Options to renew are void under LRO s.3(2) unless registered

An option to renew a lease is registrable under the Land Registration Ordinance. If not registered it is void, as a result of LRO s.3(2), as against a subsequent bona fide purchaser or mortgagee for valuable consideration. This is true even if the option is contained in a lease that falls within the exception set out in LRO s.3(2).

In Markfaith Investments Ltd v Chiap Hua Flashlights Ltd ([1990] 2 HKLR 84, PC) Chiap Hua had agreed to assign a lease of land in Kowloon to Markfaith. The sale was expressly made subject to certain leases. The sellers did not, however, disclose the fact that some of the leases contained options to renew. Neither the leases nor the options had been registered in accordance with the Land Registration Ordinance by the time the purchasers registered their agreement with Chiap Hua. The purchasers found out about the options and refused to complete the purchase on the basis that these were undisclosed encumbrances. The Privy Council confirmed the decision of the Hong Kong courts that the options were not binding on Markfaith as a result of LRO s.3(2)  (so that Markfaith had not been entitled to refuse to complete). Although there is an exception in LRO s.3(2) in favour of leases for a term not exceeding 3 years at a rack rent, this only applies to the ‘bare lease’ (per Lord Templeman at 87) and not to the separate interest created by the option.

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One Response to “Options to renew are void under LRO s.3(2) unless registered”

  1. Xiabing Says:

    CPO of the titile should be corrected as LRO

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