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Title Registration

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Q1: As the existing deeds registration system has been in operation for many years, why should the title registration system be introduced?
A: Under the existing deeds registration system, a person registered in the land register as owner of a property may not have good title to the property. There may be uncertainty or defect in his title to the property or his title may be subject to unregistered claims. One has to review relevant title documents to check his title. The existing system lacks the certainty offered by the title registration system. Title registration system will provide better assurance and greater certainty of title and simplify the conveyancing procedures. Hong Kong is amongst the few economies which still run a deeds registration system.
Q2: How is the title registration system different from the deeds registration system?
A: Under the deeds registration system, the land register is only an index of the registered instruments. The title documents are the evidence of title. A person registered in the land register as owner of a property may not have good title to the property as defects in his title to the property may be revealed during title checking. Moreover, the property may be subject to unregistered interests. On the contrary, under the title registration system, the Title Register shall be conclusive evidence of the title to the property. It will no longer be necessary to look behind the Title Register and review the historical title documents to establish title as under the deeds registration system. The title registration system will provide better assurance and greater certainty of title, simplify the conveyancing procedures and bring land registration in Hong Kong in line with the best practices adopted in overseas jurisdictions.
Q3: How will title to property be established under the title registration system?
A: Under the title registration system, the person registered in the Title Register as owner is recognised by law as the legal owner. Title can be established as a matter of fact by checking the Title Register. The title to the property is subject to registered matters and overriding interests (i.e. interests that affect the property notwithstanding that they are not registered e.g. public rights and leases[1] for a term not exceeding 3 years) affecting the property.

[1] Where the lessee is to take possession of the property forthwith under the lease at the best rent without a premium.

Q4: How will the conveyancing procedures be simplified under the title registration system?
A: The Title Register shall be conclusive evidence of the title to the property. After registration of a property under the title registration system, it will no longer be necessary to review the title documents as under the present deeds registration system.
Q5: Why will there be an upper limit in an indemnity claim for fraud cases?
A: The indemnity will be funded by a levy which will be collected on registration of transaction instrument. A levy structure is being devised with a view to keeping the levy at a reasonable and affordable level. Setting an upper limit in an indemnity claim for fraud cases can limit the potential liability and contain the insolvency risk of the Land Titles Indemnity Fund (“Indemnity Fund”). A balance has to be struck amongst the extent of indemnity protection, the levy rate and the financial stability of the Indemnity Fund.

 

Although there will be a limit on the indemnity coverage, a vast majority of all transactions will be fully covered by the scheme. For those exceeding the upper limit, the persons who suffered loss can still benefit from an indemnity coverage up to the indemnity upper limit (proposed at HK$30 million when the Land Titles Ordinance (Cap. 585) (“LTO”) was enacted in 2004) in a fraud case - a protection not available to a defrauded owner under the existing deeds registration system. If the loss exceeds the amount of indemnity payable to the persons who suffered loss, they can still pursue their claims in the court against the fraudsters for the excess amount of loss. 
Q6: Given that there has been a substantial increase in property prices in past years, will the amount of indemnity cap of HK$30 million be increased when the title registration system is implemented?
A: The Government will keep in view the movement of property prices and other relevant factors, and after finalising the major proposals of amendments to the LTO, plans to conduct a study to review the level of the indemnity cap and rate of levy closer to the time of implementation of title registration.
Q7: Will there be any cap on the indemnity payment as a result of loss arising from an error in the Title Register due to mistake or omission of the Land Registry staff?
A: There will be no cap on such indemnity payment. The liability of the Government for its staff will not be diminished by the introduction of the title registration system. Such indemnity will be paid out of the Indemnity Fund which will then be reimbursed by the Land Registry Trading Fund.
Q8: Why will the court be given a power to rectify the Title Register to restore the title to the property to the former owner and under what circumstances will the court exercise this power?
A: The person named in the Title Register as owner is recognised by law as the legal owner of the property. However, the effect on an innocent former owner who might lose ownership due to fraud (e.g. forgery) could be severe if this principle is applied without allowing rectification by the court under specific circumstances.

 

Rectification of the Title Register may be ordered by the court if the court is satisfied that the entry in the Title Register was obtained, made, omitted or removed by or as a result of (a) the fraud, mistake or omission of any person; or (b) a void or voidable instrument. In the case of fraud or in the case of mistake or omission of the Land Registry staff, any innocent party suffering loss as a result of a court order restoring or refusing to restore a former owner’s title to the property will be eligible for claiming compensation from the Indemnity Fund.
Q9: What is the “Mandatory Rectification” rule?
A: Under section 82(3) of the LTO, rectification of the Title Register shall be given in favour of a former innocent owner if he lost his title by or as a result of fraud and the court is satisfied that (a) the former owner lost his title as a result of a void or voidable instrument or a false entry in the Title Register; (b) the former owner was not a party to the fraud; and (c) the former owner did not, by his act or by lack of proper care, substantially contribute to the fraud. This is called the “Mandatory Rectification” (“MR”) rule.

 

The MR rule would undermine title certainty because under this rule, all purchasers would be subject to the risk of losing title to a former owner. Title certainty is a major feature and benefit of title registration system. To achieve title certainty, it is intended that the MR rule will not apply to new land under the "new land first" proposal. 
Q10: What is “Immediate Indefeasibility”?
A: Under the LTO, title will pass to a transferee upon registration of the transferee as owner of the property regardless of any defect or invalidity of the transfer, subject nevertheless to the court’s power to order rectification of the Title Register. Under the principle of immediate indefeasibility, a bona fide registered owner who is in possession of the property and has acquired the property for valuable consideration is entitled to indefeasible title and no rectification order may be made by the court against him.
Q11: When will the title registration system be implemented?
A: The Land Registry aims to complete the drafting of the Land Titles (Amendment) Bill and introduce it into the Legislative Council as soon as practicable and commence title registration on new land about one year after the enactment of the amendment bill (as lead time will be required for enhancing the Land Registry’s computer system to cater for transactions to be effected in the form prescribed under the LTO, conducting public information and professional training programmes to facilitate the public and industry practitioners to understand the new system, and training Land Registry staff on the work procedures).
Q12: What progress on the implementation of title registration system has been made since the enactment of the LTO?
A: The title registration system under the LTO is inherently complicated involving complex legal issues and carries significant implications. When the LTO was enacted in 2004, at the request of the then Legislative Council, the Government undertook to conduct a comprehensive review of the LTO before its commencement. The review has identified a number of issues and it is concluded that an amendment bill is necessary before the LTO can come into operation. Over the years, the Government has spared no efforts in engaging the key stakeholders with a view to reaching consensus on the proposed Two-Stage Conversion Mechanism for the conversion of existing land with a register kept under the Land Registration Ordinance (Cap. 128) (“LRO”), the “new land first” proposal for implementing title registration on newly granted land and related pertinent issues. A study of the latest title registration legislation and good practices adopted by several overseas jurisdictions with common law background has also been conducted in order to enhance the proposed amendments to the LTO.

 

To enable early implementation of the title registration system in Hong Kong, the Land Registry is actively pursuing the “new land first” proposal, and is working closely with the key stakeholders to forge consensus on the major issues for implementing the proposal.