Property & Conveyancing

Purchasing a property commences with execution of a provisional or formal agreement for sale and purchase of the property by the parties, followed with title investigation by the purchaser’s solicitors via perusing title deeds of the property and raising requisitions on title, vendor’s solicitors will then answer or resolve those requisitions. Once title investigation is completed and satisfied, parties may proceed to completion of the transaction by executing assignment and other documents ancillary thereto. The purchaser will become the legal owner of the property and obtain a direct ownership and control over the property.

For purchasing shares of a company that owns the property, the purchaser becomes a shareholder in that company rather than the direct owner of the property. The purchaser acquires not only the company shares and the company’s assets but also the company’s liabilities (if any). Apart from investigating the title of the property, the purchaser will conduct a thorough due diligence exercise on the company. Professionals, apart from real estate agents and lawyers, financial experts or tax experts would also be engaged to verify the accounts and the overall financial health of the company.

The current stamp duty for transferring shares chargeable on the bought and sold notes is 0.2% of the higher of consideration and net asset value of the shares which is of much lower percentage rate than that for the direct purchase of a Hong Kong property.

1. Joint tenancy

Each co-owner is simultaneously entitled to possession of the whole property. No joint tenant is entitled to exclusive possession of any specific part of the property.

As all the joint tenants together are deemed to constitute one sole owner, the right of survivorship operates between them. When one joint tenant dies, the deceased joint tenant’s interest will automatically pass to the surviving joint tenant(s) who will own the whole property.

2. Tenancy-in-common

For tenancy-in-common, each tenant-in-common is regarded as having a distinct “undivided share” in the property. Each tenant-in-common’s interest is usually in proportion to his/her contributions made to the purchase price of the property. The right of survivorship does not apply to a tenancy-in-common. On the death of a tenant-in-common, the deceased’s share will pass under his will or by the rules of intestacy. A tenant-in- common can sell his share of the property. No consent or agreement of other tenants-in-common is required.

Rule 5C (1) of the Hong Kong Solicitors’ Practice Rules (Cap.159H) provides that the vendor and the purchaser are required to be separately represented by solicitors.

Nevertheless, provided no conflicts of interest or significant risks of such conflict arise, joint representation is permitted in the following circumstances:-

1. sale and purchase of units or other interests in uncompleted developments which are subject to the Consent Scheme;
2. sale and purchase of units or other interests in uncompleted developments to which the Non-Consent Scheme provisions apply;
3. first-hand sale of units or other interests in completed developments;
4. sub-sale of units or other interests in the above sub-paragraphs (a), (b) or (c);
5. parties are associated parties;
6. consideration for the land does not exceed HK$1,000,000;
7. mortgage of land; and
8. leases of land.

Prior to 28 February 2024, unless otherwise exempted, transfers of both residential and non-residential properties are subject to payment of ad valorem stamp duty (“AVD”) and if applicable, payment of  Buyer’s Stamp Duty (“BSD”).  Furthermore, any residential property acquired, either by an individual or a company, and resold within certain period, may be subject to a Special Stamp Duty (“SSD”).

On 28 February 2024, the Financial Secretary proposed to amend the Stamp Duty Ordinance (Cap.117) to abolish all demand-side management measures for residential properties, namely SSD, BSD and the AVD rate of 7.5% at Part 1 of Scale 1. Unless otherwise provided, any instrument executed on 28 February 2024 or thereafter for the sale and purchase or transfer of residential property will no longer be subject to SSD and BSD.

With effect from 28 February 2024, the AVD rate of 7.5% at Part 1 of Scale 1 is to be replaced by rates that are the same as the existing AVD rates at Scale 2. The relevant amendment bill to take forward the proposals, namely the Stamp Duty (Amendment) Bill 2024 (“Bill”), will be introduced in the Legislative Council shortly. To enable property purchasers to benefit from the measures as soon as possible, the Chief Executive has also made the Public Revenue Protection (Stamp Duty) Order 2024 under the Public Revenue Protection Ordinance (Cap.120) to give full force and effect of law to the Bill before its enactment.

Subject to the eventual enactment of the Bill, any instrument executed on or after 28 February 2024 for the sale and purchase or transfer of residential properties will no longer be subject to SSD and BSD. The AVD rate of 7.5 per cent under Part 1 of Scale 1 will be amended to the same as those of AVD at Scale 2.

AVD is usually paid by the purchaser. Nevertheless, the purchaser and the vendor are jointly and severally liable to pay AVD under law, irrespective of any agreement to the contrary made between them.

Prior to 28 February 2024, AVD is payable at a flat rate under Part 1 of Scale 1 for sale and purchase or transfer of residential property. Only in certain circumstances, AVD at a lower rate (Scale 2) is applicable. Regarding the non-residential property, any instrument executed on or after 26 November 2020 for the sale and purchase or transfer will be subject to AVD at the rates under Scale 2.

On 28 February 2024, the Financial Secretary proposed to amend the Stamp Duty Ordinance (Cap.117) to abolish all demand-side management measures for residential properties. With effect from 28 February 2024, for sale and purchase of residential properties in Hong Kong, the AVD rate of 7.5% at Part 1 of Scale 1 is to be replaced by rates that are the same as the existing AVD rates at Scale 2.

The Bill to take forward the proposals will be introduced in the Legislative Council shortly. Subject to the eventual enactment of the Bill, any instrument executed on or after 28 February 2024 for the sale and purchase or transfer of residential properties will be subject to the AVD rates at Scale 2.

The common part(s) building orders may affect the property title of individual premises. According to Hu Mei Yu Anastasia v King Best Enterprise Ltd (2000) HCA 9317/1998, building order served under Section 27A of Buildings Ordinance (Cap.123) requiring investigation and repair of slope is encumbrance on property. Furthermore, Lam Mee Hing v Chiang Shu Yin (1995) 3 HKC 247 provides that notice relates to the common parts of a multi-storey building may affect the title of all the flats in the block, provided the extent of the repairing obligation is beyond the reasonable expectation of a purchaser then it would constitute an encumbrance on the property unless discharged.

Generally speaking, the property documents should be notarized and depending on which foreign country it is, they may be required to be apostilled by the appropriate authority in that foreign country, or authenticated by the Ministry of Foreign Affairs in that foreign country; and may even be required to be legalised by the Embassy or Consulate General of the People’s Republic of China located in that foreign country.

It is possible to appoint someone to handle property transactions on one’s behalf by way of granting a Power of Attorney (“POA”) to the appointee. A POA is a legal document executed as a deed that allows a person (the Donor) to appoint one or more persons (the Attorney or Attorneys) to act on the Donor’s behalf. A POA can be a general one or specific one. A POA becomes invalid upon the Donor’s revocation, Donor’s death or if the Donor loses mental capacity.

It is prudent to check with the relevant party if the POA to be given will suit the circumstances and be applicable. For example, the financier in the mortgage loan may not accept the POA for signing the loan documents.

Generally, there is no restriction on foreign ownership of Hong Kong properties. However, for certain special housing projects under the “Hong Kong Property for Hong Kong People” measure, the ownership of residential units is restricted to Hong Kong permanent residents only. Otherwise, foreigners/foreign companies/entities (collectively “foreign purchaser”) will have the same rights and obligations (including the payment of management fees, government rents and rates etc.) as Hong Kong owners in owning properties in Hong Kong.

Intended foreign purchaser is advised to consult with his local authorities for any restriction or tax implication in owning properties in Hong Kong.

For any domestic tenancy or sub-tenancy, the landlord has to submit a Form CR109 (Notice of New Letting or Renewal Agreement) to the Commissioner of the Rating and Valuation Department (the “Commissioner”) for endorsement within 1 month from the date on which the parties have entered into a new residential tenancy agreement or renewal agreement. Any late submission of Form CR109 would incur a late submission charge.

Under Section 119L(2) of the Landlord and Tenant (Consolidation) Ordinance (Cap.7), if Form CR109 is not filed or not endorsed by the Commissioner, the landlord (subject to Section 51A(6) of the said Ordinance) shall not be entitled to maintain an action to recover the rent under the relevant tenancy agreement. However, it only prevents recovery of rent and not damages, such as loss of rent.

Unless a landlord expressly permits the outstanding rent to be set-off against the security deposit, a tenant should not presume the option of set-off any payments against the security deposit. The intention to set-off should be communicated to the landlord and seek the landlord’s approval before doing so.

Security deposit is not merely a security for due payment of rents. It is a deposit to secure the due performance of all terms and provisions of the tenancy. Accordingly, in case of breach by the tenant, the forfeited deposit serves to cover unpaid rent or mesne profits until delivery of vacant possession, loss of rent if the premises have been left vacant for some time and the diminution in rent if the new tenancy attracts a lower rental. It represents the parties’ pre-estimate of the landlord’s damages in case of the tenant’s breach.

In addition, tenant should also be aware of any forfeiture clause in the tenancy agreement which allows a landlord to forfeit the deposit for breaches by the tenant (i.e. non-payment of rent). And if the tenancy agreement does not require a landlord to give credit for the deposit in respect of damages, the landlord is allowed to forfeit the deposit absolutely even it is on top of the damages claimed.