Revealed: the USA has the longest land lease in China
6 August 2018
In our 2-part series on Hong Kong Land Lease Reform (7-Oct-2010) we noted that no 999-year land leases had been granted in Hong Kong since 1901. The standard grant after that time and until the Sino-British Joint Declaration (JD) took effect on 27-May-1985 was a 75-year lease with a single right of renewal for a further 75 years (75+75). After the JD, the standard grant became 50 years plus the remaining period until the end of British rule on 30-Jun-1997. Since the Handover, the standard land lease has been a straight 50 years (with the exception of Disneyland, which has a 50+50 lease, thank first HK Chief Executive Tung Chee Hwa for that).
Our article included the throw-away remark that the USA Consulate at 26 Garden Road was "rumoured" to be sitting on an exceptional 999-year lease, but we had not verified that. A reader recently took up the baton and sent us the Land Register summary for the consulate, which sits on Inland Lot 6622. The "Property Particulars" section states that it has a lease term of 75 years, renewable for 75 years, commencing 19-Apr-1950:
So that's completely standard, you might think, "move along, nothing to see here". But we do love a challenge. As we will show, the registry entry is deceptive, false and misleading. Down in the list of "incumbrances" in the registry is an instrument, UB7899096, dated 21-Oct-1999 (again, during the Tung Chee Hwa administration) titled "Deed of variation of government lease", and in the Consideration (payment) column, a "-", indicating nil. You might think that this document is just some minor alteration to the lease, for which there was no consideration, and not bother to buy a copy of the deed at a further cost of HK$100 from the registry to find out what is inside. We did bother, and it was worth every cent.
What the deed shows is that there was in fact a modest payment, of only HK$44m, in exchange for which the HKSAR Government in 1999 extended the lease term to 999 years from 19-Apr-1950, making it the longest lease in HK by a margin of about 49 years, ahead of the last 999-year lease granted in 1901. In the same deed of variation, a number of other provisions in the lease were relaxed. The most significant of these is that a restriction on sale was removed. The original lease included a provision that the USA may not dispose of the site (or underlet it) without the consent of the Governor of HK. This is not surprising, given that the site was provided without payment of any land premium and only a token rent. It was to be used only as a consulate, and implicitly, it would have to be returned to the Government if the consulate was ever re-located or closed. The Governor (now Chief Executive) would have been reckless if he had simply allowed the USA to sell the site in the open market without paying a land premium.
With the deed of variation, that restriction on sale has been removed, so the USA could, if it wanted, sell the entire site in the open market, and relocate to leased offices or simply close. Tung Chee Hwa's administration apparently gave up that restriction for almost nothing.
So, why did HK grant the USA an extension to 999 years and remove the sale restriction? To understand this, you need to look at the original lease and the circumstances of its grant. For some reason, the lease exceptionally included an option for the USA to purchase the freehold (also known as the "fee simple" of the site), which as far as we know was the only such option in any land lease in HK (if you know otherwise, please contact us). St John's Cathedral (also on Garden Road) is a freehold site, but only so long as it is a church, under Section 6(1)(a) of the Church of England Trust Ordinance.
The original consulate lease allowed for the USA to give 3 months' notice of its desire to purchase, upon which there would be a payment "mutually agreed to be the fair value of the freehold reversion". Presumably if agreement could not be reached then common law rights would allow the USA to seek judicial intervention.
The lease was signed by then US Consul-General Julius Cecil Holmes and dated 14-Apr-1960, during the Presidency of Dwight Eisenhower and when Harold Macmillan was UK Prime Minister. However, that signing probably came some time after completion of the main building. The current US Consulate web site states that it has been at the site "since the late 1950s". Records from the Colonial Office in the UK National Archives, relating to "New American Consulate Building: proposed site" cover a period in 1947, just 2 years after WWII, when discussions were underway, and there was clearly internal discussion documented in "New American Consulate building: lease for site" in 1949, while the communist takeover of China was in progress. It is unclear why it took 11 years to sign the lease, but perhaps the exceptional terms were a matter of diplomatic negotiation between the UK and USA.
The records have not been digitised, so we will leave it to other journalists to visit Kew, London and inspect those records, or to try to obtain copies of them in Hong Kong from the Public Records Office. It would be fascinating to learn how that negotiation unfolded. It appears that HKPRO has a microfilm of the records.
While it is true that the USA had the option to acquire a freehold, such a purchase should have come at a price that reflected the removal of the restriction on assignment (sale) of the site, because until then, it was quite clearly a "use it or lose it" lease, while a freehold gives full right of disposal. The removal of that option in exchange for an assignable, 999-year lease, which is near-freehold, should have attracted a proper land premium that reflected the uplift in value.
The site has a land area of 61,719 sq. ft. Even at a low-rise plot ratio of say 5, that would provide 308,595 gross sq. ft. of floor area. At say HK$25,000 per sq. ft., that would make it worth HK$7.71bn (US$989m) today, possibly more. The site is adjacent to the low-rise Central Government Offices East Wing and the Chief Executive's residence, Government House, and opposite the historic Helena May, so rezoning to a higher plot ratio (the maximum for offices being 15) might be more difficult.
Anyway, the bottom line is this: the USA was given in 1960 a possibly unique option to purchase the freehold, and the HKSAR Government agreed in 1999 to convert that option into a 999-year lease and remove the sale restriction, giving the USA a potential windfall together with the longest land lease in Hong Kong. None of that was publicly announced, and the Land Registry to this day hides it to any searcher by stating only the original 75+75-year lease term and that there was no payment for the lease modification. You only find out the truth if you dig as deep as we did. The Land Registry is behind a paywall, so that deters public interest journalism.
Incidentally, we checked the Land Registry for the UK Consulate at 1 & 3 Supreme Court Road (Inland Lot 8675), because you might think that the departing British Government would have given itself the same favour. The registry states a standard lease term from 23-Apr-1993 to 30-Jun-2047. Given the "One Country, Two Systems" model and the fact that mainland China only grants "Land Use Rights" up to 70 years, it is probably also true that the USA has the longest leasehold property in all of China.
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