Sale and purchase process

Typical process

As the title of each property varies, there is no market standard form of reporting or standard form of enquiries raised by purchasers.

The following is a summary of the legal due diligence process when acquiring commercial real estate in Hong Kong:

(a) The purchaser's solicitors will normally conduct legal due diligence in respect of the property; (b) The purchaser's solicitors and vendor's solicitors will negotiate and agree on the terms of the formal sale and purchase agreement for signing by the parties; (c) The purchaser's solicitors will conduct a land search at the Land Registry and may obtain copies of the title deeds for inspection. Search fee at the Land Registry is nominal and copies of the title deeds can be obtained instantly. It is common to request the vendor's solicitors to deliver the title deeds (mostly original and certified copies) for inspection with an undertaking imposed upon the purchaser's solicitors to return the title deeds upon demand and to keep them in safe custody. The purchaser's solicitors will cross check the title deeds against those registered in the Land Registry as well as other title deeds not registered but affecting the title of the property and forming part of the title deeds; (d) The purchaser's solicitors will also request additional information to be provided by the vendor's solicitors e.g. whether there are any unregistrable and/or unregistered documents affecting the property such as tenancy agreements or trust arrangements; (e) If there are any defects in the title, such as missing documents, unregistered documents, outstanding stamp duty or other payments, improper mode of execution of the predecessors-in-title of the property, suspected unauthorised building works or other encumbrances, the purchaser's solicitors may raise requisitions within a mutually agreed timeframe. The vendor's solicitors will need to respond to, or help rectify, those deficiencies in order to prove good title. If requisitions are unsatisfactorily answered or the defect(s) on title is/are not remedied, the purchaser will usually reserve a right to annul the transaction in the formal sale and purchase agreement;

(f) The purchaser may also engage a surveyor or other professionals to inspect the physical condition of the property, identify whether there are any unauthorised building works, ensure that all of the fixtures and equipment expressed to be sold are in fact existing and functional, and obtain an opinion on the price of the property; (g) The purchaser's solicitors may also write to the management company of the property to check for any outstanding management fees, or underlying liability that the vendor shall be responsible for, breach of terms of the deed of mutual covenant and/or management agreement by the vendor; (h) The purchaser's solicitors may also write to the relevant Government authorit(ies) for any outstanding payment of Government rent and rates payable by the vendor and/or the status of rectification or investigation regarding any unauthorised building works; (i) Prior to completion, the purchaser may inspect the property to see whether the property is subject to unregistrable interests such as any tenants, licensees or occupiers occupying in the property and/or to check the physical condition of the property and the fixtures, fittings and furniture; (j) If the property transaction is to b affected via a share sale, then corporate, finance and taxation due diligence is also necessary; (k) As the title of each property varies, there is no market standard form of reporting or standard form of enquiries raised by the purchaser's solicitors; and (l) Vendors will also customarily be asked to represent and warrant in relation to the legal title and conditions of the property in the provisional and formal sale and purchase agreement.

Other notes

  • Legal due diligence may not make apparent all unauthorised building works, which may render the title not being good and marketable.
  • It is also important to pay attention to unregistrable interests such as tenancies, uncrystallised floating charges and other interests arising from resulting or constructive trusts that may not be found from the land search records obtained from the Land Registry, which might not have been disclosed by the vendor.
  • Statutory Outline Zoning Plans set out the designated uses of land. Some uses need permission of the Town Planning Board before building works can commence.

  • Building works must not commence without approval for the building plan and consent for the commencement of building works being obtained from the Building Authority.
  • A new building must not be occupied (except by no more than two caretakers) unless an occupation permit or temporary occupation permit has been issued by the Building Authority and the developer for the new building shall obtain a certificate of compliance or consent to assign from the Lands Department before the property can be validly assigned to the purchaser.

If you have any questions or comments about this report, please get in touch.

Attorney Advertising Material © Withersworldwide - The information and opinions contained in this publication do not constitute professional advice