Mai 22. 2023

Any Interest in Land Acquired under an Agreement to Purchase Property Holding Company? Hong Kong Court Clarifies the Position



The Hong Kong Court of First Instance has, In the recent case of Smart Edge Limited (Receivers and Managers Appointed) v. HG Property Investment HK Limited, held that an agreement for indirect acquisition of property through the sale and purchase of shares of the property holding company and the Writ of Summons in legal proceedings concerning dispute over such agreement do not create or relate to any interest in land, and therefore are not registrable with the Land Registry.

Brief Facts

The plaintiff company (Smart Edge) is the sole owner of Goldin Financial Global Centre (Property). On 22 September 2022, the shareholders of Smart Edge (Shareholders) entered into an agreement for sale and purchase (Agreement) to sell both the shares of Smart Edge (Shares) and the shareholders’ loan (Loan) to the defendant (HG).

The sale and purchase was conditional upon HG providing certain written confirmations from its financier. HG failed to fulfil such condition and the Shareholders gave written notice to HG to terminate the Agreement on 1 November 2022.

Two days later, HG commenced legal action against the Shareholders (Action) claiming they wrongfully terminated the Agreement. HG attempted to register copies of the Agreement, the Writ of Summons in the Action (Writ) and the Amended Writ (Amended Writ) with the Land Registry against the Property.

The land search record of the property showed that the Agreement, the Writ and the Amended Writ were “Deeds Pending Registration”.

Subsequently, Smart Edge commenced proceedings against HG to seek declarations that the Agreement and the Writ/Amended Writ were not instruments registrable on the Land Register of the Property, as well as an order for removal from the Land Register of the Property of all references to these instruments. 

Parties' Cases and the Court's Ruling

Smart Edge's position was that, to be registrable under the Land Registration Ordinance (LRO), the Agreement must create some legal or equitable interest in land. Similarly, only proceedings in which a claim to land or some interest in land is asserted may be registered under the LRO as a lis pendens.

Since the Agreement did not affect or create a legal or equitable interest in the Property, and the Action asserted no claim to, or proprietary interest in, the Property, neither the Agreement nor the Writ/Amended Writ were registrable against the Property. 

On the other hand, HG argued that the Agreement was not merely for the sale and purchase of the Shares and Loan, but also allowed HG to acquire an interest in the Property – and therefore it was registrable.

In this connection, HG relied on Clauses 8 and 11 of the Agreement, under which the Shareholders had an obligation to deliver to HG possession of the Property upon completion, and claimed that the Agreement affected some rights or interests in the Property. 

HG's argument was rejected by the presiding judge the Honourable Madam Justice Cheng. She held that Clauses 8 and 11 of the Agreement, together with other clauses detailing the parties’ obligations on completion, only provided features of the Property as at the time of completion which HG would accept. 

Moreover, the Property owner, namely Smart Edge, was not a party to the Agreement and Madam Justice Cheng asked the rhetorical question: "On what basis could the Shareholders confer on HG an interest in the Property when they themselves had no such interest?"

The Court also held that even though the Shareholders had absolute control of Smart Edge and Smart Edge had no business activity other than dealing in the property (being its sole asset), it does not by itself justify the Court departing from the general principle that each company is a separate legal entity. 

Accordingly, the Court held that the Agreement did not create any legal or equitable interest in the Property, and it was not registrable under the LRO.

In relation to the Writ/Amended Writ, for the reasons stated above, the Action did not properly assert any claim to, or proprietary interest in, the Property, so as to make the Writ/Amended Writ registrable as a lis pendens.

HG also put forward the additional argument that an equitable lien arose when it paid a deposit pursuant to the Agreement. Madam Justice Cheng considered that since the subject matter was the Shares and Loan, any lien acquired could at most operate in respect of the Shares and the Loan, but not the Property. 

For these reasons, the Court declared that the Agreement and the Writ/Amended Writ were not registrable on the Land Register of the Property. 

HG was also ordered to procure the removal of references of the Agreement and the Writ/Amended Writ from the Land Register, and was restrained from delivering such documents to the Land Registry for registration against the Property.


Sale and purchase of properties in Hong Kong, especially luxurious and commercial properties, are often conducted by way of acquisition of the shares of the property holding companies as well as the related shareholders' loans. There are benefits to structuring the transaction this way – most obviously the amount of stamp duty payable is significantly lower in the case of acquisition of shares. 

However, this case reinforces the position that if a purchaser acquires shares of the property holding company – as opposed to the property itself – the signing of the sale and purchase agreement for the shares and payment of deposit do not lead to the purchaser acquiring an interest in the property. Further, the purchaser will not be able to claim a purchaser's lien over the property in such a case. 

Moreover, if there is a dispute between the parties to an agreement for the sale and purchase of shares of the property holding company, and legal proceedings ensue, the writ of summons in such legal proceedings cannot be registered against the relevant property as a lis pendens – with the view to creating a blot in the title of the property and protecting the plaintiff’s (purchaser) rights.

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