Covenant only to build domestic houses

Expressluck Development Ltd v Secretary for Justice ([2007] HKEC 1352, CFI) concerned land on which houses had been built. The Conditions of Exchange under which the land was held provided that “The lessee will not be allowed to erect any buildings on the lots except domestic houses.” From the 1940s onwards, the ground floors of the houses had been used for commercial purposes without the Government taking any formal action in respect of the breaches of covenant. Where, however, other major changes of use had been proposed, consent had been sought by the owners. Expressluck now intended to build a block of residential units but with the ground floor being used for commercial purposes. It did not want to apply for a variation or release of the covenant. Instead it sought, inter alia, declarations to the effect that the proposed development did not amount to a breach of covenant, that the covenant had been abandoned or waived (because of the long history of tolerating commercial use) or that the Government’s demand for rent based on commercial use of the ground floor of the development gave rise to an estoppel. Expressluck failed in all respects.

First, there was a breach. The covenant did not affect only the type of building that could be built but also its subsequent use. Second, although the Government may have waived breaches of the covenant, it had not waived the covenant itself:

’81. What I glean from the authorities is that waiver of a covenant cannot be lightly inferred. It can be, but only where acquiescence by the grantor is sufficiently clear and unambiguous that it would be inherently unfair for him to be permitted to go back on his word, either actually spoken or derived from his conduct.
82. Further, it is important to distinguish between waiver of a breach of a covenant and the covenant itself.
83. Acquiescence will not amount to a waiver of the covenant unless in the particular circumstances, there was a clear intention to do so for all time.’ (Deputy Judge Gill)

Finally, there was no estoppel the Commissioner for Rating and Valuation had issued the demand but this did not bind the relevant department of Government (the Director of Lands).

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