Hong Kong’s Stamp Duty on Ancillary Property Rights: Easements and Covenants

Key Facts: Stamp Duty on Easements and Covenants

Registration System: Hong Kong operates a deeds registration system under the Land Registration Ordinance (Cap. 128), not a title registration system
Stampable Instruments: Easements and covenants are generally created by deed and may be subject to stamp duty under the Stamp Duty Ordinance (Cap. 117)
Fixed Duty vs Ad Valorem: Most ancillary property rights attract fixed duty rather than ad valorem stamp duty when granted separately from a sale
Registration Requirement: While not mandatory, registration at the Land Registry is strongly recommended to protect property interests and establish priority
Time Limit: Instruments should be registered within one month of execution to maintain priority from the execution date

Understanding Ancillary Property Rights in Hong Kong

In Hong Kong’s property landscape, while outright ownership and leasehold interests typically take center stage, the legal framework encompasses crucial ancillary property rights that significantly influence land use and enjoyment. These rights and obligations, distinct from simple title transfers, do not necessarily grant possession but can materially affect property value and utility.

What Are Easements?

An easement is a non-exclusive proprietary right to use another person’s land in a particular way for the benefit of one’s own land. This right can be granted expressly, impliedly, or by statute. According to Hong Kong property law principles, easements represent a recognized proprietary interest that runs with the land.

Common examples of easements include:

Right of way over neighboring property
Right to park vehicles on adjoining land
Rights of water or drainage
Rights of light and air
Rights of support from adjacent structures

What Are Covenants?

Covenants are binding promises or obligations that affect how land can be used. In Hong Kong property transactions, covenants appear in various forms:

Restrictive Covenants: Negative obligations preventing certain uses of land (e.g., prohibiting commercial activities in residential areas)
Positive Covenants: Obligations to perform specific actions (e.g., maintaining boundary walls or contributing to maintenance costs)
Government Lease Covenants: Conditions imposed by the Hong Kong Government controlling land development and use
Deeds of Mutual Covenant: In multi-story buildings, these documents govern the rights and obligations of different unit owners, including rights to use common areas such as corridors, staircases, and facilities

Stamp Duty Treatment Under Hong Kong Law

The Stamp Duty Framework

The Stamp Duty Ordinance (Cap. 117) governs stamp duty in Hong Kong. Under Section 4, instruments listed in the First Schedule are chargeable with stamp duty. The First Schedule categorizes different types of instruments under various “Heads” that determine the applicable duty.

The key distinction for ancillary property rights is whether they are created as part of a conveyance on sale (attracting ad valorem stamp duty) or through separate instruments (typically attracting fixed duty).

Ad Valorem vs Fixed Duty

Duty Type	Application	Rate	Basis
Ad Valorem Stamp Duty (AVD)	Agreements for sale and conveyances on sale of immovable property	Scale 2 rates: HK$100 to 4.25% (progressive rates effective from 26 February 2024)	Consideration or value (whichever is higher)
Fixed Duty	Conveyance on sale after agreement already stamped with AVD	HK$100	Flat rate regardless of value
Voluntary Disposition	Gifts or transfers without valuable consideration (Section 27)	Based on market value	Property value at time of transfer

Stamp Duty Scenarios for Easements and Covenants

Scenario	Instrument Type	Likely Stamp Duty Treatment	Considerations
Easement granted as part of property sale	Assignment/Conveyance on Sale	Included in AVD on main transaction	No separate duty; easement value reflected in property consideration
Standalone deed creating easement for consideration	Deed of Grant	May attract AVD if deemed conveyance on sale	Treatment depends on whether consideration constitutes a “sale”
Easement granted without consideration	Deed of Grant (Voluntary)	Fixed duty or nominal duty	Section 27 voluntary disposition provisions may apply
Restrictive covenant in sale transaction	Deed of Covenant (ancillary to sale)	Covered by AVD on main sale	Usually incorporated in sale documentation
Standalone deed of covenant	Deed of Covenant	Fixed duty (if no sale involved)	Depends on whether it constitutes a conveyance
Deed of Mutual Covenant (new development)	Deed of Mutual Covenant	Incorporated in first assignment	Rights to common areas included in unit purchase
Modification or release of covenant	Deed of Release/Modification	Fixed duty or may be exempt	Consult Stamp Office for specific circumstances

Current Stamp Duty Rates (Effective 26 February 2024)

Following the Stamp Duty (Amendment) Ordinance 2024, significant changes were implemented:

Unified Rates: Residential and non-residential properties now attract the same Scale 2 ad valorem rates
Abolished Special Duties: Special Stamp Duty (SSD), Buyer’s Stamp Duty (BSD), and New Residential Stamp Duty (NRSD) were reduced to 0% effective 28 February 2024
Progressive Rates: Scale 2 rates range from HK$100 (for consideration up to HK$4 million) to 4.25% (for consideration exceeding HK$20 million)

Land Registry Registration Requirements

The Registration System

Hong Kong operates under the Land Registration Ordinance (Cap. 128), which provides for registration of instruments (deeds) affecting land rather than registration of title. This is fundamentally different from a Torrens title registration system.

Key characteristics:

The Land Registry maintains a record of instruments affecting land
Registration does not guarantee title or verify the validity of the instrument
Registration establishes priority among competing interests
The government does not warrant title quality or validity

Registrable Instruments

Under Section 2(1) of the Land Registration Ordinance, “deeds, conveyances, and other instruments in writing, and judgments” affecting land are capable of being registered. This includes:

Deeds creating or granting easements
Deeds of covenant (both positive and restrictive)
Deeds of release or modification of easements/covenants
Assignments, leases, mortgages, and other interests in land

Priority Rules

Critical timing considerations:

Within one month: If an instrument is presented for registration within one month after execution, priority starts from the date of execution
After one month: If presented more than one month after execution, priority starts from the date of registration

Registration Process for Easements and Covenants

Step	Action Required	Notes
1. Execution	Execute deed creating easement or covenant in proper form	Must comply with Conveyancing and Property Ordinance (Cap. 219) requirements
2. Stamping	Submit instrument to Stamp Office within prescribed time limit	Generally 30 days from execution; unstamped instruments cannot be registered
3. Memorial Preparation	Prepare memorial in prescribed form describing the instrument and affected property	Memorial summarizes the nature and object of the instrument
4. Submission	Submit stamped instrument and memorial to Land Registry	Registration fee: HK$210 to HK$2,000 depending on document type
5. Registration	Land Registry updates land register to show registered instrument	Instrument becomes part of the public record searchable by third parties

Why Register Easements and Covenants?

While registration is not legally mandatory in Hong Kong, it is strongly advisable for several critical reasons:

Priority Protection: Establishes priority over subsequently registered interests
Public Notice: Provides constructive notice to potential purchasers and other interested parties
Enforceability: Unregistered interests may be defeated by bona fide purchasers without notice
Evidence: Unstamped instruments are not admissible as evidence in legal proceedings
Succession: Ensures the benefit and burden of easements/covenants run with the land to future owners

Practical Considerations for Property Owners

Due Diligence Requirements

When acquiring property or granting/receiving easements and covenants, proper due diligence is essential:

Land Search: Conduct comprehensive Land Registry searches to identify existing easements and covenants affecting the property
Deed Review: Examine government lease conditions, Deeds of Mutual Covenant, and all registered instruments
Physical Inspection: Verify actual use corresponds to registered rights (e.g., visible rights of way, drainage pipes)
Compliance Check: Ensure existing use complies with all restrictive covenants and lease conditions

Common Issues and Pitfalls

Watch out for these common problems:

Misdescription: Recent case law (Cayman Shores Development Ltd v The Proprietors, Strata Plan No 79 [2025] UKPC 27) confirms that rights may be enforceable even if incorrectly labeled, but proper description avoids disputes
Inadequate Stamping: Instruments with inadequate stamp duty are inadmissible in evidence; the Stamp Office may challenge understated consideration
Late Registration: Delay beyond one month affects priority date, potentially allowing intervening interests to take precedence
Government Lease Conflicts: Private easements/covenants must not conflict with government lease conditions
Implied vs Express Rights: While some easements may arise by implication or necessity, express grants provide greater certainty

Special Situations

Multi-Story Buildings (Deeds of Mutual Covenant):

In Hong Kong’s prevalent multi-story developments, Deeds of Mutual Covenant govern relationships between unit owners and establish rights to common areas (corridors, staircases, lifts, recreational facilities). These rights are typically:

Incorporated in the first assignment from developer to initial purchaser
Automatically binding on subsequent purchasers through the chain of assignments
Supplemented by Sub-Deeds of Mutual Covenant for phased developments
Enforceable under the Building Management Ordinance even if not expressly stated

Government Lease Covenants:

The Hong Kong Government maintains extensive control over land use through lease covenants. These typically govern:

Permitted use (residential, commercial, industrial, etc.)
Building height and plot ratio restrictions
Development timing requirements
Premium payments for lease modifications

Recent Legal Developments

2024 Stamp Duty Reforms

The Stamp Duty (Amendment) Ordinance 2024, gazetted on 19 April 2024 with retrospective effect from 28 February 2024, fundamentally reformed Hong Kong’s property stamp duty regime:

Eliminated distinctions between residential and non-residential property for AVD purposes
Reduced Special Stamp Duty (SSD), Buyer’s Stamp Duty (BSD), and New Residential Stamp Duty (NRSD) rates to 0%
Unified all property transactions under Scale 2 rates ranging from HK$100 to 4.25%
Removed demand-side management measures that previously imposed higher duties on certain buyers

Land Titles Ordinance (Not Yet in Force)

The Land Titles Ordinance (Cap. 585), passed on 7 July 2004, will eventually transition Hong Kong from deed registration to title registration. Under this future regime:

Certain easements will constitute “overriding interests” automatically binding without registration
Registered easements under the current LRO will continue to be recognized
Rights of way, water rights, and easements by necessity will remain protected
Greater title certainty will benefit property transactions

However, the Land Titles Ordinance implementation date has not been announced, and the current deed registration system continues to apply.

Professional Guidance and Compliance

When to Seek Professional Advice

Given the complexity of stamp duty law and land registration requirements, professional advice is recommended when:

Creating new easements or covenants affecting valuable property
Uncertainty exists about whether an instrument constitutes a “conveyance on sale”
The consideration structure is complex or potentially subject to Stamp Office challenge
Dealing with implied easements or rights of necessity
Modifying or releasing existing easements or covenants
Questions arise about priority among competing interests

Key Government Resources

Authority	Responsibility	Key Functions
Stamp Office (Inland Revenue Department)	Stamp duty assessment and collection	Stamping instruments, adjudication, interpretation guidance, enforcement
Land Registry	Registration of land instruments	Recording deeds, maintaining land registers, providing searches, establishing priority
Lands Department	Government land administration	Lease modifications, premium assessments, land use enforcement

Stamp Office Practice Notes

The Stamp Office publishes Interpretation and Practice Notes (SOIPNs) providing guidance on various stamp duty matters. Relevant notes include:

SOIPN No. 1: General guidance on stamp duty on property transactions
SOIPN No. 3: Guidance on inadequate consideration and voluntary dispositions
SOIPN No. 7: Buyer’s Stamp Duty (now reduced to 0% but still contains relevant interpretative guidance)

Key Takeaways

Ancillary Rights Matter: Easements and covenants significantly affect property value and usability in Hong Kong, requiring careful attention in all property transactions
Stamp Duty Depends on Context: The stamp duty treatment varies based on whether easements/covenants are granted as part of a sale (AVD applies to main transaction) or through standalone instruments (typically fixed duty)
Timely Stamping is Mandatory: Instruments must be stamped within prescribed time limits (generally 30 days); unstamped documents are inadmissible in legal proceedings and cannot be registered
Registration Protects Priority: While not mandatory, registering easements and covenants at the Land Registry is essential to establish priority and provide public notice; register within one month of execution to preserve priority from execution date
Deeds Registration System: Hong Kong uses deed registration, not title registration; the Land Registry records instruments but does not guarantee title validity
Recent Reforms Simplified Rates: The 2024 stamp duty reforms unified residential and non-residential property rates under Scale 2 (HK$100 to 4.25%) and eliminated special demand-side management duties
Due Diligence is Essential: Always conduct comprehensive Land Registry searches to identify existing easements and covenants affecting property; review government lease conditions and Deeds of Mutual Covenant carefully
Professional Advice Recommended: Given the complexity of stamp duty law and potential for costly errors, seek professional legal and tax advice when creating, modifying, or dealing with easements and covenants
Multi-Story Buildings Have Special Rules: Deeds of Mutual Covenant govern rights to common areas in multi-story developments and are typically incorporated in the first assignment from the developer
Compliance Carries Consequences: Non-compliance with stamp duty or registration requirements can result in penalties, loss of priority, unenforceability of rights, and inability to use documents as evidence in legal proceedings

Disclaimer: This article provides general information only and does not constitute legal or tax advice. Hong Kong stamp duty and land registration law is complex and subject to change. Always consult qualified legal and tax professionals for advice specific to your circumstances. The information is current as of December 2025.

Tax.HK