Hong Kong: What Does "House" Mean In Government Leases? It All Depends On The Context, Says The Court Of Final Appeal In Fully Profit.

Last Updated: 2 June 2013
Article by FK Au and Pheona Chow

Keywords: government leases, Court of Final Appeal, CFA

Summary

1. The Court of Final Appeal ("CFA") handed down its long-awaited decision in Fully Profit (Asia) Limited vs. The Secretary for Justice for and on behalf of the Director of Lands (FACV 17/2012) on 13 May 2013. The appellant Fully Profit owns a site at Nam Kok Road, Kowloon City, comprising five lots held under five separate virtually identical Government Leases, each of which contains a restriction that the owner cannot erect or allow to be erected more than one house on the lot. The CFA reversed the unanimous decision of the Court of Appeal and held that a 26-storey building straddling the five lots cannot be a "house" within the meaning of the word in the Government Leases.

2. The CFA was of the opinion that in construing a contract, it is not helpful in most cases to refer to the "ordinary and natural meaning" of words. Context should be the starting point (together with purpose), rather than looking at what may be the natural and ordinary meaning of words. In this case, when the Crown Leases were issued in the 1960s, a "Chinese type house" had already been erected on each of the lots. The CFA held that in the context of this case, "house" must be taken to mean the type of house existing on the individual lots. The proposed 26-storey building straddling the five lots cannot be regarded as a Chinese type house and is therefore not permitted.

3. The result of Fully Profit is that a developer can no longer be certain of what he can or cannot build on his site where there is a "house" restriction in the Government Lease. The case creates uncertainty and is likely to lead to more litigation.

Limitations of Fully Profit

4. The CFA stresses that it is fruitless to search for a free-standing meaning of the word "house" valid for all time in all circumstances. The decision of the CFA in Fully Profit is facts-sensitive. All that the CFA has decided is that, in the context of the specific facts of that case, a 26-storey building straddling five lots cannot be a "house" for the purpose of the "one house" restriction under the relevant Government Leases. The case is not an authority to the effect that a multi-storey building can never be a "house" whenever the word appears in a Government Lease. Each case would have to be decided on its own facts. In the light of Fully Profit, a developer can no longer be confident, when he acquires a piece of land, of what he can or cannot build on the land.

The Facts and the Decisions

5. Fully Profit is the owner of five lots of land at Nam Kok Road in Kowloon City held under virtually identical Government Leases each containing a restriction that the owner shall not erect or allow to be erected more than one house on the lot. The lots were originally carved out of a single large "mother lot" which was subdivided into 20 separate lots and, on each of the subdivided lots, a "Chinese type house" (each having five storeys with a ground floor, a cockloft, three floors and a flat roof) was erected. Subsequent to the completion of the Chinese type houses individual Government Leases were entered into in the 1960s in relation to each of the five subdivided lots.

6. Fully Profit wanted to redevelop the five Chinese type houses by demolishing the houses and, in their place, construct a 26-storey composite building straddling the five lots with shops on the ground floor, utilities, sports and function rooms on the first floor, and residential units from the second to 26th floors.

7. The Director of Lands contended that the proposed development would be in breach of the Government Leases because the 26-storey building is not a "house" within the meaning of the Government Leases and, in any event, if the building were a house, only part of the house will be erected on any one of the five lots, and that would be in breach of the "not more than one house" restriction.

8. When the case came before the Court of First Instance, Deputy Judge Pow SC held that the 26-storey building was not a house, but if it were a house, it would not be in breach of the "no more than one house" restriction, as part of a house is still no more than one house and the covenant is not one "not to erect other than one house".

9. Fully Profit appealed to the Court of Appeal ("CA") and the CA (Tang VP, Fok JA and Chu JA) unanimously ruled in favour of Fully Profit and allowed the appeal. The CA took into account the fact that the Conditions of Exchange of the "mother lot" provided that no factory building could be erected and industrial use was prohibited but, other than that, there was no restriction on the type of building which might be built. In this context, the CA considered that the word "house" in the Government Leases should be read synonymously with "building" or that the word should be construed as including what in common parlance is called a block of flats. Straddling is not an issue as the covenant was not to erect more than one house, and not a covenant not to erect other than one house.

10. The approach adopted by the CFA (Ma CJ, Chan PJ, Ribeiro PJ, Bokhary NPJ and Hoffmann NPJ in a unanimous decision) in construing the meaning of the word "house" is as follows:-

a. A search for a free-standing meaning of the word "house" valid for all time and in all circumstances is fruitless.

b. The word "house" has a "distinct fluidity of meaning" and the word is best construed in relation to the context in which the word is found.

c. In the particular facts of Fully Profit, the meaning of "house" must have reference to those characteristics of the houses which were actually standing at the time when the Government Leases were entered into.

d. When the Government Leases of each of the five lots were entered into, there was already a "Chinese type house" on each of the five lots. In this context, the meaning of "house" must be taken to mean the type of house then existing on the individual lots. There was no question of going back to the previous state of affairs where the "mother lot" had not yet been sub-divided or built on. The CFA however seems to recognise that the position might be different if, at the time when the Government Leases were entered into, there were no buildings on the lots.

Implications of Fully Profit

11. Fully Profit would have the following implications:-

a. The word "house" may have different meanings in different contexts.

b. In order to ascertain the meaning of "house" in any particular case, one would have to look at the context and the factual matrix surrounding the grant of the Government Lease. This may not be an easy exercise given that the documents registered in the Land Registry and available to the public may only form part of the relevant factual matrix.

c. A developer can no longer be certain of what he can or cannot build on his land where there is a "house" restriction in the Government Lease.

d. The Lands Department may demand a lease modification and payment of a substantial premium where there is uncertainty over the meaning of "house" in the Government Lease.

The uncertainty created by the case is likely to lead to more litigation.

12. It is interesting to note that Fully Profit may benefit an owner in certain circumstances. For example, if when the Government Lease (which contains a restriction that only one house may be erected on the lot) was entered into, an apartment block of European-type had already been erected on the lot, the owner would have an argument that he is entitled to redevelop the building into another European-type apartment block. If lease modification is required for the redevelopment, the owner may be able to argue that the before value should be assessed on the basis that the "as of right" development is a European-type apartment.

Originally published May 20, 2013

Visit us at www.mayerbrownjsm.com

Mayer Brown is a global legal services organization comprising legal practices that are separate entities (the Mayer Brown Practices). The Mayer Brown Practices are: Mayer Brown LLP, a limited liability partnership established in the United States; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales; Mayer Brown JSM, a Hong Kong partnership, and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2013. The Mayer Brown Practices. All rights reserved.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions