Land and private property — Landlords Beware: Tenancy agreements can be Assignments too! Court of Appeal decides that the Milmo rule stands as good law in Hong Kong — a sub-lease of a term longer than or equal to the headlease or Government Lease operates as an assignment
On 18 July 2025, the Court of Appeal handed down the judgment in Yim Tin Fook & Anor v Yu Chor Lai, Kong Wai Hung and Sou Ka Kam all t/a Wong Cheung Industrial Chemicals Co & Ors [2025] HKCA 675, dismissing both sides’ appeals on three questions of law.
The successful Plaintiffs (“Ps”) were represented by Anson Wong Yu Yat (led by Ms Audrey Eu SC and together with Mr Wong Cho Lik) in the Court of Appeal.
Eunice Lui provides an overview on the judgment below.
Background
The case concerns a plot of land in the New Territories originally held by Madam Tang, with the Crown Lease expiring in 1997 “Government Lease”. In 1983, Madam Tang granted a 15-year sub-lease to the 2nd Defendant (“D2”) until 1998, thus exceeding the Crown Lease (“1983 Lease”).
In 1986, Madam Tang assigned the plot to herself and her son, the 8th Defendant by counterclaim (“DC8”), by way of a Deed of Gift as joint tenants. The Deed of Gift was never registered. In 1988, the New Territories Leases (Extension) Ordinance, Cap 150 (“NTLEO”) was enacted, extending the 1983 Lease to 30 June 2047.
Upon Madam Tang’s death in 1990, DC8 became the sole owner of the Lot. DC8 then sold the land, which was then sub-divided and subsequently sold to various owners, including Ps, all of whom registered the assignments.
Ps now seek vacant possession from D2, who remained in possession. D2 counterclaimed for damages and declaratory relief as to exclusive possession.
The Questions of Law
Both sides took out O14A RHC applications for the court’s determination on questions of law. On parties’ pleaded cases, at issue are the following three questions of law:
(1) whether the 1983 Lease being a sub-lease of a term exceeding that of the Government Lease operates as an assignment (“Q1”);
(2) the effect of the NTLEO (“Q2”); and
(3) whether the 1983 Lease, being registrable but unregistered, is null and void as against the ultimate purchasers by virtue of section 3(2) of the Land Registration Ordinance, Cap. 128 (“LRO”) (“Q3”).
The CFI Judgment
DHCJ Stock held in favour of D2 on Questions 1 and 2, but in favour of P on Question 3, that:
(1) On Q1: the Milmo rule (from Milmo v Carreras [1946] KB 306 that a sub-lease of a term equal to or longer than the head lease operates as an assignment) stands as part of the common law applied in Hong Kong and other jurisdictions, and there is no reason to depart from it, and the 1983 Lease operated as an assignment;
(2) On Q2: the NTLEO simply extended the term of NT leases and did not affect whatever was the legal and beneficial ownership of a NT lease prior to 25 April 1988. Therefore, the owner of the lot after the NTLEO took effect remains to be D2.
(3) On Q3: Since the registration of titles in Hong Kong governs priority but not title, the correct approach is to examine priority and title as relative matters from the viewpoint of the competing claims. D2 and DC8’s argument that due to the nemo dat rule, Madam Tang could not have executed the Deed of Gift in 1986 after the assignment in 1983 by way of the 1983 Lease, was dismissed, applying authorities including the Privy Council decision in Markfaith Investment Ltd v Chiap Hua Flashlights Ltd [1990] 2 HKLR 84. Therefore, although DC8 was a volunteer, Ps took good title against D2.
The Court of Appeal’s Judgment
Both sides appealed. The Court of Appeal dismissed the appeals and upheld the CFI judgment. On the three questions of law, the Court of Appeal laid down the following important principles:
(1) On Q1 – the Court of Appeal found that the 1983 Lease did operate as an assignment of the Government Lease, and that:
a. the Milmo rule is a rule of long standing in the common law, despite its intricacies and complexities, and there is insufficient justification to reject it. While the Milmo rule creates a privity of estate between the sub-tenant and head-landlord, it does not deny effect to the contract between the parties. The Milmo rule governs the consequences of parties’ agreement, bearing in mind it is not uncommon for the law to override the label chosen by the parties;
b. although privately owned land in England is held in freehold whereas land in Hong Kong is State property based on leaseholds granted by the Government, this does not mean the Milmo rule is inapplicable to Government leases in Hong Kong; and
c. in the English cases where the Milmo rule was not applied, the term of the head lease might exceed that of the sub-lease based on the provisions of the head lease and sub-lease themselves. Without such provisions, one does not need to adopt a “wait and see” approach and see whether in fact the headlease was beyond that of the sub-lease.
(2) Q2 – the Court of Appeal found that D2 remains the owner after NTLEO took effect, and that in upholding the judgment of the Court of Final Appeal in Chan Tin Shi v Li Tin Sung (2006) 9 HKCFAR 29, the NTLEO simply extended existing estates, instead of granting new leases. In other words, whoever held the lease at the time took the benefit of the extension, and in this case, it was D2, the assignee of the Government Lease, who thereby had a privity of estate with the Government.
(3) Q3 – the Court of Appeal found that Ps do have priority under the LRO:
a. the Court of Appeal reviewed the origins of the LRO (the registration system in Tasmania and West Australia, the Irish Registration Act of 1707, as well as the Acts establishing the West Riding Registry in Yorkshire and the Middlesex Registry) and the line of Hong Kong authorities on the LRO;
b. the Court of Appeal confirmed that while section 3(1) of the LRO is only concerned with priority between competing instruments, section 3(2) which employs the words “null and void” is concerned with validity; however, as confirmed by the Privy Council in Markfaith, the nemo dat rule does not apply to the Hong Kong land registration system;
c. where A’s land was transferred to B by an instrument which was unregistered, and A subsequently sold the same land to C, C would obtain good title by virtue of section 3(2). The fact that C is a volunteer does not affect the fact that the law regards C as having acquired good title from A by the gift; there is no reason why a subsequent purchaser of the land would be in a worse position if the land was purchased from Madam Tang’s done rather than from Madam Tang herself; and
d. therefore, Ps who registered their assignments have priority against D2 as the 1983 Lease was never registered.
Conclusion
The Court of Appeal’s judgment is of considerable doctrinal importance and has wide-ranging implications, and the following are the key takeaways.
First, as the Milmo rule is now confirmed to be part of Hong Kong law, and the “wait and see” approach would not be adopted unless it is expressly provided for in the terms of the relevant leases, parties must be careful to avoid granting leases or sub-leases which are close to or exceed the term of the Government lease or head lease, as this may lead to an unintentional assignment of the entire leasehold interest.
Secondly, as the extension of a Government lease by legislation does not create new interests, the estate continues in the hands of whoever was entitled to the lease at the time of extension. This would be particularly relevant as a large number of Government leases are set to expire on 30 June 2047, and will soon be renewed as we approach 2047.
Last but not least, the Court of Appeal’s judgment on the question of priority confirmed the primacy of registration, so much so that the nemo dat rule does not apply to the LRO at all. A subsequent bona fide purchaser’s registered instrument will take priority over a prior unregistered instrument, even if the purchaser’s title is derived through a chain of title that includes a volunteer, or if the purchaser’s vendor’s title was subject to unregistered encumbrances. As a result, the consequences of a failure to register a registrable instrument are dire, and parties must ensure that all registrable instruments are promptly registered to protect their interests.
Anson Wong Yu Yat
“ Anson is a hardworking counsel whose legal knowledge is impressive. He is willing to test different arguments and go the extra mile for clients. His advocacy is excellent.”
“Anson is very good in his research. His turnaround time is very good and he thinks outside of the box.”
Legal 500 Asia-Pacific 2025, Commercial Disputes & Administrative and Public Law — Leading Juniors
Anson has appeared in more than 150 court judgments (including 18 cases in the Court of Final Appeal with 13 substantive appeals) over the mere span of 10 years’ call, reflecting the exceptional wealth of experience and exposure in civil litigation for his seniority.
Anson has developed a broad civil practice with a growing practice in insolvency and bankruptcy matters in recent years. He is experienced in handling complex questions of law, including those of great general or public importance which reached the Court of Final Appeal. For example, he has recently appeared in (among others) three civil appeals before the Court of Final Appeal dealing with important questions concerning insolvency matters, land law and equity, service out of jurisdiction and statutory interpretation.
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Eunice Lui
Eunice was called to the Bar in 2024 and joined Chambers in the same year. Eunice is developing a broad civil practice, with particular emphasis on land-related matters. Eunice has recently appeared in two compulsory sale cases with Ross, in which one case concerns a building in Wong Nai Chung Road, and the other relating to a building erected under the old Civil Servants’ Cooperative Building Society Scheme. Eunice accepts instructions in all areas of Chambers’ work.
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This article was first published on 28 July 2025.
Disclaimer: This article does not constitute legal advice and seeks to set out the general principles of the law. Detailed advice should therefore be sought from a legal professional relating to the individual merits and facts of a particular case. The photographs which appear in this article are included for decorative purposes only and should not be taken as a depiction of any matter to which the case is related. The views and opinions expressed in this article/material are solely those of the members authoring it and do not necessarily reflect the official policy or position of Denis Chang’s Chambers, or of any other member or members of Denis Chang’s Chambers.