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SCMP Reporter

LANDLORDS and their retail tenants are heading for a showdown over who should pay for a new land tax which will replace the Crown rent after the 1997 handover.

  Property owners are attempting to pass on the tax to tenants whose leases straddle the transition but retailers claim the extra burden will further erode their wafer-thin margins.

  Under the Basic Law, the tax will replace the Crown rent, which has traditionally been a nominal sum paid by the landlord.

  The new tax which will be charged by the post-1997 administration will be the equivalent of three per cent of the rateable value of the retail outlet.

  Earlier this month, tenants saw off an attempt by Wharf to pass on the tax, which was intended for new leases at its Diamond Hill shopping centre.

  Rodney Miles, chairman of the Retail Management Association (RMA), said resistance was a matter of survival for many stores.

  Since last year, leases extending past June 30, 1997, were required to include provisions for the payment of the new tax.

  According to sources, major property firms such as Sun Hung Kai Properties are attempting to pass on the tax for new leases.

  Mr Miles said there was no international precedent for retail tenants paying Crown rent. A RMA letter sent to all members last month advised them not to sign any lease unless the government rent clause was removed.

  'The RMA believes this is a very significant development and do not accept the change of principle at all. We believe a united opposition to this change is absolutely essential or all landlords will quickly follow this route,' it said.

  Some of Hong Kong's biggest retailers joined forces to beat off Wharf's threat to introduce the tax last month at Diamond Hill, Mr Miles said.

  Doreen Lee, general manager of Wharf subsidiary Harriman Leasing said the proposals had been dropped when tenants voiced their concern.

  She said Wharf automatically assumed tenants would pay the new tax but back-tracked when it realised the level of resistance.

  The furore comes as retail sales tumble and retailers claim they are being strangled by high rents. With much new shop space entering the market landlords would be hard pressed to push the tax rise on to retailers, one property analyst said.

  Hilary Cordell, a property lawyer at Baker McKenzie, said the international norm was that landlords paid land tax. All Hong Kong landlords had a head lease from the government, meaning they normally bore the tax as retail tenants were in effect sub-letting.

  Charles Wheatman, a director at Jones Lang Wootton, was less optimistic. 'It's about power in the market place and what landlords can get away with when negotiating,' he said.



Landlords face backlash over latest threat to profits