Management fees and the owners' corporation

Every month you will receive a demand from the building's management for a fee that typically covers the cost of running the common parts of the estate or single block. There is no statutory rate or standard per-square-foot figure for management fees in Hong Kong. The amount you pay is determined by your share of ownership in the development, as set out in the Deed of Mutual Covenant, and by the annual budget approved by the owners' corporation. This guide explains how the fee is calculated, what it pays for, who decides the budget, and what rights you have as an owner.

What the monthly fee buys

The management fee is the money the building uses to operate and maintain the common areas and facilities. The typical budget covers:

• Cleaning, security, and concierge staff salaries.
• Electricity and water for lifts, lobbies, corridors, and other common parts.
• Regular maintenance of lifts, fire safety systems, air-conditioning in common areas, and other equipment.
• Insurance for the building structure and common areas.
• Management company fees and administrative costs.
• A contribution to the sinking fund (see below).

How fees are apportioned: share allocation in the Deed of Mutual Covenant

The Deed of Mutual Covenant (DMC) is the legal document that governs the rights and obligations of all owners and the management of the building. It is registered with the Land Registry. A key part of the DMC is how it divides the common area expenses among owners. This is almost always based on each flat's share allocation – often expressed as a percentage or number of units – which is tied to the flat's saleable area in the DMC.

For example, a 1,000 sq ft flat may have a share of 1%, while a 500 sq ft flat has 0.5%. The larger flat pays twice as much. The share allocation is fixed when the building is first sold and cannot be changed without the unanimous agreement of all owners (which is extremely rare). This means if your flat has a larger saleable area than another, you will pay a proportionally larger share of the total management fee, even if your own flat consumes no more of the common services than a smaller one.

The total fee for the whole building is divided according to these shares. The DMC also appoints the first management company, usually the developer or a related company, and sets out the management's powers and duties.

The budget and how it is approved

Each year, the management company prepares a proposed budget for the next financial year. This budget will show the expected income (from fees and any commercial operations such as advertising or car park revenue) and all expected expenses. The management company usually sends the proposed budget to the owners' corporation for approval.

The owners' corporation (OC) is a body corporate formed under the Building Management Ordinance (Cap. 344). All flat owners in the building are members of the OC. The OC is run by a management committee elected by owners at the annual general meeting. The OC's main role is to supervise the management company and ensure the building is properly run. Major financial decisions, including approving the annual budget and the management fee level, are typically decided by a resolution of the owners at a general meeting. The DMC and the ordinance may require different levels of majority – a simple majority of shares, or up to 100% for certain items – for different types of decision.

If the management company is the developer, owners may have limited control initially. Owners can, however, by a resolution at a general meeting, replace the management company with a different one, or choose to manage the building themselves. This is a significant step that requires a majority vote (often 50% or more share of ownership, or as specified in the DMC). In practice, many older buildings have an OC that uses a professional management company chosen by the committee.

The sinking fund

The management fee includes a compulsory contribution to a sinking fund. This fund is a separate reserve account for major works that are not part of routine maintenance. Examples include repainting the exterior, replacing the lift, repairing the roof, or upgrading the fire safety system. The DMC usually states the percentage of the total fee that must go to the sinking fund (common figures are 5% to 10%, but you must check your own DMC).

The sinking fund is essential because without it, owners would have to pay a large special levy when a major repair is needed. The fund is held by the management company or the OC and can only be used for the purpose stated in the budget or as approved by the OC. As an owner, you have a right to inspect the sinking fund account statements, as discussed below.

Why fees vary widely between buildings

Management fees in Hong Kong vary enormously, from a few hundred dollars a month in an older walk-up building to several thousand dollars in a luxury estate with a swimming pool, gym, 24-hour security, and a full concierge team. The main factors are:

• Number of flats and total floor area: A small building with few flats spreads the fixed costs (e.g. a security guard, lift maintenance) over fewer units, so each flat pays more per sq ft.
• Facilities and services: A building with a clubhouse, garden, or rooftop pool has higher ongoing costs for staff, cleaning, and utilities, which are passed on to owners.
• Age and condition of the building: Older buildings often need more frequent repairs and may have higher insurance premiums.
• Management company efficiency and fees: Some management companies charge a higher management fee as a percentage of expenses or a fixed amount.
• DMC share allocation rules: The share allocation determines how the total cost is divided. In a building with a mix of commercial and residential units, the commercial owners may pay a larger share, reducing the burden on residential owners.

There is no standard or regulated figure. When buying a flat, you must ask the estate agent or vendor for the current monthly management fee and have your solicitor check the DMC for the share allocation.

Special levies

A special levy is a one-off payment charged to all owners, in proportion to their share allocation, to cover an unexpected or unbudgeted expense. Common reasons include urgent structural repairs (e.g. a damaged water pipe, a lift that fails prematurely), a fire safety upgrade required by the government, or a legal dispute that is not covered by insurance. The levy is separate from the monthly fee and is usually approved by the OC at a general meeting. If the sinking fund is insufficient, the OC may call a levy to top it up.

As an owner, you are legally obliged to pay a special levy if it is properly passed by the OC. The payment deadline and amount will be specified in the notice. Failure to pay can lead to legal action and a charge being registered against your flat. If you are buying a flat, your solicitor should check whether any special levy has been recently approved or is pending.

Owner's rights to inspect accounts and challenge a levy

The Building Management Ordinance gives you the right to inspect the management accounts and financial records of the building. You or your authorised representative can request to see the annual budget, the income and expenditure statements, the bank statements, and the sinking fund account. The management company must allow inspection at a reasonable time and provide copies at a reasonable charge. If they refuse, you can complain to the Home Affairs Department (or take legal advice).

If you believe a management fee or a special levy is not properly approved (e.g. the required majority at the general meeting was not obtained) or is not being used for the correct purpose, you may challenge it. Your first step should be to raise the matter at the next OC general meeting or in writing to the management committee. If the issue cannot be resolved, you can apply to the Lands Tribunal for a declaration or order. In practice, significant disputes are rare because the process is expensive and time-consuming, but the right exists.

You also have a right to call an extraordinary general meeting of the OC if you can collect support from owners holding at least 5% of the total shares (or the percentage stated in the DMC). At that meeting, you can propose a resolution to change the management company or to alter the budget.

What to check before you commit

• Ask the vendor or agent for the current monthly management fee and any pending special levies.
• Instruct your solicitor to review the DMC. Confirm your flat's share allocation and the percentage of the fee that goes to the sinking fund.
• Ask whether the building has an owners' corporation and, if so, whether the management company is independent or still the developer's
• Review the latest management accounts or request a summary if you are a serious buyer. Check if the sinking fund balance is healthy (a significant balance suggests lower risk of a large levy soon; a small or negative balance is a warning sign).
• If you are buying in a new development, remember that the developer sets the initial fee, which may be artificially low to attract buyers. The fee may rise once the OC takes over and hires a professional management company. Your solicitor can check the DMC for a clause that allows the developer to set the fee for a fixed period (often two to five years after occupation).