BUILDING MANAGEMENT (AMENDMENT) BILL 2023: IMPROVING ACCOUNTABILITY AND DETERRING NON-COMPLIANCE OF OWNERS’ CORPORATIONS

July 2024

The ever-increasing number of decaying buildings in dire need of repair have rekindled concerns among affected owners as to how major building maintenance decisions are made by the Owners’ Corporations (“OCs”). The passing of the Building Management (Amendment) Bill 2023 (“the Bill”) on 4 July 2024 requires the engagement of more owners in procurement decisions, improves the transparency and accountability of the operation of owners' corporations and enhances deterrence against non-compliance with the Building Management Ordinance (Cap. 344) (“the Ordinance”).

(i) “Large Scale Maintenance Procurement” and “High Value Procurement”

The Bill introduces the notion of “large scale maintenance procurement”, a new category of procurement of supplies, goods or services required by OCs where the average project cost per building flat exceeds HK$30,000. The Bill mandates that a resolution for such procurement can only be passed if the lesser of at least 5% of the owners or 100 owners have voted in person (to be contrasted with voting by proxy) in the OC meeting.

The Bill further mandates that the meeting notice should contain a reminder reminding owners that such procurement is part of the meeting agenda and the estimated amounts to be contributed from building management fund and by each owner respectively. For the sake of transparency, copies of the meeting minutes must be supplied to all owners within 28 days after the meeting, in which the number of owners voting in person and by proxy for the resolution for “large-scale maintenance procurement” should be recorded so as to ensure compliance with the “voting-in-person” requirement above.

To reflect OC’s actual expenditure pattern more closely and to combat the circumvention of tender requirements by annual budget manipulation, the Bill proposes to revamp the existing definition of “high-value procurement” by replacing the annual budget benchmark with the average annual expenditure in the last three years such that any supplies, goods or services with a value exceeding or likely exceeding $200,000 or 20% of the OC’s average annual expenditure in the last three years should be procured by invitation to tender.

The conduct of tender for “large-scale maintenance procurement” and “high-value procurement” are also subject to revision. Going forward, Management Committee (“MC”) office-bearers, managers and other persons responsible for conducting the procurement will be obliged to declare any pecuniary or personal interests in the tender submitted and/or connections with a person who has submitted a tender, the declaration of which must be displayed in a prominent place in the building for the owners’ information. Depending on the actual circumstances, interested personnel may be barred from attending the relevant meetings and/or participating in related procurement activities as well.

Other notable changes introduced by the Bill include prohibiting any acceptance of post-deadline tenders, displaying the invitation to tender in a prominent place in the building as well as specifying clearly the minimum number of prospective suppliers to be invited for the procurement and more.

(ii) Simplified mechanism to authorize natural persons to act for corporate flat owners at OCs’ general meetings

The current requirement under the Ordinance is that a natural person may represent corporate flat owner at OCs’ general meetings if so authorized by a resolution of its directors or other governing body. As an alternative to the resolution requirement, the Bill calls for a new and simplified authorization mechanism under which corporate flat owners may authorize that person to act for the corporate flat owner at an OC meeting simply by a specified written notice given to the secretary of MC.

(iii) Financial Statements

The Ordinance as it currently stands only requires financial statements of OCs of buildings with more than 50 flats to be audited, leaving building with few flats but substantial income and expenditure outside the scope. The Bill therefore seeks to adopt income and expenditure as the new basis for determining the audit requirement, to the effect that financial statements of OCs in respect of buildings with total annual income or expenditure exceeding or being likely to exceed HK$500,000 are required to be audited irrespective of the number of flats.

Furthermore, to afford owners earlier access to financial statements and accountant’s report without the need to wait until the annual general meeting when the same are laid before the OC, the Bill further introduces additional requirements for the display of the same in a prominent place in the building once available for at least seven consecutive days and provision of the same to the owners, tenants’ representative and alike within 28 days upon written request.

(iv) Criminal Sanctions

In order to enhance accountability and deterrence, the Bill also creates new offences in relation to the failure of keeping important OC documents including but not limited to accounting documents, meeting minutes, tender documents and proxy instruments against the meeting convenor, MC office-bearer and/or building management agents.

Such offences are punishable with a fine at level 4 (HK$25,000) upon conviction but a statutory defence is available if (a) sufficient evidence is adduced to raise an issue that the offence was committed without the persons’ consent or connivance, and/or the persons exercised all due diligence that the persons ought to have exercised in the circumstances to prevent the commission of the offence; and (b) the contrary is not proved by the prosecution beyond reasonable doubt.

(v) Applicability to buildings in respect of which no OCs are formed

To enable building owners that do not form OCs to benefit from the amendment proposals, the Bill will incorporate amendments in respect of “large-scale maintenance procurement”, “high value procurement” as well as financial statements into Schedule 7 (which is generally applicable to buildings without OCs) of the Ordinance as mandatory terms in the deed of mutual covenant (“DMC”).

(vi) Implications of the Amendments for Managers

Although the aforementioned amendments are mainly targeted at improving the transparency and accountability of the operation of owners' corporations, many of which will also directly pertain to the managers’ obligations under the Ordinance particularly by virtue of Schedule 7 which, as mentioned, include declaring any pecuniary or personal interests in the tender submitted and/or connections with a person who has submitted a tender in respect of “large scale maintenance procurement” and “high value procurement”, preparing, signing and displaying financial statements in a prominent place in the building, allowing owners to inspect procurement-related documentation kept by the manager; displaying the meeting minutes in a prominent place of the building and keeping and providing copies of such records upon request and more.

It is therefore advisable for managers to keep abreast of the amendments for proper and due compliance and that of the MC. Non-compliance of an applicable requirement in the Ordinance or DMC may also be found by the Court as having committed a disciplinary offence under the Property Management Services Ordinance (Cap. 626).

The amended Ordinance, after gazetted, will come into operation on 13 July 2025. The Bill serves as a progressive step to the existing Ordinance and it is hoped that the updated framework can alleviate the predicaments that have been plaguing property owners for so long.