Rent policy and redevelopment arrangements for Housing Authority flatted factory estates


This paper describes the existing policy on the fixing of rents and arrangements for payment of ex-gratia allowances on redevelopment to tenants of flatted factory estates of the Housing Authority (HA).


2. The HA currently manages 16 flatted factory estates, with a total of over 17,300 units occupying about 409,000 square metres. Depending on the way they acquired the premises, tenants are classified into one of six groups. Each of these groups has different characteristics in terms of rent, frequency of rent review, tenants' rights, if any, to assign the premises and to keep the amount of premium received from incoming tenants. A summary is at Annex A.



3. Of the 16 flatted factory estates, seven, namely Chai Wan, Cheung Sha Wan, Jordon Valley, Kwai Chung, San Po Kong, Tai Wo Hau and Kwun Tong Factory Estates, were built between 1959 and 1973 by the then Resettlement Department as part of the resettlement programme to reprovision squatter factories and cottage workshops. Rents for these factory units were originally fixed by reference to the Schedule in the now repealed Resettlement Ordinance. Such rents are referred to as 'schedule rents' in the following paragraphs and annexes.

4. The HA took over the management of these factory estates on 1 April 1973. In February 1975, the HA gave tenants holding tenancy cards as at 1 September 1974 the right to assign their tenancies to a third party of their own nomination. These tenants are referred to as Group A1 tenants in Annex A. Assignees are required to continue paying the schedule rents, and are classified as Group A2 tenants.

5. Alternatively, tenants in Group A1 may opt to assign their tenancies by open tenders arranged by the HA and to receive the premia from incoming tenants. Assignees acquiring tenancy through open tender are required to pay full market rent, and classified as Group B tenants. This policy has been in force throughout the last two decades. It is based on the following principles -

  1. that factory units were intended for reprovisioning clearees to enable them to continue their operation, not as a form of commodity for trading; and
  2. that the HA should not provide rent subsidy to incoming tenants when the concerned factory units are no longer required and have simply been disposed of as a commercial proposition by the outgoing tenants.

6. In accordance with this policy, tenants acquiring a tenancy after September 1974 are only permitted to transfer their tenancies to a third party through the HA by open premium tender system. This includes tenants who acquired tenancies from Group B tenants, classified as Group C tenants.

7. The HA introduced biennial rent reviews to the schedule rents in August 1977 in the light of rising management and maintenance costs. Tenants affected by this policy are those in Groups A1 and A2. In practice, a flat rate increase of 25% has been imposed every two years. In determining the amount of rent increase, the HA took into consideration several factors, including the market situation, the historical factors, sub-standard facilities of the factory estates and the amount of government rates payable by the HA in respect of tenants' occupation of the factory units.

8. Because of the low initial rent levels in the Schedule of the repealed Resettlement Ordinance, rents of these factory premises are still well below market levels. A comparison of existing rents and the estimated full market rents of these factory estates is at Annex B.


9. All new lettings of flatted factory premises in 1980s are on fixed term tenancies normally for a period of three years at full market rent. Tenants of these factory units do not have any right of assignment and are required to surrender the premises unconditionally to the HA upon termination of tenancy.



10. Tenants of flatted factory estates, particularly those in Groups A1, A2, B and C, generally claim that they are in possession of assignment and inheritance rights, and as such are entitled to compensation on clearance. Legal advice on tenants' claims in previous clearance cases is that the HA is entitled to terminate tenancies by giving notice to tenants in accordance with the terms and conditions of the tenancy agreements. Tenants are not entitled to compensation for such termination, either under the tenancy agreement or the Housing Ordinance. Legal advice on assignment and inheritance rights is that, even if a tenant is allowed to transfer his or her tenancy by assignment and inheritance under the tenancy agreement, such rights do not survive on the termination of the tenancy. They are not separate rights that may be enforced or pursued against the HA after the termination of a tenancy.

11. Despite the fact that tenants affected by redevelopment have no legal right to compensation under the terms of tenancy agreements or the Housing Ordinance, it is the HA's practice to pay an ex-gratia allowance and to provide opportunities for relocation to assist tenants to re-establish their businesses if they wish.


12. In determining the amount of EGA, the HA seeks to arrive at an amount which is reasonable and fair to affected tenants.

Tenants with assignment right

13. In assessing the amount of EGAs, which are intended primarily to take into consideration the circumstances of tenants paying schedule rents, the following factors are considered -

  1. ex-gratia payments made by Government on land resumption and clearance;

  2. valuation of the losses (i.e. disturbance and loss of assignment rights) suffered by tenants;

  3. premia received by out-going tenants on assignment; and

  4. allowances made in other redevelopment cases adjusted to current value.

14. A schedule showing the amount of EGAs payable to different groups of tenants in the redevelopment of Yuen Long Factory Estate is at Annex C. An additional lump sum payment equivalent to four months' rent per factory unit is offered to tenants who do not seek reprovisioning from the Authority.

Tenants without assignment rights

15. This group of tenants has no special rights i.e. Group E tenants. Their position is equivalent to that of the Authority commercial tenants affected by redevelopment under existing policy, affected tenants will receive EGAs equivalent to 15 months' rent payable at the date of notification of clearance.


16. Although the HA is not obliged under the terms of tenancy agreements or the Housing Ordinance to reprovision tenants affected by redevelopment, it is the HA's practice to assist tenants to re-establish their businesses. In the redevelopment of Yuen Long Factory Estate, affected tenants who opted to relocate their businesses to vacant units in the HA's other flatted factory estates were offered rent free for a period of three months in factory units offered for reprovisioning. For affected tenants who did not seek reprovisioning, a lump sum payment equivalent to four months' rent per factory unit in lieu of reprovisioning was given.



17. Yuen Long Factory Estate, comprising 405 factor units was built in 1966. At the time of announcement of redevelopment in August 1995, there were 108 remaining tenants. Of these, 56 were occupying premises under fixed term tenancies and paying full market rents. A sufficiently long notice of termination of tenancies was given to tenants to help them to find alternative accommodation either in private developments or in the HA's other flatted factory estates. EGAs in line with the principles described above were provided.

18. Although opposition was received from some tenants, the clearance of Yuen Long Factory Estate proceeded smoothly and was completed in March 1997. The offer of cash payment in lieu of reprovisioning was in particular well accepted by tenants.

Prepared by : Housing Department
Dated : February 1998

Annex B

Comparison of Existing Rents and Estimated Full Market Rents
(as at August 1997)

Factory Estate

Year of Completion

No. of Tenancies

No. of Units


Rents ($/m2)

Exclusive of Rates

Estimated Full Market Rents Exclusive of Rates

Exiting Rents as a Percentage of

Full Market Rents

1. Chai Wan




25.26 - 40.89

69.5 - 145.75

28.06 - 42.19

2. Jordon Valley




23.87 - 39.47

62.75 - 133.50

29.57 - 44.25

3. Cheung Sha Wan

1960 - 1961



21.07 - 59.10

66.25 - 162.75

23.83 - 54.64

4. Tai Wo Hau

1961 & 1966



25.25 - 56.34

48.50 - 122.75

33.90 - 68.30

5. San Po Kong

1962 - 1965



26.55 - 58.88

60.50 - 149.75

32.98 - 58.98

6. Kwai Chung

1966 & 1973



25.9 - 56.36

41.75 - 116.50

48.36 - 76.92

7. Kwun Tong




27.13 - 58.87

54.00 - 141.50

41.61 - 63.07

Annex C

Redevelopment of Yuen Long Factory Estate

1. Approved Amount of Ex-gratia Allowances


Approved Ex-gratia Allowance ($/m2)

Group A1 and A2

3,507 - 6,430

Group B


Group C

1,870 - 3,215

Group D


Group E

336 - 979

Note : EGAs for Group D tenants included an extra lump sum payment of $8,000 per unit

2. Summary of Statistics

No. of tenancies involved



No. of tenants paying schedule rents



No. of tenants paying market rents


No. of tenants opted reprovisioning



No. of Tenants sought cash payment
in lieu of reprovisioning