Uncertainty over ‘concrete cases’
It usually follows that the older a property, the more maintenance is required. In multi-storey buildings, however, this can be complicated as questions often arise about who should pay for it, writes Boase Cohen & Collins Partner Alex Liu.
Hong Kong, 7 August 2020: The lure of buying a flat in an older building is sometimes difficult to resist. Residential units constructed decades ago tend to have more floor space and higher ceilings, since Hong Kong’s land shortage had yet to really bite at that time. Those extra square feet are tempting, especially for buyers with families. But, as with any ageing property, there are bound to be maintenance issues.
A frequent area of dispute is the building’s exterior, where outside walls can be prone to concrete spalling – that is, flakes of wall covering falling off, a problem that is both unsightly and dangerous. But who is responsible for repairs? The answer is not straightforward. In some cases, the property developer may have reserved ownership of the external walls, especially if the lower floors are for commercial use and have been monetised with advertising boards or even digital display screens. In other instances it may be the owners’ corporation (“OC”).
Usually, the issue can be resolved by checking the deed of mutual covenant (“DMC”). This is a document containing terms that are binding on all flat owners of a multi-unit or multi-storey block and it essentially sets out rules for the management and regulation of the building. Once a DMC is signed by the owner of a flat and the developer, it binds all subsequent owners. More often than not, the document will identify who owns the exterior walls and thus is responsible for maintenance.
However, the DMC may not specify this information, in which case we can refer to section 34H of the Building Management Ordinance (Cap. 344) (“BMO”), which states that where a person owns any part of the building, has the right to the exclusive possession of any part of a building, or has the exclusive right to the use of that part, so they are responsible for maintenance.
The BMO also allows for a general meeting of the OC to be called ahead of any repair work, with a course of action to be decided by majority vote. But the property developer might hold the majority of shares in ownership of the building and has the power of veto. In this instance, especially if the repair work is urgent, it is advisable for the OC to pay in advance for the maintenance and then claim it back from the developer. If the developer is uncooperative, the OC can take the issue to the Lands Tribunal, which is empowered to determine building management disputes such as interpretation and enforcement of the BMO and DMC.
What if a flat owner is opposed to a decision made by the OC? Voting rights can be complicated. Generally speaking, ownership in a multi-storey building is expressed in terms of undivided shares. When an owner buys a flat, he or she is not only entitled to exclusive possession of the flat, they also jointly own the common parts of the building with other flat owners. As the common parts are co-owned by all owners, the shares of the building are undivided. The undivided shares of each flat are set out clearly in the DMC and, in most circumstances, the maintenance and management fees as well as the voting rights of owners are determined on the basis of the undivided shares they each own.
Can owners unhappy with their allocation of undivided shares apply for the DMC to be amended? It is highly unlikely, since the consent of all owners is required to modify the terms of a DMC. A more logical course of action for an owner seeking to resolve a building management or maintenance issue is to file a private case with the Lands Tribunal rather than bringing the matter to court via the OC.
It should be stressed that if an exterior wall is in obvious need of repair, the owner or owners are strongly advised to deal with it as a matter of urgency, both in the interests of public safety and with regard to liability. A notable case before the High Court concerned unauthorised building works on the balcony of a rental unit where materials fell down, resulting in the death of a passer-by. The judge decided that not only were the flat owner and tenant liable, but also the OC. The latter appealed to the Court of Final Appeal but this was dismissed.
Finally, it is worth reminding everyone that third party risks insurance is obligatory for OCs. Both the BMO and the Building Management (Third Party Risks Insurance) Regulation (Cap. 344B) require this. Third party risks insurance provides compensation for financial loss in the case of the death of, or bodily injury to, a third party in relation to common parts and facilities of a building, including lifts and staircases and, of course, the exterior walls.
Alex Liu was Chairman of the Appeal Tribunal Panel (Buildings Ordinance) for nine years until 2018 and has considerable experience in dealing with property ownership and building management issues. The above article is based on advice he has offered during regular appearances in the TVB documentary series A Property a Day. He can be contacted via alex@boasecohencollins.com.
