2024-05-08 28Hse Editor
The term ‘Owners' Corporations (OCs)’ is a familiar concept in Hong Kong property management. What is it? If legal issues arise, how are homeowners affected? And if the issue remains unresolved, are there any other alternatives?
The Government's policy on building management has focused on encouraging and assisting homeowners to set up appropriate organisations – mainly Owners' Corporations (OCs) and Owners' Committees (OCs). Some people may conflate the two, but there are several key differences.
The convenor can organize an owners' meeting. There needs to be a sufficient quorum at the meeting; that is, at least 10% of all owners must be present. The owners can decide whether to establish an owners' corporation in accordance with the Building Management Ordinance or with the building's Deed of Mutual Covenant. Owners' committees to manage their building.
An OC is an independent legal organization that, with the power granted by law, can manage the common areas of a building on behalf of all owners, protect the interests of the owners and assume relevant responsibilities, and has the right to take legal action. The corporation can appoint or supervise property management, including supervising the management company's remuneration, budgeting for financial management, and so on. The owners' committee, on the other hand, is only responsible for the management of the common areas of the building.
Conversely, an owners’ committee is only of advisory nature, providing opinions on building management on behalf of all owners. Ultimately, the management company can decide whether to adopt the relevant opinions. An owners’ committee has no legal authority and therefore has no authority to oversee the responsibilities and compensation of property managers.
It is worth noting that many old residential apartment blocks in Hong Kong do not have owners' corporations, any residents' organizations, and they do not employ property management companies to manage them. This affects the management of these flats’ public environment and building maintenance.
Owners' Corporations typically have an unsavoury reputation. However, this article will not discuss the advantages and disadvantages of establishing an owners' corporation. Instead, let’s focus how homeowner’s property sales or mortgage application are affected when an Owners’ Corporation is faced with legal action.
According to the Building Management Ordinance, corporations are required to establish and maintain a reserve fund to meet unanticipated and emergency expenses. Some buildings even have building maintenance funds. In addition to paying management fees, owners also need to pay a fixed amount every month to reserve for future large-scale maintenance projects.
But what happens if the Owners’ Corporation is involved in legal issues or faces huge claims due to accidents, and even the building reserves can no longer be paid? For large compensation amounts, owners split the difference evenly; if there is a lawsuit, the bank may refuse to lend mortgages for the building until judgments and settlements are made.
In 2008, it was reported that a number of banks refused to lend a mortgage to a buyer who was interested in a flat in Lucky Plaza in Sha Tin. It was later found that there was a lawsuit involving a person being injured by a lift in the housing estate, and the banks had therefore rejected the mortgage application. The buyer eventually forfeited the mortgage.
In fact, buyers cannot find out from the searches whether the Owners’ Corporation is facing any legal proceedings. Until new information is revealed, they can only consult the relevant vendors, estate agents and management companies. For their own protection, buyers can also set out the relevant terms and conditions in the Agreement for Sale and Purchase (ASP) to avoid any loss due to misrepresentation by the seller.
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