Formal sale and purchase agreement hong kong

In most real property transactions not taking the form of a sale and purchase of shares in the property holding company, the parties will first sign a provisional or preliminary sale and purchase agreement. A formal sale and purchase agreement will later be signed by the parties, superseding the terms in the provisional or preliminary sale and purchase agreement. On completion, an assignment will be executed for the formal transfer of the title.

A formal sale and purchase agreement may contain one or more of the following warranties by the seller to the buyer:

• The government has not given any notice or made any order for the resumption of the land concerned
• The property is not adversely affected by any easement, right, privilege or liability of which the seller is aware other than those disclosed in the agreement of which the buyer is aware or could have ascertained on reasonable inspection of the property
• The seller has not received any notice or order requiring him/her to demolish or reinstate any part of the property
• The seller has not received any notice or order requiring him/her as one of the co-owners of a multiple-ownership building to contribute to a specified sum towards the cost of repair of any common part of the building

The exact scope of any particular warranty, and whether any particular warranty is to be given, depends on the negotiation between the seller and the buyer.

Where the seller is expressed to assign the property as beneficial owner, certain covenants are implied into the assignment (and will therefore be given on completion of the purchase), including the following:

• The land grant is good, valid and subsisting
• The seller has good right and title to assign the property free from encumbrances save as specified in the assignment
• The covenants contained in the land grant and any deed of mutual covenant have been observed and performed up to the date of the assignment

After 29 April 2013, all preliminary and formal agreements for sale and purchase of first-hand residential properties must contain certain provisions (including certain warranties to be given by the seller) as required under the Residential Properties (First-hand Sales) Ordinance (Cap. 621). Any person who fails to include the terms required by this ordinance commits an offense and is liable to a maximum fine of HKD 500,000.

In Hong Kong, for real property transactions not taking the form of a sale and purchase of shares in the property holding company, a seller and a buyer will very often sign a provisional or preliminary agreement. A provisional or preliminary agreement usually binds the parties.

Whether or not a provisional or preliminary agreement constitutes a binding agreement depends upon the intention of the parties as evidenced by the wording of the agreement. It will depend on whether the execution of a formal agreement is an essential precondition before the parties will be bound or whether it is simply contemplated that the preliminary agreement, which is already legally binding on the parties, will be superseded by a formal agreement. This is a question of fact and will be determined by the court on a case-by-case basis.

However, the Residential Properties (First-hand Sales) Ordinance (Cap. 621) requires a preliminary agreement for sale and purchase of a first-hand residential property to include a provision that, if a buyer decides to pull out and does not sign the formal agreement for sale and purchase within the prescribed time limit of five working days after the date of the preliminary agreement for sale and purchase, the preliminary agreement will be determined, in which case 5% of the purchase price (being the preliminary deposit) will be forfeited to the seller, and the seller will have no further claim against the buyer.

In real property transactions not taking the form of a sale and purchase of shares in the property holding company, the legal title of the subject property will be transferred from the seller to the buyer upon execution and delivery of the assignment.

Buyers and sellers in general will bear their respective agents’ fees and legal costs.

In addition, the buyer usually bears the following:

• Ad Valorem Stamp Duty (AVD), which is payable on the sale and purchase of real estate at the rate of 15% (for residential properties) or at the maximum rate of 4.25% (for non-residential properties) of the stated consideration or the market value of the property (whichever is the higher). There is an exemption for Hong Kong permanent residents buying residential properties but do not own any interest in any residential property in Hong Kong on the date of acquisition, the maximum rate is 4.25% of the stated consideration or the market value of the property (whichever is the higher) in such cases. However, from 12 April 2017 onwards, where such a Hong Kong permanent resident buys more than one residential property under one agreement, the aforesaid exemption will not apply. A non-Hong Kong permanent resident who has entered Hong Kong under designated talent admission schemes implemented by the government, purchased a residential property in Hong Kong on or after 19 October 2022 (which, at the time of purchase, was his/her only residential property (save for replacing property)) and subsequently becomes a Hong Kong permanent resident will be entitled to apply for partial refund of the AVD paid for the above mentioned only residential property if he/she still holds the same on the date of the application for refund – after such refund, the overall stamp duty charged will be on par with that charged on first-time home buyers who are Hong Kong permanent residents (i.e. the overall payable AVD is at the maximum rate of 4.25%) (note: the passing of legislative amendment bill for such partial refund of AVD is pending as of April 2023). The AVD will be payable on the sale and purchase agreement.

• Buyer's Stamp Duty (BSD), which applies to the acquisition of residential properties by companies and non-Hong Kong permanent residents, the rate is 15% of the stated consideration or the market value of the property (whichever is the higher) in addition to the AVD and the SSD, if applicable. A non-Hong Kong permanent resident who has entered Hong Kong under designated talent admission schemes implemented by the government, purchased a residential property in Hong Kong on or after 19 October 2022 (which, at the time of purchase, was his/her only residential property (save for replacing property)) and subsequently becomes a Hong Kong permanent resident will be entitled to apply for full refund of BSD paid for the above mentioned only residential property if he/she still holds the same on the date of the application for refund (note: the passing of legislative amendment bill for such full refund of BSD is pending as of April 2023).

• Special Stamp Duty (SSD), which is payable if a residential property is sold within three years of acquisition. The SSD has three levels of regressive rates for different holding periods:
  • 20% of the stated consideration or the market value of the property (whichever is the higher) if the residential property has been held for six months or less
  • 15% of the stated consideration or the market value of the property (whichever is the higher) if the residential property has been held for more than six months but for 12 months or less
  • 10% of the stated consideration or the market value of the property (whichever is the higher) if the residential property has been held for more than 12 months but for 36 months or less.
  • Fees in relation to registering the agreement for sale and purchase and assignment at the Land Registry (between HKD 210 and HKD 450 as of April 2023)
  • Fees in relation to plans and certified copies of the title deeds (where the transaction is in respect of a property purchased from the developer)
  • In the case of the first assignment by the developer of a unit in a multiple-ownership building, lump sum payments payable by the first assignee of the unit under the deed of mutual covenant (e.g., advance payment of management fee, management fee deposit, fee for the removal of debris/waste materials resulting from decoration, and fitting out and contribution to sinking fund for the building)
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