Hong Kong: Undivided Shares Acquired Through Adverse Possession Could Be Included In The Make-up Of Land Compulsory Sale Ownership Threshold In Hong Kong

Introduction

In Promise Fine Investments Ltd & Others v. Poon Chuan & Others (LDCS 32000/2018)¹, the applicants applied to obtain an order for the compulsory sale of Nos. 244-256 Hai Tan Street in Sham Shui Po. In late 2020, the applicants successfully bid for the site at the price of HK$576 million at a public auction.

The significance of this case is that it is the first time that the Lands Tribunal accepted the inclusion of undivided shares acquired through adverse possession in counting the requisite threshold of undivided shares for making compulsory sale under the Land (Compulsory Sale for Redevelopment) Ordinance (Cap. 545) (the "Ordinance").

Requisite Threshold: 90% or 80%

Under the Ordinance, only the person or persons who "owns" or "own" not less than 90% (or 80% in certain situations) of the undivided shares in a lot may apply for order for compulsory sale.

Before Promise Fine, it was uncertain as to whether undivided shares from a squatter who has obtained possessory title (by way of adverse possession) may also be included in calculating such requisite threshold.

Facts and Principles Established

In Promise Fine, the squatter (the "Squatter") of a residential unit (the "Unit") in the target building obtained an Order from the Court of First Instance against the registered owner (the "Paper Owner") of the Unit. According to the Order,

• the Squatter successfully established adverse possession against the Paper Owner;
• therefore, the Paper Owner's title was extinguished by the Squatter; and
• the Squatter should be registered in the Land Registry as the "registered owner" of the Unit.

Thereafter, the Squatter assigned her possessory title to the Unit to the majority owners of the target building.

It was necessary for the majority owners to include the undivided shares acquired from the Squatter (that is, the undivided shares representing possessory title to the Unit) to reach the requisite threshold (i.e., 80% of the undivided shares in this case) to apply for compulsory sale.

The Tribunal accepted the majority owners' inclusion of the undivided shares acquired from the Squatter to reach the requisite 80% threshold. Further, when determining whether the applicants have taken reasonable steps to acquire all undivided shares of the target lot, the Tribunal agreed that it is NOT necessary for the majority owners to negotiate with the Paper Owner to purchase anything.

Eventually, the Tribunal granted an order for sale with respect to all the undivided shares of the target lot (that is, including the legal estate and interest, if any, owned by the Paper Owner) by way of public auction.²

Conclusion

We welcome this first compulsory sale application in which the Tribunal clarifies a previously untested area of law in the field of compulsory land sale. It provides some degree of certainty to potential compulsory sale applicants that acquisition of undivided shares representing possessory title to particular units could be counted towards meeting the requisite ownership threshold under the Ordinance.

Footnotes