Determining whether external walls are common parts

Donora Company Limited v Tsuen Kam Centre (IO) ([2024] HKCFA 3 ) considered whether the external walls of a building were common parts of the building or were intended for the exclusive use of the developer.

If they were common parts, the costs of repair would be a shared cost of the building owners collectively. If the walls were reserved for ‘exclusive use’ then the costs of repair would have to be met by the party entitled to that exclusive use.

The Court of Final Appeal (Mr Justice Lam PJ giving the main judgment) agreed with the developer that the external walls were common parts of the building.

As is usual in Hong Kong the developer entered into a Deed of Mutual Covenant (‘DMC’) with the purchaser under the first assignment of a unit in the building.  

The first assignment provided that the exclusive use of the external walls was reserved for the vendor / developer. This was not the end of the story, however.

The CFA explained that the common intention of the developer and the first purchaser was to be determined by looking at the first assignment and the DMC together. They were parts of one and the same transaction ([37]).

One of the recitals to the DMC (recital 5) explained that the parties had entered into the DMC ‘for the purpose of defining and regulating the rights, interests and obligations of the Owners in respect of the Lot and the Building’.

This indicated that, as regards the question as to whether the external wall was a common part, the DMC was the primary document to be considered ([37]).

The court’s task, then, was to interpret the DMC using the usual principles of contractual interpretation. Thus, the DMC was to be ‘read as a whole in light of the factual and legal context of its making and the practical objects which it was intended to achieve’ ([55]).

The first assignment was merely ‘part of the context in the construction of the DMC’ ([41]).

The CFA concluded that the external walls of the building were common parts despite what was said in the first assignment.

The considerations leading to this conclusion were that:

• The DMC did not designate the external walls as being for anyone’s exclusive use (though it did give the developer the ‘exclusive’ right to use the external walls for limited purposes such as advertising) ([57]);
• The DMC allowed other owners to use the external walls for certain purposes with the prior written approval of the manager of the building ([58]) this indicated that the developer’s right to use the external wall was not exclusive ([59]) – [61]);
• The external walls of the residential part of the building (there were three residential blocks above a commercial use podium) were largely made up of windows and window bays; this meant that they were more adapted for the limited uses of the unit owners rather than the limited uses allowed to the developer ([62]);
• All owners benefited from the function of the external walls in ‘(i) holding and supporting the building; (ii) preventing damage to the building’s interior; and (iii) enabling the co-owners to have peaceful enjoyment of their respective units’ ([64]);
• The DMC made the building manager responsible for the maintenance and repair of the external walls ([68]) which would be the duty of the developer if the developer had the right to the exclusive use of the walls ([69]);
• The DMC tied exclusive use of an area to the ownership of an undivided share in the building, but the DMC did not attach any shares to the external walls ([71]).

For all these reasons, the CFA concluded that the external walls were common parts and the cost of maintenance and repair was the shared responsibility of the owners under the terms of the DMC.

Michael Lower

Building management: Management fee for handling renovation works needs owners’ approval

In Flora Garden (IO) v Li Do Wai ([2016] HKEC 1830, LT) the owners’ meeting approved the carrying out of renovation and improvement works at the estate. The incorporated owners added a 10% fee on top of the cost of the works to cover consultancy, contract and administrative fees and other ancillary costs (‘ancillary costs’). The owners’ meeting had approved the cost of the works but not the ancillary costs. When the works were complete, each owner was asked to pay the due share of the cost of the works including the ancillary costs. Deputy Judge Kot held that the ancillary costs could not be charged to the owners. They had not been approved by the owners nor had this aspect of the works been put out to tender. The incorporated owners’ submission that owners had paid such costs before without express approval and that this practice provided the necessary authorisation failed ([33] – [36]).

The DMC authorised the owners’ corporation to levy a 5% surcharge on late payers as well as a collection charge of HK$150. A demand for these sums was made of the owners who had paid late. They argued that these sums were a penalty and so irrecoverable. This argument failed. It did not matter that the sums were not a genuine pre-estimate of loss. The surcharge clause protected a legitimate commercial purpose of the incorporated owners and was not extravagant or unconscionable in amount ([47] – [48]).

Michael Lower