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1. |
Title of property free from encumbrances |
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It is usually an express term of the formal agreement for sale and purchase that the vendor shall, save as specified therein, give and prove good title to the property free from encumbrances. |
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2. |
Good title |
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A good title enables the owner to hold the property against any challenge or claim by a third party. |
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3. |
Encumbrances |
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An encumbrance is a charge or other liability to which land is subject.
The presence of encumbrances may render the title defective or defeasible. Unless otherwise agreed, a purchaser is not obliged to accept the vendor's title to a property with undesirable encumbrances. For example, the existence of an illegal structure posing a real threat of government re-entry is an encumbrance which renders the title defective.
Other encumbrances (such as a legal charge) involve financial liability and may generally be discharged through payment of monies.
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4. |
Registrable encumbrances |
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| a. |
Under the Land Registration Ordinance (Cap.128), "deeds, conveyances and other instruments in writing, and judgments" affecting land can be registered at the Land Registry. Examples of registrable encumbrances are legal charges/mortgages and charging orders. |
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| b. |
The priority of registered documents depends on the date of registration. Unregistered but registrable encumbrances (for example, a legal charge) are not enforceable against a subsequent bona fide purchaser or mortgagee for valuable consideration irrespective of whether the purchaser or mortgagee has notice or not of such encumbrances. |
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| c. |
However, it should be noted that non-registration of a bona fide lease at rack rent not exceeding three years does not affect the legal effect or priority of such a lease. |
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| d. |
It is the Land Registry's usual practice that, on the land register of a property obtained through a land search at the Land Registry, all instruments other than those recorded under the heading of "Owner Particulars" are recorded under the heading of "Incumbrances". It should be noted that those instruments recorded under "Incumbrances" are not necessarily encumbrances on the title and each such instrument should be checked carefully. |
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5. |
Unregistrable encumbrances - valid third party interest |
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| a. |
There are other encumbrances which are not created by instruments in writing and are thus not registrable in the Land Registry. They are commonly referred to as unwritten equities, examples of which are occupiers' rights and resulting trust. |
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| b. |
A purchaser may take property free from non-registrable interest provided he has no actual or constructive notice of such interest. |
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| c. |
In order to avoid being presumed to have notice of valid third-party interest, it is advisable for a purchaser to inspect the property carefully and to make due enquiry as the circumstances warrant. For example, purchasers should enquire whether an adult occupier (other than the owner) has any interest in the property.
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