CITY UNIVERSITY OF HONG KONG

School of Law

LW3607A Land Law I

Semester A, 2012/13

Topic 13 – Government Leases and Conditions

Part 1 - Introduction
Virtually 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 over
the way in which land is developed and used through covenants imposed on the
grantee in the Lease.

The Hong Kong Reunification Ordinance

This came into effect on 1 July 1997.

Under this Ordinance, the term “Crown” becomes “Government”. The Crown Lease
becomes 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 the
HKSAR 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 the

Demarcation of Land
Under the Land Survey Ordinance 1995 (Cap 473), a plan must be drawn up by an
authorised land surveyor whenever the land is divided by way of sectioning or
subdivision. The plan must be registered and a copy deposited with the Land Survey
Authority.

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

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Demarcation District in which it is situate.

The Land Registry Headquarters are located in Queensway Government Office and
there are now 7 New Territories Search Offices.

All registries are computerised. The Integrated Registration Information System

Online 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 Land

Most of the sectioning of land in Hong Kong is achieved by Deed Polls. However, the
naming of the smaller plots of land can be confusing at times. The manner of
nomenclature of Hong Kong land in the event of sectioning or division thereof can be
illustrated by the following example.

Say X has a plot of land registered as Inland Lot No. 1234. If X wants to divide the
land into two portions, X may execute a Deed Poll and by virtue thereof divide it into
Section 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. 1234

A plan is usually attached to the Deed Poll to show exactly which portion of Inland
Lot No. 1234 is now Section A thereof and which portion is now the Remaining
Portion thereof.

(Of course, X may want to divide the land into more than 2 portions from the start. If
that is the case, X may divide the land into Section A, Section B and the Remaining
Portion. 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

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Alternatively, X may first divide Inland Lot No. 1234 into Section A and the
Remaining Portion by virtue of one Deed Poll, then carve out Section B of Inland Lot
No. 1234 and further portions out of the Remaining Portion of Inland Lot No. 1234
later by virtue of another Deed Poll.)

After X has, by virtue of a Deed Poll, divided the Lot into Section A and the
Remaining Portion, X may then wish to divide Section A of Inland Lot No. 1234 into
even smaller plots of land.

By virtue of another Deed Poll , Section A can be divided into Subsection 1 of Section
A of Inland Lot No. 1234, subsection 2 of Section A of Inland Lot No. 1234 and the
Remaining 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. 1234

If X then wants to further divide the Remaining Portion of Inland Lot No. 1234, X
may at any time execute yet another Deed Poll, carving out portions therefrom to be
known as Sections B, C and D of Inland Lot No. 1234 (and NOT Section A of the
Remaining Portion, Section B of the Remaining Portion and the Remaining Portion of
the Remaining Portion). The Remaining Portion of Inland Lot No. 1234 shrinks in size
as 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. 1234

Consider the following questions:-

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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. 1234

3. 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 always
advisable 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 the

apportionment will appear in the Land Register.

See the reference to ‘apportioned Government rent’ in the Assignment in Form 1 of

the Third Schedule to the CPO.

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(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.

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 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.

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(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

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Central and on the Peak).

At the end of the 1800s, some leases were granted for 75 or 99 years but building land
has since then usually been granted for a term of 75 years with a right to renew for a
further period of 75 years.

These leases are renewed automatically by the Government Leases Ordinance (Cap
40).

The Basic Law provides that a grant may be made for a term of 50 years from the date
of the grant.

New Territories

The 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-year
terms from 1st July 1898 with rights to renew for further terms of 24 years less the last
3 days.

These leases were automatically renewed by the New Territories (Renewable

Government 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 the

Joint Declaration)

Article 120 - Leases granted before the establishment of the Hong Kong
SAR, but expiring after 1997

These leases are recognised.

These include leases granted before and after the Joint Declaration but in relation to
leases granted between the Joint Declaration and 30 June 1997, the term will expire no
later than 30 June 2047.

For these leases, the government rent is nominal up to 30 June 1997 and will become
3% per annum of the rateable value from time to time thereafter.

Renewable Government Leases (those containing rights to renew on

expiry of the initial term) expiring before or after 1997

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These leases are automatically renewed by the Government Leases Ordinance for the
stipulated period of renewal in the Government Lease.

The renewal is at an annual rental of 3% of the rateable value at the date of renewal
and not as adjusted from time to time.

Registration in the Land Registry of the new Government rent is conclusive evidence
of the grant of the new lease: section 12 of the Government Leases Ordinance.

Article 121 - Non-renewable Government Leases expiring before 1997

These leases are extended without payment of a premium until 30 June 2047 at an
annual rental of 3% of the rateable value as adjusted from time to time (the rent remains
unchanged for indigenous New Territories villagers).

Since all leases in the New Territories were due to expire in 1997, they were all
automatically extended by the New Territories Leases (Extension) Ordinance (Cap
150) until 30 June 2047 unless the lessee opts otherwise. This Ordinance does not
apply to certain leases for special purposes.

Article 123 - The grant of new Government Leases

New Government Leases must be dealt with in accordance with the policy of the
HKSAR.

The Hong Kong Government has indicated that it will grant new leases for a period of
50 years from the date of the grant (that is, they can expire beyond 2047) at an annual
rent of 3% of the rateable value of the property as adjusted from time to time.
Part 6 - The Terms of Government Leases and
Conditions
They 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.

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 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

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 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?

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 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.

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(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

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 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 with
any 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 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.

(2) 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.

(3) 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 and 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

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Ordinance (Cap 128) relating to the land of a note to the effect that those conditions have
been complied with.

(4) Where a person has a right to a Government lease of any land and that right is not
subject to any conditions precedent-

(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 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.

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