Link Reit cheated Hong Kong homeowners out of millions after failing to honour repair and maintenance agreement, investigation finds
Report says the Link was obliged to pay between 6 and 49.2 per cent of maintenance costs for common areas at 23 estates – but only did so on three occasions
Hong Kong’s Link Reit has been accused of reneging on obligations to pay its fair share of repair and maintenance costs at a number of subsidised housing estates, leaving some homeowners HK$10 million (US$1.3 million) out of pocket.
The Link, the largest real estate investment trust in Asia, adhered to a covenant-bound cost-sharing arrangement at just three out of 23 Home Ownership Scheme (HOS) estates in the city, an investigation by local news agency FactWire found.
Homeowners at these estates were paying millions of dollars more than they should have for repair projects, the report said, citing documents obtained through Hong Kong’s Code of Access to Information.
This was despite the developer agreeing to a little-known “split-ratio covenant” with the Housing Authority when the government divested ownership of retail and parking facilities to the listed trust in 2005.
According to the agreement, the Link was obliged to help shoulder anywhere from 6 to 49.2 per cent of the costs of “management, repair, maintenance, renewal and replacement” of common areas and facilities at these estates.
The arrangement applies when an estate’s owners’ corporation demands it, and can be enforced by the Housing Authority when needed, the report said.
In one example, owners at Sui Wo Court, Sha Tin, paid for 96 per cent of a HK$23 million project to replace water pipes in 2013 after the owners’ corporation agreed to share the cost based on “water usage”.
The split-ratio covenant, however, stated that the Link was responsible for 49.2 per cent of the cost of maintaining and repairing the estate’s common areas, with the rest to be divided between the owners.
In the end, the owners were slapped with a HK$22 million bill, while the Link and the Housing Authority contributed just HK$820,000 and HK$120,000 respectively.
The Link told FactWire the repair works for Sui Wo Court were led by the owners, with input from the owners’ independent consultant. It added that the costs were calculated by the consultant and approved by the owners' corporation.
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Split-cost arrangements were honoured at just three of the 23 estates – Ching Wah Court in Tsing Yi, Yin Lai Court in Mei Foo and San Wai Court in Tuen Mun – according to the report.
Responding to FactWire’s report, the Housing Authority confirmed that the cost-sharing arrangement still applied to the maintenance of common areas in 23 HOS estates, but did not address questions about its role in monitoring Link Reit and enforcing the agreements.
In a statement, Link Reit said requirements for the split-ratio covenant were already included in the deeds of assignment of the 23 properties signed between the trust and the authority, which were available for public inspection at the Land Registry.
“In managing its properties, Link has always adhered to the provisions of the relevant land leases and title documents,” a spokesman said. “Following [its] IPO, the estate land lot has been divided into residential and commercial portions governed by the respective Deeds of Mutual Covenant to enable separate management.”
The deed is a legal document binding the building owners registered in the Land Registry.
The Link, which owns the commercial portion of these properties only, had no right to participate in the management of the residential portion, hence, would have no knowledge of operating expenses in the common areas, it said. “Link will only know about such expenses upon demand of payment of its share by the [owners’ corporation] or the management company appointed by the [corporation] at which time, Link will follow up and make the requisite payment.”
The Link only last year completed a sell-off of a portfolio of properties that included 17 shopping centres, raking in HK$23 billion – the biggest sale of its kind in the city.
But the trust has drawn public criticism, not least for its controversial management of public housing malls.
It has been accused of adopting business practices that push up rents and drive out small players, while increasing the cost of goods for public housing residents. The issues have prompted some activist groups and politicians to call for a government buy-back of the trust.
Tackling the Link was one of “three mountains” – major issues faced by the city – Chief Executive Carrie Lam Cheng Yuet-ngor – vowed to tackle, along with the problem of repeated MTR fare increases and scrapping the offsetting mechanism for the Mandatory Provident Fund.