- In order to address the key stakeholders’ diverse views and concerns over the conversion mechanism, and the rectification and indemnity arrangements under the Land Titles Ordinance (Cap. 585) (“LTO”), a Two-Stage Conversion Mechanism was proposed in 2011 for consultation with the key stakeholders. In essence, the proposed Two-Stage Conversion Mechanism is a mechanism of automatic mass conversion of existing land (“LRO land”) which is the subject of a Government lease with a register (“LRO register”) kept under the Land Registration Ordinance (Cap. 128) (“LRO”) by two stages to title registration system.
- Under the proposed Two-Stage Conversion Mechanism, on commencement of the LTO, title registration system with immediate indefeasibility of title (meaning a bona fide purchaser for valuable consideration and in possession of the property will get immediate indefeasible title) will forthwith apply to new land (as defined in section 20 of the LTO). For existing LRO land, the conversion process would involve two stages of automatic conversion. On a designated date after the commencement of the LTO, all LRO land except those subject to deeds pending registration on the LRO registers will undergo the first stage of conversion (“primary conversion”) and will automatically be brought under the LTO. After 12 years from the date of primary conversion, all LRO land that has undergone primary conversion (“land with primary title”), subject to certain exceptions, will undergo the final stage of conversion (“full conversion”) and will automatically be converted to land with fully converted title.
- Individual primary title registers (“PTRs”) will be opened gradually during the 12-year primary conversion period for all land with primary title. PTRs will be opened upon registration of the first matter or upon the Land Registrar (“Registrar”)’s own volition during the primary conversion period, whichever is earlier. Before opening an individual PTR, basic screening of the LRO register will be conducted to ascertain the legal ownership of the land. The Registrar may register a caution against full conversion against the land if it appears to him that the legal ownership of the land is not clear. Obsolete entries relating to documents registered before primary conversion which are apparently no longer subsisting will not be carried forward to the PTR upon its opening.
- During the primary conversion period, land with primary title will remain subject to subsisting interest(s). In essence, “subsisting interest” means interest (whether registered or unregistered) that is subsisting as at the date of primary conversion and that would have been enforceable against the registered owner for the time being had the land remained under the LRO system. A holder of subsisting interest under the LRO may register his interest or give a notice of his claim of interest by registering a non-consent caution. From the date of primary conversion, all transactions relating to land with primary title have to be effected in the manner and form prescribed under the LTO. Interest created after primary conversion should be protected by registration or it will be subject to other registered matters.
- The PTR is not yet conclusive evidence of the title to the property. The vendor will still be required to produce title deeds and documents according to the current conveyancing practice (sections 13 and 13A of the Conveyancing and Property Ordinance (Cap. 219)), except that documents registered after primary conversion will not be required to be produced if entries relating to such documents are no longer included in the PTR (e.g. entries of mortgages that have been discharged will no longer appear on the PTR as subsisting entries). Besides, documents which have the effect of discharging or satisfying a pre-primary conversion encumbrance will still be required to be produced during the primary conversion period. With the passage of time, documents required to be produced will gradually be reduced.
- During the primary conversion period, property owners who have acquired title under the LRO regime (“LRO owner”) would be entitled to apply to the court for mandatory rectification (“MR”) under section 82(3) of the LTO if his title was lost due to a fraudulent void transaction, unless the property had been surrendered for public purpose or resumed by the Government since the fraud. MR essentially means mandating the court to rectify the title in favour of the former owner where the title had been passed in a fraudulent void transaction. It in effect reflects the common law rule of nemo dat which means the fraudster could not pass title to the purchaser which he does not have.
- A LRO owner shown on the PTR who does not wish the title of the land to be converted to land with fully converted title may register an opt-out caution to withhold his property from full conversion, in which case the property will remain in the primary conversion stage and the MR rule will continue to apply. There will be no automatic full conversion of the property until the opt-out caution is withdrawn. An opt-out caution will have to be withdrawn by registration of a withdrawal of opt-out caution before subsequent transfer or transmission of the property can be accepted for registration. Upon withdrawal of the opt-out caution, the property will undergo automatic full conversion.
- After the primary conversion period, subject to certain exceptions (e.g. where an opt-out caution is registered), the PTR will be deemed to be the Title Register. In general, except for overriding interests, the land will be subject to registered matters only and immediate indefeasibility of title will apply. The MR rule will not apply after full conversion.
Benefits of the Two-Stage Conversion Mechanism
- The proposed Two-Stage Conversion Mechanism addresses the general preference that automatic mass conversion should be adopted in Hong Kong. It also strikes a balance between protecting the interests of LRO owners (a LRO owner is entitled to MR and may choose to register an opt-out caution during the primary conversion period) on the one hand and achieving title certainty under title registration system (immediate indefeasible title after full conversion) on the other hand.
- One of the major outstanding issues with the proposed Two-Stage Conversion Mechanism lies with the proposed basic screening of the LRO registers as a practicable way to screen out registers with indeterminate ownership from automatic full conversion. Allowing these problematic registers to undergo full conversion will upset title certainty and increase potential indemnity liability for the Land Registry (“LR”), while some key stakeholders have concerns about the need and extent of the basic screening. There have been discussions with the key stakeholders over the need and extent of the basic screening of the LRO registers (currently there are about 3 million LRO registers) in preparation for full conversion and this remains one of the major outstanding issues for the proposed Two-Stage Conversion Mechanism.
- The LR will continue to engage the key stakeholders in order to resolve and reach consensus on the outstanding issues in relation to the Two-Stage Conversion Mechanism. Meanwhile, the LR is actively pursuing the “new land first” proposal which will enable early implementation of title registration in Hong Kong.