The Extension of Government Leases Bill: Assurance of Lease Renewals in Hong Kong

July 2024

The Extension of Government Leases Bill (“the Bill”) passed on 26 June 2024 to be gazetted and came into force on 5 July 2024 eases the public concern in relation to the impending expiration of thousands of government leases in 2047. While it is estimated that government leases for around 2,400 lots will expire between June 2025 and June 2047, and a staggering 300,000 lots will reach their expiry on 30 June 2047, the Bill provides a streamline approach for renewals.

(i) Extension Notice

The Bill introduces a statutory standing mechanism to extend the forthcoming expiring government leases. Instead of arduously executing new leases with each owner, the Director of Lands (“the Director”) will publish an Extension Notice in the Gazette to effect the extension of the leases by operation of law.

All expiring leases during a specified lease expiry period will be extended, except for those listed on the Non-extension List (i.e. the negative listing approach). That means leases within the specified expiry period that are not published in the Non-extension List will be automatically extended without requiring the owners to execute a new lease.

The Extension Notice will be published at least 6 years before the lease expiry date. If the leases are expiring before 31 December 2030 (i.e. less than 6 years), the relevant Extension Notice will be published on the effective date of the Ordinance.

(ii) Non-extension List

Non-extended leases will be listed individually and published in the Non-extension List. The Non-extension List will be registered in the Land Registry. The Government may amend the Non-extension List after administrative review by adding or removing certain leases from the negative lists by Non-extension List (Inclusion) Notices and Non-extension List (Removal) Notices.

(iii) Consideration for non-extension

Although the Bill does not stipulate the consideration for not extending the leases, the Development Bureau has indicated in the Legislative Council that leases will be extended unless there is public interest consideration against the renewal. A continuing or repeated breach of the government lease condition by the grantee may amount to a factor of non-renewal.

There are other salient features of the Bill:

1. Automatic Extension: Leases expiring on or after the effective date of the ordinance will be automatically extended for a 50-year term, without the need for additional premium payments;

2. Annual Rent: The extended leases will be subject to an annual rent equivalent to 3% of the prevailing rateable value of the property, similar to the existing policy;

3. Continuation of Existing Encumbrance: All interests, encumbrances, covenants, exception, reservation, stipulation, proviso or declaration under the original lease will be carried forward to the extended lease;

4. Key Conditions under the Extended Leases: All key conditions under the existing leases will be retained. Additional covenants are incorporated including:

(i) Enforcement right of the Director: the right to enter on the land or buildings for the purpose of ascertaining that there is no breach of the covenants and conditions of the extended lease;

(ii) Compliance of ordinances: including Town Planning Ordinance regarding the use of land and Buildings Ordinance regarding the unauthorized building works; and

(iii) Re-entry of land upon failure to observe covenants: upon failure or neglect to perform or comply with any covenants and conditions of the extended leases by the lessees, the Government is entitled to re-enter and recover possession of the land.

5. Opt-out Mechanism: Owners can opt-out of the lease extension by acting jointly with all other registered co-owners and interest holders; and

6. Foreign-related Entity and International Organization Properties: Lease extensions for properties belonging to consular missions and international organizations will require prior approval before extension.

The Bill is welcomed as it provides certainty and clarity for extension of government leases that are expiring soon. The friendly mechanism alleviates the concerns of various stakeholders of real estate and thereby enhancing the investors’ confidence in Hong Kong’s property market.