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Monograph : Encumbrances Contents
 
  4. Interest of government
     
   
I. Government re-entry
   
 
a.

General

Certain actions by the owner of a property will invoke the right of government to re-enter the property, rendering his title defeasible. Actions which may trigger substantial government enforcement such as re-entry of the property, include:

   
 
i. Failure to obtain the necessary government consent for disposal of land which is required in the government grant;
   
ii. Failure to pay government rent;
   
iii. Breach of government lease conditions, such as those relating to user, height restrictions, repair obligations, etc;
   
iv. Failure to comply with building orders under the Buildings Ordinance (Cap. 123);
   
v. Erection and existence of illegal structures or alterations.
   
  Where land resumption orders have been issued in respect of the property, the same will be resumed by the Government or the relevant authorities. Some examples are:
   
 
i. Order to resume land for public purposes under the Land Resumption Ordinance (Cap. 124). Notice of resumption will be posted at the premises and published in the gazette;
   
ii. Order to resume land which has been rendered incapable of reasonably beneficial use as a result of drainage works under the Land Drainage Ordinance (Cap. 446);
   
iii. Order to resume land for the purposes of and incidental to the Mass Transit Railway under the Mass Transit Railway (Land Resumption and Related Provisions) Ordinance (Cap. 276). Notice of resumption will be posted at the premises and published in the gazette.
   
  Not every failure or breach would render the title to the property defeasible. Each case will turn on its own circumstances and the issue is whether there is a real risk of government enforcement action, the most serious of which is, of course, government re-entry. In case of doubt as to whether the property concerned will be subject to the risk of government enforcement action, the purchaser should be advised to seek legal advice before entering into any provisional agreement for sale and purchase.
   
b.

Building orders

Remedial/demolition/reinstatement orders may be issued to owners of a property when there are breaches of the Buildings Ordinance and regulations. These orders are encumbrances on the property and their non-compliance may lead to government re-entry. When the Building Authority or other competent authority is satisfied that an order has been complied with, a letter of compliance will be issued.

If an order concerns works relating to common areas or facilities of a building, generally, all the owners of the building will be jointly liable for complying with the order and each owner will be responsible for the costs (apportioned in accordance with the deed of mutual covenant) required to discharge the order. If an order is made against the owner of an individual unit, only the owner of such unit is liable for the cost and expenses for its discharge.

When the property concerned is subject to a building order, an estate agent should advise his clients to seek legal and if necessary other professional advice before entering into a provisional agreement for sale and purchase.

Some examples of the building orders issued under the Buildings Ordinance (Cap. 123) are:

i. s. 24 Building works in contravention of the Buildings Ordinance
ii. s. 24A Dangerous works
iii. s. 25 Change in building use
iv. s. 26 Dangerous buildings
v. s. 26A Defective buildings
vi. s. 27 Closure order
vii. s. 27A Dangerous hillside
viii. s. 28 Drainage
   
c.

Unauthorised/illegal structures

The existence of an unauthorised structure or alteration (that is, building works in contravention of the Buildings Ordinance) in or affecting property may render the title of property defective because the property is liable to re-entry by the government for breach of conditions contained in the relevant government grant. Other enforcement actions include the issue of an order requiring regularisation of such unauthorised works (which may be registered in the Land Registry against the property) and recovery of costs incurred by the Government in regularising such unauthorised works from the owner of the property.

It should be noted that even if the vendor regularises the unauthorised works before completion, the purchaser may still object on the basis of breach of contract if the unauthorised works and consequent regularisation were substantial such that the purchaser may argue that the vendor is unable to deliver what has been agreed to be sold to the purchaser under the agreement for sale and purchase (for example, the demolition of an unauthorised cockloft when the sale and purchase agreement provides for the sale of the cockloft).

As it is difficult to ascertain whether an alteration to property is illegal, it is always advisable for the purchaser, in case of doubt, to seek the advice of an authorised person.

   
d.

Vendor's liability after sale

A vendor who fails to carry out works under a building order would not necessarily be free from liability after sale. In Wah Ying Properties v Sound Cash Ltd [1994] 1 HKC 786, the assignment was registered before the certificate issued under S33(1) of the Buildings Ordinance for the cost of work incurred by the Building Authority for compliance with a certain building order issued before the sale and purchase agreement (the Building Authority had completed the works required under the building order before completion – a fact not disclosed to the purchaser). The purchaser was able to obtain a court order that the vendor was liable for the cost incurred by the Building Authority as the liability for such cost already existed at the time of completion, that is, the property was subject to such an encumbrance in breach of the vendor's covenant to give good title free from encumbrances.

   
e.

Change of user

Section 25 of the Buildings Ordinance requires an owner to seek the Building Authority's permission for any material change of user of a building after the issue of the occupation permit.

The permitted user or restrictions on the user of a property is normally found in the conditions of the government grant and the occupation permit. Sometimes, the deed of mutual covenant may also impose restrictions on the use of property. An unauthorised change in the user of the property in breach of the conditions of the government grant renders the property liable to government re-entry and the title defective.

Sometimes, there may be doubt as to whether a certain user is permitted. For example, in Raider Ltd v Secretary for Justice (FAC V000004/2000), a paging service operation was not considered industrial/factory use as no article was manufactured, altered, cleansed, repaired, ornamented, finished, adapted for sale, broken up, demolished or transformed in the process.

An estate agent should gather sufficient information on the permitted user or any restriction on the user of the property in the event that his client requires the property for any particular purposes. If in doubt as to the permissibility of the property for a particular purpose, the estate agent should advise his client to seek appropriate professional advice.

   
f.

Land (Miscellaneous Provisions) Ordinance (Cap. 28)

Under this Ordinance, any structure protruding over unleased government land is liable to be demolished.

   
II. Charging orders for payment to government
   
 
a.

General

Certain legislation enables the Government to impose charges on properties to secure the payment of monies due to it and its position is very similar to that of a creditor.

   
b.

Legal Aid Ordinance (Cap. 91)

Section 18A of the Legal Aid Ordinance enables the Director of Legal Aid to impose a first charge on the property which is recovered or preserved through legal aid proceedings. The charge may be registered in the Land Registry and the Director of Legal Aid may enforce the charge in any manner available to a chargee.

   
c.

Buildings Ordinance (Cap. 123)

Section 33(9) of the Buildings Ordinance enables the Building Authority to register a memorial of certificate of cost of work incurred by the Building Authority against the property in respect of which such cost arose which constitutes a first charge on the property for the recovery of the cost of works incurred by the Government due to the owner's failure to carry out such works.

   
d.

Estate Duty Ordinance (Cap. 111)

Section 18(1) of the Estate Duty Ordinance enables the Commissioner of Estate Duty to impose a first charge on the property in respect of which estate duty is leviable for a ratable part of the estate duty on an estate in proportion to the value of the property provided that the property shall not be chargeable as against a bona fide purchaser thereof for valuable consideration without notice. A notice in writing of the charge may be registered in the Land Registry as an instrument affecting land. (Note: In respect of any person dying on or after 11 February 2006, no estate duty is payable.)

   
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