Most Read Contributor in Hong Kong, September 2016
Originally published 9 September 2010
Keywords: Lands Department, consent scheme,
LACO, forfeiture of deposit
On 1 September 2010 the Legal Advisory and Conveyancing Office
("LACO") issued a Circular Memorandum ("CM")
No.63 in respect of Lands Department Consent Scheme - Measures to
curb speculative activities. The following measures will apply to
all consents to sell uncompleted residential units issued
on or after 13 August 2010.
Forfeiture of Deposit
10%, instead of 5%, of the purchase price will be forfeited if
the purchaser under a preliminary agreement for sale and purchase
("PSAP") does not sign the formal agreement for sale and
purchase ("ASP") or if the ASP is later cancelled at the
request of the purchaser. 10% of the purchase price is required to
be paid as deposit on signing the PSAP and in case of default by
the purchaser under the ASP, such deposit (i.e. 10% of the purchase
price) will be forfeited to the vendor (see revised clause 11(3)
(for agreed cancellation), clause 16(2) (a) (for default of
purchaser) and revised item (i) of Schedule 5 of the form of
No Nomination, Subsale or Any Transfer of the Benefit of the
No nomination, subsale or any transfer of the benefit of the ASP
by the purchaser before completion of the sale and purchase and
execution of the Assignment to the purchaser is permitted (see
revised Clause 11(1) of the form of ASP).
Consequently, the following forms have been revised and enclosed
under LACO CM No.63:
the form of ASP for residential units;
Annex I to LACO CM No.62 (sales brochure requirements);
the report on stakeholder account's monies and progress of
sales in the form at Appendix III to LACO CM No.54.
The standard form of undertaking (by the developer and the
purchaser in respect of any en bloc sale) at Annex V to LACO CM
No.62 is also cancelled.
Copies of LACO CM No.63 and its attachments can be downloaded
from the following website: www.landsd.gov.hk
The new measures are intended to curb speculative activities,
particularly as the purchasers can no longer nominate, sub-sell or
transfer the benefit of the ASP to any third party
("Restriction on Transfer").
However, since the completion date could be as long as, say, 20
months from the date of the ASP, the new measures would add
substantial financial risks to genuine home buyers. The banks may
tighten the availability of home loans and, in the event of a
downturn in the property market, the banks' valuation of the
property at below the purchase price may make it impossible for the
purchaser to obtain sufficient finance to complete the purchase. To
mitigate such risks, the purchaser may wish to pay off the entire
purchase price to the developer by taking out an equitable mortgage
on the property soon after the ASP is signed. This option, however,
is available only if it is agreeable to the developer.
In view of the Restriction on Transfer, a purchaser should make
up his mind when he commits to the purchase as to who the ultimate
registered owner(s) of the residential unit will be. Once the ASP
is signed, no addition to or removal of any of the name(s) of the
owner(s) is allowed. This is so even where the persons involved are
close family members of the purchaser.
It remains to be seen how effective the new measures will be in
curbing speculative activities. The new measures are inapplicable
to completed developments or uncompleted developments sold under
the Non-Consent Scheme.
Since the announcement of the Financial Secretary on 13th August
2010, a number of pre-sale consent applications had been held up
pending the publication of the new measures. With the publication
of LACO CM No.63, it is expected that these pre-sale consent
applications can now move forward.
Copyright 2010. JSM, Mayer Brown International LLP
and/or Mayer Brown LLP. All rights reserved. Mayer Brown is a
global legal services organization comprising legal practices that
are separate entities ("Mayer Brown Practices"). The
Mayer Brown Practices are: JSM, a Hong Kong partnership, and its
associated entities in Asia; Mayer Brown International LLP, a
limited liability partnership incorporated in England and Wales;
and Mayer Brown LLP, a limited liability partnership established in
the United States. The Mayer Brown Practices are known as Mayer
Brown JSM in Asia.
This article provides information and comments on legal
issues and developments of interest. The foregoing is not a
comprehensive treatment of the subject matter covered and is not
intended to provide legal advice. Readers should seek specific
legal advice before taking any action with respect to the matters
discussed herein. Please also read the JSM legal publications Disclaimer.
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