CITY UNIVERSITY OF HONG KONG                                School of Law                                LW3607A Land Law ...
Demarcation District in which it is situate.The Land Registry Headquarters are located in Queensway Government Office andt...
Alternatively, X may first divide Inland Lot No. 1234 into Section A and theRemaining Portion by virtue of one Deed Poll, ...
1.   If X wants to divide Subsection 2 of Section A of Inland Lot No. 1234 into three     smaller plots of land, how shoul...
(b)   Subdivision of Land      When a flat in a multi-story building is sold, the sale includes:      (1) undivided shares...
Part 3 - Government Leases and Conditions       When land is sold at a public auction in Hong Kong, as soon as the land is...
(b)   The conditions precedent are deemed complied with (for the purposes of section 14 of      the CPO):      •      wher...
Central and on the Peak).At the end of the 1800s, some leases were granted for 75 or 99 years but building landhas since t...
These leases are automatically renewed by the Government Leases Ordinance for thestipulated period of renewal in the Gover...
In most cases, however, owners of flats in a multi-storey building contribute to             the Government rent in the pr...
individual units on payment of the proceeds of sale to the mortgagee.      There may be a requirement to register dealings...
There are a number of cases in which it has been held that the government has             expressly or impliedly waived th...
(4)   Re-entry by the Government      All Government Leases or Conditions contain an express right of re-entry for breach ...
3.     Section 14 of the CPO (Attachment 1)              4.    Tai Wai Kin v. Cheung Wan Wah Christina and Another (Attach...
Ordinance (Cap 128) relating to the land of a note to the effect that those conditions havebeen complied with.(4) Where a ...
Attachment 2 – Tai Wai Kin v. Cheung Wan Wah Christina and                          Another                 IN THE HIGH CO...
the Conveyancing and Property                                                 Ordinance, Cap.219BETWEENTAI WAI KIN        ...
3             The question before me is whether the defendant has failed toanswer adequately and/or satisfactorily the req...
certificate of exemption of building works. It exempted the building to beerected from :             “ … the regulations m...
connection therewith are structurally safe and             Government expressly excludes any liability arising out        ...
“…shall be deemed, for the purposes of this section, to               have complied with those conditions —               ...
formation building or other plans have been approved by             the building authority in respect of the lot.”21      ...
25             TYL replied on 24 January 2003 and referred to section7(2) ofCap.121 and said :               “… Since the ...
site formation and drainage works and Occupation Permit             in respect of the Building. Your client is obliged to ...
32            It is necessary to refer the two paragraphs from the letter fromthe Buildings Department dated 11 February 2...
has been issued, Certificate of Exemption in respect                   of drainage and site formation are not required.”36...
42            In order to understand the requisition relating to Cap.121, it isnecessary to have to consider the provision...
(b) the provisions and regulations mentioned in                      paragraph (a) and section 28 of the Buildings        ...
(iii) of any higher storey is in the case of a load-                            bearing brick wall not less than 225 mm; …...
48            That being the case, separate certificates of exemption wouldbe enquired in relation to site formation work ...
52           But unfortunately the report did not go far enough. First it didnot say or certify that the load-bearing exte...
vendor must show that if the height of the building exceed 7.62 m although itis not more than 8.23 m the thickness of the ...
said, the effect of any certificate of exemption granted by him would dependon whether section 7(2) applied. Furthermore, ...
60           In my opinion, the defendant has failed to answer thesecond requisition adequately or satisfactorily, nor was...
purchaser should be required to accept a smudge on the plan instead. So Iam also of the view that the first requisition ha...
am of the view that this requisition has been satisfactory answered, or wasnot pursued by TYL after 14 February 2003.Concl...
Mr Samuel Chan, instructed by Messrs Baker & McKenzie,   for the Third Party     Attachment 3 – Minchest v. Lau Tsui Kwai ...
(ON APPEAL FROM CACV NO. 334 OF 2006)_____________________Between:MINCHEST LIMITED                                  Appell...
various properties in Cheong Nin Building, Kwai Chung, New Territories (“theproperties”) from the various respondents (“th...
The conditions contemplated in this Condition constituted the conditionsprecedent, compliance with which entitled the gran...
11.           The matter was unresolved by the deadline for completion on28 October 2005.      On that day, the purchaser’...
those conditions –           (a) the equitable interest under that right shall become a legal               estate in that...
The section commenced on 1 November 1984. Under s. 14(2), the person,who under a pre-1 January 1970 agreement has a right ...
19.           Thus, s. 14(2) and 14(3) provide for different ways ofestablishing compliance for pre- and post-1 January 19...
satisfactorily answered, the starting point must be to consider its scope. Thequestion is what a reasonable conveyancer wo...
noted, there was no practice of issuing certificates of compliance for pre-1January agreements and that compliance with co...
Land 1 lt11 topic 13
Land 1 lt11 topic 13
Land 1 lt11 topic 13
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Land 1 lt11 topic 13

  1. 1. CITY UNIVERSITY OF HONG KONG School of Law LW3607A Land Law I Semester A, 2012/13Topic 13 – Government Leases and ConditionsPart 1 - IntroductionVirtually all land in Hong Kong is held under the Government Lease.A lessee has exclusive possession of the leased land for a fixed duration.The leasehold system gives the Hong Kong Government a high degree of control overthe way in which land is developed and used through covenants imposed on thegrantee in the Lease. The Hong Kong Reunification OrdinanceThis came into effect on 1 July 1997.Under this Ordinance, the term “Crown” becomes “Government”. The Crown Leasebecomes the Government Lease and the Crown rent becomes Government rent.All land in Hong Kong became the property of the People’s Republic of China but theHKSAR Government is responsible for its management, use, development and leasing.See Article 7 of the Basic Law.The titles of several Ordinances have been changed by the Adaptation of Laws(Interpretative Provisions) Ordinance, Ord No. 29 of 1998.Part 2 - Land Surveys, Land Boundaries and theDemarcation of LandUnder the Land Survey Ordinance 1995 (Cap 473), a plan must be drawn up by anauthorised land surveyor whenever the land is divided by way of sectioning orsubdivision. The plan must be registered and a copy deposited with the Land SurveyAuthority.Land is divided into lots, e.g. Inland lots, Marine Lots, Rural Building lots.In the New Territories, some of the land is referred to by its lot number and the 1
  2. 2. Demarcation District in which it is situate.The Land Registry Headquarters are located in Queensway Government Office andthere are now 7 New Territories Search Offices.All registries are computerised. The Integrated Registration Information SystemOnline Services enable the public to access them through the Internet.When a new grant of land is made, a Register is opened.Subject to any restriction in the Government Lease, an owner can divide a lot by:(a) Sectioning of the LandMost of the sectioning of land in Hong Kong is achieved by Deed Polls. However, thenaming of the smaller plots of land can be confusing at times. The manner ofnomenclature of Hong Kong land in the event of sectioning or division thereof can beillustrated by the following example.Say X has a plot of land registered as Inland Lot No. 1234. If X wants to divide theland into two portions, X may execute a Deed Poll and by virtue thereof divide it intoSection A of Inland Lot No. 1234 and the Remaining Portion of Inland Lot No. 1234: Section A of Inland Lot No. 1234 The Remaining Portion of Inland Lot No. 1234A plan is usually attached to the Deed Poll to show exactly which portion of InlandLot No. 1234 is now Section A thereof and which portion is now the RemainingPortion thereof.(Of course, X may want to divide the land into more than 2 portions from the start. Ifthat is the case, X may divide the land into Section A, Section B and the RemainingPortion. One deed poll may serve to sever the land into any number of portions. Section A of Inland Lot No. 1234 Section B of Inland Lot No. 1234 The Remaining Portion of Inland Lot No. 1234 2
  3. 3. Alternatively, X may first divide Inland Lot No. 1234 into Section A and theRemaining Portion by virtue of one Deed Poll, then carve out Section B of Inland LotNo. 1234 and further portions out of the Remaining Portion of Inland Lot No. 1234later by virtue of another Deed Poll.)After X has, by virtue of a Deed Poll, divided the Lot into Section A and theRemaining Portion, X may then wish to divide Section A of Inland Lot No. 1234 intoeven smaller plots of land.By virtue of another Deed Poll , Section A can be divided into Subsection 1 of SectionA of Inland Lot No. 1234, subsection 2 of Section A of Inland Lot No. 1234 and theRemaining Portion of Section A of Inland Lot No. 1234. Subsection 1 of Section A of Inland Lot No. 1234 Subsection 2 of Section A of Inland Lot No. 1234 The Remaining Portion of Section A of Inland Lot No. 1234 The Remaining Portion of Inland Lot No. 1234If X then wants to further divide the Remaining Portion of Inland Lot No. 1234, Xmay at any time execute yet another Deed Poll, carving out portions therefrom to beknown as Sections B, C and D of Inland Lot No. 1234 (and NOT Section A of theRemaining Portion, Section B of the Remaining Portion and the Remaining Portion ofthe Remaining Portion). The Remaining Portion of Inland Lot No. 1234 shrinks in sizeas a result. Subsection 1 of Section A of Inland Lot No. 1234 Subsection 2 of Section A of Inland Lot No. 1234 The Remaining Portion of Section A of Inland Lot No. 1234 Section B of Inland Lot No. 1234 Section C of Inland Lot No. 1234 Section D of Inland Lot No. 1234 The Remaining Portion of Inland Lot No. 1234Consider the following questions:- 3
  4. 4. 1. If X wants to divide Subsection 2 of Section A of Inland Lot No. 1234 into three smaller plots of land, how should X name them? The cycle of nomenclature begins again, and these smaller plots of land will be known as - Section A of Subsection 2 of Section A of Inland Lot No. 1234, - Section B of Subsection 2 of Section A of Inland Lot No. 1234, and - The Remaining Portion of Subsection 2 of Section A of Inland Lot No. 1234.2. If X wants to divide the Remaining Portion of Section A into four smaller plots of land, how should they be named? Since Subsection 1 and Subsection 2 of Section A of Inland Lot No. 1234 already exist, the four smaller plots of land should be named:- - Subsection 3 of Section A of Inland Lot No. 1234, - Subsection 4 of Section A of Inland Lot No. 1234, - Subsection 5 of Section A of Inland Lot No. 1234, and - The Remaining Portion of Section A of Inland Lot No. 12343. If X then wants to divide Section C of Inland Lot No. 1234 into five smaller plots of land, what will be the names of the five plots of land? The names of the five plots of land making up the original Section C would be - Subsection 1 of Section C of Inland Lot No. 1234, - Subsection 2 of Section C of Inland Lot No. 1234, - Subsection 3 of Section C of Inland Lot No. 1234, - Subsection 4 of Section C of Inland Lot No. 1234, and - The Remaining Portion of Section C of Inland Lot No. 1234,4. If, last of all, X now wants to carve out one small plot of land from the remaining portion, what will that small plot of land be called? That small plot of land will be named Section E of Inland Lot No. 1234 (since Sections A, B, C and D of Inland Lot No. 1234 already exist). There is no such thing as Section A of the Remaining Portion.There are exceptions to this manner of nomenclature but they are rare, so it is alwaysadvisable to use this scheme when sectioning a lot or a section of a lot.When land is sectioned, new section registers are opened in the Land Registry.Government rent is apportioned between the various sections. A note of theapportionment will appear in the Land Register.See the reference to ‘apportioned Government rent’ in the Assignment in Form 1 ofthe Third Schedule to the CPO. 4
  5. 5. (b) Subdivision of Land When a flat in a multi-story building is sold, the sale includes: (1) undivided shares in the land and the building; together with (2) the right to the exclusive use of the flat. Thus each owner of a flat has an interest in the land on which the building is erected. The owners are all tenants in common of the land and the building. When land is subdivided in this way, new subdivision registers are opened for each flat. Government rent is sometimes apportioned between each flat, but very often each unit owner’s liability for payment is set out in a Deed of Mutual Covenant, which regulates the rights and interests of all owners of units in the building. Example Queen’s Court, Old Peak Road, Hong Kong 4A 4B 3A 3B 4A 4B 3A 3B Subsection 1 of Section A of Inland Lot No 1234 Flat 4A is sold to Mr Luk. He buys a 1/8th equal undivided share of and in sub- section 1 of Section A of Inland Lot No. 1234 and of and in the building on the lot known as Queen’s Court together with the right to the exclusive use occupation and enjoyment of Flat 4A Queen’s Court. It is possible to search in the Land Registry against each lot, each section or subsection of a lot and each subdivision (that is, each flat). Searches can be historic or current and the Unposted Memorial List and Memorial Day Book can also be searched. Plain and certified copies of registered documents can be obtained from the Land Registry. 5
  6. 6. Part 3 - Government Leases and Conditions When land is sold at a public auction in Hong Kong, as soon as the land is knocked down to the highest bidder, the Memorandum at the end of the Particulars and Conditions is signed on behalf of the Government and by the purchaser. There is no need for sealing because this is an agreement to grant a lease (the interest is equitable). Since the 1960s, the Government has not granted Leases to private developers. Instead, it has granted Conditions. The Particulars and the Conditions and the Memorandum together constitute a binding agreement for Lease. On a sale of a new lot, the government grants Conditions of Sale. When land is exchanged for other land, Conditions of Exchange are issued. (This occurs usually when the grantee agrees to a variation of Lease terms with the government. Instead of executing a deed of variation, the grantee usually surrenders his lease in return for a set of Conditions of Exchange of the same piece of land.) The government also grants Conditions of Grant or Regrant or Extension (of land, not time). Most land in Hong Kong is held under Conditions. Thus most owners have an equitable interest. This is significant: (i) for the purpose of determining priority under the common law rules (since in most cases, priority is now determined by registration, the distinction might have little practical importance); (ii) in relation to formalities, sealing is required for the creation or transfer of a legal interest; (iii) in relation to the description of the interest – not ‘the residue of the government lease term’ but ‘the right to a Government Lease’; and (iv) because a legal charge cannot be created over an equitable interest.The CPO provides for conversion of the equitable interest to a legal interest.(a) Section 14 of the CPO provides that where a person has a right to a Government Lease of land upon compliance with any conditions precedent then the equitable interest in the land is converted to a legal interest as if held under a Government Lease upon compliance with the conditions precedent. A Government Lease is, therefore, deemed issued. Hence, on actual compliance, the grantee holds a legal estate. Nevertheless, when the grantee wants to deal with his property – for example, by selling or mortgaging it – he will need to produce evidence of compliance. A certificate of compliance is evidence of compliance. 6
  7. 7. (b) The conditions precedent are deemed complied with (for the purposes of section 14 of the CPO): • where the agreement for Government Lease is dated before 1 January 1970; or • where the agreement is dated after 1 January 1970 and a certificate of compliance has been issued and registered in the Land Registry. See Tai Wai Kin v Cheung Wan Wah Christina [2004] 3 HKC 198 – held that the registration of the certificate of title essential to the passing of good title. See also Liu Tak Kin v Chan Yiu Kai [1998] 4 HKC 362 – held that a certificate of compliance must be registered before s 14(3)(a) CPO can be relied on. Actual compliance with the conditions precedent converts the equitable interest to a legal estate. The certificate of compliance is merely evidence of compliance but note the decisions in Tai Wai Kin and Liu Tak Kin above.(c) Conditions precedent include payment of the premium and compliance with the building covenant.(d) Note the different forms that evidence of compliance may take: • under section 14(3)(b) of the CPO, endorsement of a note on the Government Lease and registration of the endorsement. • under section 14(3)(c) of the CPO, entry on the Land Register of a note that there has been compliance; However, other evidence of compliance might be produced Paul Chen & Anor v Lord Energy Ltd [1999] 1 HKC 1. (e) When investigating title to land held under Conditions, it is necessary in some cases to ask to see a certificate or other evidence of compliance. If registered, a certificate would appear in the encumbrances register in the Land Registry. Part 4 - The Length of the Lease Term Hong Kong Island and Kowloon as far as Boundary Street In the early days of Hong Kong’s history 75-year terms were granted. In 1848 some leases on Hong Kong island were granted for 999 years (mainly in 7
  8. 8. Central and on the Peak).At the end of the 1800s, some leases were granted for 75 or 99 years but building landhas since then usually been granted for a term of 75 years with a right to renew for afurther period of 75 years.These leases are renewed automatically by the Government Leases Ordinance (Cap40).The Basic Law provides that a grant may be made for a term of 50 years from the dateof the grant. New TerritoriesThe New Territories were leased by China to Hong Kong for 99 years from 1st July 1898.Leases (subleases) were in turn granted by the Hong Kong Government for 75-yearterms from 1st July 1898 with rights to renew for further terms of 24 years less the last3 days.These leases were automatically renewed by the New Territories (RenewableGovernment Leases) Ordinance.Since 1959, terms of 99 years less 3 days from 1 July 1898 were granted.When there is automatic renewal, there is no requirement to pay any further premium.Part 5 - The Effect of the Basic Law (Annex III of theJoint Declaration)Article 120 - Leases granted before the establishment of the Hong KongSAR, but expiring after 1997These leases are recognised.These include leases granted before and after the Joint Declaration but in relation toleases granted between the Joint Declaration and 30 June 1997, the term will expire nolater than 30 June 2047.For these leases, the government rent is nominal up to 30 June 1997 and will become3% per annum of the rateable value from time to time thereafter.Renewable Government Leases (those containing rights to renew onexpiry of the initial term) expiring before or after 1997 8
  9. 9. These leases are automatically renewed by the Government Leases Ordinance for thestipulated period of renewal in the Government Lease.The renewal is at an annual rental of 3% of the rateable value at the date of renewaland not as adjusted from time to time.Registration in the Land Registry of the new Government rent is conclusive evidenceof the grant of the new lease: section 12 of the Government Leases Ordinance.Article 121 - Non-renewable Government Leases expiring before 1997These leases are extended without payment of a premium until 30 June 2047 at anannual rental of 3% of the rateable value as adjusted from time to time (the rent remainsunchanged for indigenous New Territories villagers).Since all leases in the New Territories were due to expire in 1997, they were allautomatically extended by the New Territories Leases (Extension) Ordinance (Cap150) until 30 June 2047 unless the lessee opts otherwise. This Ordinance does notapply to certain leases for special purposes.Article 123 - The grant of new Government LeasesNew Government Leases must be dealt with in accordance with the policy of theHKSAR.The Hong Kong Government has indicated that it will grant new leases for a period of50 years from the date of the grant (that is, they can expire beyond 2047) at an annualrent of 3% of the rateable value of the property as adjusted from time to time.Part 6 - The Terms of Government Leases andConditionsThey include the following:(1) Premium This is payable in a lump sum or sometimes by instalments for industrial sites, regrants or private grants.(2) Government Rent This is sometimes a nominal amount which is collected - usually half yearly but sometimes less often. Government rent is sometimes apportioned between the owners of flats in a multi-storey building under the Government Rent and Premium (Apportionment) Ordinance (Cap 125). Details would be noted on the Land Registry search. 9
  10. 10. In most cases, however, owners of flats in a multi-storey building contribute to the Government rent in the proportions set out in the Deed of Mutual Covenant. (3) User Old Government Leases usually contain an offensive trades clause - a restriction on user for the purposes of certain offensive trades including the business of a victualler (food business). See Sunny Star Ltd v Au Mui (1995) MP No. 897/95 (shop used for sale of roast meat). Conditions contain terms concerning user – e.g. private residential, industrial. Modern Conditions usually also specify the number of car parks to be provided and the site coverage and plot ratio. There are numerous cases concerning construction of user covenants. The following decision is useful – it concerns a private residential lease: Donald W Shields (No 2) v Mary Chan [1972] HKLR 121:‘premises to be used as private and domestic premises only’. The court held that use of one room for conducting Oxfam business did not breach the covenant. (4) User in Block Government Leases Block Government Leases usually include a schedule of lots and description of the land use. In Attorney General v Melhado Investments Ltd [1983] HKLR 327 it was held that the description of land in the Block Government Lease was descriptive of the use of the land at the time the lease was granted and that the use of the land was not restricted to that use. This led to the widespread use of New Territories land for storage. Amendments to the Town Planning Ordinance (Cap 13) were made in 1991 to restrict change of use of land in Development Permission Areas. There is often a covenant not to use land for building purposes. See Watford Construction Co v Secretary for the New Territories [1978] HKLR 410 CA.(5) Restrictions on Alienation Conditions of Sale and Exchange usually contain a restriction on selling or leasing without the consent of the Director of Lands (formerly the Registrar General) before compliance with the conditions precedent. This restriction makes it necessary to obtain consent to sell units in the course of construction (pre-sales) under the Consent Scheme. You should be able to identify the restriction on alienation in the attached Conditions. Usually, there is a restriction on mortgaging except by way of building mortgage to secure building costs. The form of mortgage must require the mortgagee to release 10
  11. 11. individual units on payment of the proceeds of sale to the mortgagee. There may be a requirement to register dealings. Furthermore, there is usually a requirement to register a car park layout plan before any dealing: Paul Chen & Anor v Lord Energy Ltd [1999] 1 HKC 1. The plan will appear in the encumbrances register in the Land Registry.(6) The Building Covenant This requires the grantee to build a building of certain value or with a certain floor area within a fixed period of time. The Government may extend the time for compliance with the building covenant upon payment of a premium. See the Lands Department Information Note 1/85. See Lok On Co Ltd v Attorney General [1986] HKLR 857 in which the Government’s right to charge a premium for an extension of time for performing the building covenant was upheld.(7) Allocation of Undivided Shares When a unit in a multi-storey building is sold, the purchaser buys undivided shares in the land and the building erected on the land together with the right to the exclusive use of the unit. Modern Conditions usually specify that units cannot be sold without undivided shares. See the attached Conditions of Sale. (8) The Deed of Mutual Covenant and Management Agreement – see a later Lecture The rights and obligations of the owners of flats in a multi-storey building are governed by a Deed of Mutual Covenant, which provides for the building to be managed and maintained and for owners to contribute towards the cost. Until the 1980’s, there was no obligation for a developer to create a Deed of Mutual Covenant. In cases where a Deed of Mutual Covenant was created, the terms were at the discretion of the developer. Modern Conditions require that a Deed of Mutual Covenant is entered into on the first sale of undivided shares and provide that the terms are subject to the approval of the Director of Lands. See the attached Conditions. (9) Implied Covenants? There are implied covenants by the government – for example, for quiet enjoyment, not to derogate from grant and to provide reasonable access to permit development. (10) Waiver? 11
  12. 12. There are a number of cases in which it has been held that the government has expressly or impliedly waived the right to take action in respect of a breach of covenant by the grantee. Part 7 - Variation of Government Lease Terms The terms of any Government Lease or Conditions can be varied only with the consent of the parties. It is common for the Government to agree a variation of the development conditions with the grantee on payment of a premium to the Government. Application for a variation is made to the Land Advisory and Conveyancing Office (LACO) of the Lands Department. A Government Lease used to be varied by a Deed of Variation under seal. Conditions are varied by a Letter of Modification signed under land. Section 14(A) of the CPO provides that a Government Lease may now be varied by a Letter of Modification. This would usually be registered in the encumbrances section of the Land Register. Any variation or modification of the terms on which land is held from the government is part of the Government Lease or Conditions. These documents would appear in the encumbrances register in the Land Registry.Part 8 - Termination of Government Leases(1) Expiry of the term(2) Surrender by the lessee(3) Resumption by the Government Many Government Leases contain an express right for the Government to resume for public purposes. The Government has, however, tended not to exercise its contractual right to resume but has, instead, tended to rely on its rights under the Lands Resumption Ordinance (Cap 124) or under rights contained in Ordinances enacted for a particular purpose – e.g. Mass Transit (Land Resumption and Related Provisions) Ordinance (Cap 276). Compensation is paid for the land resumed. See Article 6 of the Basic law which provides that no land shall be resumed without compensation being paid. See also Article 14 of the Hong Kong Bill of Rights – no arbitrary or unlawful interference with home. 12
  13. 13. (4) Re-entry by the Government All Government Leases or Conditions contain an express right of re-entry for breach of any covenant in the lease. Re-entry is effected by the registration of a memorial in the Land Registry under section 4(1) of the Government Rights (Re-entry and Vesting Remedies) Ordinance (Cap 126). The land owner may petition the Chief Executive for relief or apply to the court even after re-entry. Relief may be granted in respect of any breach: Shiloh Spinners v Harding [1973] 1 All ER 90. Part 9 - Summary (1) Every title to land in Hong Kong starts with a Government Lease or Conditions. If the title starts with Conditions, decide whether it is necessary to see evidence of compliance. (2) The vendor (seller) must always show the lease to a purchaser. The lease includes any document varying its terms (a letter of modification) or extending the area of land (Conditions of Extension). (3) When a purchaser buys a flat, he is buying the flat for the residue (rest) of the term created by the Lease. You should be able to identify the length of the term from the title deeds and the legislation affecting renewals or extensions to the original term. Government Leases and Conditions affect land and the way in which it can be used and developed. In the title investigation process, therefore, the terms should be considered very carefully and clients should be advised on them. (4) A tenant taking a short Lease does not usually investigate the landlord’s title, but a tenant should be aware of user restrictions in the Government Lease that affect him. The tenancy agreement might contain covenants by the tenant not to breach the terms of the Government Lease. A tenant should not usually agree to observe and perform the terms of the Government Lease but might agree not to breach them. See the reference to positive and restrictive covenants in s 41(6) CPO. Essential Reading: 1. Conditions of Sale for Shek O Inland Lot No 96 2. Government Lease of Inland Lot No 4494 13
  14. 14. 3. Section 14 of the CPO (Attachment 1) 4. Tai Wai Kin v. Cheung Wan Wah Christina and Another (Attachment 2) 5. Minchest v. Lau Tsui Kwai & Another (Attachment 3) Attachment 1: Section 14 of the Conveyancing and Property Ordinance (Cap 219)(1) Where a person has a right to a Government lease of any land upon compliance withany conditions precedent, then, upon compliance with those conditions-(a) the equitable interest under that right shall become a legal estate in that land as if heldunder a Government lease issued in accordance with that right; and(b) for the purposes of section 42 and any other law, such a Government lease shall bedeemed to have been issued upon compliance with those conditions.(2) Where, under an agreement for a Government lease entered into before 1 January1970, a person has a right to a Government lease upon compliance with any conditionsprecedent he shall be deemed, for the purposes of this section, to have complied withthose conditions on the commencement of this section.(3) Where under an agreement for a Government lease entered into on or after 1 January1970, a person has a right to a Government lease upon compliance with any conditionsprecedent, he shall be deemed, for the purposes of this section, to have complied withthose conditions-(a) upon the issue by the Government of a certificate that those conditions have beencomplied with and the registration of that certificate in the Land Registry under the LandRegistration Ordinance (Cap 128); or(b) upon the endorsement by the Government on the Government lease of a note to theeffect that those conditions have been complied with and the registration of a copy of thatendorsement in the Land Registry under the Land Registration Ordinance (Cap 128); or(c) upon the entry on the register kept in the Land Registry under the Land Registration 14
  15. 15. Ordinance (Cap 128) relating to the land of a note to the effect that those conditions havebeen complied with.(4) Where a person has a right to a Government lease of any land and that right is notsubject to any conditions precedent-(a) the equitable interest under that right shall become a legal estate in that land as if heldunder a Government lease issued in accordance with that right; and(b) for the purposes of section 42 and any other law, such a Government lease shall bedeemed to have been issued on the commencement of the Conveyancing and Property(Amendment) Ordinance 1988 (31 of 1988) or on the date of the grant of that right,whichever is the later. (5) Where a person has a right to a Government lease of any land and that land is partitioned by assignment or otherwise by deed, this section shall apply to each part of that land constituted by that partition, as it applies to the whole of that land, as if there were a right to a Government lease of each such part. (6) Where a person has a Government lease, or a right to a Government lease, of any land and additional land is granted to that person with the intent that he should hold it as part of the land leased, this section shall apply to that additional land as if that additional land were part of the land originally leased and held subject to any further conditions precedent imposed when that additional land was granted. 15
  16. 16. Attachment 2 – Tai Wai Kin v. Cheung Wan Wah Christina and Another IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE MISCELLANEOUS PROCEEDINGS NO.1858 OF 2003 --------------------- IN THE MATTER of an Agreement for Sale and Purchase dated 7 January 2003 and made between Cheung Wan Wah Christina as vendor and Tai Wai Kin as purchaser for the sale of All That one equal undivided 3rd part or share of and in All That piece or ground registered in Sai Kung New Territories Land Registry as Lot No.724 in Demarcation District No.227 (“the Lot”) And of and in the messuages erections and buildings thereon (“the Building”) together with the sole and exclusive right and privilege to enjoy All That the Second Floor together with the Roof of the Building (“the Property”) and IN THE MATTER of Section 12 of 16
  17. 17. the Conveyancing and Property Ordinance, Cap.219BETWEENTAI WAI KIN PlaintiffandCHEUNG WAN WAH CHRISTINA DefendantJOHNNIE YAM, JACKY LEE & CO. Third Party(a firm of solicitors) ----------------------Before : : Hon Tang J in CourtDate of Hearing : 7 May 2004Date of Judgment : 18 May 2004 ---------------------- JUDGMENT ------------------------Background1 The plaintiff is the purchaser under an agreement for sale andpurchase dated 7 January 2003 of the 2nd floor and the roof of the building(“the Building”) erected on Lot 724 in DD227 (“the Lot”) as such the plaintiffwas also purchasing a one third share in the Lot. The plaintiff was thevendor. Messrs Johnnie Yam, Jacky Lee & Co (“the Third Party”) who havebeen joined by order of Reyes J were the vendor’s solicitors in thistransaction. The purchase price was $1,650,000 and a deposit of $165,000has been paid. Completion was to take place on 7 February 2003. However,pursuant to clause 37 of the sale and purchase agreement, it was postponedto 6 March 2003 because the plaintiff required a loan from the Hong KongHousing Society (“HKHS”) Home Starters Loan Scheme. It was also agreedthat the defendant must prove good title to the HKHS at least 14 workingdays prior to the completion date, namely, 17 February 2003.2 The transaction fell through as a result of requisitions raised bythe plaintiff. 17
  18. 18. 3 The question before me is whether the defendant has failed toanswer adequately and/or satisfactorily the requisitions raised on behalf ofthe plaintiff and whether the defendant has failed to prove or make out agood title.4 The Property is held under New Grant No.5501 (“the NewGrant”) dated 10 August 1973. The Lot is described as “as delineated andshown coloured red on plan annexed” to the New Grant.5 By a Boundaries Agreement Memorial No.90124 dated 7 July1977, the then owner surrendered part of the Lot coloured red on the planannexed to the New Grant such that thereafter Lot 724 was as showncoloured pink on the plan annexed to the Boundaries Agreement.6 The title documents were provided by the Third Party to theplaintiff’s solicitors Messrs Terry Yeung & Lai (“TYL”) on 6 January 2003.These documents included the New Grant, the Boundaries Agreement, theModification Letter dated 12 January 1983 and a Certificate of Exemption ofbuilding works dated 12 October 1991.7 It seemed that the building in which the Property is situated waserected after the date of the Certificate of Exemption, namely 12 October1991.8 The Modification Letter modified special conditions 3 and 5 ofthe New Grant such that a three-storey building as opposed to a two-storeybuilding was permitted but its height must not exceed 7.62 metres and themaximum built-over area not to exceed 65.03 square metres.9 The Certificate of Exemption was given pursuant to section 5 ofthe Buildings Ordinance (Application to the New Territories) Ordinance,Cap.121 (“Cap.121”) to exempt the building(s) to be erected on Lot 724 fromthe provisions of the Buildings Ordinance, Cap.123. It was in terms a 18
  19. 19. certificate of exemption of building works. It exempted the building to beerected from : “ … the regulations made thereunder in relation to building works, subject to the conditions contained or referred to in the attached schedule and the terms and conditions governing the lot. The Government reserves the right to revoke and cancel this Certificate in the event of any breach of any of the aforementioned Conditions in which case you would be required to apply formally to the Building Authority for approval of plans. The Government may also be entitled to take enforcement action under the Lease. Please note that ‘building works ’ under the Buildings Ordinance (Application to the New Territories) Ordinance, Chapter 121 do not include site formation or drainage works and you are required to submit plans formally to the Building Authority under the terms of the Buildings Ordinance for the approval of such site formation and drainage works unless separate Certificates of Exemption are issued by me in respect of such works.”10 Another document that I should mention is a Toleration LetterMemorial No.203884. The letter confirms that : “ … that the breach of condition contained in the Modification Letter dated 12.1.1983 set out in the Schedule below will be tolerated by Government only for the life of the building presently erected on the lot. Schedule Condition No. Nature of breach (1)3.(a) House height in excess of 0.06m As the building erected on the lot is exempted from the provisions of the Buildings Ordinance Cap.123, under the Buildings Ordinance (Application to the New Territories) Ordinance Cap.121, no site formation, building or other plans had been approved by the Building Authority in respect of the above lot and building erected thereon and accordingly this certificate is not to be construed as a representation by Government that the building erected on the above lot or any works in 19
  20. 20. connection therewith are structurally safe and Government expressly excludes any liability arising out of such construction or works.”11 The Letter of Toleration concluded by saying “A Certificate ofCompliance will/may be issued to you as soon as the registration formalitiesattaching to the duplicate of this letter have been completed.”12 The Letter of Compliance is dated 26 March 1993 and stated : “ The redevelopment of the house on the lot pursuant to the New Grant No.5501 as modified by Memorial No.104472 under which the above lot is held has been inspected and I certify that all the positive obligations imposed on the grantee of the above lot have been complied with the requirement of this office. I have no objection to the structure to be occupied.”13 The letter of compliance is important because generalcondition 10 in the New Grant provides : “10.(a)When the conditions herein contained have been complied with to the satisfaction of the District Officer, the grantee shall subject to approval of his title by the District Officer be entitled to a Crown lease of the lot for the term stated in the preamble to these Conditions.”14 Also under special condition 21(b) : “ No building at any time hereafter to be erected on the lot shall be occupied in any way except by not more than two watchmen, until the District Officer shall have certified in writing that these Conditions have been complied with to his satisfaction.”15 Under section 14(3) of the Conveyancing and PropertyOrdinance (“CPO”), a person who has a right to a Government lease uponcompliance with any conditions precedent : 20
  21. 21. “…shall be deemed, for the purposes of this section, to have complied with those conditions — (a) upon the issue by the Government of a certificate that those conditions have been complied with and the registration of that certificate in the Land Registry under the Land Registration Ordinance (Cap 128);”Requisitions16 The requisitions were first raised on 9 January 2003. The firstrelated to the plans annexed to the New Grant and the BoundariesAgreement. It is said that the Lot could not be identified because the copiesof the plans annexed to those documents were not coloured.17 The second outstanding requisition related to the Certificate ofExemption of building works and it asked for Certificates of Exemption inrespect of the site formation and drainage works issued by the District LandsOfficer or proof that plans of such works had been submitted to and approvedby the Building Authority.18 The third related to the fact that no Certificate of Compliancehad been registered and referred to section 14 of the CPO.19 The reply by the Third Party dated 11 January 2003 was thatthere was no legal requirement that a plan annexed to a certified copy ofdocuments should be coloured. And it also stated that the location of theproperty could be identified easily in accordance with the colour code insidethe plan in question. I should mention that neither of the plan had any colourcode.20 As for the requisition relating to the site formation and drainageworks, the answer given was that : “Please refer to the aforesaid toleration letter and letter of compliance dated 2nd November 1993 whereby the building erected on the lot is exempted from the provisions of the Buildings Ordinance Cap.123, no site 21
  22. 22. formation building or other plans have been approved by the building authority in respect of the lot.”21 On the question of the requisition of the Letter of Compliancethe answer was that the issuance of the Letter of Compliance was “anevidence to prove that a crown lease is deemed to be granted in accordancewith condition No.10 of the New Grant No.5501, the registration of the letterof compliance is meaningless”. This is wrong and ignored section 14(3) ofthe CPO.22 I will deal with greater detail with the second requisitionbecause of its complication.23 In response TYL by their letter dated 15 January 2003 wrote inrelation to the site formation and drainage works : “Nowhere in the said Toleration Letter and Letter of Compliance dated 2nd November 1993 (copy enclosed) states that Certificates of Exemption of the site formation and drainage works in respect the of Lot have been issued or that the plans in respect of the site formation and drainage works of and in the Lot have been submitted to and approved by the Building Authority. We repeat and maintain our requisitions. As noted from the said Toleration Letter, the height of the building of which the above property forms part exceeds 7.62m by 0.06m, please let us have an Occupation Permit in respect of the said building issued by the Building Authority.”It is to be noted that they asked for the Occupation Permit.24 The reply from the Third Party came on 21 January 2003. Inrelation to the site formation and drainage plans they said : “The toleration letter memorial no.203884 clearly stated that no site formation building or other plans has been approved by the Building Authority. However, the Government has exempted this requirement of Certificate of Exemption by way of issuance the compliance of the Lot an estoppel has been arise (sic) in favour of the landowner which prevent the subsequent request for evidential documents.” 22
  23. 23. 25 TYL replied on 24 January 2003 and referred to section7(2) ofCap.121 and said : “… Since the height of the building of which the above property forms part exceeds the height of the building described in Part I of the Schedule to the said Ordinance, production of an Occupation permit in respect of the said building issued by the Building Authority is required. We repeat and maintain our requisition.”26 The Third Party replied on 5 February 2003 and enclosed acopy of the letter to the Building Authority dated 30 January 2003.27 That letter after referring to the Letter of Toleration made thepoint that : “ In view of the case Ho Kwok Cheung & other v. Chai Li Jia HCMP No.555 of 1998 that the said toleration letter would not contain any representation that the statutory functions of the Building Authority was being assumed or exercised. We would be grateful if you could let us know whether the Grantee had submitted the plans for site formation and drainage works and/or the rebuilt works for your approval prior to the commencement of building works and/or rebuilt works of the property. If your answer hereto is affirmative, please let us know whether an occupation permit could be issued by your goodself as soon as possible.”28 TYL replied on 10 February 2003 and said that since the heightof the building exceeded the height of the building described in 1(1)(b) of PartI of the Schedule Cap.121 : “… production of both Certificate of Exemption as well as Occupation Permit issued by the Building Authority under Buildings Ordinance Cap.123 in respect of the Building is required. Certificate of Compliance dated 2 nd November 1993 does not remove the necessity for either the Occupation Permit or Certificate of Exemption. Consequently, we repeat and maintain our requisition for production of Certificate of Exemption in respect of the 23
  24. 24. site formation and drainage works and Occupation Permit in respect of the Building. Your client is obliged to produce the aforesaid documents to show and give good title to the above property.”29 The next letter from the Third Party was dated 12 February2003 and in relation to the Occupation Permit they drew attention to part I ofSchedule of Cap.121 “ … which provides that the height of exempted House should not be more than 8.23 m. Please also refer to Modification Letter dated 12 th January 1983, the permitted height of the subject House was 7.62 m. In the Letter of Toleration dated 26 th July 1993, it was stated that the height of the subject House was in excess of 0.06 m over the permitted height of 7.62 m under the said Modification Letter. Therefore, the height of the subject House pursuant to the said Letter of Toleration and the said Modification Letter would be less than 7.68 m (i.e. 7.62 m plus 0.06 m excess). As the height of subject House is of less than 7.68 m which is within the prescribed height limit of 8.23 m under Part I of the Schedule of Cap.121. Accordingly the subject House is exempted from the requirement of having the occupation permit under the Building Ordinance. Your cited cases do not apply to our present case. 3. We would give you on completion our undertaking to send you certified copy Letter of Compliance duly registered in Land Registry.”30 TYL replied on 13 February 2003 : “… we repeat and maintain our requisition for production of Certificate of Exemption in respect of the site formation and drainage works and Occupation Permit in respect of the building of which the above property forms part now standing on the said Lot.”31 TYL also enclosed a copy letter from the Buildings Departmentdated 11 February 2003 and made the point that the Property might besubject to enforcement action. 24
  25. 25. 32 It is necessary to refer the two paragraphs from the letter fromthe Buildings Department dated 11 February 2003 : “ I would like to advise you that there is no record of any submission of drainage plans under the Buildings Ordinance in respect of the captioned site. You may apply for certified true copy(ies) or viewing of the approved plans for the proposed site formation works by submitting the attached application form in order to clarify whether the extent of approved works covers any drainage works or not. You may then clarify with the District Lands Office on the subject of Certificate of Exemption on Drainage Works. I would also like to confirm that for buildings exceeding the parameters on size stipulated under Buildings Ordinance (Application to New Territories) Ordinance, they are subject to compliances with the B O Cap.123. In the absence of approval & consent from the Building Authority in respect of their construction, they are considered unauthorized building works and may be subject to enforcement action under BO s.24(1) in accordance with the prevailing policy against unauthorized building works.”33 The next letter from the Third Party is dated 14 February 2003in which it asserted : “…It is an undisputed fact (please immediately correct us if it is disputed) that the subject House is of the height less than 7.68 m.”34 That was immediately disputed by TYL by their letter dated15 February 2003 relying on the Letter of Toleration.35 The Third Party’s letter of 14 February 2003 went on to say : “b. If there is no excess of the said height limit stated in Part I of the Schedule to Cap.121, the Certificate of Exemption issued by the District Lands Office is sufficient proof that occupation permit is not required. c. We have produced the Certificate of Exemption in respect of building works. As Letter of Compliance 25
  26. 26. has been issued, Certificate of Exemption in respect of drainage and site formation are not required.”36 It went on to say that the letter from the Building Authority dated11 February 2003 did not support the requisition because the BuildingAuthority had not said that the Property exceeded the parameters. Then itasserted as a matter of fact that the Property fell written the parametersbecause, according to them, the Property is of a height less than 7.68 m.Then they asked the purchaser to produce evidence to prove that theProperty exceeded the height limit of 8.32 m.37 TYL replied on 15 February 2003 and denied that it was agreedthat Occupation Permit was not necessary or that the drainage and siteformation works need not be approved by the Building office or be covered bya Certificate of Exemption.38 The Third Party replied on 17 February 2003 enclosing a copyof a report issued by TMB Architects Ltd dated 17 February 2003. They drewattention to the analysis and conclusion in the said report and claimed thathaving regard to the report, the Property is exempted from the BuildingsOrdinance and that, the building erected on the land does not exceed thedimensions under Part I of the Schedule to Cap.121. The Third Partyconcluded by asking for confirmation by 5 p.m. that the letter was accepted.39 By a letter dated 19 February 2003 TYL said that the vendorwas in breach of the agreement and reserved the purchaser’s rights andremedies under the same purchase agreement.40 By a letter dated 20 February 2003 the Third Party claimed thatthey had answered satisfactorily all requisitions and shown a good title on17 February 2003.41 By a letter dated 25 February 2003, TYL demanded return ofthe deposit.Provisions of Cap.121 26
  27. 27. 42 In order to understand the requisition relating to Cap.121, it isnecessary to have to consider the provisions of Cap.121 in some detail.Under section 11 the powers of the Director of Lands under Cap.121, otherthan his powers under section 4, may be exercised on his behalf by anyDistrict Lands officers. The relevant section are sections 5, 6 and 7 and alsoPart I of the schedule :Section 5: “Subject to the provisions of this Ordinance, the Director shall issue a certificate of exemption in respect of building works in the New Territories — (a) for a building to be built by any person and to be used for non-industrial purposes;”Section 6 : “Where the Director has issued a certificate of exemption under section 4 or 5 he may also issue — (a) a certificate of exemption in respect of site formation works; (b) a certificate of exemption in respect of drainage works.”Section 7 : “(1) Subject to subsection (2) and to compliance with any conditions imposed by the Director under section 9 — (a) sections 4, 9, 14, 21 and 30 of the Buildings Ordinance (Cap 123) and the regulations made under that Ordinance shall not apply — (i) in respect of building works or site formation works; and (ii) for any building, specified in a certificate of exemption; and 27
  28. 28. (b) the provisions and regulations mentioned in paragraph (a) and section 28 of the Buildings Ordinance (Cap 123) shall not apply — (i) in respect of any drainage works; and (ii) for any building, specified in a certificate of exemption, carried out by or on behalf of the person named in that certificate of exemption. (2) Subsection (1) shall not apply in relation to a certificate of exemption issued under section 4 or 5 in respect of a building of greater dimensions than the building described — (a) in the case of — (i) a certificate of exemption in respect of new housing; … in Part I of the Schedule;”Part I of the Schedule : “ CONDITIONS PART I CERTIFICATE OF EXEMPTION IN RESPECT OF NEW HOUSING OR COMMUNITY USE, OR ISSUED UNDER SECTION 4 1.(1)The building, when constructed, will be a building of not more than 3 storeys and — (a) of a height of more than 7.62 m but not more than 8.23 m and with a roofed-over area not exceeding 65.03 square metres, and in respect of which the thickness of each load-bearing wall — (i) in the case of a load-bearing reinforced concrete wall is not less than 175 mm thick; or (ii) of the lowest storey is in the case of a load- bearing brick wall not less than 340 mm; and 28
  29. 29. (iii) of any higher storey is in the case of a load- bearing brick wall not less than 225 mm; …”43 Here the Certificate of Exemption granted by the District LandsOfficer was expressly granted under section 5 of Cap.121. It was in terms aCertificate of Exemption in respect of building works. Section 5 conferspower on the District Lands Officer “to issue certificates of exemption inrespect of building works”. Hence a section 5 certificate of exemption relatesonly to building works. Building works does not include site formation worksor drainage works. See section 2 of Cap.121.44 Where a certificate of exemption in respect of building workshas been issued under section 5 the District Lands Officer may also issuecertificates of exemption in respect of site formation works and drainageworks. See section 6 of Cap.121.45 The effect of a section 5 or section 6 certificate of exemptionwould depend on section 7.46 Under section 7(1) an occupation permit (section 21 of theBuildings Ordinance) is not required in respect of building works specified ina certificate of exemption.47 Also under section 7(1)(b), section 28 of the BuildingsOrdinance which regulates drainage works, shall not apply in respect of anydrainage works; and for any building specified in a certificate of exemption.That I believe is the reason why in the Certificate of Exemption quoted inparagraph 9 above, the final paragraph noted that the Certificate ofExemption did not cover site formation or drainage works and that “you arerequired to submit plans formally to the Building Authority under the terms ofthe Buildings Ordinance for the approval of any such site formation anddrainage works unless separate Certificates of Exemption are issued by mein respect of such works”. 29
  30. 30. 48 That being the case, separate certificates of exemption wouldbe enquired in relation to site formation work or drainage works. As ittranspired the Building Authority had approved site formation and drainageworks in respect of the Building. However this was not made known to TYLby the Third Party prior to the rescission of the transaction.49 But the matter did not stop there. It appears from the Letter ofToleration the height of the building exceeded 7.62 m by 0.06 m. Admittedly,it is not more than 8.23 m. Under section 7(2) the exemptions granted undersection 7(1) regarding compliance with the requirement of the BuildingsOrdinance would not apply if the building is of greater dimensions than asdescribed in Part I of the Schedule.50 Under Part I of the Schedule, if the height of the building ismore than 7.62 m but not more than 8.23 m and if the roofed-over area doesnot exceed 65.03 m2, there is a further requirement that the thickness of eachload-bearing wall : “(i) in the case of a load-bearing reinforced concrete wall is not less than 175 mm thick; or (ii) of the lowest storey is in the case of a load-bearing brick wall not less than 340 mm; and (iii) of any higher storey is in the case of a load-bearing brick wall not less than 225 mm;”51 Thus, the thickness of the load-bearing wall is significant andthat is probably why in the report of TMB Architects Ltd there was an attemptto deal with this. According to the report : “3. Thickness of Load Bearing Walls 3.1 Assuming the thickness of external wall finishing being 25 mm and the thickness of internal wall finishing being 13 mm, the actual thickness of Load Bearing External Wall is 185 mm. 3.2 The thickness Load Bearing External Wall, presumably of a Reinforced Concrete construction, exceeds 175 mm.” 30
  31. 31. 52 But unfortunately the report did not go far enough. First it didnot say or certify that the load-bearing external wall was of reinforcedconcrete construction. It simply said that it was presumably of reinforcedconcrete construction. Furthermore, in regard to the thickness of theload-bearing external wall it should exceed 175 mm but only because of theassumption made by the maker of the report that the thickness of the externalwall finishing was 25 mm and the internal wall finishing 13 mm. I am afraidthat is not good enough. On the other hand, if the load-bearing walls werenot of reinforced concrete construction they did not satisfy the thicknessrequirement of Part 1 of the Schedule.53 Mr Lee Yee Hung, who appears on behalf of the defendant, hasmade the further point that it appears from the same report that the area ofthe house as measured by the architect is 65.079 square metres(paragraph 1.2.2). But that its conclusion that the area of the house does notexceed the prescribed maximum of 65.03 square metres under Cap.121 isbased on “Assuming the thickness of external wall finishing being 25 mm, theactual area of the House measured to the structure is 64.509 s.m.”(paragraph 2.1) Mr Lee made the point that the TMB Architects Ltd did notsay that the roofed-over area of the house did not exceed 65.03 s.m. sinceunder Cap.121 it is the roofed-over area which is relevant. He made theadditional point that roofed-over area is defined as meaning “the area of abuilding enclosed within the external faces of the main structural wall (whichincludes any party wall) of that building …” He said there is no justificationgiven by TMB Architects Ltd why the thickness of the external wall finishingshould be ignored for the purpose of the calculation of the roofed-over area.There is force in Mr Lee’s complaint that TMB Architects Ltd had notexplained why in the calculation of the roofed-over area the external wallfinishing could be excluded.54 I believe the thickness of the load-bearing wall is critical to theThird Party’s case. In order for the exemption from the requirement of theoccupation permit under section 7(1) of Cap.121 to apply to the building, the 31
  32. 32. vendor must show that if the height of the building exceed 7.62 m although itis not more than 8.23 m the thickness of the load-bearing wall is not less than175 mm thick if it is of reinforced concrete construction. The defendant hadfailed to show that. That being the case the Certificate of Exemption issuedunder section 5 would not have the effect of exempting compliance withsection 21 of the Buildings Ordinance. In other words, an occupation permitwas required. Thus, even though the District Lands officer had issued theCertificate of Exemption, the Certificate of Exemption was not effective inexempting compliance with section 21 of the Buildings Ordinance.55 I should also mention that TMB Architects Ltd also purported tocertify that the height of the building did not exceed 7.62 m. But havingregard to the Letter of Toleration I do not believe the plaintiff could beexpected to rely on TMB Architects Ltd’s certification, which is based on the“normal” thickness of the make-up roof finishing, and not its actual thickness.56 I turn to consider the fact that no certificate of exemption wasissued in respect of drainage works or site formation work. It has transpired,though this only became known subsequent to 17 February 2003 andtherefore does not avail the defendant, drainage works plans and siteformation plans were indeed approved by the Building Authority in respect ofthe building.57 What I should consider is whether on the assumption that theyhad not be approved by the Building Office, the fact that a certificate ofcompliance had been issued is sufficient.58 I do not believe the Letter of Compliance or the Letter ofToleration would preclude the Building Authority from taking action. Both theLetter of Compliance and the Letter of Toleration were issued by the DistrictOfficer pursuant to the provisions of the New Grant and not under anystatutory power. The reference to the New Grant in the Letter of Compliance,and the language of the Letter of Toleration have made that clear. Moreover,the District Lands office only has limited power under Cap.121, and as I have 32
  33. 33. said, the effect of any certificate of exemption granted by him would dependon whether section 7(2) applied. Furthermore, the letter from the BuildingsDepartment dated 11 February 2003, quoted in paragraph 32 above, showsthat enforcement action might be undertaken.59 Mr Samuel Chan who appears for the Third Party argued thatthe plaintiff should have applied for certified true copies or inspection of theapproved plans for drainage works and formation work in order to preservethe bargain relying on Mexon Holdings Ltd v. Silver Bay International Ltd[2000] 3 HKCFAR 109 at 117D-H and 118G-119G. I do not think that can beright. During the requisitions it was maintained by the defendant that siteformation and drainage works were not required to be approved norcertificate of exemption in relation to them necessary. Moreover, the letterfrom the Buildings Department dated 11 February 2003 which I have referredto in paragraph 32 above does not say in terms that there were approvedplans for drainage works though it may be possible to gather from that letterthat there were approved plans for site formation works. Also it is difficult tosee on a transaction of this kind what more one could have expected theplaintiff to do to see the bargain through. Mexon Holdings Ltd requires me toapproach the matter with common sense. I am concerned with a modestproperty and a purchaser who was applying for a Homestarter’s loan fromHKHS. I do not believe the vendor could refuse to do its part, wait for thetime for completion to arrive and then forfeit the deposit when the purchaserfailed to complete, putting the heavy burden on the purchaser to seek torecover the deposit paid. In this case, the deposit paid was $165,000. Thecosts of litigation in this case must be quite a heavy burden on the plaintiffalready. Vendors must recognise that the duty is on them to show and provegood title. A falling property market does not relieve them from this duty. Ifanything, it behoves them to be more vigilant. Here I am not concerned witha falling market but that is an irrelevant consideration anyway. Depending onthe circumstances, the purchaser may be expected to do more or less inorder to see the bargain through. But that does not mean the vendor canshift his burden onto the purchaser. 33
  34. 34. 60 In my opinion, the defendant has failed to answer thesecond requisition adequately or satisfactorily, nor was it able to show goodtitle.61 I return to consider the first requisition, namely, the colouring ofthe plan.62 Section 13(2) of the Conveyancing and Properties Ordinance,Cap.219, permits the production of a copy, certified by a solicitor, “to be atrue copy” of any document. Here the New Grant and the BoundariesAgreement were certified true copies. However, they were not coloured. It isquite clear that the plans annexed to the certified copies were photocopiesso, although the colour red in the New Grant and the colour pink in the planannexed to the Boundaries Agreement was not reproduced, one can see ashaded area or smudge in these plans. It has not been said, and I do notthink it is the case, that it was not possible for properly coloured plans to beobtained. Presumably the government would have a copy with colours. Theoriginal grantee must also have a copy with colour. It may be as Mr Lee hassubmitted that the coloured copy had been given to one or other of theowners of the other third share in the Building. Be that as it may, if thequestion of the forfeiture of the deposit depended on it, I do not understandwhy the duty to cooperate relied upon by Mr Samuel Chan should make it fairthat the deposit should be forfeited when it was within the power and ability ofthe vendor to procure certified true copies with colour or colour coded. As Ihave said it has not been asserted on behalf of the defendant that it wasdifficult or impracticable for the vendor to procure a certified true copy. Ifboth parties to a bargain acted with a lack of common sense or unreasonably,I would let the loss fall on the party who had the primary duty to produce thedocument, leaving him to his redress, if any, against his solicitors. Here theBuilding was erected on a small lot of land with an area of 700 sq.ft only. Asis clear from the Boundaries Agreement, “the situation, area and boundariesof the lot as re-sited shall as from the date of execution hereof be as showncoloured pink on the new plan annexed hereto and not as shown colouredred on the original plan”. So the plan is important, I see no reason why the 34
  35. 35. purchaser should be required to accept a smudge on the plan instead. So Iam also of the view that the first requisition had not been satisfactorilyanswered.63 Now I turn to consider the third requisition. It seems that by14 February 2003, the Third Party realised that the letter of complianceshould be registered and they said in their letter that they would register theletter of compliance before completion. In their second letter dated14 February 2003 from the Third Party to TYL which reads: “We would informyou that the certified copy Letter of Compliance had been lodged to the SaiKung New Territories Land Registry for registration with Memorial No.546680refers. Copy receipt from the relevant land registry enclosed for easyreference.” The receipt shows that a document has been submitted forregistration and the Land Registry receipt reads : “We pledge to register andreturn the instruments by 12/03/2003 under normal circumstances (target97%).” Now under the Land Registration Regulation, Cap.128, registration ofan instrument when completed “take effect from the date recorded on thememorial of the instrument…” See regulation 16. However, that is so onlyafter the registration has been completed. Here according to the receipt,there was a pledge “to register and return the instruments by 12/03/2003”.The date for completion was 6/03/2003. TYL referred the Third Party toLui Tak Kin v. Chan Yin Kai [1998] HKC 362 as early as 24 January 2003.The delay on the part of the Third Party to effect registration of the Certificateof Compliance is inexplicable. Their earlier assertion that registration wasunnecessary was plainly wrong. Registration of the certificate of compliancewas essential to the passing of legal title on completion. As of 14 February2003, the certificate of compliance was in the course of registration. It ispossible that the registration could have been completed by 7 March 2003.In that case on completion, legal title could be conveyed. This argument hadnot been fully explored at the hearing. TYL had not responded to theThird Party’s 2nd letter of 14 February 2003. Had they done so the ThirdParty might have been able to demonstrate that the vendor would be in aposition to convey the legal title on 7 March 2003. In all the circumstances I 35
  36. 36. am of the view that this requisition has been satisfactory answered, or wasnot pursued by TYL after 14 February 2003.Conclusion64 For the above reasons I grant a declaration in terms ofparagraphs (1), (2), (3) and (4) of the amended originating summons. I orderthat the defendant pays the sum of $165,000 and $5,000 together withinterest from 30 April 2003 at the judgment rate until payment. As for thestamp duty of $12,475, I would grant a declaration that the plaintiff is entitledto be indemnified by the defendant in case the plaintiff is unable despitereasonable effort to reclaim the same from the Collector of Stamp Duties.65 The Third Party took part in this part of the proceedings andagrees to be bound by its result. As for the claim against the Third Party, itwas agreed that it should be tried separately.Costs66 Costs of the plaintiff’s claim against the defendant should beborne by the defendant. Such costs to be taxed if not agreed.67 The Third Party has argued that such costs should be on theDistrict Court scale. I think the claim involves difficult points of law. Anearlier application by the Third Party to have the proceedings transferred tothe District Court was refused by Reyes J. I would not order costs on theDistrict Court scale. Of course, the Third Party’s liability for such costs willdepend on the outcome of the Third Party claim.( Robert Tang )Judge of the Court of First Instance, High CourtMiss Grace Chow, instructed by Messrs Terry Yeung & Lai, for the PlaintiffMr Lee Yee Hung, instructed by Messrs Danny Lau & Lam, for the Defendant 36
  37. 37. Mr Samuel Chan, instructed by Messrs Baker & McKenzie, for the Third Party Attachment 3 – Minchest v. Lau Tsui Kwai and OthersIN THE COURT OF FINAL APPEAL OF THEHONG KONG SPECIAL ADMINISTRATIVE REGIONFINAL APPEAL NO. 12 OF 2007 (CIVIL) 37
  38. 38. (ON APPEAL FROM CACV NO. 334 OF 2006)_____________________Between:MINCHEST LIMITED Appellant/Plaintiff - and -LAU TSUI KWAI 1st Respondent/DefendantCHEONG NIN INVESTMENT COMPANY 2nd Respondent/Defendant LIMITEDYIU YING SHEUNG MARTIN 3rd Respondent/DefendantHO SIU KEI 4th Respondent/DefendantLAU SZE KIT 5th Respondent/Defendant_____________________Court: Chief Justice Li, Mr Justice Bokhary PJ, Mr Justice Chan PJ, Mr Justice Ribeiro PJ and Mr Justice McHugh NPJDate of Hearing: 11 January 2008Date of Judgment: 31 January 2008 JUDGMENTChief Justice Li:1. This appeal concerns a dispute between vendor and purchaseras to whether the vendor has shown good title. The properties in questionare held under Conditions of Grant entered into with the Government before1 January 1970 and this case is only concerned with pre-1 January 1970Conditions of Grant. The matter turns on the proper interpretation of s. 14(1)and 14(2) of the Conveyancing and Property Ordinance, Cap 219 (“theOrdinance”). Save where otherwise stated, references to sections in thisjudgment will be to sections in the Ordinance.The facts2. By three agreements dated 27 May 2005, following earlierprovisional agreements, the appellant (“the purchaser”) agreed to purchase 38
  39. 39. various properties in Cheong Nin Building, Kwai Chung, New Territories (“theproperties”) from the various respondents (“the vendors”). The total purchaseprice was $55 million. The terms of the agreements in so far as they arematerial to this appeal were identical. They provided for completion on orbefore 28 October 2005 and that time shall in every respect be of theessence. The agreements were linked in that each provided for completionsimultaneously with the others and that failure to complete under oneagreement was deemed to be a refusal to complete under the otheragreements.3. On 22 September 2005, pursuant to its obligation to show goodtitle, the vendors’ solicitors sent to the purchaser’s solicitors certain titledeeds. These included a certified copy of New Grant No. 4699 (“ the NewGrant”) and also a certified copy of the occupation permit for the buildingdated 5 January 1973.The New Grant4. The New Grant of the lot in question was dated 13 November1969. It contains the agreement between the Government and the grantee ofthe lot, Cheong Nin Investment Company Limited (“Cheong Nin”), one of thevendors in the present case.5. Under the New Grant, Cheong Nin’s obligations included thepayment of premium and the fulfilment of the building covenant involving thecompletion of the building before the prescribed deadline and the expenditureof a minimum amount. General Condition 8 provided that the fulfilment by thegrantee of his obligations under the Conditions shall be a condition precedentto the grant or continuance of the tenancy and any default shall be deemed acontinuing breach. General Condition 9 gave the Government a right of re-entry in the event of breach of any conditions.6. General Condition 10 entitled the grantee to a Governmentlease for the lot in accordance with its terms “when the conditions herein contained have been complied with to the satisfaction of the District Commissioner, New Territories.” 39
  40. 40. The conditions contemplated in this Condition constituted the conditionsprecedent, compliance with which entitled the grantee to a Governmentlease. Their identification is a matter of interpretation of the New Grant. Theconditions precedent would include conditions such as the payment of thepremium and the fulfilment of the building covenant.The requisition7. The New Grant constitutes the root of title of the properties inquestion. No Government lease has been issued. On 27 September 2005,the purchaser’s solicitors raised four requisitions. The relevant requisition(“the requisition”) read: “Please send us a certified copy of the Certificate of Compliance of New Grant No. 4699.”8. On 6 October 2005, the purchaser’s solicitors replied to therequisition as follows: “We note that New Grant No. 4699 was dated 13th November 1969. Pursuant to Section 14(2) of the Conveyancing and Property Ordinance, any conditions precedent of New Grant No. 4699 should be deemed to have been complied with on 1st November 1984. Therefore, production of Certificate of Compliance of the said New Grant is unnecessary in proving title to the above property.”9. This reply was not accepted. On 10 October 2005, thepurchaser’s solicitors maintained: “Production of the Certificate of Compliance is necessary. Section 14(2) of the Conveyancing and Property Ordinance does not dispense with the physical production of certificate of compliance or other matters of title.”10. There ensued further correspondence in which the partiesreiterated their previous positions. The vendors’ solicitors also noted that noCertificate of Compliance of the New Grant had been registered in the LandRegistry. 40
  41. 41. 11. The matter was unresolved by the deadline for completion on28 October 2005. On that day, the purchaser’s solicitors accepted thevendors’ alleged repudiation of the agreements and demanded the return ofthe deposits paid. A few days later, on 2 November 2005, the vendors’solicitors determined and rescinded the agreements on the ground of thepurchaser’s alleged failure to complete and forfeited the deposits.12. Subsequently, the purchaser issued three originatingsummonses relating to the three agreements respectively. Theseproceedings were later consolidated. The vendors lodged counterclaims.The reliefs claimed by the purchaser and the vendors respectively includeddeclarations that the other party or parties had repudiated the agreementsand that such repudiation had been accepted as well as damages. Thepurchaser sought a declaration of its entitlement to the return of the deposits,whilst the vendors claimed a declaration of its entitlement to their forfeiture.The courts below13. Before the Judge (Deputy Judge L Chan), the vendorssucceeded. The purchaser’s appeal to the Court of Appeal (Rogers VP, LePichon JA and Barma J) was dismissed. By a consent order, the purchaserwas granted leave to appeal as of right to the Court.The question14. The requisition called for the production of a certified copy ofthe Certificate of Compliance of the New Grant (“the Certificate ofCompliance”). The vendors’ answer stated that production of such aCertificate was unnecessary for proving title, relying on s. 14(2) of theOrdinance. The question is whether this answer was satisfactory. If so, thevendors had shown good title. If not, they had failed to do so. The matterturns on the proper interpretation of s. 14(1) and 14(2).The statutory provisions15. Section 14(1) provides: “Where a person has a right to a Government lease of any land upon compliance with any conditions precedent, then, upon compliance with 41
  42. 42. those conditions – (a) the equitable interest under that right shall become a legal estate in that land as if held under a Government lease issued in accordance with that right; and (b) for the purposes of section 42 and any other law, such a Government lease shall be deemed to have been issued upon compliance with those conditions.”Section 42(1) and 42(2) preserve, after the issue of Government leases, theeffect of prior instruments, that is, instruments entered into and taking effectafter an agreement for a Government lease but before the issue of suchlease, and the effect of their registration under the Land RegistrationOrdinance, Cap 128.16. For s. 14(1) to be engaged, there must be a right to aGovernment lease of land upon compliance with the prescribed conditionsprecedent. Where there is such a right, then upon compliance with theconditions precedent, two consequences follow by operation of law. First, theequitable interest is converted into a legal estate as if held under aGovernment lease issued in accordance with the right. Secondly, for thepurposes of s. 42 and any other law, a Government lease shall be deemed tohave been issued upon compliance with the conditions precedent. Thetriggering event for these consequences is compliance. These legalconsequences follow from compliance, notwithstanding that a Governmentlease has not in fact been issued. Section 14(2) and 14(3) may be regardedas provisions supplementary to s. 14(1). They provide for the means forestablishing compliance with the conditions precedent. Section 14(2) appliesto agreements for Government leases entered into before 1 January 1970whereas s. 14(3) applies to agreements entered into on or after that date.17. Section 14(2) provides: “Where, under an agreement for a Government lease entered into before 1 January 1970, a person has a right to a Government lease upon compliance with any conditions precedent he shall be deemed, for the purposes of this section, to have complied with those conditions on the commencement of this section.” 42
  43. 43. The section commenced on 1 November 1984. Under s. 14(2), the person,who under a pre-1 January 1970 agreement has a right to a Governmentlease upon compliance with the conditions precedent provided for therein,“shall be deemed for the purposes of this section to have complied with thoseconditions” on 1 November 1984. The phrase “for the purposes of thissection” is a reference to the purposes of s. 14(1). Thus there is deemedcompliance on 1 November 1984 with the conditions precedent. Unders. 14(1), such compliance triggers the legal consequences provided fortherein.18. Section 14(3)1 relates to agreements for Government leasesentered into on or after 1 January 1970. In contrast to the deeming ofcompliance for pre-1 January 1970 agreements, s. 14(3) provides for variousmethods of establishing compliance. Under this provision, the personconcerned “shall be deemed for the purposes of this section” to havecomplied with the conditions precedent in one of three ways. One of them isthe issue by the Government of a certificate that the conditions have beencomplied with and the registration of that certificate in the Land Registryunder the Land Registration Ordinance. The phrase in s. 14(3) of “for thepurposes of this section” is again a reference to the purposes of s. 14(1), thatis, in order to establish compliance so that the legal consequences set outtherein would flow.1 Section 14(3) provides: “Where under an agreement for a Government lease entered into on or after 1 January 1970, a person has a right to a Government lease upon compliance with any conditions precedent, he shall be deemed, for the purposes of this section, to have complied with those conditions – (a) upon the issue by the Government of a certificate that those conditions have been complied with and the registration of that certificate in the Land Registry under the Land Registration Ordinance (Cap. 128); or (b) upon the endorsement by the Government on the Government lease of a note to the effect that those conditions have been complied with the registration of a copy of that endorsement in the Land Registry under the Land Registration Ordinance (Cap. 128); or (c) upon the entry on the register kept in the Land Registry under the Land Registration Ordinance (Cap. 128) relating to the land of a note to the effect that those conditions have been complied with. ” 43
  44. 44. 19. Thus, s. 14(2) and 14(3) provide for different ways ofestablishing compliance for pre- and post-1 January 1970 agreementsrespectively. For the former, s. 14(2) deems compliance to have occurred on1 November 1984. For the latter, s. 14(3) provides for the type of documentrequired and its registration in the Land Registry. The reason for thisdistinction is that whilst the practice has been to issue certificates ofcompliance for post-1 January 1970 agreements, there was no such practicefor pre-1 January 1970 agreements. In his letter dated 7 November 1984 tothe Law Society which was intended to be and was circulated to its members,the Registrar General (Land Officer) explained: “The 1st January 1970 was chosen as a ‘cut off’ date for this purpose because it is believed that in almost all instances subsequent to that date the certificate of compliance has in fact been issued by the Government upon compliance with the General and Special Conditions.”Application of the statutory provisions20. Section 14(1) and 14(2) apply in the present case. Under theNew Grant, the grantee undoubtedly has a right to a Government lease uponcompliance with the conditions precedent contemplated therein. Since theNew Grant was a pre-1 January 1970 agreement, s. 14(2) applies so that forthe purposes of s. 14(1), the grantee is deemed to have complied with theconditions precedent on 1 November 1984.The scope of the requisition21. In dealing with a dispute concerning title such as the presentone, the court must approach the matter “from the stand-point of a willing purchaser and a willing vendor, both possessed of reasonably robust commonsense, both intending to see the transaction through to completion in terms of their own bargain.”Mexon Holdings Ltd v Silver Bay International Ltd (2000) 3 HKCFAR 109 at117E.22. “Requisitions on title must be formulated with reasonableprecision if they are to be effective.” Chan Chik Sum v Great Pearl IndustriesLtd [1997] 1 HKC 27 at 33 C-D. In considering whether the requisition was 44
  45. 45. satisfactorily answered, the starting point must be to consider its scope. Thequestion is what a reasonable conveyancer would regard the requisition tomean.23. The requisition called for the production of a certified copy ofthe Certificate of Compliance of the New Grant. General Condition 10conferred on the grantee a right to a Government lease upon compliance withconditions precedent contemplated therein. Considering the requisition in thecontext of the New Grant, a reasonable conveyancer would regard it to bedirected at the production of a certificate issued on behalf of the Governmentto show compliance with the conditions precedent therein which would entitlethe grantee to a Government lease. The requisition properly considered didnot have any wider scope.Purpose of the provisions24. Mr Thomas SC for the purchaser submits that the requisitionhad not been sufficiently answered. The linchpin of his submission is thats. 14(1) has a limited purpose. Where there is a right to a Government leaseupon compliance with conditions precedent, he contends that the onlypurpose of s. 14(1) is to effect upon compliance the conversion of theequitable interest to the legal estate. In support, he relies on the heading tos. 142 and the Explanatory Memorandum to the bill 3. Having regard to thislimited purpose, it is argued that where compliance is deemed by s. 14(2) tohave occurred on 1 November 1984 for pre-1 January 1970 agreements, thisonly achieves the conversion to the legal estate. And it remains necessary toproduce a certificate to show compliance; if such a certificate cannot beproduced, secondary evidence of compliance would be necessary.25. If the purchaser’s argument is correct, such a certificate orsecondary evidence must be produced, notwithstanding that as previously2 The heading to s. 14 reads: “Conversion of equitable interest to legal estate where right to Government lease”.3 The Explanatory Memorandum to the bill in relation to clause 14 stated: “Clause 14 deals with the conversion of an equitable interest under a Crown lease to the legal estate.” 45
  46. 46. noted, there was no practice of issuing certificates of compliance for pre-1January agreements and that compliance with conditions precedent for pre-1January 1970 agreements would have occurred a long time ago.26. To ascertain the true purpose of s. 14(1), it is important tounderstand the background to its enactment. On disposal of land byGovernment, the agreement contained in the Conditions of Grant usuallyprovides that the grantee has a right to a Government lease upon compliancewith the conditions precedent provided for therein. But upon compliance, thenormal practice has been that no formal Government lease is issued 4.Legislation was necessary to provide a solution to deal with this situation.The purpose of s. 14(1) was to render the legal position to be the same asthat which would have resulted from the actual issue of a Government leaseupon compliance with the conditions precedent, notwithstanding that no leaseis in fact issued. To legislate for the same legal position, s. 14(1) providesthat upon compliance, not only is the equitable interest converted into thelegal estate but also that for the purposes of s. 42 and any other law, such aGovernment lease shall be deemed to have been issued upon compliance.27. The purpose of s. 14(1) is thus not limited to achieving theconversion of the equitable interest into a legal estate and the purchaser’sargument that its purpose is so limited must be rejected. In this context, theheading does not assist. It does not have any legislative effect and does notin any way vary, limit or extend the interpretation of s. 14. Section 18(3) ofthe Interpretation and General Clauses Ordinance, Cap 1. A heading isnecessarily brief. In this instance, it is an incomplete guide to the section.The Explanatory Memorandum is similarly insufficient and is of no assistance.“Any other law”28. Mr Thomas further submits that the operation of s. 14(1) is inany event limited. Section 14(1)(b) provides that the deemed issue of aGovernment lease upon compliance with the conditions precedent is “for the4 See The Annotated Ordinances of Hong Kong: The Conveyancing and Property Ordinance (Cap 219) (2007 reissue: Sarah Nield) p. 116-7; Sihombing and Wilkinson, Hong Kong Conveyancing, Vol 1 Chap I para 1.1, Chap II para 154 and Halsbury’s Laws of Hong Kong, Vol 16 (2007 Reissue) paras 230.0107-0108. 46

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