Looking deep into the art of building management

Last August, I wrote a column praising Hong Kong's system for the management of multi-owned buildings and estates. Some system of collective decision-making is indispensable. I suggested that the ability to set up an owners' corporation is an elegant response to this very practical need.

One of the main benefits of the system is that it establishes a management committee with the power to make operational decisions on behalf of all of the owners. This does away with the need to consult individual owners on each and every decision and to obtain the consent of all of them before any action is taken.

The Building Management Ordinance requires the owners' corporation to maintain the common parts and to do all that is reasonably necessary to enforce the deed of mutual covenant. It is up to the management committee to ensure that the corporation carries out these duties.

The members of the management committee are elected from among the owners and take decisions on their behalf. Necessarily, the committee members have some degree of control over the level of management charges and how they are spent. The committee also controls the enforcement of legal rights concerning the common parts of the estate on behalf of all of its owners.

But this gives rise to governance issues: the Building Management Ordinance assumes that the members of the management committee are willing and able to put aside their own interests and act for the well-being of the owners and estate as a whole. How can the owners be sure that the committee members live up to these expectations?

The ordinance contains mechanisms that seek to give assurance to the owners. The management committee is answerable to the owners at general meetings, where audited accounts have to be presented. The owners also have a right to inspect the books of account.

The members of the management committee are exempted from personal liability in respect of anything they do on behalf of the owners' corporation. However, this exemption is available only where they have acted in good faith and in a reasonable manner. The implication is that they could otherwise face personal liability. Indirectly, this imposes certain broad standards of honesty, care and competence on the committee members.

These general accountability tools are supplemented by some more specific measures concerning, for example, the setting of management charges for an estate, tendering procedures, and building management and maintenance. The courts also get involved in governance disputes from time to time, and there is a steady stream of cases on what might be termed governance issues.

Corporate governance is widely studied by academics and many others, but by comparison, very little attention seems to be paid to the governance of estates. This is a pity since it is an area of such enormous interest and it is important for a wide range of reasons.

Members of management committees might well appreciate support and guidance and a forum to discuss matters of common concern. Owners and tenants, too, could doubtless benefit both from a greater awareness of the rights they have and some knowledge as to how to enforce them in a practical and affordable way.

Professor Michael Lower of the Faculty of Law at Chinese University teaches and researches land law