When buying property in Hong Kong, many people mistakenly believe that after signing a provisional sale and purchase agreement, the worst-case scenario if they change their mind is losing the provisional deposit, commonly known as the “initial deposit.” Generally speaking, “must buy and must sell” clauses are common in sale and purchase agreements for first-hand new developments. However, such clauses can also be included in second-hand property transactions, meaning buyers cannot simply walk away whenever they wish.
What is a “must buy and must sell” clause? It is a highly binding clause in a property sale and purchase agreement, requiring both the buyer and the seller to complete the transaction in accordance with the contract. If either party breaches the agreement, the other party may pursue compensation through legal means. Under Hong Kong’s Limitation Ordinance, an owner or developer may bring legal action against a buyer who forfeits the deposit within six years, seeking recovery of the difference in property price and related losses.
It is worth noting that under a “must buy and must sell” clause, the consequences of forfeiting a deposit are not exactly the same for first-hand new developments and second-hand properties. Taking a first-hand new development as an example, if a buyer gives up the transaction within the specified period after signing the provisional agreement, the developer can generally forfeit the provisional deposit but cannot further claim the difference in property price.
If the buyer forfeits the deposit only after signing the formal sale and purchase agreement, the developer may forfeit the deposit and has the right to claim the price difference after the property is resold, as well as other reasonable related losses. If the transaction ultimately cannot be completed, the buyer may also, depending on the circumstances, apply for a refund of the stamp duty already paid.
As for second-hand properties, if a buyer changes their mind after signing the provisional agreement, the owner can generally forfeit the deposit as compensation. However, if a “must buy and must sell” clause has been included in the provisional agreement, the owner may, in addition to forfeiting the deposit, also claim the resale price difference and other reasonable losses. If the buyer forfeits the deposit after signing the formal sale and purchase agreement, the owner may likewise claim the price difference according to the contract, while the defaulting party will need to bear the estate agency commission for both the buyer and the seller.
Another point to note is that forfeiting the deposit does not necessarily mean the transaction can be terminated unilaterally. Under a “must buy and must sell” clause, the seller may apply to the court for an order for specific performance, requiring the buyer to complete the transaction. Conversely, the buyer may also require the seller to sell the property in accordance with the contract. Whether the court grants such an order will depend on the circumstances of the case and the terms of the contract.
Many people may be curious: if the legal consequences of a “must buy and must sell” clause are so serious, why would anyone still be willing to sign a sale and purchase agreement containing such a clause? In fact, this clause can be described as a double-edged sword. Although it is strongly binding, it can also provide both buyers and sellers with greater legal protection and transaction certainty.
The most common group that needs this clause is homeowners upgrading or switching properties. Many people who change homes adopt a “sell first and buy later” approach, selling their existing home first to cash out, then using the proceeds to pay the balance for the new home. If the buyer of the old home forfeits the deposit halfway through, the owner may still find that the forfeited deposit is not enough to cover the funds needed to complete the new home purchase, and may even be exposed to the risk of forfeiting the deposit on the new home. Therefore, adding a “must buy and must sell” clause to the provisional agreement helps ensure that the sale proceeds will be received on the completion date.
Another common situation is when a buyer finds an ideal unit, or worries during a rapidly rising property market that the owner may raise the price or refuse to sell. If the contract contains a “must buy and must sell” clause, the buyer is also protected and may, when necessary, require the seller to perform the transaction according to the contract, rather than simply settling the matter by forfeiting the deposit.
