Private Recreational Lease Renewal Dilemma

Of the 27 sites held by private sports clubs under 𝑷𝒓𝒊𝒗𝒂𝒕𝒆 𝑹𝒆𝒄𝒓𝒆𝒂𝒕𝒊𝒐𝒏𝒂𝒍 𝑳𝒆𝒂𝒔𝒆𝒔 in Hong Kong, 15 leases are approaching expiration. Should a club — as the lessee — choose to renew its lease, it is required to pay a land premium equivalent to one-third of the site's market value. 

The lessee may request a review of the valuation in accordance with established procedures. However, the new policy does not imply that lease renewal is automatic simply upon payment of the premium. The Govt also takes into account 𝘪𝘯𝘵𝘢𝘯𝘨𝘪𝘣𝘭𝘦 𝘷𝘢𝘭𝘶𝘦𝘴, such as the club's contribution to sports development, the extent to which its facilities are open to the public, compliance with lease conditions, and organizational governance.

"1/3 𝐨𝐟 𝐦𝐚𝐫𝐤𝐞𝐭 𝐯𝐚𝐥𝐮𝐞" 𝐩𝐫𝐞𝐦𝐢𝐮𝐦 𝐢𝐬 𝐧𝐨𝐭 𝐚 𝐑𝐞𝐚𝐥 𝐄𝐬𝐭𝐚𝐭𝐞 𝐃𝐢𝐬𝐜𝐨𝐮𝐧𝐭 

Determining the market value premium involves considering various tangible and intangible factors, including the land use specified in the renewed lease, restrictions on the use of ancillary facilities, requirements for opening facilities to external groups, planning parameters, permitted sports and ancillary facilities, site configuration, access points, slopes and green areas, obligations regarding the conservation of historic buildings, development constraints, and public access obligations.

𝐀𝐩𝐩𝐞𝐚𝐥𝐢𝐧𝐠 𝐭𝐡𝐞 𝐌𝐚𝐫𝐤𝐞𝐭 𝐋𝐚𝐧𝐝 𝐏𝐫𝐞𝐦𝐢𝐮𝐦

 Upon receiving the govt's valuation, a club should take the following steps:

 🏏 𝘙𝘦𝘷𝘪𝘦𝘸 𝘵𝘩𝘦 𝘷𝘢𝘭𝘶𝘢𝘵𝘪𝘰𝘯 𝘣𝘢𝘴𝘪𝘴: Identify any lease conditions or practical constraints that have not been adequately reflected in the govt's assessment.

 🏏 𝘗𝘳𝘦𝘱𝘢𝘳𝘦 𝘢𝘯 𝘪𝘯𝘥𝘦𝘱𝘦𝘯𝘥𝘦𝘯𝘵 𝘷𝘢𝘭𝘶𝘢𝘵𝘪𝘰𝘯 𝘳𝘦𝘱𝘰𝘳𝘵: Support the request for a premium review and facilitate subsequent negotiations.

 🏏 𝘔𝘢𝘬𝘦 𝘧𝘪𝘯𝘢𝘯𝘤𝘪𝘢𝘭 𝘢𝘳𝘳𝘢𝘯𝘨𝘦𝘮𝘦𝘯𝘵𝘴: Plan ahead for the land premium payment installments.

 🏏 𝘈𝘭𝘭𝘰𝘤𝘢𝘵𝘦 𝘰𝘱𝘦𝘳𝘢𝘵𝘪𝘰𝘯𝘢𝘭 𝘳𝘦𝘴𝘰𝘶𝘳𝘤𝘦𝘴: Arrange for the additional maintenance, security, and management personnel required to facilitate public access.

Negotiation objectives should not be limited solely to lowering the land premium. Factors such as the club's contribution to sports development, the accessibility of its facilities, lease compliance, and organizational governance are all heavily weighted during the lease renewal assessment. The in-situ land exchange and land premium arrangement for the Sha Tin Racecourse in 2016 serve as a notable precedent.

See Full Text of the Column Commentary by Mr. Leo Lo in HK Economic Times https://lnkd.in/gRJ3Fnn9 hashtag#PCL