Archive for the ‘Deed of Mutual Covenant’ Category

Breach of DMC: landlord’s liability for tenant’s use of common areas

April 11, 2013

In 海怡閣(成和道) 業主立案法團v 泓璟集團有限公司 ([2013] HKEC 345, LT) L was the registered owner of shops forming part of a building. It permitted its tenant to use the adjoining common parts (though it did not purport to include them in the lease). The landlord and the tenant were each liable to the incorporated owners in trespass ([109] – [111]). The tenant was ordered to pay damages in respect of its use of the common parts assessed by reference to the market value for the rights that it exercised.

Uncontroverted claim of breach of DMC: grant of an injunction

March 18, 2013

In Park Vale (Management) Ltd v Tang Wing Kin ([2013] HKEC 342, LT) Park Vale was the manager of a residential estate and T was the owner of one of the flats on the estate. Park Vale adduced evidence to show that T was in breach of the DMC (through installations T had added to the external walls of the flat and adjoining terraces that formed part of the common parts). Park Vale’s letters to T had not resulted in an end to the breaches. T had not opposed Park Vale’s application. Park Vale was granted the injunctions it sought requiring T to remedy the breaches and not to commit them in the future.

Liability of successor-in-title for unlawful works carried out by predecessor

March 1, 2013

In Wah Fai Court (IO) v Lee Man Ho Joseph ([2013] HKEC 270, LT) unauthorised works had been carried out by L’s predecessors-in-title. The incorporated owners sought an order requiring L to remove the unauthorised works. L argued that he was not liable since the work had been done before he became the owner. This failed. This was a continuing breach of a negative covenant and successors are liable by virtue of section 41(3) of the Conveyancing and Property Ordinance ([31]).

Corridor: common part?

February 18, 2013

In Chow Sai Ping v Chan Yam King ([2013] HKEC 199, CA) P and D owned neighbouring flats. The flats both opened onto a small side corridor. The question was whether the corridor was a common part or was part of the area owned by P. The DMC identified the corridor as being a common area but it was shown as being part of the land included in the later assignment to P’s predecessor. The Court of Appeal had no difficulty in concluding that the DMC had priority over the later assignment. The corridor was a common part.

Weekly Review: 21st – 25th January 2013

January 26, 2013

Deed of Mutual Covenant: construction: interpretation

The charging provisions in a Deed of Mutual Covenant must be interpreted in  accordance with the usual canons of contractual interpretation. The search is for the meaning that the parties must reasonably be taken to have intended having regard to the words used, the overall context of the document in which they occur and the parties’ purpose. This is to be assessed from the perspective of a reasonable person having the same background knowledge as the parties (Thorogood Estates Ltd v Robinson Heights (IO).

Licences: contractual licences: notice: termination: implied terms

An implied term as to notice in a contractual licence must take into account the whole of the circumstances in which the license came into existence (Minister of Health v Bellotti).

If the contractual licence is entirely silent about notice and a term has to be implied, the nature and requirements of the term to be implied must be settled according to the ordinary rules governing the implication of a term (Australia Blue Metal Ltd v Hughes)

Proprietary estoppel: detrimental reliance: pregnancy

A woman allowing herself to become pregnant can be detrimental reliance for proprietary estoppel purposes where there is the necessary causal link between this and the assurance as to an interest in property (Li Yuk Ying v Wong Yuet Kam).

Deed of Mutual Covenant: approach to construction of charging clause

January 21, 2013

In Thorogood Estates Ltd v Robinson Heights (IO) ([2013] HKEC 55, CA) the Court of Appeal had to interpret the provisions of a Deed of Mutual Covenant allocating among the owners the liability to contribute to management expenses.

T owned the garage on the upper and lower ground floors of the development. The Incorporated Owners had carried out major works of repair and renovation works for the whole development. The question was whether all owners, including T, were liable to contribute in proportion to their shares in the development without any need to consider which parts of the development had benefited from the works. The Court of Appeal applied the well-known approach to contractual interpretation explained, for example, by Lord Hoffmann in Jumbo King.

The DMC divided the development into three (the Garage, the Tower and the Building). T argued that it was only liable to works relating to the Garage and the Building. The incorporated owners argued that T had to contribute to all works in proportion to the shares in the development that it owned.

One provision (D5) provided for the relevant budget to be split into two parts, one relating to the Garage and the other relating to Units (any flat, roof or car parking space in respect of which an exclusive right of occupation had been granted). Another provision (E2) provided that liability to pay was to be apportioned among the owners by reference to the number of shares they owned. The incorporated owners relied on this provision but failed in the Court of Appeal.

The Court of Appeal argued that an exclusive focus on E2 did not have sufficient regard to the terms of the DMC as a whole, the purpose which it sought to achieve and (in this light) to properly discern the parties’ objective intention as it would be understood in the light of the relevant background knowledge.

In terms of purpose, the purpose of the DMC was to provide for a due propertion of the management expenses to be borne by the owners ([10]). An exclusive focus on E2 would not give due weight to the split budget arrangement in D5. A reading of the rest of section D of the DMC made it clear that the reason for splitting the budget into two parts was to ensure that where expenditure was incurred solely for the benefit of a unit then the owner of that unit would bear that cost ([32]). D5 sought to create a significant division between expenditure for the benefit of the Garage and that incurred for the benefit of the Towers ([34] – [35]).

As part of the relevant background, the court took into account the fact that:

‘It is not uncommon for provisions to be made in a DMC to differentiate between the contribution to be made by owners to management expenses in respect of different types of common areas and facilities, to cater for different requirements for maintenance owing to the different usage of common areas and facilities and to achieve a degree of fairness among the owners.’ ([33])

Kwan JA concluded:

‘Thus, viewing the DMC as a whole, and the practical object which it was intended to achieve, in my judgment a reasonable person having all the background knowledge would have understood clauses D5(a) and (b) to provide for a mutually exclusive apportionment of the estimated Management Expenses. The practical effect of clauses D5(a), 5(b) and 6 is that flat Owners who do not benefit from the use and enjoyment of the Garage would not be required to contribute to the Management Expenses attributable solely to or solely for the benefit of the Garage including the Garage Common Areas, and the Garage Owner who does not benefit from the use and enjoyment of the flats in the Towers would not be required to contribute to the Management Expenses attributable solely to or solely for the benefit of the flats in the Towers including the Towers’ Common Areas and Facilities.’ ([38])

Duty of managers and incorporated owners to take proper steps

November 22, 2012

In Lee Ming Yueh v Broadway-Nassau Investments Ltd ([2012] 5 HKLRD 208, CA) water leaked through the walls and roof of a top floor flat. The managers asked contractors to look at the problem. Initial remedial efforts were not effective but eventually the problem was identified and resolved. The water seepage damaged the walls and floor of the flat. The owner of the flat claimed damages against the managers and the incorporated owners alleging breach of the Deed of Mutual Covenant and section 18 of the Building Management Ordinance (imposing duties on the Manager and the incorporated owners to keep common parts in repair). The claim failed both in the Lands Tribunal and in the Court of Appeal. The duty was one of ‘proper management’. The managers had promptly engaged contractors to investigate and remedy the problems when they received complaints. They could not delegate their duty to contractors but there was nothing to suggest that they had been negligent in their choice of contractor.

Overpayment of management fees: acquiescence

November 20, 2012

In Wong Pun-Man v Tung Fat Industrial Building (IO) ([1996] 1 HKDLR 32, LT) a DMC provided for the payment of management fees by the owners of the shops and flats in the building. The flats initially paid management fees at a higher rate than the shops. The DMC provided for any increases to be ‘in like proportion’. The increases were unanimously agreed at annual owners’ meetings. Copy notices of the revised fees were then prominently displayed in the building and sent to each owner. For several years, the fees were not increased ‘in like proportion’ and the fee increases for the shops were steeper than for the flats. The shop owners made the payments demanded but then realised that the DMC had not been followed and sought to recover the over-payments. They failed; they had acquiesced in the over-payments. They knew (or must be taken to have known) of the terms of the DMC and had paid nonetheless. There had been detrimental reliance and it would be unconscionable to re-open the accounts.

The Tribunal left open the questions as to whether the effect of the acquiescence was merely suspensory (having no effect on future rights) and as to the impact of the (the new) Building Management Ordinance from 1994 onwards.

Incorporated owners can be compelled to take action to enforce the DMC

November 19, 2012

In See Wah Fan v Ki Tat Garden (Phase I) (IO) ([2003] 3 HKLRD 1, CA) W owned the ground floor and cock loft in a building covered by a DMC. T owned the first floor and roof and the stairs and landings above (but not at) the cock loft level. In breach of the DMC, T had enclosed the landing at cockloft level and prevented W from obtaining access to the roof for repair purposes or as a means of escape in emergency. The owners corporation had not taken any action. W brought proceedings. Could he do so given that section 16 of the Building Management Ordinance makes the corporation the proper plaintiff? The Court of Appeal held that the Lands Tribunal can compel the corporation to enforce the terms of the DMC.

‘To take an extreme case, if the majority of the owners had decided to act in bad faith in a matter concerning the management of the common parts, is the minority owner precluded from seeking redress in the court? The answer must be no. This cannot be the intention of the legislation. This being the case, if a minority owner can show he has a legitimate complaint regarding the common parts of the building and yet the management committee had chosen to ignore him, we see no reason why he cannot seek relief from the court. This must be one of the means to ensure that the corporation will observe the intention and requirement of the Ordinance in the proper management of a multi-owner building.’ ([25] per Cheung JA).

Breach of covenant? Can failure to enforce against others amount to acquiescence?

November 14, 2012

In Hoi Luen Industrial Centre (IO) v Ohashi ([1995] 2 HKLR 448, HC) D was the owner of a unit in an industrial building and was bound by the terms of the Deed of Mutual Covenant for the building. He erected a water cooling tower on the external wall of the building even though the incorporated owners had informed him that they regarded this as being a breach of the terms of the Deed of Mutual Covenant. There had been many such breaches and the management committee had delivered a notice to all owners in the building warning of the dangers of the unauthorised cooling towers and of their intention to take action to deal with this problem. The incorporated owners then began proceedings against D seeking a mandatory injunction.

D argued that the failure to take action in respect of earlier breaches amounted to acquiescence. This failed. Acquiescence was akin to estoppel. Here, the incorporated owners had made it clear to D even before he erected the tower that they objected to it and were prepared to take legal action in the event of breach. Nor was a mandatory injunction inappropriate: it was reasonable (given limited financial resources) for the incorporated owners to make an example of just some owners in breach and to choose those whose breach post-dated their notice of intention to bring proceedings.