Zoning and building perspectives of the logistics development in Hong Kong

Strategically located at the heart of Asia, Hong Kong has been traditionally known for its booming trading and logistics industry. The trading and logistics industry is the largest among the four main economic pillars in Hong Kong in terms of both value added and number of employment. The logistics industry contributed to 3.1% of Hong Kong’s GDP and 176,900 jobs in 2018 according to the Hong Kong Trade Development Council. To further promote the development of logistics services, the Hong Kong Government has announced in the 2020-21 Budget a pilot subsidy scheme for third party logistics services providers.

The logistics industry covers a wide spectrum of services, spanning over the freight transport, freight forwarding and storage sectors. The shift towards e-commerce, asaccelerated by the coronavirus pandemic, is shaping the logistics market to become increasingly sophisticated, and attracting greater participation by both established andnew investors into this sector.

This article provides a high level analysis on logistics sites in Hong Kong from zoning, Government lease and building permission perspective.

Outline Zoning Plan

Outline Zoning Plan (OZP) is a kind of statutory plan prepared by the Town Planning Board (TPB). TPB is established under the Town Planning Ordinance (TPO). OZP sets out the land-use zonings and major road systems of individual planning scheme areas, which enable the general public and stakeholders to understand the planning intention of particular land use zonings and whether application for planning permission is required.

Each OZP is accompanied by a Schedule of Notes which shows, for a particular zone, the uses which (i) are always permitted and (ii) would require permission from the TPB. There may be additional controls on developments within a particular land use zone which are specified in the OZP.

Therefore, in order to comply with zoning requirements, it is necessary to check the relevant OZP and ascertain whether zoning descriptions are fit for purpose andwhether application to TPB is required. Sites that are zoned “Industrial”, “Open Storage”, “Industrial (Group D)” and “Other Specified Uses” annotated: “Business”; “Logistics Facility”; “Container Related Use”; “Container Storage and Repair Depot” and “Special Industries Area” under an OZP may be used for developing logistics premises subject to TPB’s approval if required. An example of land zoned as “Other Specified Uses” being used for logistics purpose is the Kwai Tsing Container Terminals area shown in the following plan which has over 20 million teus handling capacity per year.

Kwai Tsing Container Terminals from Town Planning Board Survey Base Map from Lands

Under the TPO, unauthorised developments are punishable and may attract enforcement actions, including but not limited to notices from the TPB demanding for cessation of unauthorised use and heavy monetary sanctions.

Government lease

Government lease is essentially the land grant between the land user and the Government. The authority that monitors Government leases is the Lands Department.

Sites suitable for the logistics sector usually contain lease terms that involve one or more logistics-related uses such as open storage of goods; consolidation and handling of container cargoes; logistics and freight forwarding activities; third party logistics; the trade of receipt and dispatch of delivery orders in relation to containers transportation, etc. It is worth noting that there are many Government leases that include a covenant requiring premises to be used only as industrial and/or godown (i.e. warehouse or storage). However, it does not per se fit all types of uses in the logistics sector. It is essential to ensure that the permitted use matches with the kind of logistics use intended.

What if the Government lease only permits use of the land for industrial purpose? This issue has been considered in the Hong Kong case Regency Power Enterprises Ltd v SCS Express International Ltd (2010) HCA No 2195/2009, where the carrying out of logistics business in the premises was ruled as a breach of the covenant under the Government lease requiring the premises to be used only for industrial purpose.

The owner of the land may apply to the Lands Department for lease modifications or a temporary waiver so as to change the permitted uses of the lease governing the lot. However, the applicant will generally have to pay a substantial waiver fee/land premium.

If a breach of lease conditions is detected, the Lands Department may take appropriate lease enforcement actions, which normally include warning letters to the owner demanding for rectification. If the breach is not rectified and the seriousness of the breach warrants further action, for instance where the breach poses a threat to public safety, the Lands Department may re-enter the lot and forfeit the Government lease.

Occupation Permit

As a logistics premises user, it is important to check that an Occupation Permit (OP) has been issued. OP is evidence that the relevant building has been constructed in accordance with the Buildings Ordinance. OP is issued by the Building Authority (BA) and it involves several other authorities such as Fire Department, Water Services Department and Drainage Services Department which will inspect and confirm whether the relevant parts of the building, e.g. fire services, plumbing and drainage, have been satisfactorily completed and tested.

OP will state the permitted use of the building from a construction perspective. User of logistics premises will need to check whether it fits the specific logistics use intended.

Any intended use which is not in line with the OP must be notified to the BA. In the case of a breach of OP without approval of the BA, the BA could serve an order to prohibit the intended use and demand for rectification.

The table below summarises the three main user restrictions which land users should be aware of before occupying sites for logistics purpose in Hong Kong: