‘Space Nail’

I recently heard about “Space Nail” from my lawyer friend. This strange-sounding phrase is a kind of document as lis pendens registered at the Land Registry. It may grab the practitioners’ attention in the course of the conveyancing transactions.

Often a Writ is issued by moneylenders for the recovery of moneys due by the debtor under an agreement for personal loan. The loan agreement provides for a breach of the covenant when the debtor sells his landed property. Yet no mention of the property is made in the loan agreement and no charge is created on his property as security in the moneylenders’ favour. Seeing the debtor has signed a formal agreement for sale and purchase of his property and proceeds with the soon completion, they will jump at the chance to demand full payment of the debt by him under the loan agreement within days and failing payment race to the court to issue the Writ and rapidly present it to the Land Registry for registration. Thus, the Writ as a “Space Nail” will be registered against the property pending completion of the sale and purchase. They have no legal right to have it registered though. The Writ purportedly serves as a warning of action to the purchaser and in truth to press the payment of debt by the debtor on or before completion. 

Notably, the Writ does not affect land because the claim does not touch and concern the land. The Writ not affecting land is therefore not registrable (see Thian’s Plastics Industrial Co. Ltd. & Others (No. 2) v Tin’s Chemical Industrial Co. Ltd. and another [1971] HKLR 249.) Based on the aforesaid, it is not to enforce a charge either. There is no escaping the fact that non-payment by the debtor will not trigger any of the moneylenders’ rights or powers to sell the property by the Writ, or by its registration to fasten the balance of the purchase price. It is different in Ho King-yim v Lau King-mo (CACV 40/1979) which held that the vendor acquired a beneficial interest in the purchase money and that upon receipt of notice of the charge, the purchaser became liable to the extent of the charge. (The charging order nisi was not made absolute until after assignment, but it is accepted that it then related back so that the effective date is that of the order nisi). After this case, the purchaser’s solicitors will, where appropriate, set aside an amount from the balance of the purchase price on completion to meet the payment under the lis pendens which was pending registration. 

As noted from section 20 of the Land Registration Ordinance, on the application of any interested persons (eg the vendors/purchasers/borrowers/administrators), the registration of Writ will be vacated by the court pursuant to s19 thereunder. In Yu Jing Jenn v Wong Pe Wun and others (HCAP 2/1986), the plaintiff attempted to register the writ at the Land Registry to prevent the 1st defendant from selling a property. An order was made to vacate the registration of the writ with costs to the 1st defendant, for there was no claim to a substantive right to the property adverse to the owner by the plaintiff.

Impact on a vendor apart, the aforesaid registration will seriously jeopardise the interests of a purchaser, including his/her mortgage loan application and the mortgagee bank’s consent to drawdown the loan, which is necessary and crucial to enable him/her to proceed with the impending completion.

In situations like this, those interested persons are the persons suffer the most. An injunction may be required to vacate the “Space Nail” registration and burdens them with substantial costs. Though priority of registration will govern (eg legal interests v equitable interests and competing dates of registration), it is not worth the interested persons’ while to have a nightmare hanging over their heads. A happy-turn-sad purchase overnight seems to be a mock to Article 39 of the Basic Law which provides the homes of the citizens are inviolable. Unquestioningly, a big hand will be given to the Land Registry for the imposition of heavy penalty in the case of blind and terribly wrong registration still made to this day.

Tony WH Luk

Solicitor

Kelvin Cheung & Co.

Jurisdictions: 

Solicitor, Ambrose Ng & Co