Hong Kong's leading property developers have banded together to challenge the Government over a system of charging rent on vacant land, claiming it violates the Basic Law.
A massive class action began at the Lands Tribunal yesterday, with 58 companies - subsidiaries or associates of eight leading developers - crossing swords with the Government.
The companies are taking it to task over the practice of charging rent on vacant land - either sites pending development, or those at different stages of development or redevelopment - at the yearly rate of 3 per cent of the rateable value of the land.
The companies claim the rateable value can only be determined by the current physical state of the land and any potential value it may have for development is irrelevant.
If the land is not capable of being occupied and deriving income, the proper rateable value is nil or nominal, they argue.
Companies taking part include subsidiaries or associates of Cheung Kong Group, Chinachem Group, Hang Lung Group, Henderson Group, Nan Fung Group, Sino Group, Sun Hung Kai Properties Group and Wheelock Group.
Prior to June 1997, none of the companies received demand notes for rates in respect of the land. In early July, they all received demand notes for government rent on the land following the introduction of the Government Rent Regulation.
This stipulated that rent would be charged at 3 per cent of the land's rateable value.
However, by changing the basis of rateable value, the Basic Law is being breached, it is claimed. Article 121 ensures the continued validity of land leases after the handover.
Counsel for the companies, barrister Michael Fitzgerald QC, submitted to the tribunal: 'Continuity of the previous system is the key to the Joint Declaration and the Basic Law.' He said rateable value could only be applied to strict rating purposes, which, until the new regulations were imposed in mid-1997, 'was the only concept of rateable value known to law'.
Article 121 would be destroyed if the definition of rateable value 'may be varied for different purposes as the Government thinks fit', he said.
He said there was no 'social need' for the meaning to be changed.
'It has long been the practice that undeveloped land is not liable to the payment of rates,' the tribunal was told. 'Indeed, it would be unfair to require the appellants to pay government rent on the basis of the potential value of the land when the development potential has already been fully taken into account in determining the amount of premium.' The tribunal will resume tomorrow.