LCQ1: Property management companies
Following is a question by the Hon Albert Chan and a reply by the Secretary for Home Affairs, Dr Patrick Ho, in the Legislative Council today (February 11):
Question:
Will the Government inform this Council
(1) of the number of relevant complaints received as well as the number of prosecutions instituted against the property management companies and their staff in each of the past three years; and
(2) whether it will consider enacting laws to regulate property management companies so as to strengthen the protection for property owners' rights; if so, of the details of its consideration; if not, the reasons for that?
Reply:
Madam President,
(a) For the past three years (i.e. 2001, 2002 and 2003), the number of complaint cases received by the Home Affairs Department in respect of property management companies were seven, five and 19 respectively. The complaints were mainly about the excessive authority granted to property management companies under the Deed of Mutual Covenant (DMC) or the inappropriate use of the power as set out in the DMC by property management companies.
On receipt of these complaints, the 18 District Offices would take the necessary follow-up action. They would find out more details about the case and then offer appropriate assistance to the complainant. The cases would be referred to the Police or the ICAC where necessary.
For complaints on property management reported to the ICAC in the past three years, 227, 191 and 222 cases were related to property management companies or security companies. The ICAC has completed prosecution for 34, 21 and nine cases respectively in the past three years.
(b) Management of private buildings is squarely the responsibility of owners. The Government's policy is to actively encourage and assist owners to form owners' corporation (OC) to facilitate the effective management of their buildings. In this regard, the Administration plays the role of a "facilitator", adopting various means to help owners to discharge their building management responsibilities. One of the most crucial means adopted is the provision of a legal framework for compliance by owners. The enactment of the Building Management Ordinance (BMO) is to provide such a framework to facilitate the incorporation of owners and prescribe the rules for property management.
The purpose of regulating property management companies is to protect the interests of owners. In fact, there are already existing provisions in the BMO to protect their pecuniary interests and guard against the misuse of owners' money.
Part VIA of and the Seventh Schedule to the BMO are mandatory terms incorporated into all DMCs and are applicable to all DMCs. These provisions require that the manager, i.e. the property management company, shall appropriately handle their clients' monies. All property management companies have to comply with the rules set out in the DMCs.
Hence, whether an OC or an owners' organisation has been formed in a building, the manager, i.e. the property management company, must, in accordance with the Seventh Schedule to the BMO, maintain an interest-bearing account and shall use that account exclusively in respect of the management of the building. On receipt of the management and maintenance fees, the property management company shall, except for a reasonable amount to cover expenditure of a minor nature, deposit all money into that account without delay.
Furthermore, we encourage owners to form themselves into OC. Once an OC is formed in a building, the OC could maintain an interest-bearing account in accordance with section 20 of the BMO. Owners will then be able to deposit the management fees directly into that account. The OC shall use that account exclusively in respect of the management of the building. On receipt of the management and maintenance fees, the OC shall, except for a reasonable amount to cover expenditure of a minor nature, deposit all money into that account without delay.
Management fees deposited by owners with the manager, less the remuneration of the manager as stipulated in the DMC or the management contract, are the owners' money and not the manager's money. As explained above, in accordance with the existing BMO, a property management company has to maintain an interest-bearing account and shall use that account exclusively in respect of the management of the building. To rationalize and clarify the provisions of the BMO and to offer better protection for the interests of owners by allowing them to monitor the financial management of the property management companies, we propose to stipulate in the BMO that the manager shall establish and maintain one or more segregated accounts for money received in respect of the management of the building with the OC as the client, each of which shall be designated as a trust account or client account. The proposal will ensure that the manager will keep the management fees received for an OC in a bank account separate from his own monies. It will also ensure that the manager will not merge the management fees received from different buildings into one single bank account. We will formally consult the property management industry on this proposal.
Moreover, we carried out an extensive public consultation exercise on the proposed amendments to the BMO from May to July 2003 and invited views from OCs, property owners, the property management industry and professional organisations, etc. The proposals included in the Consultation Paper have been deliberated in the Subcommittee on the Review of BMO set up under the Legislative Council Panel on Home Affairs. One of the proposals is to improve the existing provisions under the BMO regarding the procurement of supplies, goods and services by OCs so as to offer better protection for the interests of property owners.
The BMO provides that any supplies, goods or services, the value of which exceeds (a) the sum of $100,000 or (b) a sum which is equivalent to 20% of the annual budget of the corporation, whichever is the lesser, shall be procured by invitation to tender. The above provision is also set out in the "Code of Practice on procurement of supplies, goods and services"issued by the Secretary for Home Affairs in accordance with section 44(1) of the BMO. However, in accordance with section 44(2) of the BMO, failure to observe the Code of Practice is not illegal and compliance by OCs is not mandatory.
In the past, there were often disputes between property owners and management committee over the question of whether it was necessary to follow the prescribed tender requirements in the procurement of goods or services. For the sake of convenience, many MCs choose not to follow the relevant requirements. This is in fact contrary to our legislative intention.
To improve and clarify the existing provisions, we propose to amend the provisions in the BMO regarding procurement of supplies, goods and services by an OC. Following the amendment, any procurement of supplies and services with a value exceeding the prescribed threshold must be done through tendering in accordance with the law.
The new provision will also be applicable to property management companies through corresponding amendment to the Seventh Schedule to the BMO. The proposal will enhance the transparency of property management companies in the usage of management fees. Owners will also be able to effectively monitor the operation of property management companies through the owners' meetings and the tendering procedures.
We aim to introduce an amendment bill into the Legislative Council in the 2004-05 legislative session.
On the question of whether legislation should be introduced to regulate property management companies, the public has divided views. Those in favour of the proposal generally consider that a licensing system will help improve the quality of services provided by property management companies, while those against it generally view that a licensing system will exert pressure on the operation of small-sized property management companies. There are about 900 small-sized companies and their clients are mostly old private tenement buildings.
For the above reasons, the Administration has an open mind on the introduction of a licensing scheme for property management companies. We hope that private property owners, OCs, the property management industry and professional bodies will thoroughly discuss the subject and continue to express their views to us.
I would like to stress that even with a regulatory system (in whatever mode), we will not be able to stamp out the re-occurrence of closure of poorly-managed property management companies or prevent illegal activities such as theft and bribery. Full participation of owners is essential to effective building management. We will continue to strive to improve the existing system, and will strengthen our publicity efforts in enhancing owners' understanding of the requirements of the BMO so that they will have a clear idea of their rights and responsibilities.
February 11, 2004