Legal Update on Extension of Government Leases Ordinance

Introduction

As general purpose leases¹ of about 2,400 lots will expire from June 2025 to 29 June 2047, and approximately 300,000 lots will expire concurrently on 30 June 2047,² the Legislative Council passed the Extension of Government Leases Bill on 26 June 2024 and gazetted the Extension of Government Leases Ordinance (Cap. 648) (the Ordinance) on 5 July 2024. With the Ordinance coming into force on the same day of the Gazette, the Ordinance provides a more streamlined and efficient mechanism for extending the voluminous number of government leases by operation of law, instead of requiring the government to execute individual new leases with each and every owner with a share in the landed property. This new mechanism brings greater clarity, certainty and simplicity to deal with the issues and concerns over the traditional policy and procedure of lease extension process for general purpose leases in Hong Kong which is arduous, complex and cumbersome.

Scope of application

The Ordinance is applicable³to:

1. a general purpose lease (i.e. not a short term tenancy or special purpose lease (SPL));
2. expiring on or after 5 July 2024; and
3. not containing an unexercised right of renewal."

SPL

SPLs are identified by an SPL identification note added by the Director of Lands (Director) in the relevant land register at the Land Registry.⁴ Such SPL identification notes may be subsequently cancelled by the Director by lodging an SPL cancellation note in the respective land register.⁵ The time limit for making SPL identification notes is set out as follows:

SPLs	Time limit for lodging the identification note
SPLs expiring between 5 July 2024 and 31 December 2030	On 5 July 2024
SPLs expiring on or after 1 January 2031	On or before 31 December 2024
SPLs newly executed (or leases newly modified as SPLs) on or after 5 July 2024	On the same day as the newly executed lease is registered at the Land Registry (or upon the registration of the modification instrument at the Land Registry)

Notably, the Ordinance is equally applicable to New Territories leases which have been extended to expire on 30 June 2047 by virtue of the New Territories Leases (Extension) Ordinance (Cap. 150).⁶

New mechanism

Under the Ordinance:⁷

1. expiring leases during a specified lease expiry period will be extended in batches by virtue of the publication of extension notices (ENs) in the Gazette by the Director except for those specified individually on the non-extension list (NEL) which is simultaneously gazetted together with each EN, registered in the Land Registry and published on the website of the Lands Department;⁸
2. the EN together with the corresponding NEL will be published generally at least six years before the lease expiry dates. If the leases are expiring between 5 July 2024 and 31 December 2030 (i.e. less than six years), these leases will be covered by the first EN and NEL published on the effective date of the Ordinance;
3. leases covered by the EN will be extended for a further period of 50 years from the day following the original expiry date;
4. the extension will be granted without payment of any additional premium but subject to an annual rent equivalent to 3% of rateable value;
5. all existing interests, encumbrances, covenants, exceptions, reservations and rights under the original lease will be carried forward during the extended term and remain in force, eliminating the need for the government to verify and approve title or address outstanding encumbrances; and
6. key conditions under the original lease (e.g. user and development parameters) will be retained in the extended lease.
   
   

Key features

Opt-out mechanism⁹

A lessee of an applicable lease not listed in an NEL can voluntarily opt out of the lease extension. To do so, the lessee must deliver an Opt-out Memorandum (the Memorandum) in the form specified by the Director and signed jointly by all "specified persons"¹⁰ within the period specified under the Ordinance to the Land Registry for registration. The Memorandum takes effect on the date of its registration.

Notably, given that choosing not to accept the lease extension is a serious and important decision, the Ordinance empowers the court to make an order for the vacating of the registration of the Memorandum without the consent of the lessee and the specified persons. Such measure helps to protect persons who have acquired or are in the course of acquiring an interest in the land from a lessee who seeks to register the Memorandum without regard to their interests.

Leases involving foreign-related entities¹¹

For the extension of applicable leases concerning land owned by foreign-related entities, and the land or premises erected on the land is used for a specified purpose (e.g. for a consular post, representative office or staff residence of such consular post or representative office), prior approval 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.

What's next?

An appeal or amendment mechanism for cancellation of an SPL identification note and removal of certain leases listed on the NEL is not specified in the Ordinance. Details regarding such mechanism will be circulated by way of administrative guidelines and regulations to be published by the Lands Department on its website on a date after the enactment of the Ordinance. This is greatly welcomed as it provides further clarity in determining how appeal and amendment decisions are made.

Conclusion

The Ordinance (and any further guidelines and regulations to be promulgated) represents a positive step forward by establishing a simplified and orderly process for extending the expiring general purpose leases. This significantly reduces administrative costs associated with lease extension, and provides greater certainty and confidence to the property market in Hong Kong.

Acknowledgements to summer intern Raven Luo for research and contribution to this article.

1. General purpose leases are mainly those for commercial, residential or industrial uses.
2. LC Paper No. CB(1)506/2023(04).
3. Section 3 of the Ordinance.
4. Section 4 of the Ordinance.
5. Section 5 of the Ordinance.
6. Report of the Bills Committee on Extension of Government Leases Bill to the Legislative Council on 26 June 2024 [CB(1)827/2024].
7. Section 7 and 8 of the Ordinance.
8. Government Notices Issued under the Extension of Government Leases Ordinance published on the website of the Lands Department
9. Section 9 of the Ordinance.
10. Specified persons include any person who is registered, in the person's name, as the owner(s) of the land, or any person who has an interest in the land under a subsisting registered agreement for sale, mortgage or charge.
11. Section 14 to 17 of the Ordinance.

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