditions stipulated in the modification letter and waiver.

      As outlined in the question, the LandsD conducted a survey on the number of temporary waivers in February 2015. As there were over 1 000 waivers, the LandsD does not have readily available information on the breakdown of the uses of all waivers.

     Since its introduction in 2003, the standard rate of waiver fees has been reviewed and adjusted annually by the LandsD in light of the prevailing transaction records of market rental and related property price indices to reflect changes in market rental values. The standard rate applicable in 2014-2015 as mentioned in the question was also adjusted in accordance with the aforementioned mechanism.

     The level of a waiver fee reflects the increase in land value brought about by the waiver of lease restrictions. It is determined in a fair and reasonable manner under the usual and established land policy adhering to the contractual spirit of the lease, unless a relevant bureau, based on policy considerations, introduces a fee waiver/concessionary scheme in respect of an individual trade or a specified use, so as to facilitate the conversion of an industrial lot or an existing industrial building to specified uses.

(3)    When handling suspected cases of lease breaches, staff at DLOs of the LandsD will, according to the uses permitted by the land lease and other conditions, consider whether the premises are in breach of the lease conditions by comparing the information collected (including the information provided by the occupiers of the unit, the inspection report on the environment and facilities on-site and other circumstantial evidence available to DLO staff). The question claims that the LandsD suspected some industrial building units were being used for domestic purposes because television sets and sofas had been placed therein by the tenants. This piece of information does not fully reflect other on-site and circumstantial evidence collected by DLO staff on these cases. As the lease conditions involved and the uses identified on-site in each case are not exactly the same, DLO staff have to take into consideration the actual operation of each use, and seek legal advice where necessary to determine whether there is any breach of lease conditions governing the lot concerned.

(4) and (6)       A land lease is a private contract signed between the Government and a land owner. The land owner is required to ensure that the use of the land is in compliance with the lease conditions and that breaches are rectified. Those who use industrial building units should also pay attention to the user restrictions stipulated in the land lease. In fact, those in search of premises for running their businesses should first consider whether the uses of the premises are in compliance with the lease and the requirements of relevant legislation. They should seek legal advice when necessary, lest losses be incurred eventually as a result of choosing premises in breach of the lease and the requirements of the relevant legislation.

     On July 15, 2016, the Government announced the risk-based enforcement arrangements against lease breaches in industrial buildings, targeting units in breach of the lease matching two conditions: (i) there are other premises in the same industrial building currently issued with Licences for Manufacture and/or Storage of Dangerous Goods (DGLs) by the FSD; and (ii) the uses attract the flow of people.

     The LandsD will adopt a stringent approach and take measures to re-enter units in these cases which pose a higher risk, with a view to urging the parties concerned to rectify the breaches as soon as possible. The regulatory arrangements aim at protecting the safety of members of the public accessing the units, because such conditions will pose an obvious risk to those accessing the industrial buildings but are unfamiliar with the setting.

     As for other categories of lease breaches in industrial buildings, the LandsD will continue with its current arrangement: namely, DLOs will, in general, issue a warning letter to the owners requiring that the breach of uses be purged within 28 days. If the breach is not rectified upon expiry of the warning period, DLOs will register the warning letter at the Land Registry (i.e. commonly known as "imposing an encumbrance"), and reserve the right to take further lease enforcement action in the future.

      In other words, the risk-based enforcement arrangements are by no means an across-the-board measure for handling cases in breach of the lease by re-entering units. The target of lease enforcement is not to strike a blow against any individual industry either. In fact, regarding the concern raised by the Hon Nathan Law about arts, cultural and sports uses, for lease breaches of uses not attracting the flow of people (such as self-occupied cultural/creative workshops), or breaches involving the flow of people but the industrial building has no premises currently issued with DGLs by the FSD, they are not currently targeted for stringent enforcement action.

(5)    In considering ways to optimise the use of land resources in Hong Kong, including the relaxation of non-industrial uses in industrial buildings, the most important principle is that the proposed measures would not constitute significant fire safety risk. At present, industrial activities including those involving storage of dangerous goods are still found in many industrial buildings. Fire safety risk would be increased if activities attracting large flow of people are held in these industrial buildings. We have to be cautious in handling the issue. The DEVB will continue to coordinate with the policies of the HAB and help provide space necessary for arts, cultural, sports and community activities through planning and other appropriate measures as long as they are in compliance with statutory and public safety requirements.

     The HAB had explored the feasibility of accommodating visual arts workshops in industrial buildings with the FSD, the PlanD and the LandsD. After several rounds of discussions, the concerned departments agreed to include "Art Studio" (excluding those involving direct provision of services or goods) as an always permitted use in industrial-office buildings in "Industrial", "Other Specified Uses (Business)" and "Residential (Group E)" zones. As of mid-October 2016, 12 outline zoning plans (OZPs) have been amended accordingly. The PlanD will make similar amendments to other OZPs in future when suitable opportunities arise.
Ends/Wednesday, November 9, 2016
Issued at HKT 15:36
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