In early 2020, Mr. Zhang signed a provisional agreement in preparation to buy a property, but who would have known that a sudden outbreak of the pandemic would occur? The developer was unable to hand over the property on time due to a construction site lockdown. Mr. Zhang not only had to continue paying rent, but also had to service the mortgage for the new property he had not yet received. When he opened the thick sales contract, he discovered a clause called the 'Force Majeure Clause,' which the developer cited to delay the handover, and it was completely legal. This story is not an isolated case; in the Hong Kong property market, many buyers suffer losses because they do not understand this clause.
Today we will take an in-depth look at this often overlooked yet crucial 'force majeure clause' that can affect your rights at critical moments, helping you avoid this hidden landmine on your path to homeownership.
What is a 'Force Majeure Clause'? Legal Definition and Practical Application
Legal Formal Definition
"Force Majeure" in the common law system refers to external events that are unforeseeable, unavoidable, and beyond the control of both parties to a contract. In property sale contracts in the Hong Kong real estate market, this clause typically stipulates that when certain events occur, the seller (usually a developer or owner) may delay the performance of contractual obligations, or even, in extreme circumstances, terminate the contract without being liable for breach.
Common "force majeure events" include:
- Natural disasters: typhoons, earthquakes, floods, landslides
- War, riots, terrorist attacks
- Sudden changes in government orders or laws
- Strikes, labor disputes (not caused by the seller)
- Epidemics or public health emergencies
- Supply chain disruptions (such as shortages of construction materials)
:::tip Expert tips Different sales contracts may have significant differences in the definition of 'force majeure.' The sales contract for a first-hand property pre-sale usually contains more detailed clauses, while a preliminary agreement for a second-hand property may not mention it at all. Be sure to read the relevant provisions carefully before signing the contract. :::
Practical Application Scenarios in the Hong Kong Real Estate Market
In the Hong Kong real estate market, 'force majeure clauses' most commonly appear in the following three situations:
Delay in Handover of Newly Built Flats Developers may invoke this clause to postpone key dates (i.e., the expected handover date) when encountering construction site accidents, material shortages, or sudden tightening of building regulations by the government. According to the Real Estate Regulatory Authority, between 2020 and 2022, over 30% of new property projects applied for a delay in handover due to pandemic-related reasons.
Owner Breach in Second-hand Property Transactions Although less common, when an owner is unable to complete the transaction as scheduled due to unexpected events (such as serious illness or family changes), they may also attempt to invoke "force majeure" to avoid compensation. However, the courts scrutinize this very strictly.
Mortgage Approval Delays In extreme market conditions (such as the 2008 financial crisis), banks suddenly tightened mortgage policies, causing buyers to be unable to obtain loan approval on time. Some buyers may try to delay the transaction by citing 'force majeure,' but the success rate is not high.
:::highlight Key Reminder "Force majeure clauses" do not take effect automatically. The seller must prove that the event indeed fits the definition in the clause and has taken reasonable measures to mitigate the impact. The buyer has the right to challenge and demand compensation. :::
Real Cases: Real Estate Disputes and Legal Judgments During the Pandemic
Case 1: Compensation Dispute for Delayed Handover of New Property
In March 2020, Ms. Li purchased a new apartment in Tseung Kwan O for 8 million HKD, with the original handover scheduled for June 2021. However, in April 2021, the developer suddenly notified her that due to the pandemic, foreign workers could not enter, resulting in construction delays and a need to postpone the handover by six months. At that time, Ms. Li had already sold her old home, and her family of four was forced to rent a subdivided flat, paying a monthly rent of 15,000 HKD.
After reviewing the contract, Ms. Li discovered that the developer's 'force majeure clause' did cover 'pandemics or government epidemic prevention measures,' but the clause also stated that 'the seller must make reasonable efforts to minimize delays.' With the assistance of a lawyer, Ms. Li requested the developer to provide evidence proving that all feasible measures had been taken (such as hiring local workers, adjusting work processes, etc.). In the end, both parties reached a settlement, with the developer compensating Ms. Li 90,000 yuan for the 6-month rent difference and completing the handover 2 months earlier.
:::success Insider Tip Even if the contract has a 'force majeure clause,' the buyer can still request the seller to prove that they have 'made reasonable efforts.' Keep all communication records, and seek help from the real estate regulatory authority or a lawyer if necessary. :::
Case 2: Second-hand property owner suddenly goes back on their word
Mr. Chan signed a provisional agreement to purchase a detached house in Kowloon Tong at the end of 2019, with a transaction price of 35 million HKD. However, after the outbreak of the pandemic in January 2020, the seller suddenly requested a delay, citing "family members tested positive and need to quarantine, unable to handle the transaction" as the reason. Mr. Chan had already paid a 5% deposit (1.75 million HKD) and had applied for a mortgage.
The landlord's lawyer cited the 'force majeure clause,' claiming that the pandemic was an unforeseeable event. However, Mr. Chen's lawyer pointed out that the landlord was merely 'inconvenienced' rather than 'unable' to complete the transaction, and that the landlord could have authorized a lawyer to handle all the documents without needing to be present in person. Ultimately, the court ruled that the landlord was in breach of contract and required to pay Mr. Chen double the deposit (i.e., 3.5 million yuan).
Case 3: Mortgage Approval Suddenly Tightens
After the U.S. interest rate hike cycle began in 2022, Hong Kong banks suddenly tightened mortgage loan-to-value ratios. Mrs. Wong was originally approved for an 80% mortgage to purchase a Sha Tin Home Ownership Scheme flat for 6 million HKD, but a week before the transaction, the bank suddenly notified her that they could only approve 60%, and Mrs. Wong would need to pay an additional 1.2 million HKD as a down payment.
Mrs. Wang tried to delay the transaction by claiming that the 'sudden change in bank policy was an act of God,' but the owner refused. In the end, Mrs. Wang was forced to borrow a bridging loan from a finance company and completed the transaction at a high interest rate. Later, she asked her lawyer and learned that 'mortgage approval' is generally not considered a 'force majeure event' because buyers are responsible for ensuring their own financial capability.
:::warning Pitfall Warning 'Mortgage approval failure' generally does not fall under 'force majeure.' Buyers should confirm their repayment ability before signing the provisional agreement and include a clause in the contract stating 'subject to the buyer successfully obtaining mortgage approval' (commonly known as the 'deposit forfeit clause'). :::
Buyers Must Know: How to Protect Your Rights in a Contract
Three Key Checks Before Signing a Contract
1. Carefully read the scope of the definition of 'force majeure'
The contract terms of different developers or owners vary greatly. Some contracts specify in detail which events constitute 'force majeure,' while others use an open-ended phrasing like 'including but not limited to,' giving the seller significant room for interpretation.
You should pay special attention to:
- Whether the terms include common recent events such as 'pandemic' or 'government orders'
- Whether there are limiting clauses like 'the seller must use reasonable efforts'
- The maximum period for delayed handover (e.g., 'no more than 12 months')
- Whether the buyer has the right to cancel the contract and retrieve the deposit after the delay exceeds a specified period
2. Strive to join the 'Buyer Protection Clause'
During the negotiation stage, you can request to include the following clauses in the contract:
- "If the handover is delayed by more than X months due to force majeure, the buyer has the right to unconditionally cancel the contract and recover the full deposit and interest."
- "The seller must provide the buyer with a monthly progress report on the construction."
- "During the delayed handover period, the seller must compensate the buyer for the difference in rental costs."
:::tip Expert tips In second-hand property transactions, owners are usually more willing to accept reasonable protection clauses because they also want a smooth deal. For first-hand pre-sale properties, it is more difficult to modify the standard contract, but you can request the developer to provide written commitments or additional protections. :::
3. Purchase 'Building Delayed Handover Insurance'
Some insurance companies offer 'Building Handover Delay Insurance,' which covers buyers for additional rent, moving costs, and other expenses caused by the seller's delayed handover. The premium is usually 0.1-0.3% of the property price, making it a worthwhile consideration for first-time buyers.
Strategies for Coping with Delays Due to 'Force Majeure'
Step One: Request the Seller to Provide Written Proof
When the seller claims to have encountered a 'force majeure event,' you have the right to request the other party to provide:
- A detailed description of the event and evidence (such as government announcements or construction site closure orders)
- The remedial measures taken and their schedule
- The specific expected duration of the delay
Step 2: Consult a lawyer and keep all records
Do not accept a delay based solely on the seller's or real estate agent's verbal explanation. Contact your lawyer immediately, and keep all emails, WhatsApp conversations, written notices, and other evidence.
Step 3: Assess Your Options
According to the contract terms and the actual situation, you usually have the following options: 1. Accept the delay, but request compensation (such as rental differences, interest losses) 2. Insist on the original transaction date and demand breach of contract compensation from the seller 3. Cancel the contract and retrieve the deposit (if the contract includes this clause)
:::highlight Key Reminder Time is money. Delaying handling will only increase your losses. Once a problem is discovered, take action immediately and seek professional advice. :::
Common Mistakes and Professional Advice
Misconception One: The 'Force Majeure Clause' Means the Seller Can Delay Indefinitely
Wrong! Even if the contract has a 'force majeure clause,' the seller still needs to prove that the delay was 'reasonable and necessary.' If the delay is too long or the seller has not taken remedial measures, the buyer can apply to the court for specific performance of the contract or claim compensation.
Misconception 2: 'Pandemic' automatically equals 'force majeure'
Not necessarily. The court will examine whether the pandemic "directly caused" the inability to perform the contract. For example, if it is just the seller's personal inconvenience (such as not wanting to go out), rather than a government-mandated lockdown, it does not constitute "force majeure."
Misconception Three: Second-hand property transactions will not have 'force majeure' issues
Wrong! Although the 'force majeure' risk for second-hand properties is relatively low, situations such as the sudden death of the owner, the property being seized by the court, or the building structure suddenly developing serious problems may still occur. When buying a second-hand property, you still need to pay attention to the contract terms.
:::warning Pitfall Warning Do not assume that a "standard contract" is the same as a "fair contract." Standard contracts in Hong Kong's real estate market usually tend to protect the seller (especially developers). Buyers must proactively fight for their own rights. :::
Summary: Be a Savvy Buyer and Avoid the 'Force Majeure' Trap
In the Hong Kong property market, the 'force majeure clause' is a double-edged sword. It protects the seller's legitimate rights when truly unforeseen events occur, but it can also be abused as an excuse to delay handover or evade responsibility. As a buyer, you need to do the following:
- Read carefully before signing: Do not rush to sign just because you are eager to get on board; take the time to understand every clause.
- Actively secure protections: Include buyer-friendly terms during the negotiation phase, such as delay compensation or cancellation rights.
- Keep all evidence: In case of disputes, complete written records are your most powerful weapon.
- Seek professional help promptly: Do not delay when problems arise; consult a lawyer or seek assistance from the real estate regulatory authority immediately.
Remember, buying a property is a major life event, involving amounts of money that can easily reach several million or even tens of millions. Spending a little more time and effort to safeguard your rights is absolutely a worthwhile investment.
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