Lands Department contradicts itself about SOGO’s possible land term violations

Last month, FactWire revealed that SOGO may have violated the land terms laid out in its Conditions of Exchange. In a follow-up, the Lands Department stressed that a violation of the DMC does not necessarily equate to a violation of land terms. However, it also confirmed that the land terms require adherence to the DMC during assignment or mortgage of the property.

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Last month, a FactWire investigation revealed that SOGO may have violated the land terms laid out in its Conditions of Exchange. In a follow-up, the Lands Department stressed that a violation of the DMC does not necessarily equate to a violation of land terms. However, it also confirmed that the land terms require adherence to the DMC during assignment or mortgage of the property. When asked whether the government would take action against SOGO for multiple previous violations of the DMC while being mortgaged, the department refused further comment.

FactWire’s investigation last month found that SOGO, a shopping mall in Causeway Bay, turned its 12th to 16th floors from an office space into a shopping area without authorisation, in violation of the building’s DMC, where the use of each floor is specified.

After FactWire published the report, the Lands Department initially denied the claim that a violation of the DMC implies a violation of the Conditions of Exchange. It explained that the relevant terms in the Conditions of Exchange apply when an assignment occurs, to ensure that every party involved in the assignment complies with the DMC. FactWire then pointed out that according to the conditions, the DMC, approved by the Director of Lands, must also be complied with when the owner mortgages the possession. In fact, SOGO did take out mortgages for some of its floors in 2001, 2003, 2004, 2006, 2011 and 2016.

The Lands Department, in a second response, agreed that mortgage is included in the application of the terms. However, it did not respond to whether it will take action in SOGO’s case and only stated that the property’s owner and manager would be responsible for violations of the DMC.

FactWire then restated that SOGO had taken out mortgages in the years stated above, and asked the Lands Department to clarify if it had contacted the property’s owner regarding these mortgages, made any site visits, requested rectification, and whether it would initiate any action against SOGO. The Lands Department declined further comment.

The unauthorised alteration to property use was made after Lifestyle International Holdings Limited (1212.HK) took over SOGO’s business in 2001. Its plan to expand the shopping area to the 12th to 16th floors was first announced during its initial public offering (IPO) in 2004.

Special conditions specified in both the land’s Conditions of Exchange in 1993 and an approved modification of it in 2001 read that the grantee of the land must comply with the terms and conditions of the DMC (‘upon given approval’ in the 1993 version and ‘approved’ in the 2001 version), and that no amendment to the DMC can be made without the prior written consent of the Director of Building and Lands (1993) or Director of Lands (2001).

In the course of its initial investigation previously, FactWire sent an inquiry to the Lands Department which confirmed that no amendment request to the DMC had been received since it was approved in 2001. The department claimed at the time that there was no violation of the Conditions of Exchange in 1993 and its modification in 2001 to operate department stores, retail stores and beauty salons on the concerned land lots. When asked about the contradiction between actual property use and that in the DMC, the authority said that ‘it is not appropriate’ for it to comment on the DMC because the terms were privately agreed upon among the premises owner, manager, and developer.

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