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7. Matters that vitiate good title (Illustrations of encumbrances…
7. Matters that vitiate good title
Defeasible title
: Title can be taken away from the owner
e.g.
Real risk of re-entry by gov for breach of Gov Lease or
Failure by V to execute assignment under seal or
There is a real risk of enforcement action by the BA under the BO or
There is a fraudulent preference
Defective title:
When there is an encumbrance on title
e.g.
Property is subject to a mortgage or charge
Subject to resulting or constructive charge
Defective titles will not necessarily risk title being taken away but property is less valuable when subject to an encumbrance. Some encumbrances are easily removed by paying off
e.g.
management charges
Factors that vitiate good title
Title must be in V or someone whom
V can compel to convey
e.g.
Director who controls a company
Harold Elliot v Pierson
Owner of a unit in a M/S bldg can never give title to cmpts
Profit World Trading
V must be able to sell
w/o obtaining consent
from anyone
e.g.
under the Gov Home Ownership Scheme;
Small house policy:
Sung Wai Kiu
V must be able to sell his whole interest free from encumbrances
1) Except
Unregistered registrable encumbrances are void against equity's darling:
s3(2) LRO
This is
true even if equity's darling had actual notice
of the encumbrance:
s4 LRO
Option to renew in a tenancy agreement not registered; P of reversion from landlord did not take subject to option to renew even though the sale of the leasehold reversion was expressly made subject to the option -
no fraud in allowing P to rely on statutory rights under
LRO
Wellmake Investments Ltd
Unless there is fraud, P obtains an unfettered title even if he has notice of a prior unregistered interest:
Keep Point Dvpt Ltd
2) Except
encumbrances to which the sale is expressly made subject
Encumbrances including sold subject to rights of way, restrictive covenants, DMC and Gov lease must be
identified in SPA
Wong Kam-lan
Courts are prepared to
imply
a term in the agreement that a sale is
subject to DMC
in the usual terms
Sale could also be made subject to mortgage or charge (unusual)
3) Except
Property might be subject to patent encumbrances
e.g.
rights of way and illegal structures
Kensel v Charmfast
: Illegal structure was patent defect when property was compared with a plan which had been provided to P before SPA
but
most defects are not patent
Illustrations of encumbrances
Mortgages and charges
Occupiers' rights
Nominations
Potential, liability for estate duty on gifted property
Gov abolished estate duty in 2005 budget
Property subject to liability or potential liability under notice from Gov or a competent authority
s17 BMO
Title not defective if there is a
personal claim
against V
But
s17(1)(b) BMO
entitled judgment creditors to apply to the Lands Tribunal for leave to enforce judgment against IO and any co-owner of the building
Chi Kit v Lucky Health
P should enquire whether V is aware of anything which might give rise to a liability on the part of IO.
Claim against owners corporation -
title defective
Gigabillion Asia Pacific
Offer of indemnity by V
Lis Pendens
An action relating to land e.g.
Claim that property held on implied trust
A properly registered LP will encumber title
Unpaid mngmt charges under DMC
V usually pays up to completion and P pays thereafter but checks there are no arrears
Breach does not usually run w/ land
Discovery Bay Services Mngmt Ltd
But
memorandum of charge
registered under DMC is an
encumbrance
which must be released on completion:
AIE v Kay Kam Yiu
Title
defeasible
because arrears outside the contemplation of a reasonable P and in this case P could be held liable under DMC
Wise Wave v TFK
Resolution by IO to carry out repairs to cmpts before date of agreement - V liable for costs
Luk Ho Ching v Fook Man Finance