THE UNIVERSITY OF HONG KONG

DEPARTMENT OF LAW

LAND III

DEEDS OF MUTUAL COVENANT AND BUILDING MANAGEMENT

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. A DMC records the division of the land and buildings into shares and allocates units within
the buildings to those shares. It governs the relationship between owners of these owners and shares
and provides for 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.

(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. 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
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 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.

REGISTRATION OF THE DMC

Section 41(9) of the Conveyancing and Property Ordinance provides that, on the registration of
the DMC, successors in title are bound by its covenants irrespective of whether or not they have
searched the register.

By virtue of the definition in s 41(2) of the scope of `covenants' falling within s 41, the covenants
falling within s 41(9) must (a) be land covenants; (b) their burden must be expressed or intended
to run with the land of the covenantor; and (c) they must be expressed and intended to benefit the
land of the covenantee and his successors in title.

This provision affects the principle that, in equity, the burden of a restrictive covenant runs
against a successor in title who has notice of the covenant. Registration of the DMC will supply
that notice. For a more complete understanding of the application of the aforesaid statutory
provisions in the CPO on DMC covenants, do refer to your earlier land law lecture notes and also
the late Professor Wilkinson’s Note on Enforceability of DMC Covenants.

NATURE OF OWNERSHIP OF UNITS IN MULTI-STOREY BUILDING

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.
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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.

(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:

“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.”

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 not 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.

(2) Exclusive use of unit

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
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 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. On 19 th June 1970, the predecessor to the
BMO was enacted. It was held Shine Empire Ltd v IO of San Po Kong Manson (unreported)
HCA 3444/2001, 3/12/2004, accordingly buildings predating the ordinance would not be
governed by s.2 and Sch 1 of the BMO.

Regardless, 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; Lung Po
Kwan v Tung Kam Sheung [2011] 3 HKC 84, CA (YY Mansion). The following are some
difficult or surprising instances of the court’s interpretation of various DMCs:

- The inside of a roof parapet wall, common part: Kau Chung Wing v Main Shine
Development [2011] 2 HKC 1, CA

Roof
Parapet Wall

External Wall

o Part of a car parking space covered by a wall, common part: Lung Po Kwan, above

w
wall
CP25

CP27

o Door in internal wall present from outset, not common part: Wong Kwan Yee v IO of
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 Diamond Mansion [2012] 2 HKC 134, CA

o 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.

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 Ning 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 (unreported) CACV186/2003, 17/9/2004one 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 BMO.

If IO can hold undivided shares in common parts, it can sell: see IO of Lee Hang Industrial Bldg
v Billion Development & Project Management Ltd (unreported, HCMP 2243/2007, Reyes J,
14/3/08)

(4) Developers reserving rights to parts of a building

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
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as common rights upon the dissolution of the developer or following the sale of all the
developer’s 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); and King
Prosper Trading Ltd v Urban Renewal Authority [2010] HKCFI 1025. Of course, if the
developer expressly had assigned such rights (along with undivided shares) then there would not
devolution. Moreover, 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:

“Since there were no shares allotted to the external wall, it was a reasonable inference
that the benefit was intended to extend to all the owners of shares allotted to the first and
second owners and their successors and assigns in proportion to such shares”

Recent authority – court favour South China approach? King Prosper Trading Ltd v URA [2010]
HKCFI 1025; HCAL 56/2009 (17 December 2010) or Incorporated owners of No.27A Chatham
Road, Kowloon v Mr Lee and Others (unreported) CACV 2238/2001, 02/08/2022, [2001-2003]
HKCLRT 273

ADVERSE POSSESSION

Since a co-owner as a tenant-in-common is entitled to use the whole of the land and buildings,
s/he 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 claimant’s 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. Thus it will be rare for adverse possession to succeed re part of a large building with
many owners.

“39. I have to disagree with the Judge's acceptance of Mr Shum's submission below that
where a co-owner is claiming adverse possession against the other co-owner, it is not
necessary to prove actual ouster or dispossession. The Judge had simply relied on the fact
that the defendant and his predecessor had collected and received all the rent for their
own use and benefit without accounting to the plaintiffs since 1978. In his evidence, the
defendant expressly disavowed having any intention to eject the plaintiffs from the Land
and possess the Land himself. But even without this evidence, the important evidence of the
plaintiffs' assertion of their possession was that of the visits by one of the plaintiffs who
entered on to the Land and parked his car there without payment. The Judge did not reject
this evidence but held that it was irrelevant based on the erroneous view at [112] that "the
presumed actual ouster is not concerned with physical eviction". The error is compounded
by failing to recognise that in respect of possession by the paper title owner, the slightest
acts done by him will be found to negative discontinuance of possession because an owner
who has the right to possession of land will be readily assumed to have the requisite
intention to possess, unless the contrary is clearly proved: Powell at p.472.”
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This is certainly so re occupation by one co-owner of common parts of a building. In principle
it should also apply to occupation by one co-owner of (part of) the unit of another co-owner.
There have been instances of courts allowing one co-owner to assert adverse possession of
another co-owner’s exclusive use area. E.g. Foremost Hill Ltd v Bank of China (HK) Ltd HCA
2555/2013 (5.4.2017) where the wall of P’s shop encroached on part of D’s shop (see also Wong
Chow Yun DCMP 1752/2015, 1 March 2017).

“21.   In relation to the co-ownership argument, D2 argues that there is no evidence that
the incorporated owners of the subject building, and the other co-owners, have all been
ousted by the plaintiff. 

22.   This argument has no merit.  The subject area was originally part of D1’s shop (and
never formed part of the common parts of the subject building).  Neither the deed of
mutual covenant nor the general law has conferred any title to the incorporated owners
over the subject area. There is no suggestion the incorporated owners have asserted any
exclusive rights over the subject area.  The same observations apply to the other co-
owners of the subject building (except the defendants).

23.   As regards D1/D2, the subject area has been separated from D1’s shop by a concrete
wall, and (as observed in the letter dated 15 December 2015) has formed part of the
plaintiff’s shop.  The plaintiff’s shop has been used by Lun, Tam (and their associates) in
such state.  The defendants have not asserted their title or other rights over the subject
area until after this action has commenced.

24.   D2’s (ancillary) point that the subject area was not “an exclusive unit” is likewise
unsound for the reasons given above.  D2 has not clarified the meaning of “an exclusive
unit”.  Presumably, it refers to a unit in the subject building as constructed by the
developer.  If such a unit can be adversely possessed as a matter of law, there is no valid
reason, whether as a matter of logic or principle, why part(s) of such a unit cannot be
adversely possessed, provided the part(s) so possessed is/are sufficiently well defined and
the act of ouster is adequately demonstrated.”

It may be open for the IO to assert adverse possession: see IO of San Po Kong Mansion v Shine
Empire Ltd (2007) 10 HKCFAR 588 (albeit on facts of the case, AP was not established)

Before Foremost Hill, some practitioners were of the view that co-owners may not dispossess
fellow co-owners because they were bound by the DMC (and BMO). The position is different if
the claimant is a stranger and therefore a trespasser. Fellow co-owners are bound by the DMC
and hence in theory cannot engage in adverse possession. 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.

It has been held in Incorporated Owners of Man Hong Apartments v Kwong Yuk Ching [2001] 3
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HKC 116, CA, that, where a squatter has occupied part of a multi-storey building, he will still be
bound by the restrictive covenants (but not positive covenants) in the deed of mutual covenant).
See also Incorporated Owners of Mountain View Mansion v Heart Cuisine (2012) CACV
235/2011 (squatter bound by restrictive covenants in deed of mutual covenant).

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 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.

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MANAGING A BUILDING

Manager Service Company providing building management services

including security, cleaning etc.

Management Committee “Board of directors” of the IO

Owner’s Committee (or A committee (not legal body) established per DMC, but defunct
similar name) after IO.

Incorporated Owners (“IO”) Separate legal personality (see s.8 BMO for setting up of IO)

DIFFERENT “TYPES” OF BUILDINGS

1. No DMC
o everybody must agree

2. Have DMC and Owner’s Committee (“OC”) (but no IO)

o usually under DMC there would be references to some committee that can be set up.
o The OC would exercise powers as stipulated in DMC
o BMO implied mandatory covenants
o some other provisions which refer to OC apply: Part VIA of the BMO (s.34C-34L)
o OC resolutions/decisions procedure follow DMC & sch 8 (as long consistent with DMC)
o Enforcement – OC not a separate legal body so either manager (if DMC allows) or individual
owners

3. Incorporated (“IO”)
o Separate legal body
o BMO mandatory covenants apply, plus a lot more BMO provisions applicable
o Management Committee makes decisions (sometimes requiring owner’s voting) for the IO (as per
procedure set out in sch. 3 etc. of BMO)
o Enforcement – only by IO (exclusive – s.16 BMO))

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;
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 (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 manager’s
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.

“The purchaser maintains its objection to the title before me. The answer given by the
vendor is that the right to exclude the first purchaser and all other purchasers is to be
treated as impliedly reserved. While I accept that it is a strong thing to imply a reservation
in a conveyance on sale, I have no doubt that this argument is correct. The whole scheme
of the conveyances on sale effected from 1952 to 1961 (and I apprehend I am entitled to
look at the factual matrix in order to construe each of these conveyances) involves not only
that a purchaser should obtain the exclusive use of the floor which is granted to him
together with his undivided share, but that he should be excluded from the use of the other
floors. It is quite true that no such reservation or exclusion is expressed, but I have no
doubt that as a matter of commercial necessity, it does have to be implied. The
conveyances on sale could not be made to work without such an implied reservation. Even
if that be wrong, it is to be observed that the properties (so far as the evidence goes) have
been enjoyed in accordance with the title for upwards of 30 years, without any such
problem as that which is now said to exist ever having reared its head. I am of the opinion
that, although there is a theoretical risk that the argument for the purchaser might just
possibly be correct, the risk of it being successfully asserted is fanciful. It ought,
accordingly, to be ignored.”

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
assignments a right to exclusive occupation of each unit which would be binding on all other co-
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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).

“…  the ground to fourth floors included more space than could literally be described as ‘shop
spaces’ and ‘offices’. There were corridors, lobbies, lavatories, machine rooms, lift shafts,
staircases and the ‘utility rooms’ of which some are in issue in this appeal. To whom did the
DMC allocate these? The judge said that they were not allocated to anyone. The DMC said Mr
Hotung took shop spaces and offices. The utility rooms were not shop spaces or offices and that
was that. Miss Eu, in her excellent argument, supported his judgment on the principle that a
grantor who desires to reserve something out of his grant must be clear about what he is
keeping. If the grant is ambiguous, the doubts will be resolved against him

I have some doubt about whether the principle for construing reservations applies to a DMC.
The grant is the assignment of the undivided share. The DMC is, as its name says, mutual. The
parties contract as covenantor and covenantee and do not reserve anything. But whether or not
the principle applies, it is only a last resort to resolve an ambiguity. In the present case, I do not
think that there can be any doubt about what the parties intended. In my respectful opinion, the
judge’s approach was far too narrow and literal. The construction of a document is not a game
with words. It is an attempt to discover what a reasonable person would have understood the
parties to mean. And this involves having regard, not merely to the individual words they have
used, but to the agreement as a whole, the factual and legal background against which it was
concluded and the practical objects which it was intended to achieve. Quite often this exercise
will lead to the conclusion that although there is no reasonable doubt about what the parties
meant, they have not expressed themselves very well. Their language may sometimes be careless
and they may have said things which, if taken literally, mean something different from what they
obviously intended. In ordinary life people often express themselves infelicitously without
leaving any doubt about what they meant. Of course in serious utterances such as legal
documents, in which people may be supposed to have chosen their words with care, one does not
readily accept that they have used the wrong words. If the ordinary meaning of the words makes
sense in relation to the rest of the document and the factual background, then the court will give
effect to that language, even though the consequences may appear hard for one side or the
other. The court is not privy to the negotiation of the agreement — evidence of such negotiations
is inadmissible — and has no way of knowing whether a clause which appears to have an
onerous effect was a quid pro quo for some other concession. Or one of the parties may simply
have made a bad bargain. The only escape from the language is an action for rectification, in
which the previous negotiations can be examined. But the overriding objective in construction is
to give effect to what a reasonable person rather than a pedantic lawyer would have understood
the parties to mean. Therefore, if in spite of linguistic problems the meaning is clear, it is that
meaning which must prevail.”
11
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(5).

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.

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
12
 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.

(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.

13
(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. See also HKSAR v Otto Poon [2019] HKMagC 3 on UBWs
(i.e. Buildings Ordinance): degree of fixation/permanence, size and intended use, ease of
construction or assembly/removal, provision of power/water and other utilities, and load
bearing propensity.

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. Section 41(3) Buildings Ordinance:

“(3) Building works (other than drainage works, ground investigation in the

scheduled areas, site formation works or minor works) in any building are exempt
from sections 4, 9, 9AA, 14(1) and 21 if the works do not involve the structure of
the building. (Replaced 20 of 2008 s. 29)”

Other examples of structural alterations: Incorporated Owners of Tuen Mun Hun Cheung
14
 Industrial Centre v United Hong Kong Ltd (unreported) HCMP 2991/1998, 22/11/1999:
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 display signs, advertisements or illuminations:

(f) 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.

(g) 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:

(h) 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. See also IO of Goa Building v
Wui Tat Company (unreported) CACV 349/2002, 17/7/2003:

“…. to erect, construct, install, affix, fit up, paint and maintain any signs, signboards,
advertisements, placards, posters or any other structures whatsoever of such size and
design whether illuminated or otherwise and at to or on such position or positions of the
external walls of the said Building and of any part of the said Building in common use as
the Vendor shall in its absolute discretion think expedient or desirable and to remove
replace or repair the same and to enter upon any unit at all reasonable times with or
without workmen for the purpose of so doing and (C) Subject to any necessary approval of
the Government Authority or Department to erect, construct, install, affix or fit up one or
more flu pipes or smoke stacks or chimneys at to or on such part or parts of the open yard
or years and of the external walls of …”

(h) Not to convert, etc, common parts

15
 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

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

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 owner’s 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? See Lee Yin Hong v  IO of Serenade Cove CACV 21/2011

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). Yuen JA (para 11):

“..as for the  Tsang Chi Ming case, it is clear that the ratio of that judgment was that the DMC
16
 only authorised the manager to make House Rules regarding the use of the common parts and
the access area (para 54). The manager however issued a House Rule purporting to cover the
whole of the estate, including individual units (para 60). Accordingly the judge found the
manager had acted ultra vires (para 65). No question of ultra vires has been raised in the
present case.”

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 party
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
(in particular note Part VIA of BMO where there are references to ‘owners committee’ but many
other BMP provisions only refer the management committee / IO). 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
17
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. In extraordinary circumstances, owners may incorporate via the Secretary for Home
Affairs or an order of the Lands Tribunal (see ss. 3A and 4 BMO).

(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. The committee is the decision-making body for
18
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
committee’s decisions.

(b) Composition of and procedure for management committee

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.

(c) 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 & 18 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.

19
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.

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 P’s exclusive area in breach of DMC; IO liable, although in exercise of court’s
discretion, mandatory interlocutory injunction refused).

Funds and contributions (see s.20-22 BMO)

Procurement of goods and services (see s.20A BMO)

Particulars of legal proceedings (see s.26A BMO)

(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 28), 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
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, and Financial Records

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.

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

20
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.

BREACH OF DMC

As Lord Hoffman made clear in his judgment in Sky Heart Ltd v Lee Hysan Co Ltd [1999] 1
HKLRD 100, [1999] 1 HKC 18, CFA, section 41 is only a partial codification of the law and
does not prevent a covenant falling outside its terms from being governed by the common law
regime (the common law rules governing building schemes apply in Hong Kong).

Students should refer to the Note on Enforcement of DMC (“the Note”) for further reference.
There will be no promises on what is examinable or not examinable in the Note, but the
examiners do not intend to ask questions ‘testing’ students on their understanding of the Note.
The Note is an excellent summary (and revision) on, inter alia, covenants running with the land.
For sake of one’s own learning/revision and perhaps marginal relevance to the exam, particular
attention should be drawn to whether a covenant is related to land, and depending on whether a
covenant contains a negative or positive obligation it is applicable to mere occupiers (such as
tenants or squatters).

See above on breaches by prior owners being “adopted” by current owner / user of land.

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). In respect of mandatory
injunctions in the context of breaches of DMC provisions, it is important to consider
Doherty v Allman (1878) 3 App Cas 709, 720:

21
 “parties for valuable consideration, with their eyes open, contract that a particular thing
shall not be done, all that a court of equity has to do is to say, by way of injunction, that
which the parties have already said by way of covenant, that the thing shall not be done,
and in such a case, the injunction does nothing more than give the sanction of the process
of the court to that which already is the contract between the parties. It is not then a
question of the balance of convenience or inconvenience, or of the amount of damage or of
injury — it is the specific performance, by the court, of that negative bargain which the
parties have made, with their eyes open, between themselves.”

Examples:

o 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.

o Incorporated Owners of Mai On Industrial Building v Hedit Ltd (1987) HCA No

A6529 of 1987: construction of chimney in breach of DMC; order to demolish
chimney.

o 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.

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

o 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-owner’s pre-
school and children’s activity centre.

o 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.

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

o 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
manager’s 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.

Please cross-reference injunctions with acquiescence section below.

22
(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.

* 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. Mesne profits.

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

o Hope Bright Ltd v IO of Ka Wing Building HCA 305/2006: IO wrongly prevented

installation of electrical wires to P’s shop; no tenant for 4 years; HK$900,000+ awarded.

o 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.

o 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

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DMCs invariably contain a provision enabling a charge to be imposed on a defaulting owner’s
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 owner’s 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
HKLR181 (Godfrey J.A.) and Chevalier Property Management Ltd v Yu Chau Yeung CACV
259/2006 (9.10.07). Further, 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
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).

Another option for the corporation can be found in s.24 BMO (distress).

(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
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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.

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

* 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;

* IO of Dragon View v Nalpak [1989] 1 HKC 549 contrasted with Hong Yip Service Co
Ltd v Candela Co Ltd [1997] 1 HKC 273 / Ohashi (all 3 cases on condensers for split-
type air-conditioners fixed outside flat in breach of DMC but result different:
inequitable to grant injunction?). Arbitrary enforcement? See also Freder Centre (IO) v
Gringo Ltd [2016] 2 HKLRD 190 (at §33).

* 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).

“…it is unfair and inequitable to do so [reinstatement order]. The Plaintiff had full
knowledge of the breach when it agreed not to take action. The situation has
remained the same for the past 4 years. The Defendant has conducted its affairs on
the basis of approval. The Plaintiff is seeking a mandatory injunction, the issue of
fairness and equity clearly needs to be considered”

* Billion Star Development Ltd v Wong Tak Chuen [2012] 2 HKLRD 85: in the context
of unlawful interference of a right of way and trespass:

“….The injunction (permanent or interlocutory) will be prima facie granted and will

be denied only if special circumstances exist (which may include circumstances that
damages are an adequate remedy for the wrong, in that where the expected injury to
land is small and the grant of an injunction would cause disproportionate hardship to
the defendant).

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 However, damage suffered is not a prerequisite to the grant of an injunction in such a
case, nor is the triviality of the interference alone sufficient reason to justify a
departure from the general rule of granting injunctions.  In a case concerning trespass
to land (in particular for threats of trespass and acts of trespass in the future), the
court is concerned with the protection of a property right, which, if not protected by an
adequate remedy, becomes diminished….”

 Grand Power International Holdings v Chan Sing Hoi Enterprises Ltd [2020] 2
HKLRD 142, [2020] HKC 133: injunction granted despite in-action of co-owners for at
least 4 years. Glass wall (expensive?) built on common area (advertisement/signage)
which reaped benefits (for all) over the 4 years and off-set.

* Hon Hing Enterprises Ltd v Honolulu Land Investment Co Ltd HCA (unreported) HCA
3557/1991,31/7/92: construction of door in breach of DMC; injunction for removal
refused in exercise of court’s discretion but declaration made that owner in breach and
any new door to be constructed in compliance with DMC.

“25. I am urged by Mr. Merry to take a strong stance and order the destruction of
the door and its re-instatement 7 ft. further away from the lift lobby and to restore
the marble tiled wall. For well argued reasons which I shall not recite he submits
that this is an important matter of principle. Other tenants on all other floors must
see that the Plaintiffs will carry out its powers and duties to enforce the DMC.

26. Whilst I am not going to order the Defendants to rebuild the door the order I am
going to make is intended to vindicate the Plaintiffs in bringing this action. The relief
I propose to order will be by way of a declaration. I do not regard it as a hollow
victory for the Plaintiffs because with it will go an order for costs in their favour.
Faced with the costs of a High Court action other tenants will surely think twice
before flouting the DMC both in the face of its own terms and in the face of this
declaration concerning the door on the 19th floor.

27. Before this action the door on the 19th floor was an example of a prevalent
attitude that the terms of DMC's are honoured more in the breach than in the
observance. After this action the door on the 19th floor may be regarded as the
exception which proves the rule

28. My reasons for not making the mandatory order are briefly that the door itself is
handsome and well constructed. It is not right in the middle of the marble wall but to
the left. When one comes out of the lift and into the lobby you do not see it; you only
see it as you walk towards the corridor. It does not give an impression that the
Defendants own the whole of the 19th floor because in the middle of the marble wall
there is an office index listing a dozen or more offices on that floor. Finally, the cost
of re-instatement, whilst not, substantial, would not be insignificant either.”

(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 occupier’s
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 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:

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 21 (3) 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. Deceased’s 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 too, 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 owner’s 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/lessees; held, former DMC had ceased
to have effect since the former owners no longer held the land under the expired lease.

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 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.

(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

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)

Alwin Chan (March 2023)

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