Hong Kong's Extension of Government Leases Bill Passed into Law

On 26 June 2024, the Legislative Council (LegCo) passed the Extension of Government Leases Bill (Bill) into law (Ordinance). The Ordinance is set to take effect on 5 July 2024. Among others, the Ordinance deals with the extension process for government leases in Hong Kong that are set to expire on or after 5 July 2024 (without rights of renewal being granted).

We wrote a Legal Update in August 2023, back when the legislative proposal was first introduced, to discuss the salient features of the Bill in light of Hong Kong’s existing land grant policies.  This Legal Update highlights major changes stemming from our last Legal Update.

Re-Cap on Features of the Ordinance

By way of re-cap, the salient features of the Ordinance are summarised as follows:

1. The Ordinance will only apply to non-renewable general purpose leases that are set to expire on or after 5 July 2024, and will not apply to (a) short-term tenancies and (b) special purpose leases (SPL).
2. The Director of Lands (Director) will identify SPLs by making identification notes in the Land Registry.
3. The extension of applicable leases will be declared and effected by the Director by publishing Extension Notices in the Gazette, without the need for owner(s) to execute new leases.
4. At the time an Extension Notice is published, the Director will also publish a Non-Extension List (NEL), specifying the leases that will not be extended in accordance with the Ordinance.
5. Such Extension Notices and NELs will be published at least six years before the expiry dates of the applicable leases.
6. By publication of an Extension Notice, upon expiry of the applicable leases, the terms of the applicable leases will be extended for a further 50 years from their respective expiry dates, with no additional premium payable and annual Government rent payable at 3% of rateable value. 
7. Lessees of applicable leases may opt-out from extension under the Ordinance by registering an Opt-Out Memorandum with the Land Registry.
8. For applicable leases where foreign-related entities are involved (such as consular posts), prior approval to extend such leases must be obtained from the Office of the Commissioner of the Ministry of Foreign Affairs of the People’s Republic of China in Hong Kong.

Notice Period Extended to Six Years

Under the Ordinance, the notice period for publishing the Extension Notices and NELs has been increased from three years to six years, different from the legislative framework first introduced in May 2023. 

According to the LegCo brief published on 7 December 2023, this change was made in light of suggestions from LegCo members and other stakeholders for a longer lead time, with reference made to the approximately nine-year notice period under the New Territories Leases (Extension) Ordinance (Cap. 150 of the Laws of Hong Kong).

According to the Government, the six-year period should strike an appropriate balance between allowing the Government as landlord to take into account circumstances closer to lease expiry in considering whether to grant the extension or not, and addressing stakeholders’ concern for greater certainty.

Practicalities of the “Negative Listing” Mechanism

On current design, each Extension Notice and its corresponding NEL will deal with leases expiring in a particular calendar year. The Ordinance will take a “negative listing” approach, meaning that leases to be extended will not be listed individually in the Extension Notice, while only leases not to be extended will be listed individually on the NEL.

According to the Government, this “presumption for extension” sits well with the policy objective of providing certainty in lease administration and the policy that most leases will be extended, unless there are public interest considerations against the extension of particular leases. It will also avoid having to publish a long list of leases to be extended and risking any unintentional omissions.

It should also be noted that, similar to the operation of Cap. 150, leases extended under the Ordinance will not be reflected in individual land register records. Instead, the Land Registry will alert readers of the land register records that such records should be read conjunctively with any relevant Extension Notice published in the Gazette.

Further Administrative Guidelines and Regulations 

In the legislative proposal, it has been briefly mentioned that an appeal or amendment mechanism will be available to (a) cancel an identification note identifying a lease as a SPL, and (b) remove certain leases that are listed on the NEL.

The procedures for such mechanism have not yet been stipulated under the Ordinance. Instead, they will be promulgated by way of open administrative guidelines, to be published by the Lands Department (LandsD) on its website at a date subsequent to the enactment of the Ordinance. Such administrative guidelines will set out the arrangement for owners to lodge an appeal and for the LandsD to process such appeals.

Apart from administrative guidelines, the Chief Executive in Council may also make further regulations under the Ordinance.

Concluding Remarks

The first batch of Extension Notices (and the corresponding NELs) will be published in the Gazette on 5 July 2024, which will cover applicable leases with expiry dates between 5 July 2024 and 31 December 2030. Subsequent Extension Notices and NELs will be published at least six years before the expiry dates of the leases.

For SPLs, the first batch of SPLs (with expiry dates between 5 July 2024 and 31 December 2030) will also be identified on 5 July 2024. The remaining SPLs will be identified by 31 December 2024.

We welcome the passing of the Ordinance, in particular the changes made since the initial legislative proposal, which took into consideration suggestions from various stakeholders. Given that more than 300,000 lots in Hong Kong will expire by 30 June 2047, we are optimistic that the newly-passed Ordinance (and any further regulations and guidelines to follow) will bring a great degree of certainty to the Hong Kong property market.

The gazetted version of the Bill can be found here: The Government of the Hong Kong Special Administrative Region Gazette (legco.gov.hk).