We should note that the three parties to the contract are the Registered Owner- HKRI; the Individual owners of apartment in the villages: and these two are clients of the of the Manager (Discovery Bay Services Management Company Limited – DBSML – often referred to as City Management or “CM”).
https://dbay.cc/wp-content/uploads/dmc/DB-DMC-OCR-v2.pdf
There is also a Sub Deed of Mutual Covenant specific to Hillgrove Village
https://dbay.cc/wp-content/uploads/dmc/Hillgrove-sub-DMC.pdf
These are some helpful notes about the PDMC (Principal Deed of Mutual Covenant – our contract as individual owners with the Manager and HKRI)
It was written by a Hillgrove Village Owners Committee member – who is not a lawyer but, as a layman, took time to study this contract
I will try to answer some of the questions you raised at the VOC Meeting last Thursday. I am answering as a layman, not a lawyer. The Principal Deed of Mutual Covenant (“PDMC”), to me, is fairly straightforward relative to the obligations of the Owners regarding management fees and other financial obligations. I am not sure if every owner is given a copy of the PDMC when he or she purchases a property. However, each owner (or his or her attorney) should be aware that properties purchased in Discovery Bay are subject to the terms and conditions of the PDMC. It is our “Basic Law,” to put it in Hong Kong terms. Some owners may wish to review the PDMC before purchasing a property (we did), but others may be content to let their attorneys troll through the 48-page document and alert them to worrisome matters. Our mortgage agreement explicitly references the PDMC, so, of course, we wanted to be aware of what we were getting into.
I will cite various clauses in the PDMC to assist you in guiding the owner who contacted you relative to his failure to pay renovation fees on a timely basis. As a reminder to that owner, all Owners in Discovery Bay and Discovery Bay Services Management Ltd, affectionately known as City Management or CM, have rights and responsibilities spelt out in the PDMC. With those caveats, here goes!
- The PDMC is comprised of a Preamble and Definitions, followed by eight major sections:
- Section I (Untitled) deals with the rights and responsibilities of the “Registered Owner,” Hong Kong Resorts International.
- Section II — Obligations of the Registered Owner Relative to the Development of the City
- Section III — Undivided Shares
- Section IV — Management of the City
- Section V — Extinguishment of Rights Under the Deed
- Section VI — Major Repairs to City Common Areas and Facilities
- Section VII — City Owners’ Committee
- Section VIII — Miscellaneous
- For the questions asked by the owner who contacted you, we really need to concentrate on “Section IV: Management of the City.” This section is divided into nine subsections.
- A: General
- B: Powers and Duties of the Manager
- C: Manager’s Remuneration
- D: Management Expenses
- E: Security for and Recovery of Moneys Due to the Manager
- F: Application of Monies Received by the Manager
- G: Owner’s Interest in Management Funds
- H: Management Records and Accounts
- I: Manager’s Statement
- As may seem obvious, we need to look at Subsection B, “Powers and Duties of the Manager.” I will list some of those powers and responsibilities, but not all of them. At the beginning of this Subsection, the Manager (i.e., CM) is given a very broad brief: CM shall “…be responsible for and shall have full and unrestricted authority to do all such acts and things as may be necessary or requisite for the proper management of the City.” A few specifically mentioned responsibilities are worth mentioning:
- Paragraph 2, Clause 26: To demand, collect, and receive all amounts payable by Owners under the provisions of this Deed of Mutual Covenant.
- Paragraph 2, Clause 34: To disconnect any services to any Residential or Commercial Unit…who defaults in payment of any amounts due under the provisions of this Deed…upon giving 7 days notice to such Owner…and to forbid the persons in occupation of such Residential or Commercial Unit…the use of the lifts and other services and amenities of the Village or City…
- Paragraph 2, Clause 35: To post the name of any Owner in default or in breach of the terms and conditions of this Deed…together with particulars of the default or breach on the notice boards and/or other prominent spaces…
- Paragraph 5: The Manager shall have the power to commence proceedings for the purpose of enforcing the observance and performance by any Owner…of the covenants, conditions, and provisions of this Deed…
- Subsection D deals with Management Expenses and lays out the methodology for determining the contributions payable by the Owners. In very simple terms, a budget reflecting expected expenses for each Village is established, and each Owner’s monthly management fee is calculated by dividing those monthly “Management Expenses” by the size of each Owner’s unit (determined by the number of shares each Owner has).
- Subsection E, “Security for and Recovery of Moneys Due to the Manager”, discusses the arrangements to ensure that all amounts of money due to the Manager, which acts as the agent for all the Owners, are paid in a timely and full manner.
- Paragraph 1 requires each owner to pay three months of his or her budgeted “Expenses of the City and the Village…and Manager’s Remuneration for the Property of which he is the Owner.” Essentially, this is a security deposit.
- Paragraph 2 establishes the procedures to be followed should an Owner fail to pay any amount payable within 30 days of the day on which payment is due.
- Paragraph 2, Clause 1 stipulates the interest rate applicable to late payments. Interest shall be calculated…”at the rate of $1.50 for each $100 or part thereof remaining unpaid for each period of 30 days or part thereof for which it remains unpaid.” A minor, though important distinction for long-term delinquencies, is that the annual simple interest rate is NOT 18%, since that would assume that a year is only 360 days long. Instead, the annual simple interest rate works out to be 18.25%.
- Paragraph 2, Clause 1 is silent on at least two important components of assessing the amounts due from a delinquent owner: the interest compounding convention (if any) to be used and the order of the application of any payments made by a delinquent owner to principal or interest. Because of the silence of the PDMC on these two important topics, a competent legal authority (a court) needs to interpret the intention of the PDMC on a fair and impartial basis. My view is that the PDMC did not envision multi-year (let alone multi-decade) delinquencies, in the belief that CM would act swiftly and competently to remedy all delinquencies. In the event of short-term delinquencies (i.e., those lasting less than a year), the compounding convention and the payment order application are basically irrelevant, amounting to a few dollars difference.
- Paragraph 2, Clause 2 stipulates that an Owner “failing to pay any amount hereunder” will also be subjected to a collection charge “…as the Manager shall decide to cover the cost (other than the legal proceedings as hereinafter mentioned) of the extra work occasioned by the default.”
- Paragraph 3 summarises the amounts for which a delinquent Owner is liable — the amounts payable under the PDMC, together with the interest thereon, the collection charge, “all damage claimed for breach of any of the provisions” of the PDMC, and “all other expenses incurred in or in connection with recovering or attempting to recover the same” will be recoverable through civil action commenced by the CM.
- Paragraph 4 states that if any Owner fails to pay any amount due under the PDMC, damages awarded by a court, interest, collection changes, and other expenses, CM is allowed to put a charge on the property of the Owner and register that charge.
- Paragraph 5 provides CM with the right to obtain an order to sell the delinquent Owner’s property to satisfy the amounts due.