Court backs developers as Government loses claim for higher rates

PUBLISHED : Friday, 17 December, 1999, 12:00am
UPDATED : Friday, 17 December, 1999, 12:00am


Hong Kong's property developers scored a significant victory against the Government yesterday when the Court of Appeal quashed a system of calculating rent on vacant land based on a 'rateable value'.

The ruling is expected to help the companies save millions of dollars.

A class-action suit had been launched by companies from nine groups to challenge the Government's method of assessing rent on vacant land.

According to the suit, the method violated the Basic Law.

The Lands Tribunal ruled in favour of the Commissioner of Rating and Valuation in March, but this was overturned yesterday by the Court of Appeal.

Companies taking part were included Cheung Kong group, Chinachem group, Hang Lung group, Henderson group, Nan Fung group, Sino group, Sun Hung Kai Properties group, Swire Pacific and Wheelock group.

Fifty-nine leases are involved on sites pending development or at different stages of development or redevelopment.

Changes in the law post-1997 meant that as of July 1 that year, they received demand notes for government rent on the land following the introduction of the Government Rent Regulation.

Previously, they had paid only a nominal rent, typically $1,000 per annum.

The new law stipulated that rent would be charged at 3 per cent of the land's rateable value.

However, the nine companies claimed that under another law - the Rating Ordinance - these sites were not rateable at all.

This is because the sites were unable to derive income and were thus not regarded as being under rateable occupation.

Mr Justice Simon Mayo yesterday ruled: 'There is no specific provision in the Rent Ordinance enabling the commissioner to ascertain the rateable value of relevant land being developed otherwise than in accordance with the Rating Ordinance.' Principles in the latter law 'did not entitle the commissioner to take into account the intention to develop the land', he stressed.

A sample valuation had been done for the court, notably on a Sino Group development site located on Electric Road in North Point.

The property was to be developed into a 36-storey office and shopping complex.

A premium of $760 million had been paid for the site at public auction in December 1996, and government rent of $1,000 per annum was assessed on it up to June 30, 1997.

After that date, a calculation of the rateable value involved taking the site's alleged market value of $741 million and applying a decapitalisation rate. The rateable value was thus $29.64 million.

Rent was then assessed at 3 per cent of that figure.

Mr Justice Robert Ribeiro remarked: 'In my view, the Commissioner's approach, as illustrated by the sample valuation, is wholly inconsistent with the Rating Ordinance and ignores basic rating principles . . .' The companies were also awarded costs of the appeal.