Leases without reversions: ‘solving’ Milmo v Carreras

In To Sze On v Yim Tin Fook [2026] HKCFA 17 (‘To Sze On’), the Hong Kong Court of Final Appeal abolished the long-standing rule in Milmo v Carreras [1946] KB 306 (‘Milmo’) that a purported sub-lease granted for a term equal to or exceeding the residue of the head lease takes effect in law as an assignment of that head lease. The significance of this decision for Hong Kong—where virtually all land is leasehold—cannot be overstated. Yet far from clarifying the law, To Sze On may have cast Hong Kong land law adrift from the orthodox principle that a lease necessarily requires a reversion. The logic is straightforward: it is in the nature of a lease that the landlord retains a reversionary estate. If a sub-lease exhausts the grantor’s entire interest, the grantor retains nothing, and the transaction is properly characterised as an assignment. Much of the law of leases—including the statutory mechanisms under sections 31 and 32 of the Conveyancing and Property Ordinance (Cap 219) (‘CPO’), which bind the benefits and burdens of leasehold covenants to the reversionary estate—is premised upon this foundational idea.

The dispute in To Sze On concerned land in the New Territories. Madam Tang held a Government lease due to expire on 27 June 1997. In 1983, she purported to grant Mr To Cheong Lam a sub-lease expiring in November 1998—more than a year beyond the then expiry date of her own lease. Following the Sino-British Joint Declaration of 1984, the New Territories Leases (Extension) Ordinance (Cap 150) extended Government leases in the New Territories to 2047. Later, in 1986, Madam Tang executed a Deed of Gift purporting to assign her lease to herself and her adopted son as joint tenants. After Madam Tang’s death, the adopted son claimed by survivorship and sold the land to WS Realty Co Ltd. WS Realty then subdivided the land and sold the lots to individual purchasers. The 1983 sub-lease had never been registered under the Land Registration Ordinance (Cap 128) (‘LRO’), although it was registrable. As Mr To Cheong Lam, or those claiming under him, remained in possession, the purchasers from WS Realty brought possession proceedings, arguing that under section 3(2) of the LRO the unregistered sub-lease was ineffective against them as bona fide purchasers for value without notice of it.

The appellant—the personal representative of the estate of Mr To Cheong Lam, deceased—ran a two-part argument. First, Milmo recharacterised what the parties thought was a sub-lease into an assignment of Madam Tang’s Government lease. Second, by the nemo dat rule, the 1986 Deed of Gift could pass no title, meaning the purchasers derived nothing and could not rely on section 3(2) of the LRO. At every instance up to the Court of Final Appeal (see [2019] HKCFI 2511 (Court of First Instance), [2025] 4 HKLRD 193; [2025] HKCA 675 (Court of Appeal)), the plaintiff purchasers prevailed. While the Court of Appeal accepted that Milmo applied, it held that the appellant’s argument failed on its second point (at [68]-[105]). The CFA agreed on this registration point, holding that the appellant’s argument misconceived the operation of nemo dat. The maxim does not mean that, once a vendor has made an earlier conveyance, any later conveyance of the same land is a nullity. It means only that the vendor cannot confer a better title than he has. In a common law system premised on relativity of title, a vendor who has already conveyed his title to one purchaser may still convey to a second purchaser such weaker relative title as he retains as against the world generally, even though, apart from statute, that second purchaser’s title would be defeated by the first. As Lam PJ explained, ‘[s]ince the common law title system is premised upon relativity of title, the LRO was enacted on the same premise’ (at [11]). Section 3(2) of the LRO then intervenes to reverse the ordinary priority as between the two purchasers: where the first purchaser’s registrable instrument is unregistered, the registered second purchaser may take priority over it.

Having decided the registration issue against the appellant, the appeal was bound to fail. It was therefore unnecessary for the CFA to decide whether Milmo applied. Yet the CFA went further and stated that Milmo should no longer be regarded as part of Hong Kong law. Lord Hoffmann NPJ, drawing on his earlier and controversial decision in Bruton v London & Quadrant Housing Trust [2000] 1 AC 406 (‘Bruton’), held that Milmo produced artificial outcomes by attributing to the parties an intention ‘they were highly unlikely to have had’ (at [29]). Put at its highest, his point was not merely that such an intention was unlikely, but that an intention to grant a sub-lease is conceptually inconsistent with an intention to assign: the former assumes that the head lessee remains landlord by retaining a reversionary interest, whereas the latter entails the head lessee parting with the leasehold estate altogether. 

This reasoning misapprehends the significance of party intention in the process of legal characterisation. Courts are concerned not with the legal labels parties attach to their transactions, nor with the consequences they expected those labels to produce, but with the substance of the rights and obligations they objectively agreed to create. Indeed, Brutonitself illustrates that point: the agreement there was characterised by reference to the rights actually conferred, not by the parties’ description of it as a licence. The parties’ choice of label may be evidence of their intention, but it is not conclusive. Once the substance is determined, it is the law that classifies the transaction—often carrying consequences the parties did not foresee. Lord Templeman’s famous analogy in Street v Mountford [1985] AC 809 makes the point well: ‘[t]he manufacture of a five-pronged implement for manual digging results in a fork even if the manufacturer, unfamiliar with the English language, insists that he intended to make and has made a spade’ (at 819). The same logic supports treating Milmo as correctly decided. If a lease requires the landlord to retain a reversionary interest, then a purported sub-lease for a term equal to or longer than the grantor’s remaining term cannot be a true sub-lease. The grantor has not carved a lesser term out of a larger estate; she has purported to dispose of the whole temporal extent of her leasehold interest. Since no reversion remains in the grantor to support the relationship of landlord and sub-tenant, the transaction can take proprietary effect only as a transfer of the grantor’s leasehold estate—that is, as an assignment. As G Lam JA astutely observed in the Court of Appeal, the connection between Street v Mountford and Milmo is direct (at [50]).

Lord Hoffmann NPJ’s preferred alternative analysis is that a sub-lease exceeding the landlord’s interest should be construed as, simultaneously, both ‘a contract to grant such a tenancy for whatever is the term it purports to grant’ and a conveyance of ‘the leasehold proprietary interest for the rest of the term held by the head tenant’ (at [35]). But the common law has never recharacterised a single transaction as having two different legal outcomes—both a conveyance and a contract. The difficulty is conceptual as well as technical: if the proprietary effect of the transaction is to transfer the whole of the grantor’s remaining term, leaving no reversionary interest in the grantor, there is no estate out of which a sub-lease can be carved and no reversion to which the incidents of the landlord’s estate can attach. It is therefore unclear how the conveyance can take effect as a sub-lease rather than, in orthodox terms, an assignment. Bruton is no help here. In Bruton, the agreement was said to create no proprietary estate and can therefore be understood, if at all, in purely contractual terms. To Sze On is different. Lord Hoffmann NPJ treated the supposed sub-lease as taking effect as a conveyance of a proprietary leasehold interest and crucially as one that left no reversion in the grantor. He did not explain how Madam Tang could thereafter assign any interest in the land to herself and her adopted son if, after the 1983 transaction, she had retained none. Nor is it clear how sections 31 and 32 of the CPO could apply, since those provisions presuppose that the landlord retains a reversionary estate. If no such estate remained when Madam Tang executed the 1986 Deed of Gift, section 31 could not have annexed the rent reserved by the supposed sub-lease to any reversion. The result would appear to be that, after Madam Tang’s death, the appellant could have stopped paying rent under the supposed sub-lease.

There is a well-established caution against departing from settled law in matters affecting titles to land (see Jim Peter v Glenda [2026] UKPC 13, [21] per Lord Briggs citing Drew v Lord Norbury [1846] Cases in Equity 171, 187 per Blackburn CJ). Lord Hoffmann NPJ acknowledged this but claimed Milmo had played ‘little part’ in Hong Kong law (at [37]). However, the Court of Appeal identified several Hong Kong decisions that applied Milmo or assumed it was correct. Parties who have previously structured land dealings on the faith of those decisions now face uncertainty. Are they suddenly bound by benefits and burdens under sub-leases where their landlords hold no reversionary interest? Far from resolving uncertainty, To Sze On creates it. The creative recharacterisation endorsed by the CFA—turning what the parties called a sub-lease into both a partial conveyance and a contract—opens a can of worms not only in land law but potentially in all manner of commercial dealings. Certainty will take years of litigation to restore. Given the lease’s primacy as a form of landholding in Hong Kong, the CFA may come to regret making such a far-reaching obiter statement that was entirely unnecessary for resolving the dispute before it. Although the rejection of Milmo was not required once the registration issue had been decided against the appellant, it was nevertheless a deliberate statement by Hong Kong’s final appellate court and is likely to be treated as highly authoritative. Other common law jurisdictions tempted to adopt the same approach should therefore carefully consider its implications before extending Lord Hoffmann NPJ’s reasoning beyond Bruton and into the uncertainty generated by To Sze On.

The authors’ full paper is available here.