Following is a question by the Hon Paul Tse and a written reply by the Secretary for Development, Mr Paul Chan, in the Legislative Council today (May 29):
Question:
It has been reported that Cheung Kong (Holdings) Limited (Cheung Kong), based on the reason that "harmony is precious", decided to unwind the sale of all hotel room units at The Apex Horizon (the Sale) after entering into an agreement with the Securities and Futures Commission (SFC), in order to avoid SFC conducting an investigation under the Securities and Futures Ordinance (Cap. 571) (the Ordinance) into whether the Sale involved a Collective Investment Scheme (CIS). In addition, there are comments that Cheung Kong unwound the Sale because a Member of this Council had sent a letter to SFC requesting it to conduct an investigation into whether the Sale constituted a CIS. In this connection, will the Government inform this Council:
(a) given that Cheung Kong had, for the sake of selling hotel room units, sought and obtained permission from the Lands Department for splitting The Apex Horizon's land lease, while the Chief Executive, the Chief Secretary for Administration, the Secretary for Development as well as officials from the Lands Department and Buildings Department had neither stopped the Sale nor indicated that the relevant transactions might contravene the Ordinance, whether such situations had arisen because the Government had never realised that the Sale might involve a CIS; if so, of the reasons for that; if not, when the Government started to examine whether the Sale had contravened the Ordinance;
(b) whether it will review the competence of members of the governing team of the Government and government officials in interpreting and enforcing various legislation which is applicable to the regulation of developers, in order to avoid similar suspected illegal sale in future; and
(c) whether it knows if SFC will clarify whether the Sale or similar selling approaches violate any regulations, and whether it will study if it is necessary to take further legal actions and amend the relevant legislation so as to avoid criticism of inappropriately taking "harmony is precious" approach and "tackling problems with developers in private" as well as to prevent the recurrence of similar disputes in future?
Reply:
President,
On the sale of individual hotel room units of The Apex Horizon in Kwai Chung by its developer in mid-February this year, the Government has on different occasions been reminding members of the public to exercise extreme care in considering the offer for sale and to pay attention to the relevant sale and purchase conditions, statutory requirements and lease conditions, including those specifying that the units concerned are for hotel use only, and that they should seek independent legal advice as necessary. At the meeting of the Legislative Council Panel on Development on February 26, 2013, the Development Bureau and relevant departments also elaborated on the regulatory regimes for development and operation of hotels in Hong Kong, including controls on possible misuse of hotels for private residential purpose and the follow-up actions taken by the relevant departments under their respective policy areas in respect of the sale of hotel room units of The Apex Horizon by its developer.
My reply to the three parts of the question is as follows:
(a) and (b) As we have reiterated several times, from the perspective of land lease, the lease governing the lot where The Apex Horizon is situated does not prohibit disposal of undivided shares of and in the lot, but the lessee is required to comply with the lease, including the requirement that the gross floor area (GFA) of the building designated or intended to be used for hotel purposes shall not be less than 21 190 square metres. Insofar as the lease control regime is concerned, the matter at issue is not the sale of hotel room units per se, but whether, following the sale, the concerned hotel room units would in substance be used for hotel purpose such that the relevant hotel GFA requirement under the lease would be complied with. In this regard, the Lands Department (LandsD) has been actively following up the situation regarding the hotel operation of The Apex Horizon and enquiring relevant details, with a view to looking into whether the recent sale arrangement would deviate from the expectation for the property to be used as hotel after the sale of individual units, in fulfilment of the relevant lease requirement. If there is any breach of the lease, LandsD will take appropriate lease enforcement actions, including but not limited to re-entering the property. In addition, the Buildings Department (BD) has been paying close attention to The Apex Horizon incident. If it is confirmed that the requirement prohibiting change of use of a hotel building to a use other than that of a hotel under the Buildings Ordinance is contravened, BD would take appropriate law enforcement action.
On the other hand, in accordance with the Hotel and Guesthouse Accommodation Ordinance (HAGAO), a hotel or a guesthouse has to be operated under a license or a certificate of exemption, unless it is excluded from the application of the HAGAO by the Hotel and Guesthouse Accommodation (Exclusion) Order. A licence will not be granted if the premises intended to be used as a hotel or guesthouse does not meet the requirements on design, structure and fire precautions, health, sanitation, safety and protection of life and property as set out in the Buildings Ordinance and the Fire Services Ordinance. The operation, keeping and management of the hotel or guesthouse shall also be under the continuous and personal supervision of the licensee. In addition, the licensee shall comply with all conditions as stipulated in the licence. The issue of a hotel or guesthouse licence does not act as a wavier of any terms in any lease or licence granted by the relevant authority, nor does it in any way affect or modify any agreement or covenant relating to any premises or building in which the hotel or guesthouse is situated.
Securities and Futures Commission (SFC) has also been following up the issue on whether the sale of hotel room units of The Apex Horizon constituted a collective investment scheme (CIS) in relation to the Securities and Futures Ordinance (SFO). After looking into the issue, SFC formed the view that the offer to purchase hotel room units of The Apex Horizon appeared to be an invitation to participate in or to acquire an interest in a CIS as defined in the SFO. According to SFC's press release on May 13, SFC has subsequently informed the relevant parties that it intended to commence proceedings under section 213 "Injunctions and Other Orders" of the SFO in the Court of First Instance to seek orders unwinding the sale and returning all deposit moneys and part payments to purchasers. According to the press release, SFC has entered into an agreement with the relevant parties to unwind the sale of hotel room units of The Apex Horizon on that day.
(c) SFC has already made clear in its press release on May 13 about the arrangement that it entered into with the relevant parties. SFC also mentioned in its press release that it was investigating whether the offer to purchase hotel room units of The Apex Horizon constituted an offer to acquire an interest in or to participate in a CIS under the SFO. According to the press release, SFC will continue to monitor the progress by the relevant parties to unwind the sale. We will not comment on whether there is a need to take further action regarding the case.
According to the SFO, a CIS has four relevant elements in general: (a) it must involve an arrangement in respect of property; (b) participants do not have day-to-day control over the management of the property even if they have the right to be consulted or to give directions about the management of the property; (c) the property is managed as a whole by or on behalf of the person operating the arrangements; and (d) the purpose of the arrangement is for participants to participate in or receive profits, income or other returns from the acquisition or management of the property. As a matter of fact, the relevant ordinance does not prohibit sale of hotel room units. However, if the sale of hotel room units possesses the abovementioned elements, the relevant project will then need to obtain SFC's authorisation on its marketing materials issued to the public in accordance with the ordinance. SFC is of view that the part on offers of investments in the SFO has been operating well, and hence has no intention to amend the relevant provisions to clarify its operation.
Ends/Wednesday, May 29, 2013
Issued at HKT 14:51
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