Introduction

Existing protection for purchasers of uncompleted residential properties is inadequate as there is no legislation requiring property developers to provide sufficient and accurate information on the properties in sales brochures.

Background

2. Inadequate and misleading sales information on uncompleted residential properties is of concern to prospective purchasers as they have no opportunity to view the properties before purchase. Examples of complaints from the public are inaccurate size of the property, misleading descriptions of fittings and finishes, and sketchy layout and location plans.

3. The Law Reform Commission (LRC) had considered the matter and issued a report in April 1995. In short, the report recommended that legislation should be introduced to require developers to produce sales brochures for any sale of local uncompleted residential properties, and that the brochures should contain certain specified information.

The Proposal

4. The Government supports the LRC's recommendation to improve the quality of sales brochures of uncompleted residential properties through legislation in order to enhance protection for purchasers. Self-regulation or administrative measures would not achieve this goal. We proposed to introduce legislation this year in order to implement the LRC's recommendations. The proposed legislation will -

1. require developers to provide sales brochures regarding the sale of uncompleted residential properties;
   
   
2. require specified information be provided in sales brochures;
   
   
3. empower the Government to enforce the proposed legislation by investigating alleged breaches relating to non-provision of such information;
   
   
4. stipulate penalties for non-compliance; and
   
   
5. provide legal remedies for purchasers who suffer losses as a result of breaches or non-compliance.

5. The specified information to be provided in sales brochures includes the following -

1. floor area;
2. fittings and finishes;
3. location plan;
4. layout plan;
5. floor plan;
6. carparking spaces;
7. permitted uses of the land where the property is situated;
8. salient conditions of the Government lease;
9. salient provisions in the Deed of Mutual Covenant;
10. defects liability period;
11. completion date;
12. slope maintenance;
13. price list and number of units put up for sale;
14. financial and mortgaging arrangements; and
15. supplementary charges payable on taking possession of the property.

Salient Provisions of the Bill

Scope of the proposed legislation

6. The requirement of a sales brochure will apply to the sale of uncompleted residential properties situated in Hong Kong and offered to the general public, including private residential developments, subsidized home ownership flats and exempted developments in the New Territories.

Location plan, layout plan and floor plan

7. A sales brochure shall contain a location plan showing the relevant development and its adjacent areas. The plan should cover major communal facilities and uses of land known to the developer within the plan. A sales brochure shall also provide a layout plan of the buildings within the development and where applicable, major roads, open areas, prominent transport, communal and recreational facilities as well as undeveloped land within the boundary of the development. If specific covenants in the Government lease require the developer to put aside any land inside or outside the boundary of the development to particular uses, the developer should also state these uses in the brochure. In addition, a sales brochure shall contain floor plans which are drawn to scale, reasonably legible and show floor plans of all typical and non-typical floors including rooftop, entrance floors and carparks.

Floor area

8. The absence of a standard method in the calculation of floor area is a long standing problem. The proposed legislation will standardize the measurement of floor areas of residential properties for disclosure in sales brochures. The Bill will provide for a new definition of "building area", replacing "gross floor area" which is commonly used in sales brochures but does not have a standardized method of measurement. The term "building area" refers to the aggregate of the "saleable area" of a property plus the apportioned common areas which is for the common use and benefit of the development. To increase transparency, the apportioned common areas must be separately listed from the saleable area of the property. If any facilities such as management offices, caretaker's rooms and covered area of clubhouse are included in the calculation of "building area", such apportioned areas to the property should also be listed separately.

9. The term "saleable area" has been standardized and adopted in sales brochures and agreement for sale and purchase since the 1980's. "Saleable area" refers to the area contained within the enclosed walls of the unit measured up to the exterior face of an external wall or the centre line of a separating wall between adjoining units, as the case may be. In other words, "saleable area" of a unit has hitherto included the thickness of external walls, internal columns and partitions. Ancillary areas such as bay window, roof, terrace or carparking space which is for the exclusive use of the owner are listed separately. We do not propose to change the definition of saleable area which remains the most reliable measurement of floor areas. However, we propose to amend the Chinese translation of "saleable area" to avoid confusion.

10. We further propose to include "internal floor area" in sales brochures which shall be the area contained within the enclosing walls of a property measured to the interior face of the external wall or separating wall but include all internal partitions and columns within the unit. In addition, developers are required to indicate the range of thickness of structural walls within the unit.

Fittings, finishes and sample property

11. A sales brochure shall contain a list of fittings and finishes of the property. If a sample property is built for inspection, it should be reasonably representative in its dimensions to the type of residential properties offered for sale. The developer shall display a notice at a conspicuous place in the sample property. The notice shall state the building area, saleable area and internal floor area of the property and whether the interior finishes, fittings, fixtures, appliances, furniture displayed in the sample property are included in the sales prices or are different from those of the properties offered for sale.

Penalties

12. The proposed legislation will provide for a maximum fine of $5 million as penalty for failure to provide a sale brochure with specified information in the sale of uncompleted residential properties. Penalty is also provided for other non-compliance such as not providing copies of deed of mutual covenant, building plan and the agreement for sale and purchase for the relevant residential properties for public inspection, or not displaying a notice in a sample property.

Legal remedies

13. The proposed legislation provides express legal remedies for purchasers to claim damages for losses suffered as a result of non-compliance. Certain essential information such as land uses, salient clauses in the Government lease and Deed of Mutual Covenant, provisions concerning slope maintenance as disclosed in sales brochures shall be representation of fact made by the developer to the purchaser. Purchasers may seek legal remedy for damages should there be misrepresentation of fact by the developer. Other information such as fittings and finishes, and defects liability period disclosed in a sales brochure shall be implied as a term of contract. Purchasers may institute civil proceedings for recovery of the items or compensation for losses as a result of the developer's non-compliance.

Defence

14. In view of the volume of information required under the proposed legislation and the fact that some descriptions may change after the publication of the sale brochure for reasons beyond the control of developers, we propose that developers should be allowed to invoke the defence of due diligence i.e. to show that they have taken all reasonable steps and exercised all due diligence to avoid committing the offence.

Enforcement

15. The proposed legislation provides sanctions and legal remedy against non-compliance. Government's enforcement of the proposed legislation will be confined to contravention of the relevant provisions of the proposed legislation and will not be involved in civil actions between developers and purchasers, which are private contractual matters.

Consultation

16. We have consulted property developers, estate agents, the Consumer Council and relevant professional bodies. Generally, there is wide support in the community for enhancing transparency in the sale of uncompleted residential properties.


Housing Bureau
Government Secretariat
February 1999

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