Deed of Mutual Covenant (Hong Kong)

A Deed of Mutual Covenant (DMC) in Hong Kong is a registered legal instrument that governs the property rights, management obligations, and use restrictions applicable to all unit owners in a multi-unit residential, commercial, or mixed-use building, operating under the framework established by the Building Management Ordinance (Cap. 344), the Land Registration Ordinance (Cap. 128), the Conveyancing and Property Ordinance (Cap. 219), and the Landlord and Tenant (Consolidation) Ordinance (Cap. 7).

Hong Kong's high-density urban environment — in which the vast majority of the population lives and works in multi-storey buildings — makes the DMC one of the most practically significant legal documents in the city's property environment. Every purchase of a flat, office, or shop in a multi-unit building involves acquisition of a specific number of undivided shares in the lot on which the building stands, together with an exclusive right to use the unit. The DMC defines these shares, specifies common areas held for the benefit of all owners, and sets out the governance framework for managing the building as a collective enterprise.

The DMC is prepared by the developer's solicitors before the first sale of units in a new development and is registered at the Land Registry under Cap. 128 as part of the building's title documents. Once registered, the DMC binds all current and future owners of units in the building — a buyer takes their unit subject to the DMC covenants whether or not they have read or signed the DMC. The Conveyancing and Property Ordinance (Cap. 219) and the Land Registration Ordinance (Cap. 128) provide the legal basis for this binding effect: registered instruments affecting land bind all persons dealing with that land.

The Building Management Ordinance (Cap. 344), administered by the Home Affairs Department, works alongside the DMC to provide a statutory governance framework for building management. Owners may establish an Owners' Corporation (OC) under Cap. 344 — a body corporate with legal personality — to take over management functions. The OC operates under both Cap. 344 and the building's DMC. The Lands Tribunal, established under the Lands Tribunal Ordinance (Cap. 17), has jurisdiction over disputes arising from the DMC and Cap. 344, including management fee disputes, breach of covenant claims, and applications for orders relating to common area management.

A building without a DMC — typically older pre-war or early post-war buildings in Hong Kong — is managed under common law principles of co-ownership, with the Lands Tribunal providing dispute resolution. Most modern buildings constructed from the 1960s onwards have a registered DMC, and all new developments are required to register a DMC before individual units are sold.

The DMC interacts with the Stamp Duty Ordinance (Cap. 117): transfers of units in buildings subject to a DMC are stamped at the applicable ad valorem stamp duty rates based on the consideration or market value of the unit. The government rates (property tax equivalent) payable under the Rating Ordinance (Cap. 116) are assessed on each unit separately; the management fees payable under the DMC are separate from rates.

A Deed of Mutual Covenant in Hong Kong is needed in several property development, management, and transaction contexts.

New Building Development: Every developer constructing a multi-unit building in Hong Kong must prepare and register a DMC at the Land Registry before or contemporaneously with the first sale of units. The DMC must be in place before the issue of a Consent Scheme approval by the Lands Department for the sale of uncompleted residential units under the Residential Properties (First-hand Sales) Ordinance (Cap. 621). The Buildings Department and the Lands Department both review DMC provisions in connection with occupation permit applications.

Purchase of Unit in Multi-Unit Building: Every buyer of a residential flat, commercial unit, or car parking space in a Hong Kong building subject to a DMC acquires their unit subject to the existing DMC. Solicitors acting for buyers must review the DMC as part of their due diligence before completion of the purchase under the Conveyancing and Property Ordinance (Cap. 219). The DMC defines what the buyer is actually acquiring — the undivided shares, the exclusive use area, and the rights over common areas.

Management Fee Disputes: Where a unit owner disputes management fees levied by the building manager or Owners' Corporation under the DMC, the DMC is the primary document for determining the basis of the fee obligation. Applications to the Lands Tribunal under Cap. 344 for a declaration on the proper management fee apportionment rely on the DMC's provisions.

Alterations and Renovation Works: Before undertaking renovation works in a Hong Kong unit, owners must check the DMC for restrictions on structural alterations, changes to external appearance, and works affecting common areas. The building manager's consent required under the DMC is separate from the approval required under the Buildings Ordinance (Cap. 123) from the Buildings Department.

OC Formation and Governance: When forming an Owners' Corporation under Cap. 344, the DMC defines the scope of the OC's management responsibilities and its authority to levy contributions. The OC's by-laws passed under Cap. 344 must be consistent with the DMC provisions.

Mortgage and Financing: Banks lending against Hong Kong units as security — under mortgage facilities with banks such as HSBC, Hang Seng Bank, or Bank of China (Hong Kong) — review the DMC as part of their security assessment. The DMC's management provisions, common area maintenance obligations, and any special levies or liabilities disclosed in the DMC affect the bank's assessment of the security value.

A Deed of Mutual Covenant in Hong Kong should contain the following elements to be compliant with the Building Management Ordinance (Cap. 344), the Land Registration Ordinance (Cap. 128), and the Conveyancing and Property Ordinance (Cap. 219).

Parties: The developer (as the initial owner of the entire lot) and the management company (typically a property management firm appointed by the developer for an initial period). All subsequent unit purchasers are bound by the DMC upon purchasing their units — they need not sign the DMC individually.

Undivided Shares Schedule: A detailed schedule specifying the number of undivided shares in the Government Lease lot allocated to each unit in the building. The undivided shares schedule is the foundation of the stratified ownership structure — each unit's share of management fees, voting rights, and liability for common expenses is typically proportionate to its undivided shares.

Definition of Common Areas: A precise definition of the building's common areas — entrances, lobbies, corridors, staircases, lift shafts and lift lobbies, rooftops, plant rooms, management offices, and any other areas used for the common benefit of all owners. Common areas are held for the benefit of all unit owners in proportion to their undivided shares and are managed by the manager or OC.

Exclusive Use Areas: Identification of the exclusive use areas allocated to each unit — typically the internal area of the unit as defined by the occupation permit issued by the Buildings Department under the Buildings Ordinance (Cap. 123).

Management Provisions: Provisions governing the appointment, powers, and duties of the building manager; the basis on which management fees are levied and collected; the manager's obligation to maintain accounts; the procedure for replacing the manager; and the rights of the Owners' Corporation established under Cap. 344 to assume management.

Use Restrictions: Covenants restricting the use of units and common areas — residential use only, prohibition of structural alterations without consent, noise and nuisance restrictions, and pet restrictions where applicable.

Registration: The DMC must be executed as a deed and registered at the Land Registry under the Land Registration Ordinance (Cap. 128) with the prescribed memorial. Stamp duty under the Stamp Duty Ordinance (Cap. 117) does not typically apply to the DMC itself, but transfers of units subject to the DMC attract AVD at the applicable rates. Forms-legal.com provides a free Deed of Mutual Covenant template for Hong Kong, downloadable as PDF or Word.

Governance and Dispute Resolution: The DMC should specify the procedure for convening owners meetings, the quorum requirements, and the voting thresholds for ordinary and special resolutions under the Building Management Ordinance (Cap. 344). Section 14 of Cap. 344 sets out the powers of owners corporations to make by-laws. Disputes between owners or between owners and the manager are referred to the Lands Tribunal under the Lands Tribunal Ordinance (Cap. 17) for binding determination. The Tribunal has wide remedial powers including injunctions, damages, and declarations. Forms-legal.com provides a free Deed of Mutual Covenant template for Hong Kong, downloadable as PDF or Word, covering all required elements under Cap. 344, Cap. 128, and Cap. 219.

A Deed of Mutual Covenant for Hong Kong should also specify the rules for use of recreational facilities, car parking spaces, and any clubhouse governed by the Incorporated Owners under Cap. 344. The Land Registry lot reference and Government Lease particulars must be correctly stated to allow registration under Cap. 128.