For consideration
on 19 January 1999

LEGCO PANEL ON PLANNING, LANDS AND WORKS
Land Titles Bill

PURPOSE

This paper briefs Members on the proposed land title registration system and the Land Titles Bill.

BACKGROUND

2. The present system of land registration governs only the priority of registered deeds and provides that unregistered deeds shall be null and void against any subsequent bona fide purchasers or mortgagees for valuable consideration. Registration per se does not confer on a deed any validity it does not otherwise have. Therefore, even if a person is registered in the Land Registry as owner of a property, he may not be the legal owner because there may be some uncertainty or defects in his title to the property or his title may be subject to the claim of some other person which does not appear on the land register kept by the Land Registry. This uncertainty of title places purchasers at risk and reduces the commercial potential of properties in some cases.

3. The current system is also costly and expensive as to establishing title to property. It is necessary in every case to check carefully through the title documents and government grant recording all the transactions affecting the property that extend to not less than 15 years before the current contract of sale of that property.

4. A Working Party on Title Registration chaired by the then Registrar General and comprising practising solicitors from prominent conveyancing law firms and representatives of the Law Faculty of the University of Hong Kong was set up in May 1988 to consider the desirability of converting the present deed registration system to a land title registration system. The Working Party, having considered the major types of registration systems operating in other jurisdictions, concluded that conversion to a land title registration system was desirable. The Law Society of Hong Kong was consulted on the proposal and supported it in principle.

5. Subsequently, Professor Peter WILLOUGHBY, former Professor of Law and Head of the Department of Professional Legal Education of the University of Hong Kong, was appointed as consultant to examine the conversion process in detail. In his Report produced in March 1991, he made detailed recommendations for converting the present system of deed registration to one of land title registration. The Law Society, the Bar Association, the Society of Accountants, the Association of Banks, the Consumer Council and a number of other interested bodies were consulted again on the proposal.

THE LAND TITLES BILL

6. In 1994, we introduced the Land Titles Bill into the Legislative Council with a view to converting the present deeds registration system to a land title registration system. Under the proposed system, registration of a person as owner will confer full and absolute title to the property concerned subject only to any matters registered on the land register, certain overriding interests and rectification by the Court. It will no longer be necessary for the owner's solicitor to investigate the title by reviewing and approving all the title deeds. The land register will be the conclusive evidence of the title of the property, and any claim against the property, which is not registered (with the exception of overriding interest and rectification by the Court), will be void. The main provisions of the Bill and operational features of the proposed land title registration system are as follows:

1. When the new system comes into operation, all the existing land registers kept by the Land Registry will be deemed to be the land registers for the purpose of the new system.

2. Persons whose names appear as registered owners on the land registers will be deemed to be the legal owners of the properties concerned. The owners named on the land registers on the operative day will be subject to any unregistered interest affecting the land and existing before the appointed day which are enforceable against them.

3. The Government will indemnify any person suffering actual loss as a result of a mistake of the Land Registry. Government will also indemnify up to a limit any person suffering actual loss as a result of fraud but such compensation will be recovered from the person or persons responsible for the fraud.
4. Persons claiming an interest in property registered in the name of another person may, if that registered owner disputes the claim, register a non-consent caution against the property. Any person who registers a non-consent caution wrongfully or without reasonable cause may be liable to pay compensation to those who suffer damage as a result.

5. Agreements for sale and purchase and equitable charges will no longer be registrable but interests of the purchaser or chargee under these documents can be protected by the registration of a consent caution instead.

6. Title to property of registered owners will continue to be affected by certain "overriding interests" as at present. Examples of such "overriding interests" include:
   1. public or statutory rights such as public rights of way, rights of laying public utility services, rights of the Government to resume, close, demolish, etc. the property;

   2. rights of the Government or any other person under the Government lease of the property;

   3. Chinese custom or customary rights under Part II of the New Territories Ordinance which may affect the property; and

   4. private rights, such as private rights of way, existing on the date of coming into operation of the new system.

7. The Land Registrar will have the power --
   1. to impose a restriction on registered land for the prevention of fraud or improper dealings;

   2. to rectify errors in the land registers which are immaterial, or with the consent of all interested parties any other errors.

   3. to specify forms, including conveyancing forms; and

   4. to apply to the Court of First Instance for direction in case of doubt or difficulty or in any matter not provided for in the legislation.

7. Although there was general support in principle for the land title registration system, the Bills Committee did not agree to certain provisions in the Bill. These differences had not been resolved by July 1995 when that legislative session ended and examination of the Bill was curtailed. The concerns of the Bills Committee narrowed down to two areas, namely -

1. the Bills Committee considered that in cases of fraud, the original owner of the property should be given back the title to the property whereas the bona fide purchaser of the property should be given monetary compensation; and

2. the Bills Committee supported a gradual process of conversion to the new registration system (e.g. over a number of years or by area).

8. On (a) above, the proposal of the Bills Committee would undermine the whole spirit of the new system by exposing bona fide purchasers to uncertainty of title to the property. On (b) above, whilst appreciating the good intention behind the proposal of the Bills Committee, the operation of two systems of land registration in parallel would give rise to confusion, and the resources and expenses required by this not justified. We believe that the "midnight conversion" approach is a better arrangement, though we agree that sufficient preparations should be made for this.

9. Despite the curtailment of the Bill in July 1995, we have maintained regular dialogue with the Law Society with a view to addressing their concerns. A number of amendments (as summarized at Annex I ) have subsequently been made to the original Bill. These amendments, we believe, have addressed most of the Law Society's concerns. A copy of the latest draft Bill (14th draft) is at Annex II for Members' reference.

WAY FORWARD

10. We aim to introduce the Bill into the Legislative Council on 31 March 1999, and to implement title registration in late 2001. As we did last time before the original draft Bill was introduced into the Legislative Council in 1994, we are consulting the relevant professional bodies on the revised Bill.

ADVICE SOUGHT

11. Members are invited to comment on the issues relating to the proposed land title registration system and the Land Titles Bill.

Planning, Environment and Lands Bureau
January 1999

Annex I

Major Amendments to the Land Titles Bill Gazetted in 1994

Original and New Sections	Amendments	Reasons for the amendments
1. Unregistered interests - new Cl.19(2)(d) In the original Clause 19, such owner is not subject to any unregistered interest. The Law Society objects as it is unjustifiable to deprive persons of their rights in the land simply through the implementation of the Bill. They suggest that so long as the registered owner on the appointed day remains the registered owner and has not disposed of his interest to a purchaser for valuable consideration, the persons having the unregistered interests can still enforce the said interests against the owner.	1.Clause 19(2)(d) is inserted to the effect that the owner named on the land register on the appointed day is still subject to any unregistered interest affecting the land (whether or not it is registrable under the Land Registration Ordinance) which is enforceable against him. In effect, the unregistered interest such as the Wong Chim Ying case is preserved against such owner. The Law Society's concern is addressed by this amendment.	1.(a)As the said owner buys the land under the deeds registration system, he should still be subject to such unregistered interest and should not take free from them under the new system. (b) The person having these unregistered interests can still enforce them against the said owner before he sells the property to another person. Accordingly, the period for enforcing the claim will be longer than the lead-in period.
2. Guarantee of long-term leases - new Cl.2, 19(3) and 44 Under the original Bill, the long-term leases are not guaranteed. The Law Society is of the view that these interests being substantial interests in land should be guaranteed.	2.(a) It is decided that upon registration of a long term lease which is a lease granted on or after the appointed day by the Government lessee for an unexpired term of 21 years for a premium (such as Robinson Place flats), there shall vest in the lessee the absolute ownership of the lease and all rights attaching to the land which may be exercised thereto (Cl.19(3)). (b) A lease with the above characteristics but granted before the appointed day can be registered as a long term lease under the Bill to get the guarantee (Cl.44). However, the solicitors will be required to certify in the application form that the "title" to the leases are in order. The Law Society is not fully satisfied with the above amendment as they insist that the long term leases already granted before the appointed day need not be registered to get the guarantee under the Bill.	2.(a) As the lessee's interest in the long term leases are relatively substantial in view of the length of the lease term, the said interest is guaranteed under the new system. b) As the leases are made before the appointed day under the deeds registration system, the lessees are given the option to register their leases as long-term leases under the new system to get the guarantee.
3. Estate duty charge as overriding interest - original Cl.21(1)(e)(v) and new Cl.21(1)(g)(i) Under the original clause, the estate duty charge is an overriding interest and there is no expiry date. The Law Society is concerned as the charge will affect the title-checking process.	3. The estate duty charge in respect of instruments giving rise to the charge (such as deeds of gift) already registered before the appointed day will be an overriding interest for 12 years from the date of the instruments. The Law Society is not fully satisfied with the above amendment. They propose the charge to remain as an overriding interest for 3 years.	3.This is suggested by the Commissioner of Inland Revenue to secure estate duty collection and the period of 12 years is adopted from the Singaporean system.
4. Registration of non-consent caution for the estate duty charge for a dealing which is not for valuable consideration - new Cl.66(5) and (6) Under the original Bill, the estate duty charge arising from the instruments registered after the appointed day are overriding interests. The Law Society objected to this clause.	4. After the appointed day, a non-consent caution to the effect that the land is or may become subject to the section 18(1) estate duty charge has to be registered upon registration of a dealing which is not for valuable consideration. The Law Society's concern is addressed by the above amendment.	4. This is suggested by the Commissioner of Inland Revenue to provide notice of the potential estate duty charge to the public and secure estate duty collection.
5. Stamp duty charge as overriding interest - new Cl.21(1)(g)(ii) and paragraph 55 of the consequential amendments	5. A stamp duty charge on the land for any stamp duty chargeable on an instrument already registered or delivered for registration under the Land Registration Ordinance before the appointed day and is being adjudicated will be an overriding interest. The provision will expire on the 1st anniversary of the appointed day unless a first charge is registered under the Bill before the said anniversary.	5. The Commissioner of Inland Revenue wish to secure collection of stamp duty for these instruments pending adjudication.
6. The charge under section 148(1) of the Companies Ordinance as overriding interest - original Cl.21(1)(e)(ii) and new Cl.66(4)(a) Under the original Bill, this charge is an overriding interest. The Law Society objects to such charges to be protected as overriding interests as they would complicate the title-checking process.	6. This charge is removed from the list of overriding interest. After the appointed day, a non-consent caution supported by the relevant court proceedings to the effect that the land may become subject to such first charge can be registered against the said land. Their concern is addressed as the said charge is now required to be registered.	6. After discussion with the Law Society, the Administration decide that such charge shall be protected by registering a non-consent caution on the register at the commencement of the relevant court proceedings. In this way, the public are notified of the possibility of such charge on searching the Land Register.
7. The charges under section 14 of the Probate and Administration Ordinance (original Cl.21(1)(e)(i)) section 14(b) of the Co-operative Societies Ordinance (original Cl.21(1)(e)(iii)) section 18A of the Legal Aid Ordinance (original Cl.21(1)(e)(iv))	7.These charges are deleted from the list of overriding interests. In effect, these charges have to be registered on the Land Register under the Bill in order to be binding on the owner of the land. Under the original Bill, these charges are listed as overriding interests. The Law Society argues that they should be protected by registration. As such, this amendment responds to their concern.	7. The Administration decide to delete these charges as overriding interests to further simplify the conveyancing transactions as the solicitors and the public are notified of the charges when they are registered on the Land Register.
8. Registration of a consent caution supported by a statutory declaration when the provisional agreement or agreement for sale and purchase is being stamped (new Cl.66(2) and 30(4)(b))	8. As the provisional agreement or agreement for sale and purchase will have to be stamped before they can support an application, a consent caution supported by a purchaser's statutory declaration to the effect that the instrument has been presented for stamping can be registered to protect the priority of the said agreement during the stamping period, which if registered within one month, will relate back to the date of registration of the first consent caution. There is no such provision in the original Bill. This provision is inserted in response to the Law Society's concern that the stamping period will delay the priority of the agreement for sale and purchase. The Law Society does not have any further comments on this provision.	8. These provisions will protect the priority of interests of a purchaser under a provisional agreement or agreement for sale and purchase, when the said agreement is being stamped.
9.Rectification by the High court in case of a void or voidable instrument - new Cl.77	9. This sub-clause is inserted to empower the High Court to rectify the Land Register if the entry has been made by means of a void or voidable instrument. There is no such provision in the original Bill. This provision is inserted in response to the Law Society's proposal that the relevant areas of law should be preserved. The Law Society does not have any comments.	9. This sub-clause is added to preserve the common law of mistake, frustration, duress and undue influence etc. which will render the instruments void or voidable.
10. Indemnity for fraud which affects the ownership of the land concerned or a long term lease - new Cl.78(1)(i)(B) The Law Society objects as they are of the view that for the system to work effectively, an indemnity must be made available to anyone who deals with registered land relying upon the register or otherwise, the person not entitled to an indemnity would have to protect themselves by carrying out a title investigation as under the existing deed registration system.	10. A person suffering loss by reason of an entry in or omission from the Land Register, land title records, or applications record where such entry has been obtained by fraud can claim compensation from the Indemnity fund. The Administration will restrict these cases to those affecting the ownership of the land or a long term lease. The insertion of this clause is to clarify the Administration's policy.	10. The restriction is to make clear that if there is any fraud in respect of the incumbrances on the land, no compensation will be payable from the Indemnity Fund.
11. Abolition of the subrogation rights by the Professional Indemnity Insurer against the Government - new Cl.78(4)	11. If any insurer, scheme or fund pay the claims of any persons suffering loss owing to the fraud, mistake or omission of a person carrying on business in a particular profession, trade, or calling, it cannot stand in the claimant's position and claim for the indemnity against the Government. There is no such provision in the original Bill.The Law Society objects in the case where the fraud or negligence of the Land Registrar or his employees is also involved. They reserve their position and would seek the comments from their professional indemnity insurer.	11. This provision is modelled on a provision in the New South Wales Act. If the claimant suffers loss due to the fraud, mistake or omission of such person and the said claim is covered by an insurer, other scheme or fund, the Government should not be responsible to pay the compensation to such insurer, scheme or fund which are set up to cover these claims. An example is where the claim is paid by the Hong Kong Solicitor Indemnity Fund