Among the various documents affecting the title of property, the Deed of Mutual Covenant is most relevant to the rights and obligations of individual flat owners, as can be illustrated by the case below.
Mr Sze owned a residential unit. Recently, through an estate agent, he rented the unit to a tenant who used the flat to store goods and as a showroom.
As goods were constantly being moved in and out, in the course of time it was no secret that the unit had been put to uses other than residential. One day, Mr Sze received a notice from the management office asking him to stop using the flat as a warehouse. Mr Sze intended to discuss the matter with the tenant but the tenant ignored him, always saying that he was busy. A month later Mr Sze received a letter from the lawyer acting for the management company, demanding that he immediately stop using the flat for non-residential purposes. Fearing more trouble to ensue, Mr Sze simply had the flat listed for sale at a low price subject to the lease. Finally, he signed a provisional agreement of sale and purchase with a purchaser.
Selling the flat proved not to be a solution to the problem. The management company had already filed a suit with the court and had the writ registered at the Land Registry. The purchaser terminated the agreement because of the writ. Mr Sze had to return the deposit and pay the agent's commission. As the problem was getting serious, Mr Sze sought out the tenant and finally had to pay him a sum of money in compensation before recovering the flat. In the mean time, other costs were incurred by Mr Sze for the lawsuit and for discharging the registered writ.
In the Deed of Mutual Covenant of the building where Mr Sze's flat was located, it was clearly provided that the flats should not be used for purposes other than residential. Further, where any tenant should violate the provisions of the Deed of Mutual Covenant, Mr Sze as owner would have to bear responsibility, and the management company had the right to sue him and could have a court document or order registered at the Land Registry. In such circumstances, the title of the flat would be adversely affected.
A Deed of Mutual Covenant is a contract usually made between the developer, the management company and the first purchaser at the time the building was ready to be occupied. It provides for the number of undivided shares allotted to each flat in the building, the rights reserved by the developer, the powers and duties of the management company, and the mutual rights and obligations of the individual flat owners. It is also binding on anyone who becomes a flat owner of the building in future.
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