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

Developer retains exclusive right to use the external walls. Are they common parts?

Introduction

In Kong Wai Hsien v Tai Wai Glamour Garden (IO) ([2019] HKCA 1229) the Court of Appeal had to consider whether the external walls of a building were common parts even though the DMC reserved to the developer the exclusive right to use them.

Individual owners claimed that they were not liable to contribute to the cost (of over HK$5 million) of carrying out maintenance works on the external walls and other common parts.

The individual owners argued that these walls were not common parts since the DMC granted the developer exclusive rights over them.

Were the external walls ‘common parts’ in the sense that they were not part of the estate the exclusive use of which had been allocated to an owner? This was a question of contractual interpretation of the DMC.

Relevant DMC provisions

The DMC for the building allocated 20 shares to the common parts, expressly defined to include the external walls. The developer retained the ownership of these 20 shares and the associated rights over the common parts.

The rights given to the owner of the common parts by the DMC included the exclusive rights to use the external walls: (a) by placing pipes, wires, machinery etc on them; and (b) the exclusive right to use, or allow others to use, the external walls for advertising purposes,

The owners argued that the rights granted to the Developer over the external walls were so extensive that there was no use left for other owners.

The decision

The Court of Appeal decided that the walls were common parts despite the DMC’s grant of the exclusive right to make certain types of use of them.

All of the owners derived benefit from the external walls despite the rights granted to the Developer: ‘ the External Walls by providing the external framework to the Building also serve to hold and support the Building and prevent damage to its interior. All the co-owners or occupiers of the Building have the right to enjoy such use’ ([40] Au JA).

The Developer did not have exclusive right to use the external walls. They were common parts and all owners could be made to contribute to the maintenance costs through the management charge.

Michael Lower

 

Car parking spaces: common parts?

Tai Fat Development (Holding) Co Ltd v Gold King Industrial Building (IO) ([2017] HKEC 1366, CFA) concerned a dispute as to whether or not thirteen car parking spaces in the building were common parts. The first owner of the building claimed to be entitled to their exclusive use.

As always, this was a question of interpretation of the words used in the light of the DMC as a whole, other relevant documents and the factual matrix. The CFA agreed with the courts below that these factors all pointed to the conclusion that the car parking spaces were common parts.

The DMC referred to the spaces as ‘loading and unloading areas’. If the spaces were not common parts there would be a breach of the terms of the Government Grant. There would also be severe practical difficulties.

The first owners also relied on estoppel by convention. The incorporated owners had taken leases of the spaces from them. The necessary common understanding that the first owners owned the spaces was lacking, however; the incorporated owners disputed this claim even as they accepted the leases. Nor could the first owners point to any detriment.

Michael Lower

 

Closure of basement parking area during renovation works

In Tung Lo Court (IO) v Leung May Chun Alison Aliance ([2014] HKEC 2104, CA) the basement of the building (which included the car parking spaces) had become dilapidated and the incorporated owners decided to have repair and renovation works carried out. Once the work had begun there was an unanticipated problem when the basement was flooded with underground water. The contractors took advice and they were told that safety demanded that the basement be completely closed for four months. The incorporated owners followed this advice. L contended that this closure amounted to a breach of the DMC and also constituted a nuisance. The Court of Appeal rejected this. Given the strong advice that they had received about the risk to safety, it was reasonable for them to have closed down the basement ([31.1]). It was also legitimate to bear in mind the complicated legal issues that might have arisen if someone had been harmed or suffered damage to their property had the basement remained open; it would not have been clear whether the liability was that of the contractor or of the incorporated owners ([31.2]). It was also legitimate to base the decision on financial considerations; closing down the basement meant that the work could be done more quickly and at a lower cost that would otherwise have been the case ([38.4]).

Michael Lower

Adverse possession of a common part by a non-owner

In Yeung Mau Cheung v Ka Ming Court ([2013] HKEC 1271, CFI) the plaintiffs and their predecessors had used two portions of the common parts of a building as a refreshment store and associated storage area since 1965. The DMC for the building was created in 1970. The question was whether the plaintiffs were entitled to declarations that they had a possessory title and that the defendant’s title had been extinguished by the Limitation Ordinance. The court was satisfied that the plaintiffs had been in adverse possession for the necessary length of time ([29] – [30]).

The next question was whether the adverse possession claim was defeated by the covenant not to convert common parts to private use implied into the DMC by section 34I of the Building Management Ordinance. This defence failed. The court relied on, and regarded itself as being bound by the Court of Appeal decision in Wong Kim Lin v Peony House (IO).

Michael Lower

Adverse possession of a common part by a stranger to the DMC: BMO s.34I does not defeat the adverse possession claim

In Wong King Lim v Peony House (IO) ([2013] HKEC 828, CA) W had been in adverse possession of a lane behind Peony House since 1987. The lane was a common part of Peony House. W was not an owner of Peony House and so not subject to the terms of the DMC. W brought an adverse possession claim in respect of the lane. The incorporated owners argued that any title thus acquired was subject to the covenant implied by section 34I of the Buildings Management Ordinance (a covenant not to convert common parts to private use). The argument was that this restrictive covenant had priority over W’s possessory title (relying on Re Nisbet and Pott’s Contract).

This argument failed. One reason given by the Court of Appeal looked at the purpose of the covenant:

‘The owners of the Building had covenanted only with one another to possess the Lane in common and not exclusively.’ ([34] Yuen JA)

Once the title of all the owners to the lane had been extinguished then there was (so to speak) no covenantee with an interest in land who could enforce the covenant. ([34]) (see also [43] Lam JA). It seems to make no difference that the owners still had title to the rest of the Building and, in that capacity, still had an interest in the enforcement of the implied covenant.

A second reason is given for the proposition that W was not subject to the implied covenant. This is that the right to enforce the covenant had also been defeated by the Limitation Ordinance:

‘[I]n contrast with the position of the covenantee in that case, the Defendant IO’s right under the DMC (and the deemed obligation under the DMC created by Section 34I) has been infringed from the very beginning of the dispossession by the Plaintiff over the portion of the land in question. Thus, the basis of the judgment of Collins MR in that case (viz time should not start to run until the right of the covenantee is affected) has no application to our case. The extinguishment of the title to the land under section 17 of the Limitation Ordinance Cap 347 encompasses the title to enforce the DMC in respect of that portion of the land.’ ([44] Lam JA)

Michael Lower