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Buying land may not mean you own it

In the second instalment of this series, Boase Cohen & Collins Partner Alex Liu details the difficulties that can arise when buying a property that is already being leased and examines the law relating to adverse possession.

Hong Kong, 14 November 2018: Buying a second-hand property is complicated and full of potential pitfalls. Among myriad issues to consider, the purchaser needs to be fully aware of the property’s existing condition, whether there is any illegal structure, the cost of possible renovations and whether it is bound with any unpaid loans or mortgage.

There are also occasions when the property is already being leased to a tenant, which can make it difficult for the buyer to go inside for inspection. In some instances, the property may even be occupied by trespassers, which may give rise to claims for “adverse possession”. Such cases are rarely straightforward and can be difficult to resolve.

The law is, simply put, that if there is a person who is not a property owner, and does not have consent or permission to continuously occupy the owner’s property, and if the owner does not bring proceedings against the person to remove him within a prescribed time frame, the owner cannot bring legal action to recover the land or property.

The time limit for recovering land is imposed by the Limitation Ordinance. If private land or property has been adversely possessed for 12 years, the original land owner cannot commence legal action to recover it. For government land, the limitation period is longer at 60 years.

The most common types of properties which are adversely possessed are empty farmlands and apartments subject to leases. We can see many examples where at first there is a lease but then the lease or oral tenancy expires, the tenant does not continue to pay rent, and nobody attempts to evict the tenant. In this scenario the limitation period starts on the day the tenant stops paying rent.

One notable case that came before the District Court involved a sale and purchase transaction of a flat that was subject to a lease. Before the plaintiff, who was the purchaser, bought the property, the agent told him it was subject to an oral tenancy and that the tenant had been paying rent. But after purchasing, the plaintiff found out the flat had no record of rent payment. The plaintiff then applied to the Lands Tribunal to recover the property and succeeded initially. However, the defendant, who was the occupier of the flat, appealed and the case was reverted to the District Court for retrial. The defendant eventually won on the grounds of adverse possession.

The court heard the purchaser had been guided by the agent, who was subsequently dismissed by the estate agency for contravening certain rules. While the court accepted the purchaser’s evidence, it also acknowledged that the purchaser was not aware of all the facts and that it was necessary to look at the evidence of the defendant, who relied on two witnesses: himself and his brother.

The brother claimed that he spent tens of thousands of dollars to purchase the flat in 1992. He lived there alone until, subsequently, his family came and he allowed them to live in the flat. In 2001, the defendant moved into the apartment and, from then onwards, only he lived there. The defendant always thought he was the owner of the flat and contributed towards the water supply and electric bills. The court believed the defendant and his brother and held that their evidence supported the view that the defendant had actual possession of the apartment as well as the necessary intent.

It should be noted that if an adverse possessor has previously paid rent or has not sufficiently fenced off the land such that others may wander in freely, this lowers his or her chances of successfully claiming adverse possession.

So, when an owner discovers that his property is occupied by a trespasser, what is the most appropriate action to take? Firstly, if the property is locked and the owner does not have a key to unlock, then he or she should not forcefully enter as this can lead to other issues, such as claims of criminal damage or theft. The best option is to approach a lawyer to take legal action to recover the property. It is also worth remembering that once a plaintiff has applied to the court to recover a property, the limitation period stops running.

When purchasing empty property, it is necessary to check whether there are third parties with an interest in it. If the property is subject to a tenancy, do not easily trust people who say there is an oral tenancy, it is essential to inspect the written tenancy agreement, obtain evidence of rent payment and double check the identity of the tenant. As for land owners, it is important to inspect vacant farmlands or property from time to time to avoid unnecessary legal conflicts.

Finally, adverse possession is colloquially known in Cantonese as “adverse invasion”. However, the official vocabulary is adverse possession, which is more neutral and appropriate because, in law, we focus on the adverse possessor’s actual possession and not whether the motive was to invade the property or whether the adverse possessor is morally guilty for invading the property. Sometimes, the concept of adverse possession is used to give the true owner the opportunity to demonstrate in court that he or she ought to have title to the land.

Alex Liu has been Chairman of the Appeal Tribunal Panel (Buildings Ordinance) since 2007 and has considerable experience in dealing with property ownership and building management issues. The above article is based on advice he has offered during regular appearances in the TVB documentary series A Property a Day.