THE DEPARTMENT OF LAW

LAND LAW III

LECTURE Nos 3 and 4

DEEDS OF MUTUAL COVENANT AND BUILDING MANAGEMENT

To be delivered on 10th and 17th February 2017

Reading: Sihombing and Wilkinson `Students Guide to Hong Kong Conveyancing',

Ch 4, Co-ownership of Multi-Storey Buildings.
For reference: Merry Building Management in Hong Kong (3rd ed), Chs 2, 4 and 6.

PURPOSE OF DMCs

One of the special features of Hong Kong's conveyancing system is the manner in which buildings in
multiple ownership are held and managed. The deed of mutual covenant, or DMC, plays a vital role in
the system.

In short, the DMC for a building or development:

(1) records the division of the land and buildings into shares and allocates units within the
buildings to those shares;
(2) governs the relationship between the owners of those units and shares; and
(3) provides for the management of the buildings.

CREATION & SALE OF UNITS IN A MULTI-STOREY BUILDING

To understand the role of a DMC better, consider the stages involved in the ownership of new flats in
multi-storey buildings:

(1) The developer purchases a plot of land on which to build, either from the Government under a
Government lease or from a previous owner; the developer then constructs a block or blocks of
flats on the land.

(2) The developer usually wishes to sell the flats whilst they are in course of
construction in order to finance the project. To do so, the developer will almost
invariably require government consent. The government has a detailed set of
rules which must be followed if consent to pre-sell is to be given (the Consent
Scheme). These rules include division of the land into shares, pairing of those
shares with units and preparation of a DMC with approved clauses.

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(3)The whole land and building must be notionally divided by the developer as owner into a number
of undivided shares reflecting the units intended to be created within the block(s) of flats. Each flat or
other unit (eg, parking space) will be allocated to a number of undivided shares.

Example 1: A block with 20 flats and 20 car parking spaces is divided into 620 shares, representing 30 in respect of
each flat and one in respect of each car parking space.
Example 2: An estate of 44 garden houses of 3 types and 66 parking spaces is divided into 1122 shares; each of 3
Type A large houses has 35 shares; each of 13 medium Type B houses has 25 shares; each of 28 Type C smaller
houses has 20 shares; the 66 parking spaces each has 2 shares.

It is not necessary for the number of shares allocated to each flat to be equal; so, if there are
large penthouse flats, more shares might be allocated to these flats than to the lower smaller
flats. Duplexes can be given more shares than single-level flats.

In the past it was not the practice for developers to allocate common parts of the building(s) to
shares but since 1999 allocations of shares in DMCs have included common parts.

(4) The developer enters into a sale and purchase agreement to sell one of the flats together with a
specified parking space to a purchaser (`the first purchaser'). Later, once the buildings have been
completed, that property is assigned to the first purchaser. By the assignment the first purchaser
receives undivided shares of and in the land and buildings (not in the flat), together with the right
to exclusive use and occupation of the flat and parking space.

In the assignment the developer/vendor reserves for himself and his successors the exclusive
right to occupy the rest of the building (other than the common parts) to the exclusion of the first
purchaser.

(5) The developer and the first purchaser will then execute, at the same time as the assignment of the
property, the DMC in respect of the whole development. The management company, which may
be an associate of the developer, may also be a party to the DMC.

(6) The assignment and DMC will then be registered. Failure to register might render the covenants
in the DMC unenforceable by and against successors in title of the parties.

(7) Thereafter the developer will assign the remaining flats to other purchasers. Each assignment
should be expressly made `together with the benefit of and subject to the burdens and obligations
set out in the deed of mutual covenant', which will now have a memorial number by which it can
be identified. These assignments will be registered.

(8) If the first purchaser - or any other purchaser for that matter - subsequently assigns his flat, he
will assign it together with and subject to the benefit and burdens provided for in the DMC,
thereby expressly assigning the benefits and burdens of the covenants in the deed. The purpose
of this clause in the assignment is to ensure that both the benefits and burdens in the DMC are
binding upon successors in title of the covenantor and covenantee.

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SHARES IN LAND

The landed or proprietary interest of the owner of a flat or unit is in the shares in the land, not in the
unit within the building which is attached to those shares.

By virtue of the shares assigned to him, the owner becomes a joint owner of the whole of the land and
buildings. In consequence he has the theoretical right to use and enjoy the whole of the land and
buildings in common with all the other owners of shares.

The shares are notional and undivided: there is no physical division of the land into parts or shares.
The shares are in and of the whole of the land.

NATURE OF OWNERSHIP OF UNITS IN MULTI-STOREY BUILDING

(1) Tenancy in common with the other co-owners

As we have seen, each owner will receive a number of undivided shares in the land and building,
and each co-owner and his successor in title becomes a co-owner with the other owners. The
meaning and effect of `undivided shares is explained in Building Management in Hong Kong
(3rd ed, p. 17) as follows:

The term `undivided refers to the fact that the property in which the shares subsist, that is
the whole of the land and buildings erected on the land, has not been physically divided up
and distributed amongst the co-owners. This reflects the essential characteristic of a
tenancy in common, the `unity of possession. Unity of possession means that each co-
owner has the right to possession of the land and buildings erected on the land in common
with all other owners. There is no separate ownership of the land, building or units. Each
co-owner is entitled to possess the whole of the property comprised in the development. No
single co-owner has the right to point to any part of the land and say to the other co-owners
`This is mine, you have no right to enjoy it.

The nature of the co-ownership is, therefore, a tenancy in common with the other co-owners,
who will include the developer until the latter has disposed of all the flats and other parts and all
shares and hence all its interest in the building.

The tenancy in common is a legal interest which can be assigned and mortgaged. The principle
of jus accrescendi - the right of survivorship - applies only to joint tenants and does not apply to
tenants in common. The relationship between co-owners is not one of trust or fiduciary: Tang
Tak Sum v Tang Kai Fong [2015] 1 HKLRD 286, CA.

The co-owner will hold his interest subject to the terms of the DMC and Government
lease/Conditions.

The number of shares each co-owner holds will normally determine his responsibility for
contributing towards the Government rent and management charges.

(2) Exclusive use of unit

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 The right to the exclusive use of a particular unit or units (eg, a flat and parking space) is
achieved by the terms of the DMC. The right to use the whole of the building which is inherent
in tenancy in common is modified by operation of covenants contained in the DMC. These
covenants are underpinned by rules in the Conveyancing and Property Ordinance (CPO) which
makes them enforceable by and against successors-in-title (more later).

In the DMC each owner will covenant that the other owners will have the right to exclusive use,
occupation and enjoyment of the part of the building to which his shares relate as set out in the
DMC. Consequently, each co-owner receives not only a number of undivided shares in the
building, but also is granted in the DMC the right to exclusive use of a specified floor, flat, shop,
office, workshop, roof, parking space, etc.

The right of exclusive use of a unit is not an interest in land but an incident of ownership of
shares in the land and is the product of the mutual covenants in the DMC. The relevant
covenants amount to an undertaking by every owner not to exercise the rights of occupation and
enjoyment over other units which he would otherwise be able to do as co-owner. See on this the
CFA in Jumbo King Ltd v Faithful Properties Ltd (1999) 2 HKCFAR 279 at 290, [1999] 4 HKC
707 at 725; and in Kung Ming Tak Tong Co Ltd v Park Solid Enterprises Ltd [2008] 6 HKC 42 at
52.

(3) Common parts

Depending upon the definition in each DMC, common parts may include areas such as lobbies,
passages, stairs, landings, access roads, loading bays, management office, external walls, roofs
and facilities such as lifts, pipes, drains, public toilets, refuse collection points, plant rooms,
gardens and recreational complexes. Modern DMCs contain a plan of the common parts.

Section 2 and sch 1 of the Building Management Ordinance, Cap 344, (BMO) provide that the
whole building including external walls and other listed features are common parts unless
specifically designated as being for the exclusive use of an owner in a registered document (eg,
DMC). So, in Snowland Ltd v Topland Holdings Ltd [2006] 4 HKC 188 unauthorised structures
which had been constructed on an outside wall were held to be on a common part of the building
since the DMC had not specifically delineated the external walls as being within the exclusive
occupation or enjoyment by any particular owner.

Nevertheless, whether a particular part is for common use is a question of intention involving
interpretation of the DMC in context of circumstances at time of deed: Jumbo King; Leung Po
Kwan v Tung Kam Sheung [2011] 3 HKC 84, CA (YY Mansion). Consequently difficult or
surprising instances are constantly encountered, eg:
- The inside of a roof parapet wall, common part: Kau Ching Wing v Main Shine
Development [2011] 2 HKC 1, CA
- Door in internal wall present from outset, not common part: Wong Kwan Yee v IO of
Diamond Mansion [2012] 2 HKC 134, CA
- Part of a car parking space covered by a wall, common part: Leung Po Kwan, above
- Waterproof membrane within floor slab of roof, common part despite roof in private
ownership: Wing Ming Garment Factory Ltd v IO of Wing Ming Industrial Centre [2014] 4
HKLRD 52.

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 In the absence of an express covenant to that effect in the DMC, co-owners have an implied right
(NOT an easement) to pass along the common parts: Chiu Shu Choi v Merrilong Dyeing Works
Ltd [1990] 1 HKLR 385, CA. This was said to arise by necessary implication but it is really
inherent in tenancy-in-common. Owners right of access to common parts was confirmed by CA
in Silver Triumph Holdings Ltd v Guardian Property Management Ltd [2012] 3 HKC 391
despite wording in the DMC which appeared to give manager power to restrict access: question
of balancing rights.

A developer does not own the common parts and therefore is not entitled to use them exclusively
or assign part of them to individual owner(s): Chow Sai Ping v Chan Yam King [2013] 2
HKLRD 280 (blocking off of corridor outside flat). Nor may the developer rent out common
parts for the benefit of itself/individual owner: Jikan Development Ltd v IO of Million Fortune
Industrial Centre (2003) 6 HKCFAR 446; Tai Fat Development v IO of Gold King Industrial
Building CACV 22/2014 (parking spaces on common parts).

Individual co-owners have no right to sell or dispose of the common parts of the building -
Incorporated Owners of Chungking Mansions v Shamdasani Murli Pessumal (1993) Civ App No
199 of 1991. Nor do they have the right to place signs or other objects in the common parts:
Incorporated Owners of Golden Crown Court v Chow Shun Yung (1987) HCA No 4322 of 1986
(signs erected in entrance hall; trespass committed; injunction granted); IO of KK Mansion v
Jade Water Group Ltd (2010) DCCJ 5343/2007 (sign advertising pre-school on external wall of
building; injunction for removal); IO of Nan Fung Court v Ho Mei Tak (2010) LDBM 110/2009
(surveillance camera).

Modern DMCs contain a covenant against obstruction of common parts. In addition, s 34I BMO
implies a term that no person may convert the common parts to his own use or so use the
common parts unreasonably as to interfere with their use or enjoyment by the other co-owners,
unless such conversion is approved by a resolution of the owners' committee. In Gallium
Development Ltd v Len Tong Holdings Ltd (2004) CACV No 186/2003 one co-owner converted
part of common areas of building into a shop and installed a large vending machine in other
common parts; held, a breach of the covenant implied by s 34I.

Where a developer has reserved for himself rights in relation to the building (such as the right to
use the roof) and no shares are attached to these rights, the rights devolve upon all the co-owners
as common rights upon the dissolution of the developer or following the sale of all the
developers shares in the building: Incorporated Owners of Cheong Wang and Cheong Wai
Mansion v HKSAR [2001] 1 HKC 57; South China Amusement Co Ltd v Incorporated Owners of
Sun Hing Building (2000) LDBM No 106/2000 (developer retained use of outside walls; upon
liquidation of developer, right to use of outside walls fell into the common parts). However, in
Silver Carnival Ltd v Longbase Investments Ltd [2005] 2 HKC 681 (a case concerning summary
judgment) the CA accepted that it was arguable that such rights might pass to the assignee of the
last shares sold by the developer by operation of s 16 CPO (which creates a rebuttable
presumption that an assignment includes all rights and interests enjoyed with the land conveyed)
as rights enjoyed with those shares.

ADVERSE POSSESSION

Since a co-owner as a tenant-in-common is entitled to use the whole of the land and buildings, s/he
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may not successfully claim a possessory title by long exclusive usage of any part of the land. Any
such usage is attributable to ownership and is not adverse to other owners because they (and the
claimant as co-owner) have consented to the claimants use of the land: IO of Kwan Sen Mansion v So
Kwai Chor HCMP 134/1994 (6.6.02).

To assert adverse possession successfully, a co-owner has to oust all other co-owners entirely from
possession of the whole of the land: Tang Tak Sum v Tang Kai Fong [2015] 1 HKLRD 286, CA.

The position is different if the claimant is a stranger and therefore a trespasser. Where squatters
occupied the side lane of a building for many years, the IO was statute-barred from obtaining an order
for possession: Kam To Pui v IO of Lux Theatre Building (2000) HCA 646/1996; Wong King Lim v IO
of Peony House [2013] 4 HKC 295, CA. Similarly where non-owners had long occupied two portions
of the ground floor of a building: Yeung Mau Cheung v IO of Ka Ming Court, Castle Peak Road
[2013] 4 HKLRD 211. This is despite s 34I (1) BMO implying a term that No person may convert
any part of the common parts ... to his own use and that a person who contravenes this shall be
deemed to be in breach of DMC. The person is confined to those who are bound by the DMC.

FURTHER DIVISION OF SHARES

The developer and each assignee from the developer can further divide up its/his undivided shares
unless this is prohibited in the DMC: Kwong Ka Hung v Lai Wah Development Co Ltd (1996) HCA
No A10566/94; so can any subsequent assignee: Hinex Universal Design Consultants Co Ltd v Chan
Lai Hing [1998] 1 HKC 317. Division will be effected by deed poll.

Where a co-owner divides up his shares, for example where the owner of a floor of a building wishes
to divide up that floor into several distinct units and sell them, he must (a) draw up a new floor plan
showing new units; (b) allocate undivided shares to those new units; and (c) draw up a sub-deed of
mutual covenant, at least where new common parts (i.e. common to the new owners of the divided
floor) are to be created.

Sub-deeds of mutual covenant

The sub-DMC should, inter alia, deal with the new co-owners liability under the head DMC: eg
identify their share of management fees.

The new co-owners are liable to observe the covenants in the head DMC. In Incorporated Owners of
San Po Kong Mansion v Island Management Services Ltd [2007] 1 HKC 206 the issue was whether
the new co-owners under the sub-DMC were bound by the covenants in the head DMC; held that the
parties to the sub-DMC were jointly and severally bound to observe and perform the covenants in the
head DMC, with a corresponding right of indemnity between them if only one new co-owner were
sued on a covenant in the head DMC.

But the owners of other parts of the building and the manager of the building have no right to interfere
in matters which solely concern the property which is the subject of the sub-DMC. In Incorporated
Owners of Po Lok Building v Leung Koon [2006] 3 HKLRD 876, sole owner of 3 floors in commercial
building executed sub-DMC in respect of the 3 floors converting them into shops and sold the shops to
new co-owners; new common areas were created on the 3 floors; the sub-DMC also provided for the
appointment of a manager for the 3 floors; the owners corporation for the whole building tried to have
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this manager dismissed; held that the owner of the 3 floors had the right to draw up a sub-DMC for his
floors and its terms were valid, provided they did not conflict with the provisions in the head DMC;
the new common areas were only common parts qua the owners of the shops on the 3 floors and fell
outside the jurisdiction of the manager of the building who was responsible only for the common areas
identified in the head DMC; the owners corporation therefore had no right to interfere and could not
dismiss the manager of the 3 floors.

Sub-DMCs are also used where an estate is developed in phases, each phase being governed by its
own sub-deed as well as by the head deed for the whole estate.

CONTENTS OF TYPICAL DEED OF MUTUAL COVENANT

Express Terms
The provisions of each DMC will differ, but for developments built since 1987 there is a fair amount
of standardisation and generally DMCs contain the following:

(i) recitation of the division of the whole lot into the respective number of undivided shares,
allocating shares to each unit; the DMC might either link parking spaces to flats or keep them
separate;

(ii) specification of the apportioned share of the Government rent payable by each co-owner;

(iii) statement of the rights of the purchaser/owner of each flat; these are set out in detail below;

(iv) identification of the duties of the purchaser/owner; these are specified below;

(v) provision for the appointment and term of the manager of the building and for the managers
powers and duties;

(vi) reservation of rights to the developer such as to name the building or erect advertisements on the
roof or outer walls of the building.

In addition, the DMC should reserve all the other units to the developer so that they can be sold to
other purchasers. As previously mentioned, this reservation should also appear in assignments of
individual units to purchasers.

What if the vendor omits the reservation to himself of the rest of the units? This happened in Goodtex
Land Co Ltd v Lung Kwong Emporium Co Ltd [1993] 1 HKC 645, where individual floors in a multi-
storey building were assigned to separate owners, who received undivided shares in the building
together with the right to exclusive use of their floors, but there was no DMC in respect of the
building, nor had the developer in the assignment reserved for himself the exclusive use of other floors
still retained by him. Godfrey J held that such a reservation would be implied into the assignment on
the grounds of commercial necessity. The absence of a DMC did not render the titles of the co-owners
defective.

Yet in Silver Pioneer International Ltd v Good Onwards Co Ltd [2004] 4 HKC 253, where a sub-DMC
had been invalidly executed, title was held defective. To Dep-J did not think that Goodtex had
established a principle of law that, in the absence of a DMC, the court would necessarily imply into all
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assignments a right to exclusive occupation of each unit which would be binding on all other co-
owners. In Goodtex there had been only a small number of units, it was a commercial building and the
owners had enjoyed 30 years of undisturbed occupation.

Construction of DMC
The courts will be required to construe the effect of the DMC and first assignment where there has
been no specific reservation of parts of a building in favour of the developer: see Jumbo King Ltd v
Faithful Properties Ltd [1999] 3 HKLRD 707, CFA (developer sold shares to first purchaser without
expressly reserving for himself certain roofs and utility rooms to which no shares had been allocated;
held on construction of transactions that the developer had retained the right of exclusive occupation
over the rest of the property (save common parts), including roofs and utility rooms, when he had
assigned the shares to the first purchaser).

CA has suggested that rights given by DMC are not absolute but are subject to an element of
reasonableness: Silver Triumph (above).

Implied Terms
Schedule 7 to the Building Management Ordinance (Cap 344) implies certain mandatory terms into all
DMCs, whether executed before or after the BMO came into effect (s 34E(1)), and these implied terms
prevail over any inconsistent terms in the DMC (s 34E(2)(b)). They include:

(i) provisions as to the determination of the total amount of the management expenses for the year
and the duty of the manager to prepare a budget (para 1);

(ii) provisions relating to the keeping of proper accounts (para 2); the preparation of income and
expenditure account and balance sheet; the maintenance of bank accounts exclusively in respect
of the management of the building (para 2); the setting up of a special fund for unusual items of
expenditure (para 4);

(iii) requirement of the manager's compliance with a Code of Practice in ordering supplies (para 5);

(iv) the duty of the manager to give at least 3 months' notice on resignation (para 6);

(v) provisions as to the termination of the manager's appointment; after incorporation, consent of
owners of 50% of shares needed (para 7). This provision is a considerable improvement on the
previous position where the owners could remove a manager, in the absence of an express
provision to do such in the DMC, only upon a fundamental breach by the manager of his duties:
see Incorporated Owners of South Seas Centre, Mody Road v South Seas Centre Management
Co Ltd [1985] HKLR 457 and Pearl Island Hotel Ltd v Incorporated Owners of Pearl Island
Villas (1988) HCA No A1628 of 1987.

The Secretary for Home Affairs can exempt any building from the operation of the schedule unless
50% of the owners of the shares object: s 34E(1).

Schedule 8 of the BMO implies additional terms in all DMCs, whether executed before or after the
BMO came into force, unless such terms are inconsistent with the express terms of the DMC: s 34F.
These include provisions regulating the meeting of owners and of the owners' committee.

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RIGHTS AND DUTIES OF CO-OWNERS

(1) Rights of co-owners

(a) Ownership of shares

Every co-owner owns a specified number of undivided shares in the building, together with
the right to exclusive use and occupation of his unit(s).

(b) Power to sell and mortgage

Every co-owner has the right to sell or mortgage his shares in the building together with the
right to exclusive use of his unit. The latter cannot, however, be assigned or mortgaged
except with an assignment of a share in the land. This is because the right to exclusive use
is an incident of the ownership of shares.
Lai Wing-ho v Chan Siu-fong [1993] 1 HKLR 319 : assignment of exclusive right to occupy
roof without any assignment of shares; at best this created a licence to occupy and was not
binding upon other co-owners or successors-in-title to the vendor.
Jumbo King Ltd v Faithful Properties Ltd [1999] 3 HKLRD 757, CFA: an owner can assign
the right to exclusive use and occupation over any part of the building provided at the same
time he assigns some shares in the building; these do not have to be those to which the part
is allocated in the DMC.

(c) Allocation of shares

The number of shares to be assigned must be clearly designated. If no clear designation of
the number of shares attached to his flat has been made, the owner cannot give good title to
the flat - Lee Tak Chun v East Weal International Ltd [1994] 1 HKC 722: 227 shares
allocated to the 35th floor of multi-storey building, but, after 35th floor divided into flats, no
further allocation of individual shares to each flat had been made; this should have been
effected by a sub-DMC; held, owner's title defective.

Yet the designation need not be in a DMC. In Marking Ltd v Cheerifat Ltd (1995) MP No
2727 of 1995, there was an agreement to sell 12/3,100th shares in Harbour Crystal Centre
together with exclusive right to the use of unit 912 on the 9th floor; in the DMC, 138 shares
had been allocated to whole 9th floor, but there was no allocation of shares to each unit on
9th floor by way of sub-DMC; however, control card in Land Registry showed 12 shares
against unit 912 on 9th floor and document headed `Share Apportionment in respect of
Harbour Crystal Centre showed 12 shares allocated to unit 912. Held, there was sufficient
evidence to show that 12 shares had been assigned.

Goldjet International Investment Ltd v Ling Ki Wai [1997] 3 HKC 503: vendor agreed to
sell 1/108 share; no allocation of shares in DMC; at Land Registry sub-division registers
had been opened based upon assignments of flats and control card showed allocation; good
title had been shown. Same conclusion reached in Hinex Universal Design Consultants
[1998] 1 HKC 317.

There is no requirement for a vendor to show how many shares have been allocated to the
other flats provided that it is clear how many shares have been allocated to the flat whose
title is in question: Sheenip Industries Ltd v Champion Billion Development Ltd (1995) MP
No 1390 of 1995.

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 (d) Use of common parts
Every owner has the right to use the common parts of the building. This right arises from co-
ownership of the building and is usually expressly granted by the DMC. If no such grant is
made, the courts imply a right for a co-owner to use the common parts. This right will not be
in the nature of an easement, since co-owners cannot enjoy easements over their own
property, but will arise by virtue of contract, an appropriate term being implied in the DMC
- Chui Shu-choi v Merrilong Dyeing Works Ltd [1990] 1 HKLR 385, approved in Kung
Ming Tak Tong, above.

(2) Duties of co-owners

The DMC will usually specify numerous duties of co-owners in the form of covenants. These
will include the following duties:

(a) To keep the interior of own flat in good repair

DMCs made since the 1980s routinely contain this express obligation but older DMCs may
not do so.

(b) Not to make any structural alterations

It is common for a new owner to want to alter his flat but he must be careful that the
alterations do not affect parts of the building outside his area of exclusive use such as the
structure of the building. What does structural mean?

In Chi Fu Fa Yuen Ltd v Cho Wai Man Raymond [2008] 1 HKC 59 partial demolition of
load-bearing wall between flats forming a common part of building constituted a breach of
restrictive covenant in the DMC against making structural alterations in the building. (The
position is otherwise if the dividing wall is not load-bearing: IO of Westlands Garden v
Oey Choiu Ling [2011] 2 HKC 460, CA, and Tam Sze Man v IO of Shan Tsui Court [2011]
5 HKLRD 434, CA.)

It has been said by CA that structural alterations in the context of a prohibition in a DMC
will be construed more liberally than when used in the Buildings Ordinance: Incorporated
Owners of Elite Garden v Profit More Company Ltd [2002] 2 HKLRD 518, where
construction of window in outside wall constituted structural alteration of building. This
dictum (but not the decision) may no longer be correct following Mariner International
Hotels Ltd v Atlas Ltd [2007] 1 HKLRD 413 where CFA gave a wider interpretation to the
BO provision than previously.

In Mariner, CFA considered whether certain rooftop installations were building works not
involving the structure of the building and therefore within the statutory exemption from
the need for prior permission for their construction under the Buildings Ordinance.
Previous decisions had interpreted this phrase as meaning simply not structural and so
had been used in arguments over whether covenants against structural alterations had been
broken. However CFA gave the phrase a wider interpretation than non-structural: works
involve the structure if they are structural in nature and also if they are capable of affecting
the integrity of the structure.

Other examples of structural alterations: Incorporated Owners of Tuen Mun Hun Cheung
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 Industrial Centre v United Hong Kong Ltd (1999) HCMP No 2991/1998: demolition of
outside wall to permit use of unit as garage constituted structural alteration despite
certificate from architect that alteration did not affect structure of building; word
structural to be interpreted literally. Incorporated Owners of Jing Hui Garden v Ng Kei
Sang (2007) LDMB 155/2005; Sunbeam Investments v IO of Villa Veneto LDBM
125/2009; IO of Mei Foo Sun Chuen Stage VI v Grandyield Knitters LDBM 110/2011:
installation of air-conditioners in outside wall constituted breach. Incorporated Owners of
Shan Kwong Towers Phase II v Li Suet Ching (2007) LDBM 290/2006: enlargement of
window in outside wall constituted breach. All involved some alteration of the form, fabric
or framework of the building (Pearlman v Keepers of Harrow School [1979] 1 QB 56).

By contrast in Wing Hong Investment Co Ltd v Fung Sok Han [2016] 1 HKLRD 1,
enclosure and conversion into shops of ground floor car ports at Imperial Court was not a
structural alteration, BA having said the enclosures were not structural.

(c) Not to render the insurance voidable or void

(d) Not to use the premises for an illegal purpose

(e) Not to alter the external appearance of the building

This forbids alteration to the external surfaces. Changing the curtains inside the building
would not be a breach, eg. Enclosures at Imperial Court would have been a breach of
this.

(f) To pay management fees

Owners must contribute to the costs of the upkeep of the common parts and contribute
towards the management expenses.

Further, the BMO stipulates two duties that must be observed by owners:

(g) To maintain own flat

S 34H BMO provides that any owner, who has the exclusive use and occupation of a flat,
has a duty to maintain that flat in good repair and condition.

(h) Not to convert, etc, common parts

S 34I BMO controls use of the common parts and provides that no person may convert the
common parts to his own use or use them unreasonably or cause a nuisance therein. This
would be regarded as a breach of DMC. The partial demolition of the load-bearing wall in
Chi Fu Fa Yuen Ltd v Cho Wai Man Raymond [2008] 1 HKC 59 was held to constitute a
breach of the term implied by s 34I as well as of the covenant against structural alterations.
Similarly a door in a wall dividing two flats which was a common part was an interference
with common parts despite the owner of the flats obtaining Building Authority permission
for the door: Central Management Ltd v Light Field Investment Ltd [2011] 2 HKLRD 34,
CA. However in the Westland Gardens and Shan Tsui Court cases (above) CA held that a
mere partition wall between flats was not a common part.

LIABILITY FOR ACTS OF PRIOR OWNERS

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 A breach of DMC, such as a structural alteration, erection of illegal structure or conversion of common
part, may have occurred before the current owner acquired the property and s/he may be unaware that
there has been a breach. The current owner is nevertheless liable, either because the breach is a
continuing breach or because s/he has adopted the breach: Sun Wai Chun v Fairview Park Property
Management FAMV 1/2000, CFA. So in IO of Fortune Mansion, Tsuen Wan v Chiu Ng Ling [2010] 2
HKC 67, CA, a predecessor-in-title had converted common parts and the present owner was ordered to
rectify the breach because it was continuing. In IO of Marina Cove v Chu Kam Tai [2012] 2 HKLRD
107, CA, a predecessor had built an iron gate which blocked off common parts; the current owner was
ordered to remove the gate because, by maintaining the gate, he had adopted the breach.

HOUSE RULES

Modern DMCs frequently provide for the manager to make house rules or bye-laws which are
underpinned by a covenant that owners shall obey these rules. The rules should be confined to
operational, subsidiary matters concerning the common parts (eg, regulations for use of the swimming
pool) but frequently purport to go beyond this, attempting to control or restrict ordinary use of the
estate, including private parts (eg, no pets).

House rules certainly must not contradict the terms of the DMC and, it is suggested, should not
contradict the nature of an owners interest (tenancy-in-common) and the terms of the government
grant and BMO. But what if the rules merely limit owners rights? Or if they supplement covenants in
the DMC?

In Tsang Chi Ming v Broadway-Nassau Investments Ltd [2008] 6 HKC 19, DC held that house rules at
Mei Foo did not need to be registered in order to be binding but that a rule against keeping pets where
there was no such prohibition in the DMC conflicted with co-owners right to exclusive use and
enjoyment of their flats. What if the DMC had said that owners may not keep pets except with the
permission of the manager?

It is different if the rules are part of the DMC rather than in a separate document because then they are
in effect covenants and must be read in the context of the DMC as a whole: IO of Hang Tsui Court v
Ho Fu [2011] 6 HKC 40, CA (Home Ownership Scheme).

MANAGEMENT OF BUILDINGS

This subject is treated in outline only.

It is usual for the initial managers of the building to be appointed by the DMC and often they are part y
to the deed. Since the developer is responsible for the contents of the DMC (subject to government
guidelines), the manager is often an associate of the developer. In modern DMCs the appointment is
for a stated term but in older deeds the appointment is without time limit.

(1) Management by manager (with owners committee) under DMC

If owners are content with the original management company (the DMC manager), or if that
company resigns or its term of appointment expires, any replacement, the development continues
to be run by that manager in accordance with the terms of the DMC, as supplemented by BMO.
12
 Most buildings and estates operate in this way.

Where the DMC provides for an owners committee and/or owners meetings, the manager will
consult the owners on important matters, especially those involving expenditure.

Managers other than the DMC manager will usually be engaged under contract with the owners
for a certain period on agreed terms. These usually incorporate or refer to the terms of the DMC
concerning management.

(2) Management by management committee and corporation under BMO

As a result of complaints by co-owners as to the lack of proper management of multi-storey

buildings by DMC managers and the inadequacy of the provisions in DMCs enabling the owners
to involve themselves in management and oversee the work of the manager, Cap 344 was
enacted to permit the co-owners to incorporate and participate in and exercise more effective
control over management of their building. This is now the BMO.

There are about 50,000 private domestic blocks of flats in Hong Kong but fewer than half of
them have owners corporations.

Incorporation is not confined to domestic blocks. Co-owners of industrial or commercial or

mixed-use buildings may incorporate too.

ROUTE TO INCORPORATION

S 34J(1) BMO provides that no term in a DMC may prevent the owners from forming a corporation.

It is unclear whether incorporation is possible without the land being held by tenancy-in-common in
undivided shares. In Grace International Ltd v Incorporated Owners of Fontana Gardens [1996] 4
HKC 635 Le Pichon J suggested obiter that incorporation was not possible without common
ownership. Yet it has been held that there is nothing to prevent owners of individual plots of land in a
residential development from incorporating even though there is no single tenancy-in-common: Siu
Siu Hing, t/a Chung Shing Management Co v Land Registrar [2001] 1 HKLRD 702 (owners of 18
plots of land on which three-storey houses stood were entitled to incorporate).

The normal route to incorporation starts with the owners forming a management committee which
may then apply to incorporate.

(a) Formation of management committee

Appointment by the owners

An owner, with the support of owners of not less than 5% of the shares, is at liberty to convene a
meeting of owners to appoint a management committee and such a committee may be appointed
by resolution of the meeting provided that the majority has not less than 30% of the shares - s 3
BMO.
13
Initiative of Secretary for Home Affairs

If this percentage of shareholders cannot be persuaded to form a management committee, the

Secretary for Home Affairs (the Authority) may, upon the application of the owners of not less
than 20% of the shares, order that a meeting be convened to appoint a management committee - s
3A BMO. At the meeting a simple majority of the votes will pass the proposal.

Order of Lands Tribunal

Also, the Lands Tribunal is empowered, upon the application of the owners of not less than 10%
of the shares or the Authority, to order that a meeting of owners be convened to appoint a
management committee - s 4 BMO. Majority support only is required at the meeting.

(b) Incorporation of owners

Once a management committee has been appointed, that committee may apply within 28 days of
its appointment to the Land Registrar for the registration of the owners as a corporation - s 7(1)
BMO.

The owners corporation (or IO) will be a body corporate with perpetual succession capable of
suing and being sued in the corporate name and of doing all things that a corporate body may do.
It must have a common seal and registered office in Hong Kong - s 8 BMO.

The IO is the corporate embodiment of the co-owners collectively. Although a distinct entity,
there is a close identity of the corporation with the owners. The IO is given separate legal
personality to facilitate the exercise and enforcement of owners rights and liabilities: Ribeiro PJ
in Leung Tsang Hung v Incorporated Owners of Kwok Wing House [2007] 5 HKC 227, [2007] 4
HKLRD 454, CFA.

MANAGEMENT COMMITTEE

(a) Management committee replaces owners' committee

According to s 34K BMO, where a management committee has been appointed as above, the
members of the management committee will have the functions of any owners' committee
appointed under the DMC and will replace them.

(b) Role of management committee

The committee is the decision-making body for the IO. Its leadership is collective: the chairman
and members have no authority to decide issues outside the committee. Usually the committee
engages a manager which implements the committees decisions.

(c) Composition of and procedure for management committee

14
The composition of the management committee (the minimum number of members and
disqualification of owners from membership) and its procedures (appointment of Chairman,
Vice-Chairman, Secretary, Treasurer; notices of meetings, frequency of meetings, quorum at
meetings, retirement of members, appointment of new members etc) are laid down in schedule 2
to the BMO which was revised in 2007. These procedures will replace any specified in the DMC
- s 34K(b) BMO.

(d) Remuneration of members of management committee

Allowances which may be paid to members of the management committee are specified in sch 4
to BMO (no more than $1,200 per year).

OWNERS CORPORATION (IO)

(a) Duties of IO

Duty to maintain common parts and enforce terms of DMC

Upon the registration of the owners corporation, the rights and powers of the owners in relation
to the common parts of the building must be exercised and performed by the owners corporation
to the exclusion of individual owners: s 16 BMO. Here the owners means all the owners
collectively, so any right the IO seeks to enforce must be based on a cause of action enjoyed by
all of them: IO of One Beacon Hill v Match Power Investment Ltd [2012] 6 HKC 200, CA.

Consequently if an individual owner starts an action in respect of matters concerning the

common parts, it will not succeed.

In Snowland Ltd v Topland Holdings Ltd [2006] 4 HKC 188: co-owner applied for declaration
that another co-owner had erected a signboard on the exterior wall of the building in breach of
the DMC; held that the exterior wall constituted part of the common parts of the building and
under s 16 BMO only the owners corporation and not any co-owner could bring proceedings in
respect of the common parts of the building.

Likewise, See Wah Fan v IO of Ki Tat Garden [2003] 3 HKLRD 1: action re alteration to
common parts commenced by a co-owner; claim struck out since it should have been
commenced by the owners corporation; but owners have the right to apply to Lands Tribunal for
order compelling owners corporation to take necessary enforcement action.

Similarly any liability of the owners in relation to the common parts must be enforced against
the corporation - s 16 BMO.

This is retro-active so, eg, the corporation is liable to the manager for management fees owing in
respect of the pre-incorporation period: Hang Yick Properties Management Ltd v Incorporated
Owners of Tuen Mun Kar Wah Building [2005] 2 HKLRD 499, [2005] 2 HKC 489, CA. Contrast
Koo Sun Yiu v Victorison Delivery Ltd [1996] 4 HKC 152 in which a newly-formed IO was held
not liable for injuries sustained at the common parts prior to its incorporation; this was
distinguished in Hang Yick.
15
The corporation is given the duty of maintaining the common parts (s 18), carrying out all work
required by public officers, engaging staff, employing and remunerating the manager, insuring
the building etc.

Further, s 18(1)(c) requires the owners corporation to do all things reasonably necessary for the
enforcement of the obligations contained in the DMC for the control, management and
administration of the building.

IO is bound by the terms of the DMC. See Wing Ming Garment Factory Ltd v Incorporated
Owners of Wing Ming Industrial Centre [1994] 2 HKC 748 (incorporated owners installed water
pipe on Ps exclusive area in breach of DMC; IO liable, although in exercise of courts
discretion, mandatory interlocutory injunction refused).

Funds and contributions

S 20 BMO requires the corporation to establish a (general) fund to cover expenditures and pay
Government rent and other outgoings. It may also maintain a contingency fund to cover
expenditures of an unexpected or urgent nature. These funds must be kept in an interest-bearing
account.

S 21 BMO requires the management committee to determine the total amount to be contributed
by the owners collectively to the funds established. This should be based on a budget. The
amount must not be increased by more than 150% in a subsequent year unless such increase is
approved by a general meeting: s 20 (1A).

Individual contributions will be determined by the committee in accordance with the DMC or
the respective shares held by the owners (s 21).

Procurement of goods and services

S 20A BMO requires the corporation to comply with a Code of Practice relating to the
procurement of supplies. Major contracts ($200,000 or 20% of annual budget) must be tendered
for and approved in general meeting. Failure to comply with the tendering requirements does not
render any subsequent contract void but it is voidable at the option of the corporation by
resolution in general meeting, though subject to the discretion of the court: s20A (6) and (7).

Particulars of legal proceedings

The management committee must notify owners of any legal proceedings to which the IO is a
party by displaying notice of the particulars of the proceedings in a prominent place in the
building (s 26A, added 2007).

(b) Powers of management committee on behalf of IO

S 29 BMO provides that the powers and duties of the owners' corporation shall be exercised by
the management committee. They include maintaining the common parts (s 18), employing a
manager (s 18), insuring the building (s 18), establishing funds and a bank account (s 20),
preparing the annual budget (sch 5), keeping accounts (s 27), ordering supplies (s 20A) and
enforcing the terms of the DMC (s 22). The members of the management committee also have
16
 the power to enter and inspect the owners' premises upon reasonable notice, so as to repair and
maintain the common parts - s 40 BMO.

(c) Budget of management committee

Sch 5 to BMO requires an annual budget to be prepared by the management committee an

estimate of the sum reasonably necessary for the management of the estate.

(d) Financial records and statements; insurance

S 27 BMO requires the management committee to maintain proper books of account and prepare
an income and expenditure account and balance sheet every 12 months, which must be laid
before the annual general meeting. Except for small estates, the accounts must be audited (s
27(1A)). Sch 6 requires the management committee to maintain records and books of accounts
and display every 3 months a summary of the income and expenditure for all owners to peruse.

There is a duty to insure the building (s 18) and a duty to insure against third party liability (s28).

(e) Dissolution of management committee

S 30 BMO permits the owners at a meeting to dissolve the management committee, in which
event an administrator must be appointed.

If any owner wishes a meeting of owners to be held, support of 5% of owners (not 5% of shares)
is required (BMO, sch 3, para 1 (2)) to compel chairman of management committee to call the
meeting: U Wai Investment Ltd v Au Kok Tai [1997] 4 HKC 200; Fung Yuet Hing v IO of Hing
Wing Mansion [2005] 4 HKC 339.

The Lands Tribunal also has power to appoint an administrator on the application of any owner
or mortgagee, eg if most or all of the management committee have ceased to be owners.

ACTION FOR BREACH OF DMC

The usual remedy for breach of covenant is an injunction; also damages and declaration. Failure
to pay money due (eg fees) results in an order for payment or charge against property.

(a) Injunction

Action may be taken against an owner for breach of the terms of the DMC. This is usually by
the management committee, in the case of an owners' corporation, or by the manager under the
terms of the DMC acting on behalf of the co-owners. An individual owner may sue another
owner but not if the breach solely concerns a common part. The remedy sought might be an
injunction (often a mandatory injunction). For example:

* Hong Yip Service Co Ltd v Ng Wai-man (1989) Civ App No 159 of 1988: erection of
outside aerial in breach of DMC; order for removal granted.

* Incorporated Owners of Mai On Industrial Building v Hedit Ltd (1987) HCA No A6529 of
17
 1987: construction of chimney in breach of DMC; order to demolish chimney.

* MTR Corporation Ltd v Hwang Xiao Yun Sherry (2002) LDBM No 109/2002, Lands Trib:
room constructed of concrete erected on roof of building; held, room was illegal structure;
demolition ordered.

* Metro City Management Ltd v Tsui Fee Hung Vincent (2005) HCA No 4327/2003:
injunction granted requiring demolition of illegal canopy.

IO of KK Mansion v Jade Water Group Ltd [2010] 4 HKC 469: injunction issued requiring
removal of sign on external wall of building advertising co-owners pre-school and childrens
activity centre.

* Realty Harvest Ltd v Gold Margin Development Ltd (2001) CACV No 212/2000:
injunction granted against tenant to restrain noise from machinery above a specified
decibel level.

* Hon Hing Enterprises Ltd v Honolulu Land Investment Co Ltd (1991) HCA No A3557 of
1991: construction of door in breach of DMC; injunction for removal refused in exercise of
courts discretion but declaration made that owner in breach and any new door to be
constructed in compliance with DMC.

An owner may seek an order against the manager/IO. Eg:

- Law Bik Ling Milly v Kai Shing Management Services Ltd LDBM 42/2010: action to oblige
manager to act against air-conditioner frames and drying racks installed by certain owner at
external wall of Pokfulam Garden; held, breach of DMC and must be removed, despite
managers arguments that area was suitable for a-cs, not illegal structures, 200 similar
instances and had acted reasonably; IO had duty to enforce DMC, injunction granted.

An owner may seek an injunction against another owner, eg to cease nuisance from noise or water
penetration.

(b) Damages

An action for damages might be brought by a co-owner, a tenant, other occupier or manager/IO
against an owner or tenant for a relevant breach of DMC: A stranger (eg, passer-by) can sue
owners for damages in negligence or nuisance.

* John So v Lai Hon Man [1993] 2 HKC 356; water leaking from damaged pipe in floor slab
into flat below; damages awarded to owner of lower flat against owner of upper flat.

* Leung Yung Chun v Chan Wing Sang [2000] 1 HKLRD 456: owner awarded damages,
including damages for inconvenience, against co-owner where water leaking from toilet
and basin (erected in breach of DMC) to flat below.

* Wong Lai Kai v Incorporated Owners of Lok Fu Building, Yuen Long [2000] 3 HKC 633,
CA: tenant of shop held liable in damages for collapse of awning attached to outside wall
since tenant enjoyed exclusive possession of awning for use by shop customers.
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 Espiritu Marcelino v Lo Kit (2000) HCPI No 1266/97: tenant injured when illegal
overhanging extension used as kitchen collapsed; owner held liable.

IO of Percival House v Fusion Advertising Solution Ltd [2012] 5 HKC 95: external wall
outside 2 units hired out by those owners for advertising in breach of DMC; argued, no
damage to IO since IO could not rent out wall either; damages awarded on basis of benefit
to wrongdoer, not loss to victim.

An owner may seek damages or payment from the management. Eg:

- Hope Bright Ltd v IO of Ka Wing Building HCA 305/2006: IO wrongly prevented installation
of electrical wires to Ps shop; no tenant for 4 years; HK$900,000+ awarded.

- Kau Chun Wing v Main Shine Development [2011] 2 HKC 1, CA: owner of right to install
chimneys at external walls sued manager for allowing wires for mobile telephone antennae
on inner surface of parapet walls, seeking account of profits received; held, no liability
because wall a common part.

- IO of Tung Lo Court v Leung May Chun Alison CACV 52/2014: IO carried out repairs to
dilapidated basement car park, closed for 4 months so could not be used; D refused to pay
management fees and, when sued, counterclaimed for breach of DMC in being denied access
to parking space although she never used it; held, IO had power to carry out works which
were reasonably necessary.

An owner may sue another owner for damages. This is especially common in water leakage
cases where the owner of a lower flat claims that water has seeped from flat above.

(c) Imposition of charge

DMCs invariably contain a provision enabling a charge to be imposed on a defaulting owners

shares when management fees and other payments under the DMC become overdue by a certain
number of days and empowering manager to register a memorandum of charge against the
defaulting owners property.

Where the owners are not incorporated, such a provision has been held effective as an equitable
charge (agreement to create future charge), despite s 44 CPO which requires a charge to be by
deed and s 5 (1) (a) CPO which requires creation/disposal of an equitable interest in land to be
by signed writing: Beacon Heights (Management) Ltd v Leung Ping Hung, Antonio [1995] 1
HKC 181. This was approved by CA in Chevalier Property Management Ltd v Yu Chau Yeung
CACV 259/2006 (9.10.07). However, in Wise Wave Investments Ltd v TKF Services Ltd [2007]
4 HKLRD 762 Cheung J said that, to meet the requirement of writing in s 5 CPO, a document
(written charge or memo) must be prepared and registered by the management
committee/manager before it will be effective against a bona fide purchaser, although it need not
be signed.

Where there is an IO, s 19(1) BMO provides that, where a DMC empowers the manager to
impose a charge on the property for the payment of management fees, an owners' corporation
may instead impose the charge. In such a case it has been held by Lands Trib that only the
19
 corporation through the management committee may impose the charge and the manager may
not do so personally: Incorporated Owners of Kingsford Industrial Centre v Austria Pty
Management Co [1997] 3 HKC 735, though this is debateable.

The charge or memorandum should be registered in the Land Registry for the purposes of
priority.

(d) Right of manager to redirect rent from tenant to owner

According to s 23 BMO, if an owner fails to pay his contribution to the funds within 1 month,
the corporation may, without prejudice to any rights it may have against the owner, by notice
demand the sum from the occupier, who will become liable to pay the sum. This sum paid by the
occupier (or mortgagee, s 25) may be deducted from the rent payable to the owner - s 23(4).

(e) Acquiescence

The owners (and hence the manager) might lose the remedy where they or the other owners have
acquiesced in the breach of the DMC. Such was the case, eg, in Cheung Yuet v Incorporated
Owners of Oriental Gardens [1979] HKLR 536 (illegal structures erected by owner; IO had
tolerated numerous similar breaches; injunction to remove structures refused). Also, Yick Fung
Holdings Ltd v Sandwood Ltd [2009] 2 HKLRD 573, [2009] 4 HKC 43 (plaintiff developer was
refused injunction against co-owner who had demolished part of external wall to create door; P
had acquiesced in other co-owners installing air-conditioners and knocking down part of external
walls to create entrances).

An owners corporation cannot, however, acquiesce in a breach of the DMC since it is under a
statutory duty to enforce its terms: Incorporated Owners of Hoi Luen Industrial Centre v Ohashi
Chemical Industries (Hong Kong) Ltd [1995] 2 HKC 11; Incorporated Owners of Perth Garden
v Chan Kwok Wai (2006) LDBM 339/2005.

Yet where the covenant itself gives the IO discretion, it seems IO may acquiesce in its breach. In
Hollywood Shopping Centre Owners Committee Ltd v IO of Wing Wah Building Mongkok
Kowloon (2011) CACV 185/2010, DMC gave developer liberty to permit erection of advertising
signs on external parts of building; co-owner erected advertising sign on external canopy without
permission; since IO had power to permit such signs, it was within their power to acquiesce;
acquiescence established.

Moreover, acquiescence may be a factor that influences the court to exercise its discretion
against awarding an equitable remedy (injunction).

(f) Liability of owners corporation for injuries suffered by third parties

An owners corporation might be liable for injuries suffered by third parties: eg, in occupiers
liability, negligence or nuisance.

Lily Tse v IO of Albert House [1999] 1 HKC 386; Aberdeen Winner Investments Ltd v IO of
Albert House [2004] 3 HKLRD 910, CA:
20
 Collapse of concrete canopy, a common part, killing one pedestrian and injuring others; victims
sued, as co-defendants, developer/landlord, owners corporation, building contractor who had
installed the canopy, restaurant operator/tenant (who used the area for a fish tank) and building
management company; developer held liable for 15%, incorporated owners for 15%, restaurant
operator 50%, contractor 5% and building management company 15%; most co-defendants
were insolvent, although the owners corporation and developer each paid its 15% share of the
damages; held that all solvent co-defendants, including the owners corporation, became liable
for the outstanding damages since, according to s 19(2) of the Law Amendment and Reform
(Consolidation) Ordinance, those not bankrupt had to share the responsibility for paying the
damages; this was because all Ds, including co-owners of the building, were jointly and
severally liable to contribute to the award.

The IO was held liable by CFA in nuisance in Leung Tsang Hung v Incorporated Owners of
Kwok Wing House [2007] 5 HKC 227, [2007] 4 HKLRD 654, CFA:
Concrete fell from extension to balcony at flat in a multi-storey building, killing hawker below;
balcony had been illegally extended 35 years previously and was attached to the external wall
which was a common part of the building. Deceaseds estate sued the owners of the flat, the
tenant of the flat and the IO of the building for public nuisance. Trial judge and CA held only the
owner and the tenant liable; CFA held IO liable, taking into account its powers and duties in
respect of the common parts and particularly its degree of control, the position of the owners
corporation placed it in a category closely analogous to that of an occupier; the corporation
ought to have known of the illegal modifications to the balcony and had a duty to inspect and
neutralize such a nuisance hazard; plainly it had the resources to do this but had failed to do so;
that failure had been causative of the death.

An extraordinarily large liability of IO for damages may impinge upon an owners title: Chi Kit
Co Ltd v Lucky Health International Enterprises Ltd [2003] 3 HKC 143 (CFA).

TERMINATION AND VARIATION OF DMC

(1) Termination of DMC

There are several methods by which the DMC can be terminated:

(a) Termination of Government lease

On the expiry or forfeiture of the government lease, in principle the covenants in the DMC
become spent and extinguished because the co-owners interest in the land is terminated. So in
IO of Hong Yuen Court v Dugar Sajjan (2013) LDBM 89/2012 govt lease had expired and after
3 years a new lease had been granted to the same owners/lesees; held, former DMC had ceased
to have effect since the former owners no longer held the land under the expired lease.

However, where the government lease expires and is either renewed or replaced by a new
government lease, s 42 of CPO provides that any covenant in the DMC relating to the land will,
unless the contrary intention is expressed, continue to have effect. Government practice is to
offer shares and flats under the new lease to previous owners and to make a new DMC. Any IO
continues, unless wound-up.

21
 (b) Agreement of all the parties to the DMC

As a matter of contract, all the parties to the deed and others bound by the deed (owners) may
agree to terminate the DMC.

(c) Partition

The co-owners could agree to partition the land, or the court could order partition or sale, under s
16 Partition Ordinance. In most cases physical division will be impossible so any agreement or
order would mean selling the land and dividing the proceeds between the owners: see, eg,
Golden Bay Investment Ltd v Chou Hung (1993) Civ App No 160 of 1992. However, DMCs
often contain a covenant against exercising the statutory right to partition.

But the DMC does not end by virtue of all the shares falling into the same ownership: Wong
Kam-lan v Well Win Investment Ltd [1996] 2 HKLR 96, CA.

(2) Variation of the DMC

(a) By agreement of all those currently bound by the DMC: Hong Kong Ping Jeng Lau Co v
Incorporated Owners of United Centre (1989) MP No 2971 of 1989 (variation of use of
floor of building)

(b) By acquiescence

Note that acquiescence is not really a variation, but simply a discretionary reason not to enforce
the provision in the DMC in a particular case

* Cheung Yuet v The Incorporated Owners of Oriental Gardens [1979] HKLR 536 (co-
owners had acquiesced in appellant's construction of extension to his flat since they had
constructed similar extensions);
* Incorporated Owners of Mai On Industrial Building v Hedit Ltd (1987) HCA No
A6529 of 1987;
* Hong Yip Service Co Ltd v Candela Co Ltd [1997] 1 HKC 273 (condensers for split-
type air-conditioners fixed outside flat in breach of DMC; held no acquiescence by co-
owners since only a few owners had done same).
* Incorporated Owners of Tuen Mun Hung Cheung Industrial Centre v United Hong
Kong Ltd (1999) HCMP No 2991/98 (owner knocked down external wall on ground
floor of flat in breach of DMC; owners corporation with knowledge of breach decided
not to take any action; owners corporation later sought mandatory injunction; held
injunction should be refused since it would be unfair and inequitable now to require
defendant to reinstate the wall).

Michael Wilkinson
Malcolm Merry
Sept 2016

22
 QUICK QUIZ QUESTIONS

1. In what sense does the registered owner of a flat in Hong Kong own that flat?

2. Who owns the common parts of a building in multiple ownership? Who has the right to use
the common parts and what is the legal nature of that right?

3. In the case of a dispute over whether a particular area of a building in multiple ownership is a
common part, how does the court decide the issue?

4. S, a squatter, has used the lane at the side of a building exclusively for 20 years as his
workshop. The owners corporation of the building, which never consented to the use, has
demanded that S vacate the lane. Would S be able to claim adverse possession successfully?
Would the answer be different if S happened to own a flat in the building?

5. Are the co-owners of undivided shares in a building under a sub-DMC bound by the
covenants in the head DMC?

6. William owns 20 shares in a multi-storey building together with the exclusive right of
enjoyment of flat 6F. He also owns 2 shares in respect of his ownership of carport No 135. Is
he entitled to sell the 2 shares to which carport No 135 is allocated separately from his 20
shares to which his flat is allocated?

7. By what procedure may co-owners form an owners corporation; what are the advantages of
doing so? What are the disadvantages?

8. Give three examples of land covenants and three examples of personal covenants. How do
you distinguish between them?

9. O wishes to install a split-type air-conditioner at his 12th floor flat; this involves running a pipe
through the external wall immediately outside the flat and placing a compressor on brackets
fixed to that wall. What covenants is O at risk of breaching?

10(a) A is a developer; he assigns some shares to B; B assigns the shares to C; C gives a covenant
not to erect signs on the roof; C assigns to D; D erects signs on the roof. Can A, who has
retained shares in the building, secure an injunction against D?

10(b) Can B enforce the covenant?

11. How do the co-owners of a multi-storey building get rid of incompetent managers?

12. What happens to a right of use (for example of a roof) enjoyed by the developer to which no
shares have been allocated where the developer sells off all his shares in the building?

13. Can the co-owners acquiesce in a breach of the DMC? Can an owners corporation do so?

14. On expiry of the government lease what happens to (1) the covenants in the DMC; and (2)
the owners corporation?