Case Summary: Whether the sale and purchase of a property would be bound by the tenant's option to renew the lease depends on the specific circumstances (Chan Yiu Tong v Wellmake Investments Ltd)

Case Summary: Whether the sale and purchase of a property would be bound by the tenant's option to renew the lease depends on the specific circumstances (Chan Yiu Tong v Wellmake Investments Ltd)

Case Name: Chan Yiu Tong v Wellmake Investments Ltd [1996] 1 HKC 528 (Court of Appeal)

Subject:  Whether the sale and purchase of a property would be bound by the tenant's option to renew the lease

Facts

This case concerns a tenancy agreement of certain business premises ending on 3 October 1995.

The tenancy agreement: it contains an option to renew for a further term of two years at an increased rent.

Vendor’s sale of the business premises to a purchaser:

1. In 1994, the landlord agreed to sell the business premises to a purchaser.
2. The agreement for sale expressly provided that the property was to be sold subject to the tenancy. Particulars of the option to renew were also included in the agreement. However, even though the tenancy agreement had not been registered, the vendor did not procure an express stipulation in the agreement for sale to give effect to the option to renew in the tenancy agreement.
3. The premises was assigned to the purchaser on 8 August 1994.

Registration in the Land Registry: The agreement for sale was registered in the Land Registry before the tenancy agreement.

Issues

In the light of the fact that the agreement for sale was registered in the Land Registry before the tenancy agreement, the issue was whether the purchaser must give effect to the option to renew in the tenancy agreement.

Rulings and Discussion

In this case, there was no express stipulation to give effect to the option in the tenancy agreement.

The purchaser can rely on section 3(2) of the Land Registration Ordinance (Cap 128), the effect of which is that by reason of the tenancy agreement was not registered at the Land Registry before the date of the registration of the agreement for sale, the tenant’s option to renew is, as against the purchaser ‘absolutely null and void to all intents and purposes’.

The purchaser can take advantage of his statutory rights by relying on the necessary registration, which was not to be regarded as using the relevant statutory provisions as an instrument of fraud.

After the termination of the tenancy agreement, the purchaser was granted an order against the tenant to deliver up possession of the business premises. If a property with a lease has an option for the tenant to renew, it doesn't necessarily mean that the new owner of the property has to honor that option. Whether or not the new owner is required to do so depends on the specific circumstances of the sale and the agreement made between the previous owner and the new owner.

Takeaway
Where a tenancy agreement contains an option to renew and the landlord (vendor) wishes to sell the property,

1. before the vendor agreed to sell the property, he/she should first check to see whether or not any option to renew in the tenancy agreement had been registered.
2. If it had been registered, he could content himself with selling the reversion subject to the option; for then the tenant would be able to enforce the option against the purchaser and would have in any event no claim for damages against the vendor.
3. But if the option had not been registered, the vendor would be well-advised to procure the entry by the purchaser into an express stipulation to give effect to the option, if he was to protect himself against the tenant’s claim for damages.