Assets under construction (e.g. building sites) have always been
'exempted' from rates assessment for the past decades.
Following the Court of Appeal decision in Hong Kong Electric
Co. Ltd v Commissioner of Rating and Valuation CACV 27/2010
handed down in September 2010, there was uncertainty in this area
of law - the Court of Appeal decided that assets under construction
should be subject to rates assessment. The Court of Final Appeal
("CFA") reversed the Court of Appeal's decision on 21
June 2011 (FACV 12/2010) and held that building sites or other
assets in the course of construction were not rateable.
By way of background, whether a tenement is liable to rates
assessment has depended largely on its occupation. A long history
of English authorities established that a tenement will only be
considered rateable if it is:
in actual occupation or possession;
exclusively for the particular purposes of the occupier;
of value or benefit to the occupier; and
not for too transient a period.
The CFA in the HEC Appeal, after considering relevant Hong Kong
authorities, endorsed these four requirements and stated that these
requirements should be used to determine whether a tenement has the
"capability of occupation". Further,
"capability of occupation" should be used as the
legal test for determining whether land, a building or a structure
under construction has reached a stage which constitutes a tenement
susceptible to rates assessment. So long as the relevant assets
under construction are not 'capable of occupation', they
should not be subject to rates assessment.
The CFA also considered in detail relevant provisions in the
Rating Ordinance and its subsidiary legislation. In particular, the
CFA referred to certain provisions in the Rating (Effective Date of
Interim Valuation) Regulation dealing with the effective date of an
interim valuation of newly constructed buildings. Pursuant to such
provisions, interim valuations of newly constructed buildings will
only become effective after a specified period following the issue
of relevant official documents certifying its occupation - such
provisions plainly make rateability of a tenement dependent on the
newly constructed building having attained a state in which it is
capable of being occupied. Such provisions support the
CFA's finding that assets under construction should not be
treated as rateable. There are other provisions in the Rating
Ordinance which lend support to the CFA's finding - but the
important message is that the Rating Ordinance and its subsidiary
legislation as a whole suggests that the land, building or
structure in question must be capable of being occupied
before it qualifies as a rateable tenement.
The HEC Appeal will be of interest to ratepayers who possess
sites in the course of development or redevelopment, in particular,
real estate developers, whereby the CFA confirmed that all assets
under construction are not subject to rates assessment. Whilst the
rateability of assets under construction is the principal point of
interest for the developers, the CFA also confirmed the principles
of valuation applicable to utilities with highly integrated assets,
for example, where there is physical integration of the rateable
assets constituting the tenement and plant and machinery.
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This article provides information and comments on legal
issues and developments of interest. The foregoing is not a
comprehensive treatment of the subject matter covered and is not
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Given the frequency with which we have referred to, or had others refer us to, the above English High Court decision, we thought it would be useful to provide the following refresher.
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