Poon Chao Fai v. Director of Lands

LDLR 6/1998

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

Lands Resumption Application No. LDLR 6 of 1998

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JUDGMENT

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The Applicant was the owner of the Ground Floor shop premises at No. 538 Shanghai Street, Kowloon ("the subject premises"). The subject premises were resumed by the Government pursuant to section 3 of the Lands Resumption Ordinance, Cap 124 and reverted to the Government on 3 April 1997.

2. We note that the subject premises were part of a major resumption of the Land Development Corporation's Redevelopment Scheme K2 ("the Scheme"). In addition to Shanghai Street, the Scheme site extended to Argyle Street, Portland Street, Hong Lok Street, Reclamation Street and Shantung Street.

3. The Applicant claimed compensation as follows :

Costs incurred in purchasing new property	$619,360.-
Open market value of subject premises	$23,370,000.-
Total :	$23,989,360.-

The Respondent did not dispute the costs incurred in purchasing new property at $619,360.- but argued that the open market value of the subject premises as at 3 April 1997, the date of resumption, should be $14,810,000. This means that the Respondent tried to advocate a total compensation of $15,429,360.

4. Expert witnesses called by both parties used the same six comparables to calculate the open market value of the subject premises. The main differences in their calculations are their adjustments for locations and their methods of valuation for cocklofts.

Adjustments

5. After considering carefully all available evidence and the arguments of both parties, our determination on the various adjustments are as follows:

Location

There is a wide difference in opinion between the two experts as to the appropriate adjustments for location for the comparables:

	Comparables	Applicant Expert's Adjustments	Respondent Expert's Adjustments
1.	G/F., 630 Shanghai Street.	+30%	0%
2.	G/F., 632 Shanghai Street.	+30%	0%
3.	Shop E, 595-599A Shanghai Street.	-20%	-40%
4.	Shop F, 595-599A Shanghai Street.	-15%	-35%
5.	Unit 1, G/F., 484-488 Shanghai Street.	+8%	-15%
6.	G/F., 449-451 Shanghai Street.	+35%	+5%

Counsel for the Respondent applied to submit some photographs showing the environment of the area to the Tribunal but was objected to by the Counsel for the Applicant for the following reasons:

* The proceedings would be delayed.

* The photographer was not present in the hearing.

* It is dangerous to rely on photographs to judge the environment. They might be affected by lighting, the time of the day the photographs were taken and whether or not they were taken during public holidays.

* Photographs were taken by the applicant's staff some 3 to 4 years ago. The Respondent's expert should have ample time to consider them and include them in his report.

* The Applicant, being a man of old age and without good memory, might be disadvantaged and his case might be prejudiced.

After due consideration the Tribunal decided not to allow the submission of the photographs.

With the wide difference in opinion between the experts, the Tribunal felt there was a need to carry out a site inspection of the area covered by the subject premises and the comparables. Accordingly, the Tribunal inspected the area in the afternoon of 15 February 2000 in the presence of both parties.

The location of the subject premises and the comparables are marked on the LDC Redevelopment Scheme Plan at Appendix 6 to the Applicant's Expert's report. On the date of inspection, we found that all the buildings including the subject premises within the Scheme Area (i.e. almost the entire area bounded by Angyle Street, Portland Street, Shangtung Street and Reclamation Street) had been demolished. Without the benefit of inspecting the area before the buildings were demolished we found it very difficult to assess accurately the previous business activities of the demolished shops, including the subject premises, as at the date of resumption. However we noted that the busiest part of Shanghai Street outside the Scheme Area was near its junction with Shantung Street. The Subject Premises was near Shantung Street. The pedestrian flow decreased as the street went southwards and the street became substantially quieter as it reached Nos. 449-451 where comparable 6 was situated. We also found that the section of Shanghai Street to the north of the scheme area near Fife Street where comparables 1 and 2 were situated was much quieter than the section near Shantung Street. Although having a Shanghai Street address, comparables 3 and 4 actually face Argyle Street and enjoy a much better business location than the Subject Premises.

With the above findings we consider that the adjustments for location adopted by the Applicant's Expert are not unreasonable. Furthermore, whilst the Applicant's Expert had the opportunity of actually inspecting the Subject Premises and the relevant section of Shanghai Street before the buildings within the Scheme Area were demolished, the Respondent's Expert could only make adjustments for location based on his general knowledge of the area without the benefit of actual inspection. In the circumstances we decide to adopt the adjustments for location proposed by the Applicant's Expert.

Cockloft

The subject premises have a concrete cockloft of 41.4 square metres with a headroom of 2.46 metres. Whilst there is no dispute between the parties that the cockloft is authorized by the Building Authority, the Respondent alleged that the side entrance from the common staircase to the cockloft is not authorized. There is however no concrete evidence to prove there should be material difference in value whether or not this side entrance is authorized.

In his final submission, Counsel for the Respondent said that whilst the Respondent did not dispute the unit value of the cockloft be taken as 25% of that of the ground floor, the value of the cocklofts of the comparables taken by the Applicant's Expert as 2% to 5% of the value of ground floor was not justified. There is no evidence that the cocklofts of the comparables are authorized structures. They are not concrete cocklofts but constructed with timber and other materials. Their headroom is lower than that of the cockloft of the subject premises. Having due regard to these facts, we consider that it is reasonable to take the unit rate of the cockloft of the subject premises at 25% and the unit rate of the cocklofts of the comparables at 15% of ground floor value.

Yard and Flat Roof

The Applicant's Expert adopted 1/5 and the Respondent's Expert adopted 1/6 of the ground floor unit value for yard and flat roof. Whilst their difference is small they did not ofter any reason for the figures they had adopted. We prefer the Respondent's figure of 1/6 as this is more in line with previous Lands Tribunal decisions in similar cases.

Time

The experts of both parties had no disputes and adopted the same adjustments for time.

Size

The adjustments adopted by both experts are close and within acceptable limits. On balance, we prefer the adjustments adopted by the Applicant's Expert.

Analyses

6. Based on the various adjustments we have determined, the market transactions of the comparables are analysed as follows:-

Note : Weighted Area - Yard area taken as 1/6 and C/L area as 15% of G/F area

Valuation

7. The adjusted unit rates of the comparables cluster around $300,000 per square metre except that the adjusted unit rate of comparable 3, situated at a much busier location very near to the junction of Shanghai Street and Argyle Street, reaches out of the way to a high figure of $334,559 per square metre. In the circumstances, we consider that $300,000 per square metre should be a reasonable rate to be adopted to value the subject premises.

8. Both experts allowed 6 months as required under Part V of the Landlord and Tenant (Consolidation) Ordinance, Cap 7, to terminate the monthly tenancies producing a total annual rental income of $558,000 exclusive of rates. The Applicant's Expert adopted yields of 3.6% per annum to value the 6-month term income and 4.6% to calculate the reversion capital value of the subject premises. The corresponding yields adopted by the Respondent's Expert were 4% and 5%. The difference between them is small and would not materially affect the valuation. Whilst the Applicant's Expert produced in his report a schedule of market yields for retail premises provided by the Rating and Valuation Department for reference, the Respondent's Expert did not give any explanation for the yields he had adopted in the valuation of term and reversion interest. We therefore determine to adopt yields of 3.6% and 4.6% as used by the Applicant's expert.

9. After considering all evidence available and the deliberations we calculate the open market value of the subject premises as at 3 April 1997, the date of resumption, as follows:

Term

Annual income exclusive of rates	$558,000
Y.P. 6 months @3.6%	0.4869
		$271,690

Reversion

G/F	57.9 sq.m. @$300,000	17,370,000
Yard	4.6 sq.m. @$300,000 x 1/6	230,000
Flat Roof	6.8 sq.m. @$300,000 x 1/6	340,000
Cockloft	41.4 sq.m. @$300,000 x 1/4	3,105,000
		21,045,000
	Deferred 6 months @4.6%	0.9778
			$20,577,801
			$20,849,491
		Say	$20,850,000

Order

10. Accordingly we order that the Respondent pay the Applicant compensation in the sum of $21,469,360 ($619,360 being costs incurred in purchasing new property plus $20,850,000 being the open market value of the subject premises). Leave is reserved to apply for the rate of interest, if not agreed, to be determined under section 17(3A) of the Lands Resumption Ordinance, Cap 124. There will also be an order nisi that the Respondent pay the Applicant's costs on the High Court party and party scale with certificate for counsel, to be taxed if not agreed, to be made absolute unless application is made by either party within 21 days for another order in place thereof. Liberty to apply is also reserved for ancillary and consequential matters.

Dated this 25th day of April, 2000.