The Building Management Ordinance (Cap 344) (BMO) has recently been significantly amended by virtue of the Building Management (Amendment) Ordinance 2024 (Amendment Ordinance), which will be effective from 13 July 2025 onwards.
In this article, we explain the gist of the amendments, a major part of which concerns the conduct of procurement exercises by management committees (MCs).1 Notably, non-compliance with the new obligations under the Amendment Ordinance may result in potential civil and / or criminal liability for various stakeholders, including MC members and managers.
A. Type 1 and Type 2 High-Value Procurement, and Large-Scale Maintenance Procurements
MCs need to satisfy certain requirements when they procure supplies, goods or services2 for performance of functions under the Deed of Mutual Covenant (DMC) or the BMO. The requirements to be satisfied depend on the type of procurement. There are three types of procurement under the new framework, namely, (a) Type 1 High-value Procurement; (b) Type 2 High-value Procurement; and (c) Large-scale Maintenance Procurement (Major Procurement).
The table below sets out the criteria for determining each type of Major Procurement:
Reference amount refers to:
1. If there is more than one amount of specified annual expenditure3 for the last 3 financial years in respect of the management of the building, that wholly falls before the initiation date for the procurement, the average of all such amounts; or
2. The amount of the proposed annual expenditure under the last budget prepared by either the MC in compliance with paragraph 1, Sch 5 of the BMO, or the amount of proposed annual expenditure under the last budget prepared by the building manager, according to the DMC, before the date on which a decision is made to conduct the procurement.
The requirements that must be satisfied by each type of Major Procurement are summarised as follows:
B. Pre-existing Supplier Exemption and Essential Requirement
As noted from the above table, some requirements under each type of Major Procurement are exemptible. Others are categorised as essential requirements so that non-compliance with the same may render the relevant contract liable to be declared void or voidable by the Court and, in the latter case, avoided by a corporate resolution.
A corporation resolution is another new definition introduced by the Amendment Ordinance. It refers to a resolution of the owners passed at a corporation’s general meeting under Sch.3 by a majority of votes.
Pre-existing Supplier Exemption
If the supplies procured in a procurement exercise are of the same type as any supplies already supplied by a supplier for the building, and a corporation resolution decides that the supplies concerned must be procured from the supplier specified in the resolution rather than by invitation to tender, then the Pre-existing Supplier Exemption would apply to exempt compliance with part of the requirements that would originally apply to a Major Procurement.
Essential Requirement Compliance
A contract for Major Procurement is not void by reason only that an essential requirement is not complied with, but the Court may make an order that the contract is void or voidable and in the latter case, the Court shall also make an order to convene a general meeting of the corporation to decide whether the contract is to be avoided. Subject to any order made by the Court, a contract may be avoided by a corporation resolution only for the reason that an essential requirement is not complied with instead of other reasons. Further, if the contract is for any Large-scale Maintenance Procurement, Sch. 6C has effect in relation to the general meeting convened for deciding whether the contract is to be avoided (see below).
Powers of the Court
Apart from making an order that the contract is void or voidable for non-compliance with an essential requirement as aforesaid, in any proceedings relating to any Major Procurement contract, the Court may make any order and give any direction in respect of any rights and obligations of the contractual parties that the Court thinks fit, by having regard to all the circumstances of the case, including the following matters:
- Whether an essential requirement has been complied with;
- Whether the requirements for tendering specified in Sch. 6A have been complied with;
- Whether the requirements for declarations specified in Sch. 6B have been complied with;
- If the procurement concerned is a Large-scale Maintenance Procurement, whether the requirements for corporation meetings specified in Sch. 6C have been complied with;
- Whether the procurement complied with any Code of Practice issued pursuant to s.28A;
- Whether the contract has been split from another contract of greater value solely for avoiding the need to comply with the essential requirement(s), or the need to comply with Sch. 6C concerning the requirements for corporation meetings if the procurement concerned is a Large-scale Maintenance Procurement;
- Whether the supplies procured under the contract were urgently required;
- The process of any activities or works in relation to the supplies;
- Whether the owners have benefited from the contract;
- Whether the owners have incurred any financial loss due to the contract and its extent;
- Whether the supplier of the supplies has acted in good faith;
- Whether the supplier has benefited from the contract; and
- Whether the supplier has incurred a financial loss due to the contract and its extent.
Subject to s.29A (on protection of MC participants4), any person who enters into a contract for any Major Procurement on behalf of a corporation when such contract does not comply with any essential requirement(s) may be personally liable for any claims arising from the contract. Under s.29A, no MC participants5 acting in good faith and in a reasonable manner shall be personally liable for any act done or default made by or on behalf of the corporation in the exercise or purported exercise of the powers conferred by the BMO on the corporation, or the performance or purported performance of the duties imposed by the BMO on the corporation.6 Nevertheless, this protection afforded to a MC participant shall not affect the corporation’s liability for the act or default.
Presumably, if the Court makes an order that the Major Procurement contract is voidable and if the same is ratified and confirmed by a corporation resolution, MC participants will not be liable. The s.29A protection will come into play if the corporation resolution invalidates or disapproves the Major Procurement contract.
The requirements set out above concerning procurement practices do not apply to any procurement initiated before 13 July 2025, provided that a contract for the procurement is entered into within 3 years after 13 July 2025.
C. Requirements under the new Schedules 6A, 6B and 6C
Each type of Major Procurement is required to comply with Sch. 6A, 6B and / or 6C, depending on the type of procurement concerned. A detailed table on the key requirements under Sch. 6A, 6B and / or 6C can be found annexed to this Article.
It is important to note that, in accordance with Sch. 6A, all tenders for Major Procurement must be issued to at least 3 potential suppliers, if the supplies to be procured are likely to exceed HK$10,000 (or 5 suppliers, if the supplies procured are likely to exceed HK$200,000) unless exempted by a MC resolution (for Type 1 Procurement), or a corporation resolution (for Type 2 Procurement and Large-scale Maintenance Procurement).
There are also detailed requirements on declarations of interest and connections that encompass MC participants and managers under Sch. 6B. In particular, Sch. 6B mandates MC participants, managers, as well as those who act in accordance with the directions of a manager on substantive matters regarding procurements, to declare if they have any “pecuniary” or “other personal”7 interest in a tender submitted for procurement, as well as any connection8 with a person who submitted a tender.
A MC participant who made a declaration must not partake in any activity relating to the procurement, including the assessment of the tenders submitted. Managers are under a similar prohibition, unless exempted by a MC or corporation resolution.
In addition, corporation meetings for accepting Large-scale Maintenance Procurements must comply with further procedural requirements laid down under Sch. 6C, which include:
1. The relevant notice of meeting must set out the estimated contribution to be made from each building management fund for the procurement and contribution by each owner. This requirement applies when a meeting is to deal with:
- The acceptance of a Large-scale Maintenance Procurement tender; or
- The variation, termination or avoidance of a Large-scale Maintenance Procurement contract, if the corporation and / or owners are expected to incur financial liability because of the variation, termination or avoidance.
2. All resolutions concerning Large-scale Maintenance Procurement are subject to a voting-in-person threshold, being the lesser of 5% of the owners or 100 owners.
3. Minutes of the relevant corporation meeting must show the total number of votes cast personally and by proxy respectively.
4. The MC is required to provide a copy of the certified meeting minutes to the owners and the tenants’ representative (if any) within 28 days of the meeting which considered a resolution relating to Large-scale Maintenance Procurement.
D. Other Amendments
Authorisation by Corporate Flat Owners
An important addition is the mechanism for corporate flat owners to authorise a natural person as representative in corporation meetings. The number of representatives appointed is limited to one, and a corporate flat owner must give an authorisation notice to the secretary of the MC at least 48 hours prior to the meeting. Notably, if a corporate owner votes via an authorised representative at a meeting, such votes are regarded as personal votes (rather than votes by proxy).
Accounting
The entire s.27 on accounts of corporations is repealed and redrafted. Sch. 6, which concerns the preparation and keeping of accounts, is also revamped. Certain obligations are added:
1. Financial statements of a corporation must be audited, if the total income and / or expenditure of the corporation exceeds or is likely to exceed HK$500,000. The previous threshold – where this audit requirement is exempted for a building having less than 50 flats – is removed.
2. A copy of such financial statements and the accountant’s report (if the statement is to be audited) must be displayed in a prominent place in the building for at least 7 consecutive days and as soon as reasonably practicable after the report is obtained.
Record-keeping
In relation to record-keeping, it is now an obligation under the BMO to keep documents such as meeting minutes, as well as procurement documents, for a prescribed period of time and failing to do so will amount to a criminal offence. The relevant documents and periods which they must be kept are as follows:
Inspection
The existing statutory provisions of the BMO often giveowners and registered mortgagees a right to inspect / request copies of documents. Now, these provisions are generally revised to include a 28-day time limit for compliance. For instance, the amended provisions now require provision of the following documents within 28 days of a written request:
1. Copies of financial statements, accountant’s report or summary of income and expenditure of the corporation; and
2. Copy of certified minutes of a MC meeting / corporation meeting.
Further, as per the latest amendments, the MC is required to:
1. Allow an owner / the tenant’s representative / a registered mortgagee to inspect any books or records of account or other financial records of the corporation maintained by the MC;
2. Allow the owners or their appointed representative to inspect procurement documents at the written request of at least 5% of the owners, or in accordance with a court order applied for by an owner pursuant to the new s.28C(5); and
3. Provide a copy of certified minutes of a MC meeting, where a tender submitted for Large-scale Maintenance procurement was assessed (or when the variation, termination or avoidance of the relevant procurement contract was considered at such meeting) to all owners and the tenants’ representative, within 28 days after the date of the meeting.
Enhanced Accountability
Many of the record-keeping obligations outlined above will carry criminal consequences if contravened. Generally, it will now be the person (or persons) accountable for the contravention who commits a criminal offence, rather than all MC members. As a matter of definition, a person accountable for the contravention refers to the MC participant(s) who assumed responsibility for taking the requisite action for performance of the duty owed by the MC under BMO.
Incidentally, “due diligence” defences under BMO have been rewritten so that a defence would prevail if:
1. The accused adduces sufficient evidence for putting due diligence in issue; and
2. The prosecution fails to prove to the contrary beyond reasonable doubt.
E. Points to Note
1. For MCs:
(a) Most of the amendments are directed at regulating the management of a building by MCs. MCs should take care to comply with the extensive requirements about procurement practices. In particular, the Amendment Ordinance now provides that non-compliance with an essential requirement may expose whoever entered into the relevant procurement contract for the corporation (who may well be a MC member) to personal liability (subject to the protection afforded by s.29A).
(b) MCs should also note that if the relevant procurement contract is not entered into within 3 years after 13 July 2025 (i.e. the effective date of the amendments), the procurement, even if initiated before the effective date, will still be subject to the various requirements on procurement as stipulated by the amendments.
(c) The more stringent and enhanced record-keeping requirements will likely have an impact on curbing bid-rigging and other types of cartel / collusions (especially those occurring in a procurement context), which have been a focus of anti-corruption and competition authorities in Hong Kong.
(d) S.44 of the BMO (both pre-amendment and post-amendment) provides that the Secretary for Home and Youth Affairs may issue a Code of Practice on procurement of supplies. In light of the amendments, it is anticipated that there will be a new Code of Practice (the existing version has been effective from 1 September 2018 onwards) as many of the requirements prescribed within the existing version are now built into the BMO by the amendments (e.g. the requirement that there must be at least 3 or more tenders to be invited if the tender is for procurement of supplies above HK$10,000 but below HK$200,000 is now found in Sch. 6A). Any new Code of Practice may well focus more on anti-corruption matters relating to procurement.
2. For Building Management Services Providers:
(a) Building managers should note that its employees (or the employees of its subsidiaries) could potentially be under the obligation to make declarations pursuant to Sch. 6B, which applies to not only managers but also persons who act in accordance with the directions of a manager on matters regarding procurements.
(b) In addition, the role of MC secretary or treasurer is often taken up by professional building management companies (given they have the knowledge and experience in building management matters). As offences in the BMO now cover MC participants, including the secretary or treasurer who may or may not be an MC member, management companies who acted as the MC secretary and / or treasurer and undertook the responsibilities for preparing and maintaining records of corporation documents and financial affairs, need to be aware of potential criminal liability in the event of any non-compliance.
(c) Property management services providers are generally required to be licenced under the Property Management Services Ordinance (Cap. 626) (“PMSO”). A licensee commits a disciplinary offence (as defined in the PMSO) if there is a breach of any applicable requirement in the BMO or the DMC – presumably, this would likely encompass non-compliance with the record-keeping requirements, or the new requirements relating to procurement practices. Non-compliance may prejudice applications for a fresh license (or a renewal) as the Property Management Services Authority (“Authority”), in context of deciding whether an applicant is suitable to hold the licence, will consider whether the applicant has committed any such disciplinary offences. Once a disciplinary offence is committed, a licensee may also be investigated and after the conclusion of disciplinary proceedings, sanctioned by the Authority (such as by giving a reprimand, imposing a penalty of up to HK$300,000, or even revoking the licence).
3. For Owners:
(a) Corporate owners benefit from the new regime relating to authorised representatives. The key difference between appointing an authorised representative and a proxy (which is the conventional way for corporate owners to attend meetings) is that an authorised representative’s vote is regarded as personal for the purposes of Sch. 6C, which prescribes the minimum threshold for personal votes on resolutions concerning Large-scale Maintenance Procurement.
(b) Owners now enjoy predictable access to documents of the corporation such as financial statements and a summary of income and expenditure, as the MC must provide a copy of such documents requested – if an owner makes such request in writing – within 28 days of the request. This is to be contrasted with the pre-amendment provisions, where no express time limit is specified. The MC must also allow an owner to inspect “any books or records of account, or any other financial records” of the corporation – see the new ss.27(1)(a) and 27(5). This provides for a more defined scope of access compared to the pre-amendment s.27(2) (which refers to a category of inspectable documents as “books of account”). Hopefully, these amendments will serve to minimise unnecessary disputes between the individual owners and those in charge of the management of a building.
Our team at Deacons has a strong track record of advising on building management issues. Should there be any need to discuss, please do not hesitate to contact us.
Annex: Table of Key Requirements under Sch. 6A, 6B and 6C
For further information, please contact:
Paul Kwan, Partner, Deacons
paul.kwan@deacons.com
1 In this article we will refer to provisions of the BMO as if they have already incorporated the new provisions introduced by the Amendment Ordinance. The requirements and changes discussed in this article are generally applicable to managers and buildings without an owners’ corporation, per the revised Sch.7.
2 For ease of reading, when we refer to supplies in this article, the reference should be read as inclusive of goods and services.
3 Specified annual expenditure is either (1) the total expenditure of the corporation contained in the income and expenditure account prepared according to s 27of the BMO; or (2) the total expenditure in respect of the management of the building, contained in the income and expenditure account prepared according to the mandatory DMC terms in para 2 of Sch 7 of the BMO. Adjustment mechanisms apply to financial years that do not comprise of 12 months and months which are incomplete for the purpose of calculating the specified annual expenditure.
4 i.e. a member of the MC, or a secretary or treasurer of the MC who is not its member.
5 The pre-amendment s.29A BMO protects members of the MC (as opposed to participants which include the secretary and / or treasurer of an MC who is not its member), and thus is narrower in scope than the post-amendment version.
6 There are cases where MC members have attempted to rely upon s.29A. In one case, an ex-MC member sued another member for defamatory statements in a no-confidence motion that was displayed in the building’s lobby and distributed to its residents. The defendant member successfully established a defence under s.29A and other defences such as justification and qualified privilege (see Woo Tak Yan v Lam Sik Chuen, unrep., DCCJ 5381/2009, 21 December 2011). On the other hand, the chairlady of an incorporated owners failed to establish a s.29A defence when faced with a claim from an owner-developer for damages arising from the chairlady’s instructions to demolish certain installations such as gates, which were owned by the owner-developer (See Wing Hong Investment Co Ltd v Fung Sok Han [2016] 1 HKLRD 1).
7 There is no guidance in the Amendment Ordinance as to what constitutes “other personal interest” and presumably it will cover non-pecuniary interests that may benefit MC participants and / or managers in their personal context.
8 A person (person / entity A) is defined to be connected with another person (person B) if, for example, A is a spouse / relative of B or A is a company, the board of which, is controlled by B, etc.
9 i.e. by personal delivery of a copy of the invitation, or by sending a copy by post or by courier service to the potential supplier’s last known business address, or by sending a copy by electronic form validly to the potential supplier.
10 A person (person / entity A) is defined to be connected with another person (person B) if, for example, A is a spouse / relative of B, A is a company the board of which is controlled by B, etc.
11 The same requirements on the format of declaration also apply to declarations made under Part 1, Division 2; Part 2, Division 1; and Part 2, Division 2.
12 i.e. a MC meeting convened that concerns the procurement.
13 The same requirements on the keeping and inspection of declaration also apply to declarations made under Part 1, Division 2; Part 2, Division 1; and Part 2, Division 2.
14 i.e. the decision that the procurement is to be conducted and includes a decision that potential suppliers are to be approached for the procurement.
15 Refers to a general fund / contingency fund maintained by the corporation, or any special fund / fund other than a special fund established by the manager for performing a function under DMC or under the BMO.
