Introduction
The dispute in Sun Hing Building (IO) v Join Profit (Hong Kong) Limited ([2024] HKCA 589) arose out of an agreement between the Incorporated Owners of Sun Hing Building (‘the IO’) and the owner of shop units (‘the shops’’) on the ground floor of Sun Hing Building.
Join Profit (Hong Kong) Limited (‘Join Profit’) was the owner of the shops at the time of this dispute.
The IO agreed with the owner of the shops to an exchange.
The IO gave the owner of the shops the exclusive use of a corridor which until then had been a common part. In return, part of the exclusive use area of the shops became a common part to create a new corridor.
Was the IO entitled to terminate this exchange and revert to the original position? Had it done so effectively in this case?
The Sun Hing Building DMC contained provisions entitling owners to use common parts and prohibiting owners from doing anything to prevent other owners from exercising these rights.
Did these express DMC provisions take precedence over the power of the Management Committee to authorize the conversion of common parts to private use contained in section 34I of the Building Management Ordinance (‘s. 34I’)?
The legal nature of the agreement
G. Lam JA gave a judgment with which the other members of the Court of Appeal agreed.
He commented that the agreement was not a licence of the corridor.
It is not a licence because the shops owner is entitled, as owner, to use any part of the Sun Hing Building.
Rather, it was an agreement to allow the shops owner to enclose the corridor and exclude all other owners ([41]).
This conversion to exclusive use was lawful because s. 34I authorized the Management Committee to convert a common part to the exclusive of an owner.
Similarly, the shops owner released its excusive use of the area that it exchanged for the corridor so that this became a common part ([44]).
Was the IO entitled to terminate the agreement?
There was no express right for either party to terminate the agreement.
The question was whether a right to terminate could be implied or existed as a matter of the true interpretation of the agreement.
The Court of Appeal rejected the IO’s argument that there was an implied term that either party could terminate the agreement at any time by giving reasonable notice.
The shops owner had incurred considerable expense in making the conversion and it was unlikely that they intended that the agreement could be terminated at will.
Instead, on its proper construction, ‘the Agreement is terminable by reasonable notice if either party has a legitimate need for the original configuration to be restored.’ ([67])
The IO had not shown that there was such a legitimate need.
Did s. 34I legitimate this conversion to exclusive use?
S. 34I allows the Management Committee to authorize the conversion of common parts to the exclusive use of an owner.
This is true even if this means that rights conferred by the DMC over common parts will no longer be exercisable over the area in question ([50]).
There seems to be no reason why the authorization could not be for such conversion to be on a permanent basis ([54]).
Michael Lower
**Disclaimer**: The information provided on the Hong Kong Land Law blog is for educational purposes only. It is intended to offer a general understanding of the cases or issues discussed, not to provide specific legal advice. Readers should not act upon this information without seeking professional legal advice. The views expressed are my own and do not necessarily reflect the official policy or position of any court or legal authority.