COVID-19: Some Practical Observations for Hong Kong Real Estate Developers, Mortgagee Banks and Investors

Issues

Late Stamping

The Inland Revenue Department stated that penalties for failure to submit documents for stamping due to the suspension of services will be remitted, provided that the documents concerned were submitted on the extended deadline of 3 February 2020. 

Late Registration

By way of background, all deeds, conveyances, judgments and other instruments affecting real or immovable property (collectively “instruments”) duly registered in the LR within one month after their execution are entitled to priority in accordance with their respective dates of execution. If an instrument is entered for registration more than one month after its execution, such instrument will have priority, as against the other instruments, in accordance with its date of registration. 

According to a recent circular issued by the Law Society of Hong Kong, the LR explained that the period within which instruments are to be registered after execution was statutorily prescribed, and there was no provision under the Land Registration Ordinance (Cap. 128 of the Laws of Hong Kong) or other statutes that provided for automatic extension of the period in the event of such emergency closure of offices. The LR is not in a position to extend the statutorily prescribed period for those instruments in respect of which the period expired in the closure period.

This means that, if the one-month period for the registration of an instrument expired during the closure period, and such instrument was only registered afterwards, such instrument would only be entitled to priority by reference to the date on which it was presented to the LR for registration, instead of its date of execution (even where such failure to register within the prescribed period was due to the closure of the LR which was outside the control of any party).

The following are some non-exhaustive illustrations of certain scenarios: 

Executed on
31 December 2019

Registered in LR on
3 February 2020

Executed on
4 January 2020

Registered in LR on
3 February 2020

Executed on
31 December 2019

Registered in LR on
3 February 2020

Executed on
4 January 2020

Registered in LR on
5 February 2020

Executed on
4 January 2020

Registered in LR on
3 February 2020

Executed on
6 January 2020

Registered in LR on
3 February 2020

2. Delays in Completing Development Projects

To what extent developers could seek an extension of time for completion of the development or handover of the development units as a result of the COVID-19 outbreak arising from possible causes such as:

• Lack of supply from mainland China due to closure of factories or lock down of affected areas;
• Lack of construction workers by reason of restrictions on travel or quarantine; and/or 
• Delays in obtaining Government approvals due to closure or reduced services of Government offices?

Standard forms of agreements for sale and purchase (ASP) for first-hand residential properties¹ would typically contain provisions that entitle the relevant Authorised Person (AP) to grant extensions of time for delays caused exclusively by reasons such as force majeure and acts of God. 

Generally, force majeure refers to a supervening event arising without the fault of either party that prevents a party from performing his obligations. It is not sufficient that performance is more onerous or more expensive. 

Developers would need to provide the AP with the necessary factual basis to enable the AP to justify the issue of the extension certificate.

Under the standard form of ASP for first-hand residential properties, the sale and purchase shall be completed within 14 days after the date of notification to the purchaser that the vendor is in a position to validly assign the property to the purchaser. 

In the circumstances that a purchaser requests to delay completion beyond the 14-day period, it is the developer’s commercial decision whether to agree to such delay.

Alternatively, if the relevant purchaser is able to arrange to settle the completion payment on the original scheduled date, and if completion is to take place by way of solicitors’ undertakings (following the usual conveyancing practice in Hong Kong), the purchaser can possibly execute the assignment abroad (subject to the satisfaction of relevant notarisation requirements and formalities).

Parties may not be able to complete transactions as a result of closures of handling solicitors’ offices, whether voluntarily or on the recommendation, requirement or order of the Government.

Purchasers who are located in mainland China or abroad may be unable, or unwilling, to travel to Hong Kong for completion, or those who are subject to quarantine arrangements may also be unable to complete.

The parties may agree to include a clause in the ASP that allows for the delay of completion in the event that the office(s) of the vendor’s and/or the purchaser’s solicitors is/are closed on the scheduled date of completion, whether voluntarily or due to any recommendation, requirement or order by the Government for the purpose of reducing the risk of transmission of a pandemic, epidemic or other widespread outbreak of any scheduled infectious disease.

In the event of a purchaser being unable, or unwilling, to travel to Hong Kong for completion, or where he/she is subject to quarantine arrangements and is unable to complete, the parties’ obligations are governed by the relevant ASP. In the absence of any express provision in the ASP in this regard, parties may reach mutual agreement to delay completion as a matter of commercial decision. 

Alternatively, if the relevant purchaser is able to arrange to settle the completion payment on the original scheduled date, and if completion is to take place by way of solicitors’ undertakings (following the usual conveyancing practice in Hong Kong), the purchaser can possibly execute the assignment abroad (subject to the satisfaction of relevant notarisation requirements and formalities).

Some tenants may face short-term economic difficulties and request the landlord for rent abatement. 

On the other hand, some landlords may wish to proactively offer abatement of rent or other fees, or other concession(s), to retain existing tenants.

Some tenancy agreements contain clauses on suspension of rent, but the scope of the same must be examined carefully. 

Certain clauses may provide for suspension or abatement of rent in the case of destruction or damage to the premises by calamities such as fire and typhoon rendering it inaccessible, but epidemics do not typically fall within such clauses which mainly concern physical damage to the premises.

If a landlord makes a commercial decision to suspend or abate rent or other fees or to offer other concession(s), this is customarily documented as a one-off waiver instead of an amendment to the relevant tenancy agreement.