Deed of Mutual Covenant Hong Kong: What It Is and Why Every Buyer Must Read It

The Deed of Mutual Covenant (DMC) is one of the most important documents governing your life as a property owner in Hong Kong — and one of the most overlooked by first-time buyers. Agents rarely mention it during the viewing process. It's not part of the PSPA. Yet it determines how much you pay in management fees every month, what modifications you can make to your flat, whether you can keep pets, and how decisions about the building get made. Discovering something problematic in the DMC after you've already committed to a purchase is an expensive surprise.

What the DMC Is

The Deed of Mutual Covenant is a registered legal instrument executed between the developer (or original vendor) of a multi-unit building and the first purchasers of individual units. Once registered at the Land Registry, it becomes permanently binding on the property — not just on the original buyer, but on every subsequent owner. When you buy a flat in Hong Kong's secondary market, you inherit all the rights and obligations in the building's DMC.

In practical terms, the DMC is the governance document for the entire estate or building. It establishes:

• How the building's common areas (lobbies, corridors, car parks, clubhouses, gardens) are owned and managed
• The undivided shares (UDS) allocated to each unit, which determines each owner's proportionate share of common area ownership and their basis for management fee contributions
• The scope of the owners' corporation (業主立案法團) or the building manager's authority and obligations
• The management fee structure and how it can be revised
• Restrictions on use, modifications, and subletting
• Rules on pets, construction, alterations, and prohibited activities

Undivided Shares and Management Fees

This is the mechanism most first-time buyers don't understand until they receive their first monthly management fee notice.

Every unit in a Hong Kong building is allocated a certain number of undivided shares (UDS) out of the building's total. A large penthouse has more UDS than a small studio flat on the same floor. Your monthly management fee is calculated as:

Management Fee = (Your UDS ÷ Total UDS in the building) × Total monthly management budget

The total management budget is set by the management company based on actual running costs — security staff, cleaning, maintenance, lift servicing, clubhouse operation, insurance, and so on. Buildings with extensive amenities (large clubhouses, swimming pools, multiple recreational facilities) have higher budgets and higher per-unit fees.

Average residential management fees in newer estates with clubhouse facilities run approximately HK$4.0–HK$8.0 per square foot of saleable area per month. Older secondary developments average around HK$2.7 per sq ft. On a 400 sq ft flat:

• Older building: ~HK$1,080/month
• New estate with full amenities: ~HK$1,600–HK$3,200/month

That's a meaningful recurring cost sitting on top of your mortgage repayment, and it's determined by a document you may never have read.

What to Check in the DMC Before Buying

Your conveyancing solicitor should review the DMC as part of standard title due diligence. Make sure they do. Key clauses to verify:

Management fee obligations and payment terms: Check whether there are outstanding management fee arrears from the previous owner. Under Hong Kong law, unpaid management fees are typically a personal debt of the owner who incurred them — but some buildings' management companies try to pursue arrears from new owners. Confirm the current owner's fee account is clear before completion.

Restrictions on use: Some DMCs restrict units to residential use only. This affects your ability to register a business at the address or operate any commercial activity from the flat. Other DMCs in mixed-use developments may have restrictions on residential subletting terms.

Pets: Some Hong Kong buildings explicitly prohibit pets, including cats and dogs, in the DMC. This is a permanent covenant that neither you nor the owners' corporation can easily override unless you amend the DMC itself — which requires a supermajority of undivided shares and can take years.

Renovation and alterations: The DMC typically specifies what structural modifications are permitted, when renovation work can be carried out, noise restrictions, and the notice period required before works begin. In older buildings, the structural boundaries of your unit versus common walls can be ambiguous — the DMC is the reference document.

Car park allocation: If the listing includes a car parking space, verify in the DMC whether it's allocated to the unit (assigned parking), forms part of the common areas, or is merely a licence arrangement that the management company can terminate.

Building manager vs. owners' corporation: Some buildings have an independent management company (appointed in the DMC or by the developer) while others have formed a self-governing owners' corporation (OC). The DMC specifies which model applies and the respective powers. An OC has the authority to terminate and replace management companies; a developer-appointed manager without an OC may be harder to remove if service is poor.

The Mandatory Building Inspection Risk

When buying in an older building — anything over 25–30 years of age — check whether the building has received or is likely to receive a Mandatory Building Inspection Scheme (MBIS) notice from the Buildings Department.

Under the MBIS, buildings aged 30 years or older (with some exceptions) are subject to mandatory inspection of external walls, structural elements, and common areas. If the inspection identifies required repairs, the owners' corporation must arrange and fund them. The cost is apportioned via undivided shares — meaning every unit owner faces a special levy proportional to their UDS.

These special levies can be substantial. For a major concrete repair programme in an ageing building, total costs can run into the tens of millions of dollars shared across all owners. For an individual unit with a moderate UDS allocation, the levy might be HK$30,000–HK$150,000 — or more in severe cases. This is entirely separate from the building's ongoing management fee budget.

Before buying in a building aged 25+ years, ask your solicitor to check:

• Whether the building has received an MBIS notice
• Whether a reserve fund exists within the building's management accounts to cover future major repairs
• The current state of the building's management fee reserve as disclosed in the latest annual management accounts (which the seller should be able to provide)

Why Buyers Miss DMC Issues

The DMC is a legal document registered at the Land Registry. Your solicitor can retrieve and review it. The problem is that many buyers instruct their solicitors to focus only on the title — verifying good holding title, checking mortgages and encumbrances, registering the assignment. The DMC review can feel like a secondary task.

In a straightforward transaction on a modern estate, the DMC usually contains nothing surprising. In a secondary purchase on an older building — particularly one where the original developer's appointed manager still operates with limited accountability, or where the previous owner had outstanding arrears — the DMC can reveal real financial liabilities and restrictions that affect your ownership experience for decades.

The instruction to your solicitor should be explicit: review the DMC, identify any unusual restrictions or significant obligations, confirm there are no outstanding special levies or management fee arrears, and advise on any clause that could affect the property's use or future resale.

The Hong Kong First-Time Home Buyer Guide includes a DMC review checklist, a guide to identifying MBIS risk in older buildings, and a walkthrough of the full title due diligence process your solicitor should complete between PSPA and Formal S&P.

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