Online seminar 11 November: Equity and the enforcement of informal land contracts

October 21, 2020

Professors Alice Lee and Steven Gallagher and me. 11 November 6pm (Zoom). Here is the registration link.

Michael Lower

Contractual intention and agreements between family members

September 26, 2020

Facts

In Ho Lai King v Kwok Fung Ying ([2020] HKCA 657) the plaintiff (‘P’) owned property in Guangzhou. Ownership was resumed by the mainland authorities. P was an elderly woman. She asked her daughter (D1) and son-in-law (D2) to help her negotiate the compensation payment.

D1 and D2 agreed on the understandings that:

(1) P would not accept an offer from the authorities without their consent; and

(2) They would receive 50% of the compensation received.

Contrary to this agreement, P accepted an offer of RMB 3 million as compensation and denied that any payment was due to D1 and D2.

Question

The question was whether P and D1 / D2 intended to create contractual relations when they reached their agreement. P contended that there was no such intention. She relied on the rebuttable presumption against the existence of a contractual intention in the case of domestic agreements (Balfour v Balfour [1919] 2 KB 571).

Court of Appeal’s analysis

The Court of Appeal said that the presumption is a rebuttable presumption of fact and the court had to consider the facts of each case ([47]):

‘What will satisfy the court in a particular case must depend on the circumstances, including (without being exhaustive) the relationship between the parties, whether they are in amity or estranged, the subject matter of the agreement, the manner in which the agreement has been made’ ([48])

Strong evidence would be needed to prove a contractual intention for ‘oral agreements on maintenance support or other daily arrangements’ ([48]).

The Court of Appeal decided that there was a contractual intention in this case. The relevant factors were:

  • P favoured her son over D1 (D1 and D2 were reluctant to get involved because they suspected that the son would receive the entire payment;
  • While D1 might not have been willing to bring proceedings against P during P’s life she might bring proceedings against P’s estate or the son;
  • The agreement was about a major capital asset
  • P and D1 and D2’s actions after the agreement (D2 spent time and money in pursuing the negotiations) pointed to a contractual intention).

Michael Lower

The family home. Types of constructive trust. The end of detrimental reliance?

August 22, 2020

Archibald v Alexander: the facts

In Archibald v Alexander ([2020] EWHC 1621) a mother and her three children (Patsy, Brenda and John) orally agreed that a house would be purchased in the name of the mother and one of the siblings. It was to be held on trust for the mother for life and then for the three children equally.

This was for tax-planning reasons and to protect the property from any claim by the mother’s husband should she re-marry. The assumption was that there was no need to take excessive care to formalise the trust given the loving family context.

The property was transferred to the mother and Patsy as joint tenants, neither Brenda nor John was available to attend the solicitor’s office at the time of the purchase.

When the mother died, there was a dispute as to whether Patsy was the sole owner of the property or held it on the terms of the oral trust.

Was there reliance?

If this was a common intention constructive trust, then Brenda and John needed to show detrimental reliance. Fancourt J. held that there was reliance: ‘the non-signing siblings were self-evidently relying on the word and promise of those who did become owners’ ([14]).

Was there detriment?

Given the finding of reliance, the detriment was the decision of Brenda and John not to take steps to legally protect their ownership interest in the house; this was a sufficient change of position ([30]).

Not a common intention constructive trust?

The findings on detrimental reliance were obiter:

‘the instant case is of a different kind, in which a property is transferred (gratuitously) into the name of the owner on the basis of their express agreement to hold the property on trust for another. The owner only obtains the property on the terms of the agreement and equity does not permit them unconscionably to refuse to give effect to the terms. The trust arises from the terms on which the property was transferred, not from detrimental reliance on the agreement by the beneficiary.’ ([32]).

The essential elements of this constructive trust are: ‘property had been transferred to a volunteer on the basis of his promise to hold it on certain terms, and would not otherwise have been so transferred’ ([37]).

Fancourt J. referred to Rochefoucauld v BousteadBannister v Bannister and De Bruyne v De Bruyne.

There is no need to establish detrimental reliance for constructive trusts like this.

Michael Lower

 

Father’s gift of property to son: Conditional on son’s caring for father?

August 15, 2020

In Yeung Hock Wai v Chan Wai Man ([2020] HKCFI 1693) a father gave his son a 25% interest in two properties owned by the father (‘the properties’). The son pre-deceased his father.

After the son’s death the father (the father’s estate after the father’s death) claimed that the gift to the son was conditional and that, as the son had failed to satisfy the conditions, the father was entitled to recover the son’s interest in the properties.

The father alleged that the son had accepted that the gift to him was conditional on: (i) the son caring for the father; and (ii) the son working in the father’s business.

Bebe Chu J held that:

  • the gift was unconditional ([135]);
  • even if the father had attempted to impose the conditions on the gift to the son, the conditions were ‘precatory words’ not intended to have legal effect ([150]);
  • if the conditions were intended to have legal effect, they were void for uncertainty (so that the gift would still be unconditional) ([162]);
  • if they had been intended to have legal effect and been sufficiently certain, the conditions would not need to satisfy the formalities requirements in CPO s. 3(1) ([166]);
  • it was accepted on behalf of the son’s estate that if the conditions had been legally effective then, since they had not been complied with, the son’s interest in the properties would be held on ‘constructive or resulting’ trust for the father ([166]);
  • the trust would be a ‘type 2’ constructive trust under the Paragon Finance classification so that the Limitation Ordinance would apply and the father’s claim was brought outside the six year limitation period ([174]);
  • in any event the claim would be barred by the doctrine of laches (the son’s widow was prejudiced by the delay in bringing the claim ([176]).

Michael Lower

Commentary on Toms v Ruberry

July 24, 2020

Just published this commentary on Toms v Ruberry in the CUHK Law Issues in Property Law blog.

Michael Lower

When does a landlord have right to serve a CPO s. 58 notice?

July 14, 2020

In Toms v Ruberry ([2019] EWCA Civ 128) the forfeiture clause in a lease required the landlord to serve notice of default on the tenant. The notice of default was to identify the breaches in question and to give the tenant 14 days to remedy (if the breach was capable of remedy). If the breaches were not remedied by the end of the 14 day period, the landlord could forfeit the lease.

The tenant broke a number of lease covenants. On 25 February 2016, the landlord served on the tenant both a notice of default and a notice under the English equivalent of section 58 of the Conveyancing and Property Ordinance (Law of Property Act, s. 146).

The question was whether the section 146 notice could validly be served before the expiry of the 14 day period specified in the notice of default.

The landlord argued that the section 146 notice was valid. To require the 14 day notice period to expire without the breaches being remedied before the section 146 notice could be served would be to prolong the process unnecessarily; the tenant would have two opportunities to remedy the breaches.

The Court of Appeal agreed with the tenant that the right to forfeit only arose if the 14 day notice period expired and the breaches were not remedied.

Michael Lower

Property Law seminar – 9 July

June 30, 2020

Major online property Law seminar. Still time to register.

 

https://www.law.cuhk.edu.hk/app/events/property-law-seminar-series-regulatory-overview-of-the-hong-kong-property-market-by-mr-alvin-yeung-and-ms-pheona-chow-online/

 

 

Richard Susskind keynote speaker at online conference in June

May 13, 2020

Professor Richard Susskind OBE, will be a keynote speaker at CUHK LAW “Directions of Legal Education Conference”. Professor Susskind will present a keynote address online, on Friday 19 June, 5.30-6.30 (HK Time). Please register to attend the Conference. The conference is free of charge; please feel free to share this event with interested persons. Hong Kong Law society CPD accreditation has been applied for.

Here is the registration link: https://cloud.itsc.cuhk.edu.hk/webform/view.php?id=9006024

Can landlord of block of flats authorise a tenant to make structural alterations in breach of absolute covenant?

May 9, 2020

Introduction

In England, the usual arrangement for blocks of flats is for a landlord to retain ownership and control of common parts such as the structure and exterior of the building. Owners are granted long leases of their flats.

This use of leases allows the burden of positive covenants (such as the covenant to contribute to the costs of maintaining, insuring and renewing the building) to be transmitted to the owners of the flats from time to time.

Hong Kong does not need to resort to this device because of section 41 of the Conveyancing and Property Ordinance.

The landlord of the block is then expected to manage the building on behalf of all the tenants and to recover the costs of doing so through a service charge.  The landlord (or its agent) will be entitled by the leases to impose a service charge for this management service.

The leases may contain tenants’ covenants not to do certain things either (a) without the landlord’s consent (a qualified covenant) or (b) not to do them at all (an absolute covenant).

There may be qualified and / or absolute covenants, for example, against carrying out certain types of work.

Qualified covenants envisage that tenants wishing to do work covered by the covenant will apply to the landlord for consent. This allows the landlord to exercise oversight and control in the interests of the proper management of the building.

Absolute covenants envisage that there are certain types of work that tenants will never have any right to carry out.

The lease covenants allow the landlord to manage the building for the benefit of all the tenants. The lease might go further and, for example, require the landlord to enforce the lease covenants at the request of a tenant.

Duval v 11 – 13 Randolph Crescent

The facts in Duval

In Duval v 11 – 13 Randolph Crescent ([2020] UKSC 18) the leases of all flats in the building required the landlord: (a) to impose similar covenants in all leases; and (b) (in clause 3.19) to enforce any breach of covenant by one tenant if asked to do so by another (at the cost of the tenant making the request).

A tenant (‘W’) wanted to carry out works which would involve the removal of part of a load-bearing wall. This would be in breach of an absolute covenant (‘clause 2.7’) not to do work of this nature.

The landlord was, nevertheless, willing to grant the tenant a licence to carry out these works. Another tenant (‘D’) objected and sought a declaration that the landlord did not have the power to waive the absolute covenant in clause 2.7.

The question in Duval

Lord Kitchin (with whom the other members of the UK Supreme Court agreed) framed the question thus:

‘whether the landlord of a block of flats is entitled, without breach of covenant, to grant a licence to a lessee to carry out work which, but for the licence, would breach a covenant in the lease of his or her flat, where the leases of the other flats require the landlord to enforce such covenants at the request and cost of any one of the other lessees.’ ([1]).

Accepted that the landlord could do so in the absence of an obligation owed to other tenants to enforce the covenant

The parties, and the court, agreed that, in the absence of a covenant to enforce clause 2.7 the landlord could grant a licence to carry out works in what would otherwise be a breach of it. This was so even though clause 2.7 was an absolute covenant ([11]).

The crucial additional facts were that the landlord covenanted to impose a restriction similar to clause 2.7 in all leases and, in clause 3.19, to enforce them at the request and cost of any tenant. These facts made all the difference.

Implied covenant

The court set out its interpretation of the express terms of clause 2.7. It then decided that there was an implied term that the landlord promised ‘not to put it out of its power to enforce clause 2.7 in the leases of other lessees by licensing what would otherwise be a breach of it’ ([52]).

The decision: the landlord could not grant a licence to carry out the work

The UK Supreme Court upheld the Court of Appeal’s decision to grant the declaration sought by D. The landlord could not grant a licence to carry out these works:

‘In my view it necessarily follows that the landlord will not put it out of its power to enforce clause 2.7 in the lease of the offending lessee by licensing the activity that would otherwise be a breach of that clause. The clause is an absolute covenant and, under clause 3.19, the complainant lessee is entitled, on provision of security, to require the landlord to enforce it as an absolute covenant. As Lewison LJ said at para 27 of his judgment, it would not give practical content to the obligation if the landlord had the right to vary or modify the absolute covenant or to authorise what would otherwise be a breach of it.’ ([55]).

Michael Lower