Introduction
Water leakage is a common problem in multi-storey buildings in Hong Kong. In most cases the problem is caused by the aging of the water pipes and drains and the lack of maintenance and repair. Often, in a sale and purchase scenario, water leakage problems may not be so patent as to alert the potential buyers of the implications. What remedy is available to the buyer if he purchased a property with a water leakage problem? Can he refuse to complete the transaction? These questions will be discussed in this newsletter.

Case analysis
The recent case of Law Ping Ying Tricia and another v Hui Kin Sang sheds some light on this matter. The defendant was the vendor who owned a flat on the 2nd Floor of a building at Sai Yeung Choi Street North, Kowloon (“the Premises”). The plaintiffs, being the potential purchasers, entered into a provisional agreement for sale and purchase of the Premises (“Provisional Agreement”) with the defendant on 22 April 2010. At the time the provisional agreement was signed, the plaintiffs also paid a temporary deposit of HK$130,000.

Subsequent to the signing of the Provisional Agreement, the plaintiffs discovered that on 18 March 2010, the management office of the building had sent a letter of complaint of water leakage from the Premises to the flats immediately below together with some photographs to the defendant. On 12 May 2010, the owner and tenant of the flats immediately below the Premises, through their solicitors, sent a demand letter to the defendant’s solicitors whereby the defendant was requested to rectify the water leakage problem.

In light of these events, the plaintiffs contended that the defendant had breached a clause in the Provisional Agreement that the Premises were to be sold free from encumbrances, and that the defendant had failed to show and/or give good title on or before completion. The plaintiffs refused to complete the purchase and the defendant forfeited the deposit in the sum of HK$250,000. The matter was then brought to the court. The court was invited to rule on two issues in respect of the water leakage problem: first, whether there was indeed any water leakage problem at the Premises; and secondly, whether such problem was an encumbrance of the Premises.

In concluding that there was water leakage problem subsisting at the time of the scheduled completion, the court considered the following evidence:

1.         the letters from the management office and the solicitors of the owner and tenant of the flats immediately below the Premises showed that the water leaking problems started in about March 2010 and continued in May 2010; and

2.         the water seepage investigation report prepared by surveyors engaged by the Food and Environmental Hygiene Department who had inspected the Premises and the flats below in June and July 2010 and confirmed that the drainage leakage of the floor drain and floor leakage of the Premises were the likely sources of seepage.

It is a well-established legal principle that a purchaser should not be compelled to take a title about which there is some doubt or which might involve the purchaser in litigation. The water leakage problem in this case would amount to a potential claim in tort by the owner and/or the tenant of the flats below. The plaintiffs should not be compelled to take such title as it would involve them in potential litigation. Accordingly, the court held that the defendant had failed to show and/or give good title of the Premises and the plaintiffs were entitled to rescind the Provisional Agreement.

Points to note
It is noted that in Law Ping Ying Tricia and another v Hui Kin Sang, the water leakage problem which amounted to a potential claim by third parties was an encumbrance on title. The plaintiffs were entitled to rescind the Provisional Agreement.

Yet, the defendant at trial did not rely on the defence that the Premises were sold on an “as is” basis since the same was not pleaded in the defendant’s defence and counterclaim. Had the defendant relied on the “as-is” clause in the Provisional Agreement as a defence, the outcome might have been different. Further, since Law Ping Ying Tricia and another v Hui Kin Sang was decided in the District Court, we have yet to see if this case will be followed or overruled by the higher courts in subsequent cases.

In any event, potential buyer should be more vigilant when buying property at an older building or where the property is not in a proper state of repair. It may be worthwhile to engage professional surveyors to investigate or to simply ask around in the building for more information about the property to ascertain whether there is or has been any complaint of water leakage from the target property before making a decision to purchase the property.

For enquiries, please contact our Property Department:

E: property@onc.hk

T: (852) 2810 1212

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Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.