Archive for the ‘Management expenses’ Category

Owner’s liability for management charges – need for adequate legal basis and proper procedure

November 22, 2017

In San Po Kong Mansion (IO) v On Rich (HK) Investment Ltd ([2017] HKEC 2321) the plaintiffs were the incorporated owners of San Po Kong Mansion comprising four 20-storey blocks for mixed commercial and residential use.

The defendants owned 10% of the shares in San Po Kong Mansion allocated to part of a building originally a cinema but now converted into a shopping mall (‘the Theatre Parts’).

Shine Empire Ltd (‘Shine Empire’) retained the right to exclusive possession of the roofs of the other parts of San Po Kong Mansion (‘the non-Theatre parts’).

The incorporated owners had licensed various telecommunications companies to install equipment and cables on the roofs of the non-Theatre parts and collected licence fees. Shine Empire succeeded in possession proceedings (‘the Trespass Proceedings’) against the incorporated owners and the telecommunications companies. The incorporated owners and the telecommunications companies were ordered, amongst other things, to pay damages and costs to Shine Empire.

The incorporated owners entered into an agreement with the telecommunications companies indemnifying them against all damages, interest and costs arising from the Trespass Proceedings (‘the indemnity agreement’).

In the 2011 annual general meeting, the incorporated owners resolved to levy a charge on each owner as its contribution to the money payable to the telecommunications companies under the indemnity agreement.

Pursuant to this, the incorporated owners demanded HK$1.38 million from the defendants as their share of the sum payable under the indemnity agreements.

The defendants refused to pay arguing that:

  1. the 2011 AGM had not been validly convened;
  2. the DMC did not impose any obligation to meet this payment;
  3. nor did sections 20 – 22 of the Building Management Ordinance entitle the incorporated owners to recover the sum from the defendants.

On the first issue, it was decided that the AGM had not been validly convened. The incorporated owners were not able to show that they had properly served notice of the AGM (or any other notice) on the defendants.

Second, the sum payable under the indemnity agreement did not fall within any of the charging provisions of the DMC.

Third (concerning sections 20 – 22 of the Building Management Ordinance) there was no valid management committee (the incorporated owners were unable to show that any notice of a meeting that might have appointed them had been validly served). Only a validly appointed management committee can fix contributions under sections 20 – 22 of the Building Management Ordinance.

More fundamentally, even a validly appointed management committee could not have required the defendants to contribute to the money payable under the indemnity agreement.

Section 20 of the Building Management Ordinance allows incorporated owners to maintain funds:

(a) to meet the costs of exercising powers and performing duties imposed on them by the DMC and the Ordinance itself;

(b) to pay ground rent, taxes or other outgoings in respect of the building as a whole;

(c) to maintain a contingency fund to meet expenses of an unexpected or urgent nature.

The sums payable under the indemnity agreement did not fall under any of these headings. Sums are only recoverable under (c) if they were expenses that the incorporated owners were empowered to incur. It is not enough for them to be unexpected or urgent ([66]). The incorporated owners had not that they were authorised to enter into the indemnity agreement.

Michael Lower

 

Overpayment of management fees: acquiescence

November 20, 2012

In Wong Pun-Man v Tung Fat Industrial Building (IO) ([1996] 1 HKDLR 32, LT) a DMC provided for the payment of management fees by the owners of the shops and flats in the building. The flats initially paid management fees at a higher rate than the shops. The DMC provided for any increases to be ‘in like proportion’. The increases were unanimously agreed at annual owners’ meetings. Copy notices of the revised fees were then prominently displayed in the building and sent to each owner. For several years, the fees were not increased ‘in like proportion’ and the fee increases for the shops were steeper than for the flats. The shop owners made the payments demanded but then realised that the DMC had not been followed and sought to recover the over-payments. They failed; they had acquiesced in the over-payments. They knew (or must be taken to have known) of the terms of the DMC and had paid nonetheless. There had been detrimental reliance and it would be unconscionable to re-open the accounts.

The Tribunal left open the questions as to whether the effect of the acquiescence was merely suspensory (having no effect on future rights) and as to the impact of the (the new) Building Management Ordinance from 1994 onwards.

Thorogood Estates Ltd v Robinson Heights (IO)

February 17, 2012

Thorogood Estates Ltd v Robinson Heights (IO) ([2012] HKEC 201) (later overturned by the Court of Appeal) concerned the liability of T to contribute to the cost of repairs and renovations at Robinson Heights. T owned the garages on the upper and lower ground floors. It argued that the DMC only required it to contribute to costs attributable to the garage area and not the much larger costs of repairs to the building as a whole. The Lands Tribunal applied the well-known principles of construction of agreements generally and DMCs in particular. The judge saw no sign that the intention of the parties to the DMC had been that the liability of the garage owners should be limited purely to expenses associated with the garage areas. The factual matrix included the layout of the building. There were lifts in each block going directly from the residential areas to the common parts. Preparation of a budget was not a sine qua non for liability to pay.

Lands Tribunal has no jurisdiction to determine the amount of the management fee

January 9, 2011

Where the Lands Tribunal finds that the amount of management fee payable by an owner has not been calculated in accordance with the terms of the DMC it has no jurisdiction to substitute its own finding as to the amount payable. Rather, it should make an apropriate declaration.

In Harvest Top Development Ltd v Incorporated Owners of Harbour View Garden ([2011] HKEC 32, LT) the applicant owned 72 car parking spaces in Harbour View Garden and the associated undivided shares. It complained, inter alia, that it was paying an unfairly high proportion of the management expenses for the complex. Deputy Judge Lee found that the method of calculation did fall within the terms of the DMC. Obiter, he said that even if he had reached the contrary conclusion the appropriate remedy would be a declaration. The court had no jurisdiction to determine the amount of management fee payable.