KINGEARN CO LTD v. SIU CHUAN SANG AND OTHERS

Landlord and tenant - Part I - exclusion order - conditions include the payment of compensation to protected tenants - state of premises to be taken into account in profit rent assessment - compensation based on value of the protected tenancy plus disturbance - sec. 4 Landlord and Tenant (Consolidation) Ordinance, Cap. 7

IN THE LANDS TRIBUNAL OF HONG KONG

Application No. H. E. 66-68/85

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DECISION

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1. This is an application for an exclusion order from the provisions of Part I of the Landlord & Tenant (Consolidation) Ordinance, Cap. 7 for premises at No. 16 Western Street, Hong Kong. There was no argument put before the Tribunal against the redevelopment being allowed and on the evidence I am satisfied that the applicant is in a financial position to carry out the redevelopment which will provide more extensive and better development of the site. I therefore order that the premises shall be excluded from the provisions of Part I of Landlord and Tenant (Consolidation) Ordinance, Cap. 7, but on the conditions set out later in the prescribed order.

2. The respondents are all tenants whose protected tenancies will terminate on the making of this order. Therefore they are concerned with the loss of their protected tenancies and what if any compensation will be paid in recognition of this loss. Compensation is usually awarded to the protected tenants as a condition of making the order and it is the value of such tenancies expressed in money terms, plus any costs associated with disturbance. That is the costs associated with having to shift and set up in alternative premises.

3. I heard evidence from each of those respondents who were unable to come to any agreement with the applicant. They were all sub-tenants of an absentee principal tenant of the whole of the second floor. In their evidence, they all referred to the payment which each of them had made to the absentee principal tenant to carry out decoration work on the second floor of the suit premises. The payment was made immediately prior to their moving in some three years ago. It appears that they paid a total amount in excess of $100,000, which, as Mr. Wong who appeared for the applicants has submitted, seems an exceptionally high amount for such work. They considered that they should be compensated for this expense.

4. This case highlights one of the rather unusual practices involving tenancies of such premises. Here, we have tenants who have been allowed to take up residence under the protection of the Ordinance when it is obvious that the second floor of No. 16 must have become vacant some three years ago. The landlord, apparently, was not disposed to obtain vacant possession from the absentee principal tenant when the opportunity arose.

5. Only two of the respondents on the second floor have settled compensation with the applicant. These settlements were on the same basis as the settlements for the first floor which for the purpose of calculation were based on a rate of $50 per sq. ft. During the hearing, I explained to the applicant and the respondents, that compensation based on such arbitrary rates was something of a last resort when evidence was not available. It should be the measure of the tenant's loss based on the difference between the rent permitted under the Ordinance and that otherwise obtainable on the open market, as if the protection under the Ordinance did not exist. That difference between the permitted rent under the Ordinance and the market rent otherwise obtainable is known as a 'profit rent'. This profit rent capitalised for the period that each tenant could reasonably have expected to go on living in these premises gives the amount of compensation which might be payable for the value of the tenants' interest in the property. As mentioned previously, to this amounts may be added something for the cost of shifting and setting up in new premises.

6. According to the respondents, who are now disputing the question of compensations, the principal tenant apparently, collected from each of these respondents a large amount of money, with which she carried out structural work to divide the floor into a number of cubicles on two levels. Also, repairs were carried out on the ceiling and the floor. As explained by Mr. Wong in his submission this payment being in the nature of a premium appears to contravene the provisions of section 15 of the Ordinance. It should, in Mr. Wong's submissions, therefore not be a matter for which compensation may be made or even contemplated by this Tribunals, for to do so would be condoning an illegal act. Rather than the landlord carrying out structural alterations as is the practice for most premises, in this case the tenants have had to pay for this work. I agree with Mr. Wong that compensation can not be paid directly for this fitting out as it is attached to the premises. The tenants may benefit from it but that benefit can only be for as long as they are resident there.

7. The applicant acknowledges that these particular respondents occupy the premises under the provisions of the Ordinance and thereby are protected by it. Accordingly the amount of rent they might have to pay is limited by the Ordinance and stands at 27 times the standard rent of $35 per month apportioned between all the tenants on the second floor. That is a total rent of $945 per month inclusive of rates. The total monthly rent actually paid is $933.

8. At the invitation of the parties, I inspected the premises and taking judicial knowledge of previous evidence of rents for similar pre-war promises fitted out to a similar standards, I would consider the profit rent per month to be in the order of $1,000 to $1,250. A very rough calculation of the value of the tenancies based on a years purchase of 3 would be in the region of $40,000 to $45,000.

9. In accordance with the general nature of costs usually associated with shifting and setting up, I would allow no more than $15,000 for disturbance. This means I should apportion a total of about $55,000 between the respondents as compensation for the whole of the second floor.

10. Although at first it may appear that the amount is out of line with that agreed for the first floor, it can be explained by virtue of the state of the first floor being very much inferior to that of the second floor. The first floor was only divided into a number of bed spaces rather than cubicles. The occupants were obliged to share the premises with very little privacy being afforded to any of them. The state of repair was poor but similar to most other pre-war premises. On the other hand the work done to the second floor put it somewhat higher in value than one might usually expect for such premises. It follows that the level of compensation can be expected to be higher than that usually paid.

11. I therefore make the following order.

12. Premises situated at 16 Western St. Hong Kong on IL 3844 are excluded from further application of Part I of the Landlord and Tenant (Consolidation) Ordinance, Cap. 7 subject to the following conditions:

Compensation

I. Order by Consent

II.    Compensation determined by the Tribunal

13. No order as to costs.

14. Dated this 20th day of June, 1986.