The proposal to use arbitration in land lease disputes may result in a long and arduous process for parties involved. Photo: SCMP
Concrete Analysis
by David Faulkner
Concrete Analysis
by David Faulkner

Arbitration for land lease modification isn’t a simple matter

While a quicker fix for disputes on lease modifications is the goal, it may be some years before proposed scheme has an impact

The government's proposal that arbitration be used to speed up the resolution of land premium negotiations for lease modification faces several hurdles before it can achieve its stated objective.

First, none of the current government leases contain arbitration clauses, which means neither side can force the issue, as both parties need to agree to go to arbitration.

Given the nature of the lease modification process, there will normally have been several rounds of negotiation before the parties will reach a stage where arbitration will appear to be the best option to resolve the case.

If one party wishes to use arbitration and the other does not, arbitration will not be able to be used to settle the case. An arbitration clause can be added into new leases, but it is likely to be many years before any of these will need to be modified in a significant way.

The procedures to be adopted must be clear and easily understood by all

Second, both parties will need to agree to be bound by the arbitration decision before the process being started, otherwise there will be no way to enforce the arbitration award. This covers against either or both parties being upset by the award and refusing to accept it.

Third, arbitrations are a long and expensive process in Hong Kong, and although the process has statutory backing, it will be essential for the two parties to agree to the ground rules before starting so as to expedite the process to achieve the stated objective of a speedy award.

Normally, the parties will need to agree as much as they can, so that the arbitrator is only faced with making a decision on the items that remain in dispute. This would include factual items relating to the land concerned and major lease conditions and, ideally, details of the proposed development to be used as the basis of the valuation, the valuation approach to be used and as many of the valuation parameters as possible.

Arbitrations are often conducted by lawyers in Hong Kong. However, land valuation is a very complex and specialised area, and consideration will need to be given as to whom to appoint as an arbitrator or arbitrators.

A chartered surveyor with valuation expertise in this area will certainly be required, either to act as the arbitrator or to sit alongside the arbitrator to advise on the valuation issues. The scale of the valuation may even need a panel of arbitrators with more than one valuer involved.

However, very few valuers are qualified as arbitrators in Hong Kong, so the professional institutions will need to encourage more of their members to gain both a qualification and experience in this area if there is to be a sufficient pool of suitably qualified arbitrators available.

Large sums of money are usually involved in land premium negotiations, so the procedures to be adopted must be clear and easily understood by all if they are to be successfully implemented.

Even if the scheme is introduced before the end of the year, it is unlikely to have an immediate impact on land supply for new development, because any cases initiated under the scheme this year would extend well into next year or beyond before an award is made.

The developer would then have to prepare for the development and apply for various other approvals before starting construction, which would take it into 2016 at the earliest before construction really begins.

This article appeared in the South China Morning Post print edition as: Move for arbitration on land leases faces hurdles