The term “real estate” is not defined in any Hong Kong statutes or case law. However, “land” has been defined in various statutes to include the following:
In common law, the ownership of a piece of land includes everything that is above the land (eg, buildings) and everything beneath the land. It also includes fixtures – things that become so attached to the land or a building as to form part of the land, unless the contrary intention is expressed.
Hong Kong real estate transactions are mainly governed by the following:
Other relevant statutes include the following:
Hong Kong is a common law jurisdiction. Therefore, in addition to statutes, decisions by Hong Kong courts represent another major source of law pertaining to real estate transactions.
Hong Kong adopts a system of registration of instruments (deeds) affecting land, not of registration of title to land. Registration does not guarantee title as Hong Kong does not adopt a Torrens system. Registration gives priority to the person holding a prior registered interest over a subsequently registered interest. An unregistered instrument will lose its priority to subsequent buyers or mortgagees for valuable consideration.
Registration is effected by submitting the instrument concerned to the Land Registry together with a memorial in the prescribed form. The memorial describes the property affected and the nature and object of the instrument. A registration fee is payable (between HKD 210 and HKD 2,000 as of December 2017). The land register will be updated to show the registered instrument, which will then be imaged and returned to the lodging party. The Land Registry pledges to complete the process of registration within 15 working days.
Instruments affecting land are registered with the Land Registry.
Registration is not mandatory in Hong Kong. However, to protect one’s interest in the property, the holder of that interest will almost invariably register the instrument creating or conferring the property interest. Generally, if an instrument is duly presented for registration within one month after the date of its execution, priority will start from the date of its execution. If an instrument is presented for registration more than one month after the date of its execution, priority will start from the date of its registration instead of the date of execution.
Registrable instruments include deeds, conveyances, judgments and other instruments in writing which affect immovable property.
However, the following documents are not registrable:
In addition, short-term leases (ie, with a term of three years or less) do not have to be registered. Priority will not be affected even if it is not submitted for registration.
Normally, land owners will have to produce (i) the land grant and those title documents from the intermediate root document (see paragraph below) to the present if the land grant is more than 15 years; or (ii) the land grant and those title documents from the land grant to the present if the land grant is less than 15 years. An intermediate root document must be an assignment, mortgage or charge dealing with the whole estate.
Land owners have to show an unbroken chain of ownership from the land grant or the intermediate root to the present day and that the ownership is free from any encumbrance. The originals or certified copies of all title documents in the chain must be produced. The original has to be produced if the document relates exclusively to the real estate concerned, and a certified true copy will be acceptable if it relates to the real estate concerned as well as to other properties.
Online land search can be conducted by using the Integrated Registration Information System (IRIS) Online Services. Land registers and copies or certified true copies of registered land documents are available upon payment of fees (between HKD 10 and HKD 270 as of December 2017). The following information in relation to a particular property can be obtained from a land register:
Generally, foreigners can own immoveable property in Hong Kong. There is no nationality restriction on ownership of immoveable property.
The government may resume land pursuant to the Lands Resumption Ordinance (Cap. 124). The Chief Executive in Council is empowered by law to resume land for public purposes, but the government must pay compensation in respect of the resumption. Such compensation shall correspond to the real value of the property concerned at the time and paid without undue delay. If the amount of compensation offered is not accepted, the matter can be referred to the Lands Tribunal for determination.
The Town Planning Ordinance (Cap. 131) and the Urban Renewal Authority Ordinance (Cap. 563) empower relevant public officers or statutory/public authorities to make recommendations to the Chief Executive in Council to exercise the power of resumption. The relevant statute provides that a resumption carried out on the recommendation made under the statute will be deemed to be carried out for a public purpose.
Other statutes, eg, the Railways Ordinance (Cap. 519) and Roads (Works, Use and Compensation) Ordinance (Cap. 370), empower the Chief Executive or Chief Executive in Council to resume.
Under the Basic Law, all land in Hong Kong is state property and the government of Hong Kong is responsible for its management, use and development, as well as for its lease or grant to individuals, legal persons or organizations for use and development. Land is usually granted by the government by way of a lease or an agreement for lease in consideration of an upfront land premium. All tenures in Hong Kong are leasehold, except for St. John’s Cathedral, which is held under freehold tenure.
The abovementioned system is essentially a continuation of the system adopted during British rule.
Land was granted for terms of varying duration. Some may run for 999 years, while others may run for 75 years with a right to renew for a further term of 75 years. For land in the New Territories, the lease term could not exceed the term of the lease of the New Territories by China to Britain. As a result, leases that were granted were either 99 years less the last three days from 1 July 1898 (the Crown had a lease reversion of three days), or for 75 years from 1 July 1898, with a right to renew for a further term of 24 years less three days. The New Territories Leases (Extension) Ordinance (Cap. 150) extended leases in the New Territories to 30 June 2047.
After the handover of Hong Kong back to the People’s Republic of China on 1 July 1997, the government of the Hong Kong Special Administrative Region has been granting land with terms of 50 years from the date of the land grant.
Subject to the restrictions in the land grant concerned, leasehold interest can be assigned, mortgaged or sublet.
Land parcels are usually granted by public auction (or other competitive processes such as tender) and usually to the bidder who offers the highest land premium or through land exchanges with the government (which will take the form of a surrender of an existing leasehold interest to the government in exchange for the grant by the government of another leasehold interest).
Real properties are usually held in the names of individuals or corporate entities.
Before entering into any transaction, the holding structure should be determined after taking professional advice and considering all pertinent factors including tax and convenience of disposal.
In the purchase of a residential property, it is of utmost importance that the person/entity who will be the buyer is determined before entering into any legally binding agreement. Changing the buyer or the holding entity will attract substantial additional stamp duty (with very limited exceptions to this rule).
Subject to the above, it is not uncommon for investors of high value real estate to hold real estate in Hong Kong through a holding structure with two layers of companies. The real estate will be held by a Hong Kong-incorporated company. The Hong Kong-incorporated company is usually held by a company incorporated in a tax haven jurisdiction (eg, the British Virgin Islands).
Such a structure has the following advantages:
A non-Hong Kong company that is a body corporate and has established a place of business in Hong Kong is required to register with the Companies Registry pursuant to Part 16 of the Companies Ordinance (Cap. 622).
The acquisition of real estate is usually financed by the buyer’s own funds and by bank loans (if the buyer does not have enough funds or if the buyer wishes to have gearing).
The first document in the process will normally be a “provisional” or “preliminary” agreement for sale and purchase signed between the seller and the buyer. It is very often the case that the “provisional” or “preliminary” agreement for sale and purchase is signed in the broker’s standard form. Depending on the size of the transaction, it is usual for the parties to engage lawyers only after they have signed a legally binding “provisional” or “preliminary” agreement for sale and purchase.
Normally, the seller’s solicitor will send the draft formal agreement for sale and purchase to the buyer’s solicitor for approval. The terms of the formal agreement may be negotiated between the parties. If a provisional or preliminary agreement for sale and purchase has been signed, the formal agreement for sale and purchase should reflect (and not be inconsistent with) the terms of the provisional or preliminary agreement for sale and purchase. When the terms of the formal agreement for sale and purchase have been agreed, the seller’s solicitor will prepare a clean copy for signing.
In Hong Kong, a developer may sell flats off the plan (ie, before completion of the construction). In such a case, the buyer will face the risk of the developer defaulting in its construction obligation. To protect buyers, land grants that were issued since the 1960s very often contain restrictions on off-the-plan sales, which cannot be carried out without the government’s consent. This regulatory regime is called the Consent Scheme. For land grants without such restrictions, the Law Society of Hong Kong has put in place a separate regulatory regime called the Non-Consent Scheme.
Under the Consent Scheme, the developer’s solicitor will prepare the formal agreement for sale and purchase in the standard form prescribed by the Director of Lands.
Under the Non-Consent Scheme, if the developer and the buyer are jointly represented by the same law firm in the transaction, the developer’s solicitor is required to prepare the formal agreement for sale and purchase containing mandatory provisions to protect buyers.
Under both the Consent Scheme and the Non-Consent Scheme, the formal agreement for sale and purchase requires sale proceeds to be held by the law firm representing the developer as “stakeholders.” The stakeholders may only release funds first for the payment of construction cost and the repayment of bank financing granted for the development project.
The Residential Properties (First-hand Sales) Ordinance (Cap. 621), which regulates every stage of the sale and purchase of first-hand residential properties (including sales brochure, price list, document containing the sales arrangements, show flats, viewing of properties before purchase, mandatory terms in preliminary agreement for sale and purchase and formal agreement for sale and purchase, register of transactions, website of the development, advertisements, and misrepresentation and dissemination of false or misleading information), has come into full effect on 29 April 2013. The Sales of First-hand Residential Properties Authority is given the power under the ordinance to administer and implement the same. Subject to certain exemptions, the ordinance applies to any residential property situated in Hong Kong in respect of which neither a preliminary agreement for sale and purchase nor a formal agreement for sale and purchase has ever been entered into, and no assignment has ever been made. All sale and purchase of such first-hand residential properties after 29 April 2013 (including the terms contained in the preliminary agreement for sale and purchase and agreement for sale and purchase), need to strictly comply with the ordinance. There are different offenses under the ordinance, some of which carry a maximum fine of HKD 5 million and imprisonment for a maximum term of seven years.
The assignment, the instrument by which the formal transfer of title is effected, is usually prepared by the buyer’s solicitor.
For a real estate transaction taking the form of a sale and purchase of shares in the property holding company, it is common practice for the seller’s solicitor to draft the agreement for the buyer’s approval.
An owner or occupier generally does not inherit third party liability relating to the real estate if such liability arises from any matter which occurred before he/she bought or occupied the real estate.
However, in the case of the ownership of a unit in a multiple-ownership building, this principle seems to be distorted somewhat by the Building Management Ordinance (Cap. 344) (BMO). The BMO provides that if a judgment is given against the incorporated owners (ie, a body with separate legal entity formed under the BMO by incorporating the owners of the building), execution to enforce the judgment may be issued against any owner. An “owner” means an owner for the time being, ie, someone who is the owner at the time of an application for leave for judgment to be enforced against the owners personally, not someone who was an owner at the time the liability was incurred. Therefore, an owner of a property can be liable for damages arising from an event prior to acquiring ownership in the property if the owners of the multiple-ownership building have been incorporated.
When dealing with ownership of a unit in a multiple-ownership building, the following possibilities should also be noted:
If unauthorized structures exist in the real estate before the acquisition and the real estate was acquired with the unauthorized structures, it is possible for the Building Authority to issue an order, or the building manager to make a demand, for the demolition of the unauthorized structures after the acquisition. In such a case, the demolition order or the demand by the manager will be issued to the buyer, but not the previous owner, who may have been responsible for the erection of the unauthorized structure.
Moreover, failure to settle land premium payable under the land grant, government rent or any continuing breach of the land grant (even if the payment defaults or breaches occur prior to the current owner purchasing the property) is a breach of a covenant of the land grant and will enable the government, as landlord, to re-enter the property. If the seller assigns the property as beneficial owner, an implied covenant that the premiums and government rent have been paid will be incorporated into the assignment. The buyer, therefore, has a contractual right of action against the seller for damages in respect of the breach of this covenant.
In the Hong Kong legal profession, there are well established practices for making enquiries to ascertain the existence of, and resolving issues which may arise from, the abovementioned matters that may result in post-completion liabilities on the part of the buyer.
Under the Conveyancing and Property Ordinance, a person is not bound by covenants that relate to and run with the land, including those contained in the deed of mutual covenant and the land grant, after it has ceased to have an interest in the land, except in respect of breaches committed before it ceased to have an interest.
Where the seller assigns the property as beneficial owner, the Conveyancing and Property Ordinance will imply certain covenants relevant to the title into the assignment, including the covenant that the deed of mutual covenant and the land grant have been observed and performed by the seller. The seller is therefore liable for breach of the covenants in the deed of mutual covenant or the land grant with respect to matters which arose prior to the disposal of the property, as well as for breach of other express or implied covenants in the assignment.