ASSESSMENT OF RESERVE PRICE IN AUCTION UNDER LAND (COMPULSORY SALE FOR REDEVELOPMENT) ORDINANCE

September 2023

While a compulsory sale order is granted by the Lands Tribunal under the Land (Compulsory Sale for Redevelopment) Ordinance Cap.545 (“Ordinance”), the Tribunal has to determine the reserve price at the auction on the basis of the redevelopment value of the relevant lot. Clause 2 of Schedule 2 to the Ordinance stipulates that the lot under the auction shall be sold subject to a reserve price (i) which takes into account of the “redevelopment potential of the lot” on its own or, where two or more lots are the subject of the auction, on their own and (ii) approved by the Tribunal.

In the recent judgment of LDCS 7000/2018 in relation to an application for compulsory sale order for a plot of land at Shipyard Lane, Quarry Bay, on which a 20-story industrial building had been standing thereon since 1972, the Tribunal confirmed that the redevelopment potential of the lot must be closely linked with the redevelopment value and such reserve price would need to be approved by the Tribunal. In determining the reserve price for auction of the lot, the Tribunal should have discretion to consider “other matters” on top of the “redevelopment potential of the lot”. In that decided case, the “special interest” of the developer was raised by the developer but the Tribunal rejected that such interest could be a separate factor warranting consideration. For assessment of the redevelopment value of the lot, the market value should be determined on the basis of a hypothetical purchaser and not a purchaser with any particular interest, for example, the developer might also be the owner of the adjacent lot.

Upon literal interpretation, the drafting of Clause 2 of Schedule 2 to the Ordinance gives no explicit discretion to the Tribunal to take into account of “other matters” to determine the redevelopment potential of the lot for fixing the reserve price in auction. The judgment of LDCS 7000/2018 serves to open an avenue of various factors for submission to the Tribunal to decide the reserve price of the lot for auction.