Home-buyers in Hong Kong have for the longest time been short changed in the actual living space of apartments they bought, as common areas of housing development here until recently have been included in the calculation of the size of apartments for sale.
In the High Court case of Kwok Wah Kit & Others v Cerrone Company Limited (HCA 2198 of 1988) in 1985, there was a difference in the description of actual "saleable area" and the "saleable area" of several flats in the sale and purchase agreements where the developer included the flower bed and flower trough as "saleable area". As a result, damages were awarded to the purchasers of those flats and it was held that flower beds and troughs are to be excluded from the "saleable area".
In another High Court case of Yili Concepts (HKG) Ltd v Lee Wai Chuen And Another (HCA 12911 of 1997) in 2000, confusion regarding the definition of "saleable floor area" arose again. The Plaintiff's expert witness was mistaken about the definition recommended by the Hong Kong Institute of Surveyors and came to the wrong conclusion that the balcony area should not be included in the saleable area and ended up with a lower measurement than the actual size. Although this was not the contentious issue, the Deputy High Court Judge emphasised that the method of measurement in the definition of "saleable area" must not be overlooked.
Similar complaints and confusion in relation to developers' various definitions of saleable area have persisted in the past few years. The situation was further exacerbated with the use of different terminologies in Chinese by developers to describe the saleable area.
The New Definition
In order to remove the grey areas and to better protect the interests of potential home-buyers, a new standardised definition of "saleable area" came into force on 10 October 2008 and is now a requirement under the Lands Department's Consent Scheme (a scheme that governs the sale and purchase of uncompleted flats in Hong Kong) for developers to comply with when they put up uncompleted flats for sale. All those uncompleted first-hand residential properties that have been approved for pre-sale by the Lands Department from 10 October 2008 onwards are required to adopt the new standardised definition of "saleable area" in their sales brochures.
The Transport and Housing Bureau have decided to adopt the new definition after consultation with various professional bodies including the Real Estate Development Association of Hong Kong ("REDA"), the Hong Kong Institute of Architects, the Law Society of Hong Kong, Consumer Council, Estate Agents Authority and the Hong Kong Institute of Surveyors. Under the new definition, "saleable area" includes only the floor area of the unit, the balcony, utility platform and verandah, which area shall be measured from the exterior of the enclosing walls of such unit, balcony, utility platform or verandah. The cockloft, bay window, carparking space, yard, terrace, garden, flat roof, roof and air-conditioning plant room should be distinguished as "other areas" and should not be regarded as part of the saleable area. The Chinese translation of the term saleable area is also standardised.
To tie in with the implementation of the new definition, REDA has issued a set of new guidelines for descriptions of uncompleted residential properties for sale and a standardised price list template for its members to follow. These guidelines require developers to adopt the standardised definition and a standardised presentation of "Saleable Area" in their sales brochures for all uncompleted first-hand residential properties approved for pre-sale by the Lands Department after 10 October 2008.
In the event of non compliance by developers with the new rules resulting in incorrect measurement of the flat size, the Lands Department may withhold or withdraw its consent for the sale of the uncompleted project.
The new definition would not apply to uncompleted first-hand residential projects that were approved for pre-sale by the Lands Department prior to 10 October 2008, which means that developers may continue to display the floor area information in their sales brochures and price lists using pre-standardised definitions of "saleable area". In other words, two practices will be running in parallel for the time being, but in line with the Estate Agents Authority's Code of Ethics, a footnote is required to be included on the price list to alert prospective buyers if the area information is based on the pre-standardised definitions. However, the Consumer Council is urging developers to adopt the new measurement in the sale of all uncompleted properties including those approved prior to the effective date.
The standardisation of the definition of "saleable area" will enhance the transparency and clarity in the area description for uncompleted flats. It will allow prospective home-buyers to have more accurate information on the floor area of units and better able to make informed property investment decisions.
Lawyers in our Property Department will be happy to assist you with any queries you may have regarding the above eNews or on any property matters.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.