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Hong Kong Law Reform Commission |
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Chapter 9 - Disclosure requirements
for completed units offered for sale by developers
___________________________________________________
Introduction
| 9.1 | In
this chapter, we shall look at the various minimum sales particulars that should
be provided by developers in sales brochures. We shall review some of the
recommendations made in the First Report and try to see if they can be adapted
for use in respect of completed units offered by sale by developers in the
first-hand market. In the process, we shall also put forward ideas additional
to those made in the First Report. As the First Report was completed several
years ago, some of the ideas useful at that time may have been rendered
obsolete. |
Floor
Plan
| 9.2 | Where
prospective purchasers are not able to inspect the completed units, they may
have to rely on the descriptions contained in the floor plan. This is the case
even where mock-up or show flats are open to them. Where purchasers can inspect
the actual completed units, they may still refer to the floor plans in the sales
literature for a rough idea of the internal layout and measurements.
|
| 9.3 | We
consider that all of the previous recommendations of the Commission on floor
plans of local uncompleted properties are equally applicable to sale of
completed units by developers.[61]
However, the requirement that a note be put in sales brochures to bring
purchasers' attention to the usual term in the ASP concerning the adjustment in
purchase price in proportion to variations in saleable area (arising from
amendment to the building plans) is not applicable in the context of completed
units. It seems unlikely that there will be any further change in the building
plans as the properties have already been completed at the time they are offered
for sale. |
| 9.4 | The
Commission previously recommended that there should be a legal obligation on
developers upon completion to inform purchasers of the saleable area as
certified by an architect.[62] We
consider that developers should be under a similar legal obligation in respect
of completed properties, as the saleable area of a completed property is readily
ascertainable. We take the view that the saleable area quoted by developers
upon completion should be that supplied by the Authorised
Person. |
Recommendation
14
We recommend
that:
(1) The sales brochure should
contain floor plans which:
(a) specify
the external dimensions of individual
units;
(b) are presented according to
conventionally accepted
scales;
(c) show separately non-typical
floors, the entrance floors, and the
roof;
(d) show the location, the number
and the minimum dimensions of the car parking
spaces;
(e) show the orientation of the
building and the location of ingress and egress
points;
(f) show the structural walls;
and
(g) show any known features within
the unit that would materially affect a reasonable purchaser's enjoyment of the
property, such as exposed pipes.
(2) The
sales brochure should also
contain:
(a) schedules listing the
saleable area of the unit and of any bay window areas, roof areas, flat roof
areas, open yard areas, air-conditioning plant within the building, etc;
and
(b) a note that the internal area
of units on the upper floors may be slightly greater than that of the lower
floors, if that is the case.
| (3) | Certified
copies of the latest approved building plans should be made available for free
inspection at the sales office during normal office
hours. |
| (4) | There
should be a legal obligation on the developer upon completion to inform
purchasers of the saleable area (as provided by the Authorised
Person). |
Fittings and
Finishes
Importance of fittings
and finishes
| 9.5 | The
quality of fittings and finishes of the individual unit and of the common parts
of a building is of considerable importance to purchasers of residential
properties. For people buying flats for their own occupation, good quality
fittings and finishes will mean a better living environment and less money to be
spent on maintenance and renovation. For those buying residential properties
for investment purposes, high quality fittings and finishes in general enhance
the letting and resale value of the
property. |
Problems faced by
purchasers
| 9.6 | It
is not always the case that purchasers of completed properties can see for
themselves the quality of fittings and finishes. Prospective purchasers will
therefore place great reliance on the descriptions of fittings and finishes
contained in the sales brochures. However, sales brochures do not always
contain uniform adequate descriptions of fittings and finishes. Most sales
brochures give only a general description of the fittings and finishes of the
individual units and of the common areas. |
Previous
recommendations
| 9.7 | In
its First Report, the Commission made some recommendations in respect of
fittings and finishes for local uncompleted residential
properties.[63] |
| 9.8 | These
recommendations were largely modelled on the list of fittings and finishes
contained in the Land Office Circular Memorandum No 101 (LOCM 101). On
28 May 1999, the Legal Advisory Conveyancing Office Circular Memorandum
No 40 (LACO CM 40) replaced LOCM 101. LACO CM 40 contains essentially
the same disclosure requirements as had been imposed by the superseded LOCM 101.
LACO CM 40 is reproduced at annex I of this paper. LACO CM 40
contains a list of fittings and finishes. The items are external walls,
windows, bay windows, planters, verandah/balcony, drying facilities for
clothing, lobbies, internal walls and ceilings, floors, bathrooms, kitchens,
doors, bedroom fittings, telephone and aerials, electricity fittings,
gas/electricity supply, washing machine connection point, water supply and
pipes, security facilities, lifts, letter boxes, refuse collection and water,
electricity and gas meters. |
Right of
inspection
| 9.9 | We
take the view that if prospective purchasers are given the opportunity to
inspect the completed units before entering into a purchase contract so that
they can verify the make and quality of fittings and finishes on the premises,
there is no need to change existing requirements as to the contents of the sales
brochure with regard to fittings and finishes, save that those contents should
not be misleading. |
No right of
inspection
| 9.10 | We
consider it appropriate to introduce the above recommendations in respect of
local completed properties if there is no right of inspection before entering
into a purchase contract. In addition, photographs of the fittings should be
included in the sales brochure. |
| 9.11 | Clearly,
the provision allowing developers to use substitute materials is not necessary
for completed units since at the time of printing of the sales brochures, the
intended materials should have already been
used. |
| 9.12 | Though
developers had reservations about stating brands and origins of fittings and
finishes to be used for uncompleted properties because of possible changes in
market provision, this should not be a problem in the case of completed
properties. |
| 9.13 | We
take the view that photographs of the fittings and finishes should be shown in
the sales brochure. This will give prospective purchasers some impression of
the fittings and finishes in the absence of a right to inspect the units offered
for sale. |
Recommendation
15
We recommend that where there is
no right of inspection before entering a preliminary sale and purchase
agreement, the sales brochure should
contain:
(i) at least details of the
fittings and finishes as stated in Appendix XII B of Legal Advisory Conveyancing
Office Circular Memorandum No 40 (LACO CM
40);
(ii) a description of
air-conditioners where supplied and descriptions, such as locations, of
air-conditioning plants;
(iii) information
on the flush water/sewage treatment plants where they are supplied, including
information on the maintenance of the treatment
plants;
The sales brochure should also
state the brands and countries of origin of the fittings and finishes to be
used.
In addition, photographs of the
fittings and finishes should be shown on the sales
brochure.
Discrepancies between
languages
| 9.14 | There
is also the problem of occasional discrepancies between the descriptions of the
fittings and finishes contained in the Chinese and English versions of the sales
brochure. The Commission recommended for local uncompleted residential
properties that "if there are discrepancies between the Chinese and English
versions of the specifications of fittings and finishes in the sales brochure,
purchasers can choose which of the language versions is applicable."
[64]
|
Recommendation
16
We recommend that if there are
discrepancies between the Chinese and English versions of the specifications of
fittings and finishes in the sales brochure, purchasers can choose which
language version they rely on.
Mock-up
flats
| 9.15 | In
order to avoid the inconvenience of letting a great number of prospective
purchasers inspect the completed units, mock-up or sample flats are used to show
the quality of fittings and finishes. In the First Report, the Commission took
the view that it was unreasonable to oblige developers to build mock-up flats.
If developers chose to set up mock-up flats, however, they had to accurately
reflect the materials to be used. On this basis, the Commission made the
following recommendations in respect of local uncompleted residential
properties:[65] |
"If
mock-up or sample flats are provided, the mock-up should be accurately
representative of the actual unit in all aspects including quality and
dimensions and the Authorised Person of the development project should certify a
schedule of the specifications of the mock-up flats. The developer should have
a duty to keep a record of the certified schedule."
Certification of the
schedule of the specifications
| 9.16 | There
have been reservations expressed over the requirement for certification by the
Authorised Person (AP) of the schedule of specifications. The view is that it
is not the practice for the AP of the development project to certify a schedule
of specifications of mock-up flats. The developer specifies the fittings and
finishes and the AP must follow the specifications provided by the developer.
|
| 9.17 | We
take the view that even with disclosure in the sales brochure, certification by
the AP is necessary. If the property is completed but prospective purchasers
are still not allowed to inspect it, they should have the same protection as in
the case of uncompleted properties. Once the units are completed it is only
necessary to certify that the mock-up units are the same as the actual
units. |
Recommendation
17
We recommend that where there is
no right of inspection before entering into a preliminary sale and purchase
agreement and mock-up or sample flats are provided, the mock-up of at
least one flat should be accurately representative of the actual unit in all
aspects including quality and dimensions. The Authorised Person of the
development project should certify a schedule of specifications of such mock-up
flats. The developer should have a duty to keep a record of the certified
schedule.
Location and layout
plans
| 9.18 | Purchasers
of residential properties usually attach considerable importance to the
availability of communal facilities, such as a clubhouse and swimming pool and
the present and future surroundings of the development. Location and layout
plans in the sales brochure are the major sources of information on communal
facilities and surroundings. |
| 9.19 | In
the First Report, the Commission considered that LOCM 101 (now replaced by LACO
CM 40 which imposes the same disclosure requirements) provided a good model for
the provision of location and layout plans in sales brochures and recommended
the disclosure requirements be adopted for all uncompleted
units.[66] But unlike LOCM 101, the
Commission did not think developers should be required to state the uses of land
outside the boundaries of the development. |
| 9.20 | LOCM
101[67] (or LACO CM 40) requires
that the sales brochure of a Consent Scheme development should
include: |
"(i) a location plan
'including up-dated information on prominent environmental features in the
vicinity eg public park, swimming pool, refuse collection point etc, intended
user of surrounding areas, if known';
and
(ii) a layout plan drawn to scale
'including communal facilities (and their completion dates if possible);
undeveloped land and its intended use within the boundary of the development;
the scale used.'"
| 9.21 | We
consider that the Commission's previous recommendations should be extended to
local completed flats. There have an query as to the need to disclose the
intended uses of undeveloped land and its intended uses within the boundary of
the development (as required by LACO CM 40). The argument is that it is
difficult to show the intended uses since intention can change subsequently. We
take the view that there is a case for stating the present intention even if it
may change later. In our view, there is a need for developers to disclose the
intended and permitted uses of land within the site of the development. At the
end of the day, it is important to educate the public on the need to check the
land uses carefully before making a decision to
buy. |
Recommendation
18
We recommend that :
Location
plan
a) A location plan should
be provided in all sales brochures. The location plan should include up-dated
information on prominent environmental features in the vicinity, eg public park,
swimming pool, refuse collection point etc.
(b) The date and the reference number of the latest outline zoning plans at the
date of printing of the sales brochure should be stated in all sales brochures.
There should also be a note stating that outline zoning plans are subject to
change and that the latest outline zoning plans at the date of printing of the
sales brochure are available for free inspection during normal office hours at
the sales office.
Layout
plans
All sales brochures should
provide a layout plan drawn to scale, showing communal facilities (and their
completion dates if possible) undeveloped land and its intended and permitted
use within the boundary of the development and the scale used. The layout
plans provided in sales brochures should be the latest approved plans at the
date of printing of the sales brochure. The expected completion dates of
communal recreational facilities should be included in the layout
plans.
Uses of
land
(a) If there are specific
covenants in the Government Lease requiring the developer to put land inside or
outside the boundaries of the development to particular uses, the developer
should state accurately those particular uses in the sales
literature.
| (b) | The
developer should be required to state accurately in the sales brochure the
intended uses of the land within the boundaries of the development which are
known to the developer at the date of printing of the sales brochure.
|
(c) Except for specific
uses required of developers by the terms of the Government Lease, developers
should not be required to disclose the intended uses of land outside the
boundaries of the development.
(d) If
the developer chooses to disclose in the sales literature any information about
the use of land outside the boundaries of the development, the information so
disclosed must be accurate at the date of printing of the sales
literature.
Misleading artistic
impressions
| 9.22 | Sales
literature and advertisements sometimes contain misleading artistic impressions.
We have considered whether artistic impressions should be prohibited or whether
they should be allowed but required to be accurate. It is our view that
artistic impressions of the surroundings of the building are necessary for
marketing purposes. Hence, we are of the view that artistic impressions in
whatever form should be allowed but they should give accurate representation of
the surroundings of the property
development. |
Recommendation
19
We recommend that artistic
impressions in whatever form should give accurate representations of the
surroundings of the property development.
Management of clubhouse
and communal facilities
| 9.23 | Nowadays,
in order to enhance their image as luxury apartments, many developments,
including those with only small and medium-sized flats, will include a clubhouse
and other communal facilities such as swimming pools, tennis courts and
children's playgrounds. |
| 9.24 | Whilst
sales brochures usually contain a general description of the clubhouse and the
communal facilities, they seldom mention with whom lies the responsibility for
managing the day-to-day affairs of these facilities. The result is that most
purchasers will assume that the developer or its subsidiary will manage the
clubhouse and other communal facilities a long time. However, there are cases
in which the developer or its subsidiary assumes the management for the initial
few years and then hands over the managerial role to the owners themselves.
Unless the owners are well organised (such as by forming themselves into as
owners' corporation), they may not be prepared to take up the management of
these facilities.
|
Recommendation
20
We recommend that the sales brochures
should give the following details about the clubhouse and other facilities in
the development:
| (i) | whether
they are communal
facilities; |
| (ii) | who
has
ownership; |
| (iii) | who
has responsibility for their management;
and |
(iv) the duration of the
management.
Date of
completion
The use of the
occupation permit as the definition of building completion
| 9.25 | A
completed unit is one with an occupation permit and as such, is only
structurally in place but may not be fully fitted out with all the fittings and
finishes. An occupation permit can be issued upon the completion of
construction of the units and on general compliance with the requirements
relating to lifts, fire service installations and connection to water
supply.[68] We would observe
that the existing law in relation to the use of the occupation permit as the
definition of buildings completion should be reviewed, as buildings with an
occupation permit (especially those in multi-block developments) may not be
ready for immediate occupation. |
The relevance of the
date of completion to completed properties
| 9.26 | The
date of completion can refer to any one of the following
dates: |
(1) the construction
completion date as stated in the Agreement for Sale and Purchase
("ASP");
(2) the date of completion of sale
and purchase; and
(3) the date of vacant
possession.
| 9.27 | The
construction completion date as stated in the ASP obviously has no relevance
here as we are dealing with properties for which the occupation permit has been
issued. The completion of the construction of the units is a pre-condition for
the issue of the occupation permit. |
Date of completion of
sale and purchase and date of vacant possession
| 9.28 | The
date of completion of sale and purchase and the date of vacant possession are of
considerable importance to purchasers of completed properties. The importance
of these two dates is that they give purchasers an idea as to when they are
required to pay the balance of the purchase price and when they can take
possession of the property. Purchasers can then make their accommodation and
financial plans by reference to these two
dates. |
| 9.29 | When
dealing with completed properties, the date of completion of sale and purchase
and the date of vacant possession are known with certainty. It is therefore not
difficult for developers to put these dates in the sales brochure (or the price
list). We understand that this is the existing practice. However, in order to
allow some flexibility the dates need not be actual dates in the calendar. They
can be a time frame, such as, a certain period of time from the signing of the
ASP. |
Recommendation
21
We recommend that all sales brochures
should state the date of completion of sale and purchase and the date of vacant
possession. The dates need not be expressed in terms of actual dates in the
calendar. Instead, they can be expressed by reference to a time frame, such as,
a certain period of time from the signing of the
ASP.
We recommend that if any of the
payment terms is dependent on the occurrence of a contingent event (such as
execution of the assignment), the sales brochure or the price list should state
the date of the happening of that event.
Sub-sale by original
purchaser to sub-purchaser
| 9.30 | For
first-hand completed properties, the date of legal completion is usually within
five weeks of the preliminary agreement. |
| 9.31 | The
industry-wide practice is that the developer and the purchaser would cancel
their original agreement. The developer charges an administration fee for the
cancellation equivalent to one percent of the consideration. The developer then
signs a new agreement with a new purchaser. The original agreement is
cancelled. All additional costs so incurred will be borne by the original
purchaser or sub-purchaser. The required procedures and administration fees
charged by the developer for the cancellation of the agreement are not always
indicated clearly in sales
brochures. |
Recommendation
22
We recommend that where developers
impose any fees or charges on transfer of title from the original purchaser to a
sub-purchaser, or on the cancellation of the purchase agreement, the amount of
such fees or charges and the procedures for transfer should be specified clearly
in the sales brochure.
Risk in confirmor
sale
| 9.32 | We
take the view that the public should be alerted to the inherent risk in a
confirmor sale. If a completed unit is re-sold to sub-purchasers before the
legal completion of the original sale, all sub-purchasers will sign in the
capacity as "confirmors" in the assignment. The legal interests in the unit
will pass from the developer direct to the sub-purchaser at the end of the
chain. |
| 9.33 | There
is a risk that the sub-purchaser at the end of the chain of sub-sales cannot get
good title to the property because of defaults of confirmors further up the
chain. We are of the view that in order to minimise the risk involved in
sub-sale, all money should be stakeheld by the
solicitors. |
| 9.34 | We
believe that, in order to protect sub-purchasers, the Law Society should
consider the stakeholding of purchase monies in a sub-sale and issue practice
directions requiring solicitors to warn purchasers of the risk inherent in
confirmor sale. |
| 9.35 | We
also consider that the Estate Agents Authority should require estate agents to
remind purchasers of the risk involved in confirmor
sales. |
[61]
See paragraph 2.19 of the First Report for the previous recommendations on
floor
plans.[62]
The First Report, at paragraph
2.20.[63]
The First Report, at paragraphs 3.14 to
3.17.[64]
The First Report, at paragraph
3.19.[65]
The First Report, at paragraph 3.24.
[66]
The First Report, at paragraphs 4.19 to
4.25.[67] See
Appendix 1 of Land Office Circular Memorandum No 101, at paragraphs A 2 & 3.
The same requirements are contained in paragraphs 2 and 3 of Appendix XII of
Land Advisory Conveyancing Office Circular Memorandum No 40 which came into
force on 28 May 1999.
[68]
See section 21(6) of Buildings Ordinance (Cap 123) which spells out the
circumstances in which an application for an occupation permit will be refused
by the Building Authority.