From Eastrade Holdings Limited to The Incorporated Owners of Wisdom Court: Contrasting Outcomes in Government Lease Constructions

(A) Introduction
 
Two recent cases, Eastrade Holdings Ltd v. The Secretary for Justice representing The Director of Lands (“Eastrade”)([2025] 1 HKLRD 400, date of judgment: 10 December 2024) [1] and The Incorporated Owners of Wisdom Court v. The Secretary for Justice representing The Director of Lands (“Wisdom Court”) (HCMP 1284/2023, date of judgment: 27 March 2026) [2], offer contrasting illustrations of how the Hong Kong courts interpret restrictive covenants in Government leases. 

Both cases reaffirm the well-established legal principles of construction of government leases. However, their outcomes are different. 

In Eastrade, the lessee lost, being required to pay a substantial premium for redevelopment. In Wisdom Court, the Incorporated Owners succeeded, obtaining permission to build permanent toilets on the ground floor without any premium or charges payable to the government.

 
(B)  Legal Principles of Construction of Government Leases
 
The construction of a Government lease is a unitary exercise. The Court objectively ascertains the intention of the parties from: [3]
(a)   the natural and ordinary meaning of the words used in the lease;
(b)   the overall purpose of the relevant provisions;
(c)   the factual matrix known to both parties at the time of the lease; and
(d)   commercial common sense.
 
Pre-contractual negotiations and conduct subsequent to the contract are generally irrelevant. The Court must guard against re-writing the lease if the intention of the parties is clear. In addition, if there is any ambiguity in the Government Leases, it must be construed in favour of the Government. [4]
 
(C) Eastrade Holdings Limited v Secretary for Justice ([2025] 1 HKLRD 400, date of judgment: 10 December 2024)
 
Facts

This case concerned New Kowloon Inland Lot No. 886 (the “Lot”) under a Government lease dated 2 October 1930 (the “Lease”). [5] The Lease contained, inter alia, the following clauses: [6]

(1) A building covenant requiring the lessee to build a single house (Type 6) to the satisfaction of the Director of Public Works.

(2) A consent clause providing that the lessee shall not erect any other messuage or dwellinghouse on the Lot without the consent of the Director of Public Works (the “Consent Clause”).
 
In 2010, the Plaintiff (the lessee) demolished the existing building on the Lot and erected a new building (the “Current Building”) without the consent of the Director of Lands (the “Director”). [7] The Director indicated that he was prepared to give consent, but subject to payment of a premium assessed at HK$106 million. [8]
 
The Plaintiff argued that Director’s consent was unnecessary because the words “any other messuage or dwellinghouse” in the Consent Clause meant an additional house, not a replacement of the single house on the Lot. As the Current Building had replaced the original building as the only house on the Lot, no consent from the Director was required.

On 3 November 2021, the Plaintiff issued an originating summons claiming three declarations: [9]

(1) on the proper construction of the Lease, it is entitled to erect the Current Building without the Director’s consent;

(2) in the alternative, even if the Director’s consent is required, the charging of a premium in the sum of HK$106,240,000 would amount to derogation from the grant of the Lease; and

(3) in the further alternative, in assessing the “before” value of the Lot for premium calculations, the Director is required to take into account the value of the building (including all alteration and addition works) that was demolished and replaced by the Current Building, that is to say, the School Building.
 
The High Court rejected the Plaintiff’s case. Subsequently, the Plaintiff appealed to the Court of Appeal (the “CA”). [10]

Decision
 
The CA dismissed the appeal on the following grounds:
 
(1)   The Consent Clause required the Director’s consent for the erection of any building other than the Original Building approved by the Director of Public Works
 
The Court found that the Lease was not a stand‑alone transaction. [11] The Lot formed part of the Kowloon Tong Garden Estate, a scheme under the 1922 Agreement where purchasers bought lots with houses built to approved drawings. The Government, through the Director of Public Works, retained control over the first houses’ footprint, height and other parameters. [12]

 
The Court rejected the Plaintiff’s claim that the primary purpose of the Lease was simply to allow a residence and that restricting rebuilding over 75 years was “repugnant”. The Lease’s purpose included maintaining the Lot as part of a special garden estate. An unbridled right to redevelop would undermine that purpose. The Consent Clause provided a mechanism and there was no basis to assume the Director would use it to block all rebuilding or charge excessive premia. [13]
 
Further, the Court dismissed the Plaintiff’s argument that the Consent Clause should be read as requiring any rebuilding to comply with the Building Covenant’s “rate and range” clause as that would involve rewriting the clause. [14]
 
The Court also rejected the Plaintiff’s reliance on statutory controls (Section 203 of the Public Health and Buildings Ordinance (Ord. No. 1 of 1903), now Section 16(1)(g) of the Buildings Ordinance) because such controls were limited to “design or character” and did not cover density or positioning. The Government was entitled to retain more specific control through the lease terms. [15]
 
Finally, the Court held that, in light of the background, context, and purpose, “any other messuage or dwellinghouse” meant any building different from the one built in compliance with the Building Covenant, not merely “an additional” house. [16]
 
(2)   The Plaintiff had not established waiver
 
The Court rejected the Plaintiff’s argument that the Government had waived compliance based on the School Building and the planning applications in 1998 and 1999. Those applications involved only a change of user, not the erection of a new building. The Consent Clause was not triggered until 2010, when the Plaintiff submitted plans for the Current Building. The Director immediately stated that consent was required and the subsequent premium assessment showed no acceptance of any waiver. [17]
 
The Plaintiff also attempted to rely on acceptance of rent, citing a private landlord case. That argument was not raised in the High Court and hence was rejected by the CA. Moreover, under Section 6 of the Government Rights (Re-entry and Vesting Remedies) Ordinance (Cap. 126), acceptance of rent by the Government does not operate as a waiver of any right of re-entry for breach of covenant. Mere inaction did not constitute acquiescence or waiver. [18]

 
(D) The Incorporated Owners of Wisdom Court v The Secretary for Justice (HCMP 1284/2023, date of judgment: 27 March 2026)
 
Facts
 
Wisdom Court is governed by a Government Lease dated 2 October 1916, as subsequently varied by a deed of variation dated 5 July 1972 (the “Deed of Variation”) and a further deed of variation dated 28 October 1981. [19]
 
The Plaintiff (the Incorporated Owners of Wisdom Court) sought a determination of whether the proposed permanent toilets (the “Proposed Toilets”) of approximately 8.5 square metres on the Ground Floor of Block A of Wisdom Court would contravene Clause (1) of the Deed of Variation. Clause (1) provides:- [20]

 

“AND will not erect or allow to be erected on the said piece or parcel of ground or any part thereof any building other than a building or buildings not exceeding Ten storeys in height which shall in all respects comply with the Building Ordinance any regulations made thereunder and any amending legislation and shall not have a total roofed-over area exceeding 22.55% of the area of the said piece or parcel of ground (it being agreed and declared that properly accessible car ports under the proposed building or buildings will be permitted in addition to the number of storeys hereinbefore stated and that any storey designed and used solely for such purpose will not be regarded as a storey for the purpose of calculating such coverage limitation)”.

 
The parenthetical part of Clause (1) contains an agreement and declaration (the “Declaration”), which consists of two limbs:- [21]

(1) Limb 1: “properly accessible car ports under the proposed building or buildings will be permitted in addition to the number of storeys hereinbefore stated”; and

(2) Limb 2: “any storey designed and used solely for such purpose will not be regarded as a storey for the purpose of calculating such coverage limitation”.
 
Decision
 
The Court held that the Defendant shall permit the Plaintiff to build, without any premium or charges payable to the Defendant, the Proposed Toilets subject to the approval by the Building Authority and other relevant authorities on the following grounds:

(1) “Such coverage limitation” refers only to the roofed‑over area limit, not to the ten‑storey height limit

The word “coverage” naturally means area, not height. Limb 1 addresses the height limit of ten-storeys (“Ten-Storey Height Limit”) whereas Limb 2 addresses the limit of the total roofed-over area (“Roofed-Over Area Limit”). Therefore, “such coverage limitation” refers to the Roofed-Over Area Limit only. [22]
 
(2) No “solely” requirement for Ten-Storey Height Limit under Limb 1

Limb 1 does not contain the word “solely”. In contrast, Limb 2 expressly requires that a storey be “designed and used solely” for car ports. The deliberate omission of “solely” from Limb 1 means that a ground floor may contain ancillary non-car-port facilities and still qualify as “properly accessible car ports” for height purposes. [23]
 
(3) The Proposed Toilets would not render the Ground Floor not “properly accessible car ports”

Quantitatively, the Proposed Toilets, only approximately 0.7% of the total area of the Ground Floor, is insignificant. Qualitatively, they would not change the essential character of the Ground Floor as “properly accessible car ports”. As such, even with the Proposed Toilets, the Ground Floor remains exempt from being counted for the Ten‑Storey Height Limit. [24]
 
(E)  Key Takeaways
 
Although Eastrade and Wisdom Court start from the same legal principles for construing government leases, their outcomes differ for four main reasons:

(1) Type of clause: Eastrade involved a consent clause (requiring prior approval), whereas Wisdom Court involved an exemption clause (a declaration permitting additional storeys).

(2) Ambiguity: In Eastrade, the ambiguity over the phrase “any other messuage” was resolved in favour of the Government. In Wisdom Court, there was no genuine ambiguity. “Coverage limitation” clearly meant area, so the clause was resolved in the lessee’s favour based on its natural meaning.

(3) Historical context: Eastrade was supported by a strong historical context, namely a unified garden estate scheme with standardized houses. In Wisdom Court, there was no evidence of a comparable master plan for the development.

(4) Scale of the proposed change: Eastrade involved a complete replacement of the original building with a much larger structure. Wisdom Court involved a small addition as the proposed toilets occupied only 0.7% of the ground floor area.
 
These cases serve as a timely reminder in two aspects:

(1) Drafting with precision: Consent clauses (e.g., “shall not … without consent”) give the Government broad control and the Court are likely to interpret “any other” broadly. In contrast, exemption clauses (e.g., “it being agreed that … will be permitted”) may be construed in the lessee’s favour if the wording is clear.

(2) Interpretation in context: When construing government leases, the Court will closely examine historical context.

---

[1] https://legalref.judiciary.hk/lrs/common/ju/ju_frame.jsp?DIS=164939

[2] https://legalref.judiciary.hk/lrs/common/ju/ju_frame.jsp?DIS=179001

[3] Eastrade Holdings Ltd v. Secretary for Justice ([2025] 1 HKLRD 400, date of judgment: 10 December 2024), §37-38; The Incorporated Owners of Wisdom Court (HCMP 1284/2023, date of judgment: 27 March 2026), §13

[4] Ibid

[5] Eastrade Holdings Ltd v. Secretary for Justice ([2025] 1 HKLRD 400, date of judgment: 10 December 2024), §18

[6] Ibid, §19

[7] Ibid, §27-§28

[8] Ibid, §30

[9] Ibid, §33-§36

[10] Ibid, §1

[11] Ibid, §41

[12] Ibid, §43-§44

[13] Ibid, §45

[14] Ibid, §48

[15] Ibid, §51

[16] Ibid, §56

[17] Ibid, §67

[18] Ibid, §66

[19] The Incorporated Owners of Wisdom Court (HCMP 1284/2023, date of judgment: 27 March 2026), §3

[20] Ibid, §1

[21] Ibid, §9-§10

[22] Ibid, §15

[23] Ibid, §16

[24] Ibid, §23