DR. OWENS TRODD & PARTNERS O/B PACIFIC PRIMARY HEALTHCARE LTD. v. CHARLIE C.K. LEE

LDNT 309/2000

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

New Tenancy Application No. LDNT 309 of 2000

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J U D G M E N T

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Background

1. The Applicant is the Tenant of the residential premises known as Flat C-1, 1st Floor, 98 Repulse Bay Road, Repulse Bay, Hong Kong ("the Premises"). The Respondent is the Landlord of the Premises.

2. The Applicant's application is for the grant of a new tenancy of the Premises for a period of 2 years commencing on 1 November 2000 on the same terms and conditions as the tenancy agreement dated 11 November 1998 ("the Tenancy Agreement") save and except that the monthly rental shall be such as may be determined by this Tribunal.

3. The Respondent has no objection to grant a new tenancy of the Premises for 2 years commencing from 1 November 2000 on the same terms and conditions of the Tenancy Agreement save and except that the new rent shall be determined by this Tribunal.

4. At the hearing, the Respondent raised a preliminary issue that the parties had reached a binding agreement on the amount of the new rent. I have ruled against the Respondent on this issue and given my reasons orally at the hearing. Thus, the only outstanding issue in this case is the amount of the new rent.

The Applicant's case

5. The Applicant called an expert, Mr. Ian R.C. Cullen, to give evidence on the prevailing market rent. Mr. Cullen's report is produced and marked as exhibit "A2". In his report, Mr. Cullen referred to 5 comparables as follows:-

Ref.	Premises	Rent and Term	Saleable Area (sq.m.)	$/sq.m.s. and Remarks
C1	1/F Flat D2 + 1 Car Park 96 Repulse Bay Rd.	$25,000 p.m. inclusive, 2 years from 8.2.01	135.7	$184/sq.m. incl. - Unrenovated. - No view (but light).
				- No maintenance. - No separate management fee payable. - New letting.
C2	2/F Flat D3 + Top Roof + 2 Car Parks 96 Repulse Bay Rd.	$35,000 p.m. inclusive, 2 years from 1.6.01	135.7 + roof	$229/sq.m.incl. if root at 1/8th. - Totally renovated throughout to high standard. - New letting. - No Separate management fee payable.
C3	G/F Flat B2 + Rear Yard +1 Car Park 98 Repulse Bay Rd.	$27,000 p.m. inclusive, from 15.6.01	149.7 + 25.8 yard	$177.3/sq.m.incl. if yard is 1/10th. - Unrenovated. - Short term extension agreed orally. - Rear facing, dark unit, but with rear terrace/yard.
C4	Ground Floor Flat G2 + 1 Car Park 98 Repulse Bay Rd.	$9,500 p.m. all inclusive, as from 15.3.01	29.5	$322/sq.m. incl. - Very small renovated unit. - Furnished. - With a/c's & appliances. - No view. - New letting. - No separate management fee payable.
C5	Flat A on G/F + 1 Car Park 98 Repulse Bay Rd.	$41,500 p.m. inclusive of 1,740 p.m. 2 years from 1.11.01	135.6	$306/sq.m. incl. - New high quality renovation - Part Sea view. - No separate management fee payable. - New letting.

6. In the report, Mr. Cullen made various adjustments to the 5 comparables as follows:-

Comparable	'C1'	'C2'	'C3'	'C4'	'C5'
Flat Unit	D2	D3	B2	G2	A
Address	96 1/F	96 2/F + Roof	98 G/F	98 B'm	98 G/F
Rental $/sq.m. p.m. Adjust for : Time Lag Condition Furnished/Appliances View/Light Size	184 - 2% -- -- + 5% --	229 - 3% - 15% -- + 5% --	177 - 3% + 5% -- + 5% --	322 - 2% - 10% - 10% + 5% - 10%	306 - 2% - 15% - 5% -- --
Total Adjustment :	+ 3%	- 13%	+ 7%	- 27%	- 22%
Adjusted $/sq.m. p.m. rental	190	199	189	235	239

7. Mr. Cullen further made a weighting adjustment and derived a unit rate for valuing the Premises at $205 per sq.m. as follows:-

Comparable	Rental $/sq.m. p.m.	Weighting	Factor
C1	190	2	380
C2	199	1	199
C3	189	2	567
C4	235	1	235
C5	239	1	239
Total		7	1,431/7
		= Weighted rental	$204.40/sq.m.
		or say	$205/sq.m.s.

8. Since the saleable area of the Premises is approximately 135.6 sq.m., and the rental rates for all the comparables were inclusive of management fees and rates, Mr. Cullen came to the conclusion that the monthly rental for the Premises is $28,000 p.m. inclusive of rates and management fees; alternatively, if the rental is exclusive of rates, being some $1,740 p.m., the prevailing market rent is $26,300 p.m., exclusive of rates.

The Respondent's case

9. The Respondent also called an expert, Mr. Poon Sze Ngok, to give evidence on the prevailing market rent. Mr. Poon's report is produced and marked as exhibit "R2". Unlike Mr. Cullen, Mr. Poon did not carry out internal inspection of the Premises. He could not therefore make any comment on the internal condition of the Premises, but assumed that it should have been maintained in a tenantable state.

10. In his report, Mr. Poon annexed 3 Schedules of Rental Information from the Rating and Valuation Department dated 12 March 2002, 7 February 2002 and 16 October 2002 respectively, i.e. Appendix 14 to Appendix 16 in exhibit "R2". However, Mr. Poon only referred to 4 comparables in Appendix 14 and gave his analysis of the 4 comparables in Appendix 17, as in enclosure "A" herein.

11. Mr. Poon is of the view that the 1st comparable in Appendix 17 (which is the same property as Comparable C5 in Mr. Cullen's report) is the closest and best comparable to the Premises, because they are similar in many respects. He applies the unit rate of the 1st comparable in Appendix 17 to assess the prevailing market rent of the Premises as follows:-

Saleable Area	135.60	sq.m.
Unit Rate, say	$320.00	per sq.m.
Estimated Prevailing Market Rent	$43,392.00	p.m.
Say	$43,500.00	p.m.

12. Mr. Poon is therefore of the opinion that the prevailing market rent of the Premises should be $43,500 p.m. exclusive of rates and management fees.

Assessment of Prevailing Market Rent

13. During the cross-examination of Mr. Cullen, Mr. Chan, Counsel for the Respondent, pointed out a number of discrepancies between page 11 of Mr. Cullen's report and the table in page 12 thereof. For example, in page 11 of the report, it was stated that there should be no adjustment for Comparables C1 and C2 in relation to "View/Light", but in the table in page 12 of the report, Mr. Cullen made adjustment of +5% for both Comparables C1 and C2 in relation to "View/Light". Another example is that in page 11, it was stated that there should be no adjustment for Comparables C3 in respect of "Condition", but the table in page 12 gave an adjustment of +5%.

14. Mr. Cullen's explanation is that he used the template of his previous report in relation to another property in the same development, i.e. Ground Floor, Flat B2, No. 98 Repulse Bay Road, Repulse Bay, Hong Kong to form Page 11 of his present report and he forgot to make the necessary corrections in page 11 of his report. Nevertheless, Mr. Cullen contends that the contents of his table in page 12 of the report are the correct adjustments he made for the comparables.

15. The Respondent then produced Mr. Cullen's previous report for Ground Floor, Flat B2, No. 98 Repulse Bay, i.e. exhibit "R3" to show that page 11 of Mr. Cullen's present report is not the same as page 11 of the previous report. Having compared the 2 pages, it is clear to me that the contents of these 2 pages are not the same, even though the formats are similar. Thus, it would not be the case that Mr. Cullen simply copied page 11 of his previous report onto page 11 of the present report.

16. Mr. Chan also pointed out that the adjustments made by Mr. Cullen are inconsistent between the present report and the previous report. For example, Mr. Cullen stated that Comparable C1 was similar in terms of "Condition" to Comparable C3, which is the same as the subject premises in the previous report. However, when Mr. Cullen made adjustment for Comparables C1 and C2 in the present report in relation to "Condition", Comparables C1 has no adjustment, whereas Comparable C2 has -15% adjustment. On the other hand, in the previous report, the adjustment for "Condition" for Comparable C1 was nil but for Comparable C2 it was -20%. Mr. Chan submitted that there could not be such difference in the adjustments. Mr. Cullen, however, explains that valuation is an art and there is no scientific way to give precise answers.

17. Mr. Chan submits that in view of the discrepancies and inconsistencies of Mr. Cullen's 2 reports, Mr. Cullen's evidence cannot be relied upon at all. I agree with Mr. Chan. Even though valuation may not be as scientific as one would expect, there should at lease be consistency in the approach one adopts for valuation, which regrettably is lacking in Mr. Cullen's reports. Although I do not think that Mr. Cullen was trying to lie or being dishonest in any way and he may well have made genuine mistakes in preparing the reports, I am unable to rely on his evidence in relation to the adjustments and assessment he made in view of all there blatant discrepancies and inconsistencies. I will not therefore rely on Mr. Cullen's evidence in relation to the adjustments and assessment of the prevailing market rent as stated in his report.

18. On the other hand, Mr. Hill on behalf of the Applicant submits that I should not rely on Mr. Poon's evidence as he did not carry out internal inspection of the Premises. In this regard, Mr. Hill relies on the case of Union Carbide Asia Limited v. The Hong Kong Land Company Limited, Application L.T. No. 17 of 1982. It was held in that case that:-

"The techniques of rent valuations are well settled and professionally are often a far simpler task than other areas of land valuation. However, there are certain steps that, in our view, should be taken. First, a valuation surveyor before he prepares his valuation report and gives evidence should have personally inspected the suit premises. If he does not personally inspect the premises then, no matter how great his experience and impressive his qualifications, it is unlikely that his opinion will be given as much weight as another valuation surveyor who has personally carried out an inspection."

19. I agree in principle that it would be better to rely on the evidence of a surveyor who has inspected the property internally than the one who has not. However, as Mr. Cullen's evidence was so discredited as aforesaid and I cannot find myself being able to rely on his evidence, I have no alternative but to rely on Mr. Poon's evidence.

20. Apart from the fact that Mr. Poon did not inspect the Premises internally, I find his evidence being consistent and credible, I find that I can rely on the adjustments made by him in relation to the 4 comparables chosen by him. However, I disagree with him on his decision to use only the 1st comparable in the assessment of the prevailing market rent. It is generally undesirable to use just 1 comparable to calculate the prevailing market rent. Since Mr. Poon has already chosen 4 suitable comparables and made the necessary adjustments, I find that he should use all 4 comparables to derive the prevailing market rent, even though the first one is the closest and best comparable.

21. As to the internal condition of the Premises, I think Mr. Poon's adjustment in this regard is not sufficient to reflect the various defects in the premises as revealed in the photographs produced in Mr. Cullen's report. Even though I cannot accept Mr Cullen's evidence as a whole for the adjustments and assessment made by him, I can accept that there were defects in the Premises as stated in paragraph 7.6.2 of his report. The defects were as follows:-

(1) On the balcony ceiling, slabs of concrete had fallen away to expose reinforcing bars;

(2) Outer bedroom wall severely affected by water entry;

(3) Low water pressure to bathroom;

(4) Old kitchen cupboards missing doors; and

(5) Plumbing in maid's room and en-suite bathroom respectively leaking and prone to flooding up out of the floor drain.

22. The photographs in Mr. Cullen's report confirm that there were these defects. The Respondent also did not raise any objection to these findings. I am of the view that there should be adjustment for the 4 comparables chosen by Mr. Poon in relation to these defects. I think a downward adjustment of 10% is appropriate in the circumstances. Thus, the total adjustments for the 4 comparables are +0.4%, -25.2%, -10.2% and -13.1% respectively; and the adjusted unit rates for the 4 comparables are $292.16/sq.m., $258.06/sq.m., $263.11/sq.m. and $238.11/sq.m. respectively. This will give an average adjusted unit rate of $262.86/sq.m.

23. Applying the aforesaid average adjusted unit rate to the Premises, it gives a rental of $35,643.82 p.m. for the Premises, or a round figure of $35,600 p.m. This amount is exclusive of rates and management fees. I therefore assess the prevailing market rent of the Premises to be at $35,600 per month exclusive of rates and management fees.

Orders

24. In the circumstances, I make the following orders:-

(1) New tenancy be granted to the Applicant for a term of 2 years from 1 November 2000 to 31 October 2002;

(2) The new rent is $35,600 per month exclusive of rates and management fees;

(3) The rental deposit is to be adjusted in accordance with the new rent;

(4) The Applicant shall pay the balance of the rents and rental deposit to the Respondent within one month from the date hereof;

(5) Save as aforesaid, the terms of the new tenancy are the same as the Tenancy Agreement; and

(6) No order as to costs.

Enclosure "A"