Chapter 1 Tenures, Estates, Land and Property

Land Law in Hong Kong

Land Law in Hong Kong > Land Law in Hong Kong 5th Edition

CHAPTER 1 Tenures, Estates, Land and Property

[1-1]

Land law in Hong Kong is rather unique largely due to its history and colonial heritage. It is unique because it has a
system of land holding which is fundamentally different from its motherland, the People’s Republic of China. While it
inherits many aspects of English land law from its former colonial master, many developments and changes in
England have not reached the shores of Hong Kong, as will become apparent from the rest of this book. At the
same time, certain Chinese customary laws that existed before Hong Kong became a British colony continue to be
relevant in the New Territories. Further, there are special local features created over the years in the administration
and management of land ownership, such as the use of co-ownership and the Deed of Mutual Covenant as well as
the Incorporation of Owners and Management Committee to regulate ownership in multi-storey buildings, instead of
the commonhold system in England and strata titles in Australia, New Zealand, Malaysia and Singapore. The small
house policy is another special feature in Hong Kong, as well as the deeds registration system which will likely be
replaced by a title registration system in the future.

[1-2]

As is well known, Hong Kong Island, Kowloon, and the New Territories and the other surrounding islands,1 which
now make up the Hong Kong Special Administrative Region of the People’s Republic of China (hereinafter
‘HKSAR’), came under British administration at different times from 1841.2 Hong Kong Island was ceded in
perpetuity to Britain in 1841, and the lower Kowloon Peninsula south of Boundary Street in 1860. The New
Territories (with the exception of the walled Kowloon City) was granted to Britain in 1898 for a period of 99 years
which expired on 30 June 1997.

[1-3]

The British formally occupied the island of Hong Kong on 26 January 1841 under the unratified Treaty of Chuenpi.
(The island was not formally ceded until 29 August 1842 when the Treaty of Nanking was signed which was ratified
on 26 June 1843). Three days later, Captain Charles Elliot, Chief Superintendent of Trade and Plenipotentiary,
issued a proclamation (but was dated 2 February) stating, inter alia, that all British subjects and foreigners in Hong
Kong were to enjoy full security and protection according to the principles and practice of ‘British law’. This
proclamation provided the basis of the application of English law in Hong Kong until 5 April 1843, at which point the
colony of Hong Kong and its first local legislature were formally established under the Charter of the Colony of Hong
Kong, and the Supreme Court Ordinance 1844 (No 15 of 1844) was passed for the wholesale reception of English
law.3

[1-4]
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Chapter 1 Tenures, Estates, Land and Property

On the cession of lower Kowloon by the first Convention of Peking in 1860, an Order in Council, dated 4 February
1861, was issued to incorporate Kowloon into the colony of Hong Kong and apply to it all laws and Ordinances in
force in Hong Kong from 28 March 1861. A similar process occurred when the New Territories were leased under
the second Convention of Peking, although some laws considered inappropriate were exempted. This went on until
1966 when the Application of English Law Ordinance (Cap 88) was enacted to provide for the continued application
of English common law and equity. As regards imperial legislation, it was thought that the task of identifying the
laws of England in 1843 had become a tedious and prolonged exercise and the simplification of it was desirable.
Thus, under section 4 of the Application of English Law Ordinance, only Acts of Parliament specified in the
Schedule (which contained only pre-1843 Acts, eg, the Prescription Act 1832 (UK)) to the Ordinance were to apply
in Hong Kong.4 With the return of sovereignty to China and the establishment of the HKSAR, the continued
application of common law and equity is guaranteed by Article 8 of the Basic Law which provides that:

The laws previously in force in Hong Kong, that is, the common law, rules of equity, ordinances, subordinate legislation and
customary law shall be maintained, except for any that contravene this Law, and subject to any amendment by the
legislature of the Hong Kong Special Administrative Region.

[1-5]

Section 7 of the Hong Kong Reunification Ordinance (Instrument A601) (originally No 110 of 1997) also provides in
similar terms:

The laws previously in force in Hong Kong, that is the common law, rules of equity, Ordinances, subsidiary legislation and
customary law, which have been adopted as the laws of the HKSAR, shall continue to apply.

[1-6]

Pre-1843 Acts of Parliament, however, cease to apply under the Basic Law and the Hong Kong Reunification
Ordinance. Indeed the Application of English Law Ordinance was declared to be in contravention of the Basic Law
and was not adopted as part of the law of the HKSAR by the Standing Committee of the National People’s
Congress on 23 February 1997.5 Thus, all pre-1843 Acts of Parliament no longer form part of Hong Kong law.
Common law and equity however continue to apply. Note that there is no cut-off date for the application of common
law and equity. Therefore, English cases relating to land law, as part of the common law and equity, will continue to
be relevant in the HKSAR, and are heavily referred to throughout this book.

[1-7]

In addition to applicable English law, Hong Kong Ordinances and decisions by Hong Kong courts represent the
major source of local law which of course prevail over any contradicting applicable English law. As pre-cessional
law, Chinese law and custom remain relevant according to constitutional principles where English common law and
equity are unsuitable and there is no local Ordinance to deal with the issue.6They are given continued recognition
under the Basic Law and the Hong Kong Reunification Ordinance, although in practice their application must be
extremely rare and limited. There are also specific legislative provisions which provide for the application of Chinese
law and custom in certain areas, for example, section 13 of the New Territories Ordinance (Cap 97) provides that in
any proceedings in the High Court or the District Court in relation to land in the New Territories, the court shall have
power to recognise and enforce any Chinese custom (not law) or customary right affecting such land. Thus, in the
New Territories, land not exempted from Part II of the New Territories Ordinance can be partly governed by
Chinese custom such as the Chinese customary institution.7
1. TENURE
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Chapter 1 Tenures, Estates, Land and Property

[1-8]

English common law does not recognise absolute ownership. The theory was that all land in England ‘must be held
of the King of England, otherwise he would not be the King of all England’.8 Similarly, when Hong Kong Island was
ceded to the British Crown, all land on the island was held of the Crown. Individuals were only granted the right to
use land in return for some services or payments. In England, the use of land was given to the Crown’s subjects in
return for various services under the feudal system. Thus, there were various types of freehold tenure indicating the
different nature of rights and obligations enjoyed by individuals who held land of the Crown. These various tenures
were gradually abolished and today there is only one form of freehold tenure, which is the tenure of socage which
involves some form of money payment to the Crown.

[1-9]

In the early days of the cession of Hong Kong Island, lands were sold by Captain Elliot on the basis that they would
be passed in fee simple for the sum of one or two years’ rent, or on long lease with no more than a nominal quit
rent. But it was not until 1843 that the desired land tenure was finally decided by a committee in favour of a
leasehold tenure. This has since been the policy, which was applied to Kowloon and the New Territories9 as they
were added to the colony. Therefore, the only tenure in Hong Kong was leasehold tenure (except the ground on
which St John’s Cathedral stands which was granted in fee simple).

[1-10]

The concept of tenure continues to apply after the return of sovereignty over Hong Kong to the People’s Republic of
China, for the lands within the HKSAR are now State property under Article 7 of the Basic Law, while the
Government of the HKSAR is responsible for their management, use and development and for their lease or grant
to individuals, legal persons or organisations for use or development. Any references in any statutory provision to
Her Majesty, the Crown, the British Government or the Secretary of State where the content of the provision relates
to title to land in the HKSAR, must be construed as a reference to the Central People’s Government or other
competent authorities of the People’s Republic of China.10 However, subject to the Basic Law, all property, rights
and liabilities vested in or belonging to the Crown (ie, the Crown in right of the Government of Hong Kong) or the
Government of Hong Kong before 1 July 1997, are vested in or transferred to the Government of the HKSAR on
and from 1 July 1997.11 Thus, all land in HKSAR is now held of the People’s Republic of China on the same tenure
as before the change of sovereignty.12
2. ESTATES

[1-11]

While the concept of tenure explains the terms upon which the rights to use Crown land are given, the concept of
estate explains the duration of such rights. ‘The Land itself is one thing, and the estate in the land is another thing,
for an estate in the land is a time in the land, or land for a time, and there are diversities of estates, which are no
more than diversities of times’.13 In England, there are freehold and leasehold estates. There were previously three
types of freehold estates, viz fee simple estate, fee tail estate and life estate. A fee simple estate is the largest
estate that an individual can own. ‘Fee’ indicates an inheritable estate, and ‘simple’ indicates that the fee is an
ordinary fee as opposed to fee tail. A fee simple estate is an estate which can last for as long as the owner for the
time being or his heir survives. It can be disposed of inter vivos or by will. A fee tail estate (or entailed interest) is
more limited and only lasts for as long as the original grantee or his lineal descendants survive. In England, this
could not be created at law since 1 January 1926,14 and since 1 January 1997, it is no longer possible to create an
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Chapter 1 Tenures, Estates, Land and Property

entailed interest at all.15 A life estate is an estate that lasts for as long as the original grantee is alive. None of these
freehold estates were ever granted in Hong Kong, except the conditional fee simple to St John’s Cathedral and the
fee simple granted to the University of Hong Kong which was later exchanged for a long lease of 999 years. Only
the leasehold estate exists in Hong Kong and is an estate which lasts for a term of years. This is explained in detail
in Chapters 9 and 10 below.

[1-12]

In Hong Kong Island, only leases for a term of 75 years for building land and 21 years for other land were initially
granted. Later, from 1848, the Crown authorised the extension of existing leases to 999 years. Like Hong Kong
Island, when lower Kowloon Peninsula was ceded in perpetuity in 1860, Chinese land owners who were in
possession of the land were granted leases for 999 years. But otherwise, in both territories, the grant of a lease for
75 years with a further renewal for the same term was the norm. As the New Territories was granted to the British in
1898 for 99 years, from 1 July 1898, the Crown could only grant leases for a shorter period, usually for a period of
75 years with an option to renew for a further 24 years, less three days. The rights of the indigenous owners in the
New Territories who held the land from the Chinese Emperor in return for the payment of land taxes were also
replaced with such leases.16

[1-13]

Under the terms of the Joint Declaration between the British Government and the Government of the People’s
Republic of China in 1984, by which the British returned its freehold tenure in Hong Kong Island and Kowloon, and
handed over the New Territories upon the expiry of the 99 year lease to China on 30 June 1997, all Crown leases
including rights of renewal extending beyond 1997 were allowed to continue. Crown leases in the New Territories,
which expired before 30 June 1997, were extended for a further 50 years until 30 June 2047.17 Crown leases in
Hong Kong and Kowloon, which expired before 30 June 1997 without an option to renew, could be renewed if the
Crown agreed. For unleased Crown land, the Crown was allowed to grant leases to expire on or before 30 June
2047. The guarantee in the Joint Declaration for the continuation of leases granted or renewed before the handover
is also enshrined in the Basic Law in similar terms:

The Basic Law of Hong Kong

Article 120

All leases of land granted, decided upon or renewed before the establishment of the Hong Kong Special Administrative Region
which extend beyond 30 June 1997, and all rights in relation to such leases, shall continue to be recognised and protected under
the law of the Region.

Article 121

As regards all leases of land granted or renewed where the original leases contain no right of renewal, during the period from 27
May 1985 to 30 June 1997, which extend beyond 30 June 1997 and expire not later than 30 June 2047, the lessee is not
required to pay an additional premium as from 1 July 1997, but an annual rent equivalent to 3 per cent of the rateable value of
the property at that date, adjusted in step with any changes in the rateable value thereafter, shall be charged.
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Article 122

In the case of old schedule lots, village lots, small houses and similar rural holdings, where the property was on 30 June 1984
held by, or, in the case of small houses granted after that date, where the property is granted to, a lessee descended through the
male line from a person who was in 1898 a resident of an established village in Hong Kong, the previous rent shall remain
unchanged so long as the property is held by that lessee or by one of his lawful successors in the male line.

Article 123

Where leases of land without a right of renewal expire after the establishment of the Hong Kong Special Administrative Region,
they shall be dealt with in accordance with laws and policies formulated by the Region on its own.

[1-14]

As for unleased state land, the Chief Executive may, on behalf of the Government of the HKSAR, lease or grant
land and natural resources within the HKSAR which are State property.18
2.1 Nature of estates and interests: Legal or equitable

[1-15]

Hong Kong land law is derived largely from the English law of real property as a result of the reception of English
law in Hong Kong since 1843 and therefore, shares a great deal of its features. The English law of real property is
based on a fundamental distinction between ‘legal’ and ‘equitable’ rights. The reason for this is historical. Before the
Judicature Acts of 1873 and 1875 (UK), there were two separate systems for the administration of justice: the
common law courts and the Court of Chancery. The judges in the common law courts were concerned only with
rights which could be enforced by using the appropriate writs. Although, new writs were frequently invented, many
cases were left without remedy because there were no existing writs suitable to cover the case. Those rights
recognised and enforced at common law were therefore, termed as legal. The parties who were denied legal
remedy then petitioned to the King who then heard the petitions with his Council, of which the Chancellor in the
Court of Chancery was an important member. Later, petitions were addressed to the Chancellor who, acting
independently of the King’s Council, made decrees and administered a system of justice called equity. The Court of
Chancery would give the claimant the appropriate remedy and deny the other his strict legal rights if he was guilty of
unconscionable conduct. The rights recognised by the Court of Chancery were therefore, termed equitable rights.
The Court of Chancery became a court of equity or conscience. The decrees of the Chancellor frequently conflicted
with those of the common law judges. After the Earl of Oxford’s Case,19 it became settled that where there was a
conflict between the rules of law and those of equity, the rules of equity should prevail. This was preserved in
England by the Judicature Act 1873 (UK), section 25(1) (now the Supreme Court Act 1981 (UK), section 49(1)).

[1-16]
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Thus, legal and equitable rights were basically rights enforced by separate courts. To put an end to multiplicity of
proceedings, particularly where both legal and equitable rights arose in the same case, under the Judicature Act
1873 (UK), the courts of law and equity were fused into one Supreme Court, divided into a High Court and a Court
of Appeal. All parts of the Supreme Court were given full power to administer both common law and equitable rights
and remedies. However, the rules of law and equity remain distinct and the distinction between the two remains
significant.

[1-17]

In Hong Kong, rules of common law and equity are also administered by the Court of Appeal of the High Court
(formerly the Court of Appeal) and the Court of First Instance of the High Court (formerly the High Court). Where
there is a conflict between the two, equity prevails.20 It is therefore, also important to make a distinction between
legal and equitable rights. Indeed the Conveyancing and Property Ordinance (Cap 219) contains numerous
provisions which clearly retain the distinction. However, as will be seen, the significance of the distinction is to a
large extent weakened by the Land Registration Ordinance (Cap 128) in most cases where the rights are created
by a registrable instrument insofar as the enforcement of such rights against a third party is concerned. But there
are cases where the Ordinance is inapplicable, eg, where the rights are not created by a registrable instrument, and
the fate of the parties involved still depends on the common law rules which place enormous importance on the
distinction. Furthermore, as will be seen,21 there are some differences in the enforcement of leasehold covenants in
legal and equitable leases and the rights of legal and equitable mortgagees.
2.1.1 Legal estate

[1-18]

Legal estate is defined in section 2 of the Conveyancing and Property Ordinance.

Conveyancing and Property Ordinance

2. Interpretation

In this Ordinance, unless the context otherwise requires —

‘legal estate’ means —

(a) a term of years absolute in land;

(b) the legal interest in any easement, right or privilege in or over land for an interest equivalent to a term of years absolute;
and

(c) a legal charge.

[1-19]
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Thus, it is clear that leasehold estates are capable of being legal estates. (As will be seen, whether they are legal or
not depends on whether they are created according to the requisite formality).22 Easements and other rights in land,
such as the right of re-entry for a fixed period and mortgages or charges, can also be legal estates. However, there
is a gap in the above definition as it does not include a freehold interest. Neither is a freehold interest equitable as
the definition of ‘equitable interest’ expressly excludes it. In contrast, in England, it is provided in section 1(1) of the
Law of Property Act 1925 (UK) that an estate in fee simple absolute in possession (ie, a freehold interest) is
capable of subsisting or being conveyed or created at law. The exclusion of fee simple from the above definition is
due to the colonial and SAR governments’ policy not to grant freehold land. However, what is the nature of the
conditional fee simple granted to St John’s Cathedral? It would appear to be legal as such a fee simple was legal in
those days at common law as long as it was granted by deed, and the interest was later vested in the incorporated
Church Body by the Saint John’s Cathedral Church Ordinance (1899) and the trustees by the Church of England
Trust Ordinance in fee simple.23
(a) Term of years absolute

[1-20]

A term of years is essentially an estate granted for a fixed duration. A ‘term of years’ is defined as including ‘a term
for less than a year, or for a year or years and a fraction of a year and from year to year’.24 Therefore, any term for
any fixed and certain duration is a ‘term of years’, eg, a term of 99 years, or a yearly or monthly tenancy which has
a minimum duration of a year or a month respectively. As will be seen, it is not clear if the word ‘absolute’ bears any
meaning here.

[1-21]

As will be seen, in England, leases originally grew outside the feudal system25 and no ‘real’ action could be taken
for the recovery of a leasehold interest, which was not recognised as a legal estate until 1499. Therefore, it was,
and still is, classified as personalty. Leases will be dealt with in greater detail in Chapters 9 and 10.
(b) Easements, rights and privilege

[1-22]

These are rights to use someone else’s land, eg the right of way over the neighbouring land, a right to take the
natural produce of a stranger’s land, etc. In order for the right to be a legal interest, apart from the fact that it must
be created by deed or by statute, it must also be created for a period equivalent to a term of years absolute, ie, for a
fixed period. Thus, if A is granted (by deed) an easement for a fixed term, his easement is legal. On the other hand,
if he is granted an easement for as long as he lives, then his easement must necessarily be equitable because it is
not granted for a period of time equivalent to a term of years. The fact that the easement for life is granted by deed
does not alter its equitable nature.
(c) Legal charge

[1-23]

A legal charge is defined as ‘a mortgage expressed to be a legal charge’.26 This is the only way in which a legal
mortgage can be created after 1984.27 A mortgage is a form of security granted by the owner of land in favour of the
mortgagee (usually one of the lending institutions) in return for a loan advanced by the mortgagee. It is a security
for the loan in that if the mortgagor is not able to repay the loan, the mortgagee can take possession and receive
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any income from the land or sell the land to satisfy the debts. This form of security is legal if it is also granted by
deed.
2.1.2 Equitable interest

[1-24]

Equitable interest is also defined in section 2 of the Conveyancing and Property Ordinance.

Conveyancing and Property Ordinance

2. Interpretation

In this Ordinance, unless the context otherwise requires —

‘equitable interest’ means any estate, interest or charge in or over land which is not a legal estate or a freehold.

[1-25]

Thus, an equitable interest is an interest which is not legal; ie, an interest that does not fall within the definition of
‘legal estate’. An obvious example is an interest behind a trust. Historically, in England, trusts were not recognised
by common law. Therefore, if land was conveyed to A on trust for B, A would be regarded by the common law
courts as the owner and B would not be regarded as having any right in the land. But the Chancellor in the Court of
Chancery would enforce trusts, as it would be against A’s conscience for him to deny B’s true ownership. Thus,
equity treats A as the legal owner while B the equitable owner. A was required to hold the legal estate on trust for B,
who enjoyed the beneficial interest in the land. This continues to be the case in England and Hong Kong, as rules of
equity are part of Hong Kong law.

[1-26]

There are also three new interests created in equity which have no common law equivalents: estate contracts,28
restrictive covenants29 and the mortgagor’s equity of redemption.30 These are treated as proprietary rights31 by
equity. Other equitable interests are equitable charges, equitable liens and licences by estoppel.32 It should be
noted that equity also enforces certain rights which fall short of an equitable proprietary interest in land. These are
sometimes termed as ‘mere equities’. Examples of mere equities are the right of a party to a deed to have the deed
set aside on grounds of fraud,33 misrepresentation34 or undue influence,35 and the right to have a document rectified
for mutual mistake.36
2.2 Difference between legal and equitable interests

[1-27]
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As mentioned above, the distinction between legal and equitable interests is fundamental in English and Hong
Kong land law. Where there is a transfer of land, whether the rights or interests in the land should bind a
subsequent purchaser becomes an important issue. As will be seen,37 the extent to which a right or interest in land
is enforceable upon a transfer against a purchaser depends on whether the right or interest in question is created
by an instrument, and if it is, whether it is registered with the Land Registry. If the right is not created by an
instrument, or if it is created by an instrument but unregistered and the third party is a donee, then it depends on
whether the right is legal or equitable. This will be examined in detail in Chapter 7.
3. LAND

[1-28]

This book is about land law, that is the body of law relating to the ownership, transfer, use and other disposition of
land and the enforcement of those rights. The question inevitably arises as to what is land. It is defined in various
places38 in similar terms including section 2 of the Conveyancing and Property Ordinance.

Conveyancing and Property Ordinance

2. Interpretation

In this Ordinance, unless the context otherwise requires—

‘land’ includes—

(a) land covered by water;

(b) any estate, right, interest or easement in or over any land;

(bb the whole or part of an undivided share in land and any estate, right, interest or easement in or over the whole or part of
) an undivided share in land; and

(c) things attached to land or permanently fastened to anything attached to land.

[1-29]

The definition is not exhaustive as it ‘includes’ the things defined therein. Paragraphs (b) and (bb) describe the
intangible things included as ‘land’, ie, rights over land which have no physical existence and exist ‘only in
contemplation’.39 This includes any estate in or over land. Thus, a leasehold estate is regarded as ‘land’ for the
purpose of the Conveyancing and Property Ordinance. Paragraphs (a) and (c) describe the tangible things included
as ‘land’, ie, land covered by water and things attached to land.40 It still leaves the question as to what land is.
According to the Concise Oxford Dictionary,41 land is ‘the solid part of the earth’s surface’. Thus, the solid part of the
earth’s surface, whether covered by water or not, and things that are attached to such surface (also known as
fixtures), and any estate, right, interest and easement over such surface or such things attached to it, are ‘land’.