Naming a Hong Kong building

By Jocelyn Yuen

In Hong Kong, the right to name (or rename) a building was once commonly reserved for the original owner of a building and its successors-in-title in a Deed of Mutual Covenant (DMC).

For Hong Kong buildings with multiple owners, the type of co-ownership in practice is “tenancy-in-common” with equal and undivided shares. This practice does not appear to be ideal for building owners wanting exclusive rights over their purchased parts of the buildings. In these cases, a DMC is adopted to set out binding covenants that delineate a series of exclusive rights and obligations of owners.

Nevertheless, the reservation of such a right became virtually meaningless after a decision made by the courts in 1991.

Lamaya Ltd v Supreme Honour Development Ltd.

In 1991, to the surprise of most conveyancers, the court of appeal ruled against the enforcement of the naming right of buildings in Lamaya by successors-in-title to the original DMC parties. The ratio decidendi (rationale for the decision) was that such a naming right was not intended to benefit “the land” of the covenantee, specifically, the “exclusive occupation of any particular floor or the roof above it”. It failed to meet the pre-condition for enforcement of DMC covenants under s.41(2)(c) of Cap. 219 Conveyancing and Property Ordinance.

As a result, only the original parties to DMC are entitled to the naming right of buildings. The naming right which had once carried certain commercial values has now been rendered almost worthless.

Upon closer examination, however, the basis of the judgement is not as convincing as it stands.

The Land

First, in contrast with the theory of tenancy-in-common in which only shares in the land can amount to “the land” as they are proprietary interests, the court interpreted “the land” as an “exclusive right of occupation of the building”. Assuming the court had properly construed the meaning of “the land”, a different judgement may have been delivered: value of shares in the land depends on the number of rights incorporated in them. With the attachment of an additional right — the naming right of buildings — to the share, its value will no doubt increase, thus benefiting “the land” of the covenantee.

Building Occupation

Second, following the court’s interpretation of “the land” as “an exclusive occupation of part of the building”, such right of occupation can benefit from the passing of building naming rights to third party assignees. From a broader perspective, the right to name a building is capable of raising the price on sale of the land and thereby enhancing the value of the right to occupation. Hence, the court’s interpretation of “benefit” of the land which focuses on the enjoyment of the land has overlooked the other equally important benefit, namely, the transfer value of the land.

Pak Fah Yeow Investment (Hong Kong) Ltd v Proper Invest Group Ltd

Instead of overruling its earlier decision, CA opted to confirm it in Pak Fah Yeow Investment (Hong Kong) Ltd v Proper Invest Group Ltd two decades later. This is despite the Lamaya ruling regarding the relation of naming rights with land being obiter dicta (said in passing). Even though the court agreed with the declining persuasiveness of Lamaya and the inevitable impact of a naming right on the value of the land, though perhaps in less noticeable ways, it was reluctant to depart from the orthodox position by reason of it being a longstanding practice and hence should be left undisturbed. This may hint at a rather gloomy prospect of the transferal of the naming right along with the DMC covenants.

With the withdrawal of the notice to appeal in Pak Fah Yeow, whether or not the dispute around the naming rights of a Hong Kong building can eventually be resolved remains uncertain.


References

Merry, M. (2011). Do naming rights run with land? Conveyancer & Property Lawyer, (3), 233.

Lamaya Ltd v Supreme Honour Development Ltd [1991] 1 HKC 198

Pak Fah Yeow Investment (Hong Kong) Ltd v Proper Invest Group Ltd [2009] 3 H.K.C. 285