Lands Department closes premium deal loophole
The Lands Department has tightened premium settlement procedures to enforce penalties on developers reneging on agreements.
Effective January 2, developers must pay a 10 per cent deposit immediately on accepting an agreed land premium. A 14-day grace period was previously allowed on such payments.
The move was made in response to the Audit Commission's concerns about inadequate protection of the Government's interest under the previous arrangement.
The latest change is a refinement to new lease modification procedures of April 1999, plugging a procedural loophole being exploited by developers.
The Lands Department grants modifications of lease conditions for redevelopment of land lots. Often, a premium must be paid on the rise in land values due to modifications.
Before April 1999, developers or applicants were allowed six months to reconsider and complete the modification after an agreement was reached with the Government.
With the volatility of the market, it was not uncommon for developers to exploit the grace period and ask for a reduction in the premium.
After April 1999, the Lands Department abolished the six-month premium validity period, instead requiring developers to pay a 10 per cent deposit within 14 days.
However, the Audit Commission said improvement was still needed. It said if the lease owner withdrew from the deal during the 14 days without paying the deposit, the Government's interest would not be adequately protected.
The Lands Department has accepted the commission's recommendation to require developers to pay the deposit immediately and settle the balance within three months.
A property company executive said the new procedures would have a minimal impact on developers negotiating premiums with the Government.
He said premium agreements were made legally binding since the 1999 change. Abolishing the 14-day grace period was not a material change, he said.
Another property executive welcomed the move, saying the arrangement left no room for backing out and provided some form of certainty over the agreements for both sides.
He said developers would exercise extra caution before agreeing to former offers, especially those containing complicated terms or provisions, which might lead to different interpretations and disagreements.
A test check of 100 lease modification cases between 1997 and 1999, found five cases where owners exploited the six-month loophole.