Compulsory sale: ‘paper’ sub-division not adequate

Lead Traders Ltd v Lucky Land Enterprise Ltd ([2011] HKEC 1058) concerned the sub-division of the third floor of a six storey building. The applicants had 83.33% of the undivided shares. The respondent had the remaining shares.

In March 2010, the respondent entered into an assignment and sub-DMC. The effect was to divide the third floor into units A and B. The aim was to avoid being caught by the Notice reducing the compulsory sale threshold from 90% to 80%. This reduction would apply to individual units representing more than 10% of the shares; this sub-division sought to take the third floor out of this category. The Notice contained requirements that applied where the sub-division occurred after 1 April 2010. Here the paper sub-division had occurred by then but no work had been done to effect a physical partition. The Lands Tribunal held that this legal / paper sub-division was not effective to prevent the third floor from being caught by the Notice. The judge looked at the intention of the legislature. This was to be found in a Legislative Council Brief prepared by the Development Bureau. This showed that the sub-division had to be ‘genuine’ if it was to have the effect contended for by the respondents. This was not a ‘genuine’ sub-division; there had been no physical sub-division.

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