Hotel development's buyers undeterred by 'one-sided' deals

Investors undeterred by developer's contractual clauses and a law firm's warnings that it will not be held responsible for any of their losses

PUBLISHED : Tuesday, 26 February, 2013, 12:00am
UPDATED : Wednesday, 20 June, 2018, 5:13pm

About 80 per cent of the buyers in Cheung Kong's controversial hotel development in Kwai Chung have confirmed their deals, even though the contract terms have been deemed "one-sided" by some lawyers.

This emerged as the government was studying the legality of the sales, under which buyers can avoid stamp duties introduced to cool the property market.

A spokeswoman for the property giant said last night that some buyers of units in the 360-unit Apex Horizon hotel had decided to sign the formal agreement for sales and purchase before today's deadline to do so.

Government officials will discuss the issue with Legco's development panel today.

It is the first time in Hong Kong that a developer has sold hotel suites, classified as commercial property, individually, allowing buyers to escape stamp duty. Some agents are also reported to have told buyers they can get around the law and live in the units themselves, while the hotel will return the rent they pay to comply with licence requirements.

As two buyers who had paid deposits for the hotel suites approached police for help on Sunday, a document named "salient points of Hotel Operation Agreement", attached to the provisional contracts they signed, was revealed to media. The agreement will be included in the formal contract.

While the developer stipulates in the agreement that the hotel is not for private residential use, it has asked buyers to agree to several issues which would favour itself and gives itself plenty of discretion in the hotel management.

The hotel unit buyer has to "[agree] that the hotel operator shall owe no duty to any of the owners to apply for, obtain, renew and/or maintain all or any permits", including the hotel licence after it expires in 2018.

The operator will also be entitled to determine the priority for allocating the rooms to guests, meaning the buyer cannot challenge the operator's decision even though he or she wants to lease it to friends.

The buyer has to acknowledge there is no guarantee the room will be leased to any guest or whether there will be any profit.

University of Hong Kong assistant professor of law Eric Cheung Tat-ming said that the agreement appeared to be "one-sided and in favour of the operator".

"It gives the operator a lot of discretion and almost no liability," Cheung said.

If buyers could prove that they were misled, by agents, for example, into thinking they had more control over the unit than they actually did, and had barely time to read the documents, they could argue for removal of the unfair terms, Cheung added.

Solicitor-lawmaker James To Kun-sun said there was a loophole in the agreement that could allow buyers to keep the flat for their own use, by making use of a clause in the hotel-operation agreement that said it was up to the buyer to instruct the operator to set the room rate and charges.

"The buyer can set his room rate at HK$100,000 and no one will compete with him," To said.

The controversial sales have led to one law firm, one of three suggested to buyers by Cheung Kong, to issue a disclaimer stating that the firm will not be held liable should the buyer suffer any losses from the transaction.

Ambrose Lam San-keung, a solicitor specialising in property transactions, said this was not a common practice, and was used only with clients "who can afford decisions possibly to their detriment".