KAM LUNG MOTOR GROUP LTD v. VERY GREAT METAL CO. LTD

DCCJ 3449/2021

[2026] HKDC 1644

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 3449 OF 2021

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JUDGMENT

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I.  INTRODUCTION

1.  This case concerns the tenant’s obligation to return the premises to the landlord upon termination of the tenancy agreement.

II.  BACKGROUND

The premises

2.  The premises in question are known as the Ground Floor of Wofoo Building (formerly known as Watson Building), Nos 204-210 Texaco Road, Tsuen Wan, New Territories, Hong Kong (“Premises”). They comprise an industrial property of approximately 17,000 square feet. The main entrance is located on Texaco Road, with a back entrance on Ma Kok Lane.

3.  The Defendant (also referred to as the “Landlord”) became the registered owner of the Premises on 15 July 2004. At that time, the Premises were let to a logistics company and were used as a base for freight forwarding operations.

Tenancy agreement between the Defendant and Volkswagen

4.  By a tenancy agreement dated 29 January 2008[1], the Landlord let the Premises to Volkswagen Hong Kong Limited (“VWHK”) for a term of five years from 15 February 2008 to 14 February 2013. VWHK used the Premises as a car dealership centre and service centre (“Service Centre”).

5.  To suit its business purposes and operations, VWHK carried out substantial alterations, additions, and installations of fixtures to the Premises, including the following:

(a)  The Premises were partitioned to create an office with glass walls. To maintain an even floor level in the office, the slope at a gate (referred to as “Gate C”) was raised. Gate C was removed and replaced with a glass panel;

(b)  The shopfront of the Premises was constructed with the logo “Volkswagen Hong Kong Service Centre”; and

(c)  Substantial lighting fixtures were installed on the ceiling of the Premises.

6.  Under clause 2.1(hh) of VWHK’s tenancy agreement, VWHK had an obligation to “re-instate and restore the said premises to their original condition as when the said premises was first delivered by the Landlord to the Tenant and to make good all damage caused or occasioned by the erection and removal of alterations partitions or other erections” (underlining added).

7.  Further, under clause 2.1(ii), VWHK was required:

“Quietly to yield up the said premises together with all the Landlord's fixtures, fittings and additions therein and thereto at the expiration or sooner determination of this tenancy in good clean and tenantable repair and condition (fair wear and tear excepted) and in the event that the Tenant has made any alterations or installed any fixtures or additions to the said premises or affixed or displayed any signboard sign decoration or other device outside the said premises, whether with or without the Landlord's written consent, the Tenant shall reinstate and remove such alterations fixtures or additions and such signboard sign decoration or device and make good and repair in a proper and workmanlike manner any damage to the said premises and the Landlord's fixtures and fittings therein as a result thereof before delivering up the said premises to the Landlord provided that the Tenant's obligations relating to reinstatement and removal under this Clause may be modified or varied by the Landlord agreeing with the Tenant in writing to retain all or any of the said alterations fixtures or additions which the Tenant is otherwise liable hereunder to remove …” (underlining added)

8.  The last tenancy agreement between the Landlord and VWHK was entered on 29 December 2017[2] (“VWHK’s 2018 Lease”). It was for a term of 3 years from 15 February 2018 to 14 February 2021. There was no change to clauses 2.1(hh) and 2.1(ii) in that tenancy agreement.

9.  By the email dated 11 February 2020[3], VWHK informed the Landlord that it had formed a new partnership with the Plaintiff, and that the Plaintiff would become the sole distributor in Hong Kong and Macau for the Volkswagen and Audi brands. VWHK described the Plaintiff as “one of Volkswagen Group’s core investors”.

10.  In the email dated 18 February 2020[4], VWHK confirmed that the Plaintiff was its “new investor” and would act as importer and dealer for both sales and aftersales. VWHK also indicated that it planned to transfer the Service Centre at the Premises to the Plaintiff.

11.  By another email dated 5 March 2020[5], VWHK informed the Landlord that the Plaintiff would “take over” the lease of the Premises with effect from 1 July 2020.

12.  In May 2020, Messrs Au, Thong & Tsang were instructed by the Landlord to prepare a deed of surrender in respect of VWHK and a new tenancy agreement for the Plaintiff.

13.  By a Deed of Surrender dated 9 July 2020[6], the tenancy agreement between the Landlord and VWHK was terminated. It was expressly provided in clause 2 that:

“… the [Defendant] agrees that [VWHK] is not required to reinstate or restore the Premises to its original condition as set out in Clause 2.1(a)(hh). The [Defendant] acknowledges and accepts that [VWHK] shall leave vehicles and all necessary equipment, fixtures and fittings normally associated with a service centre designated for Volkswagen branded vehicles in the Premises, which shall be taken over “as is” by [the Plaintiff]” (underlining added)

Tenancy agreement between the Defendant and the Plaintiff

14.  By a tenancy agreement of even date[7] (ie 9 July 2020), the Landlord let the Premises to the Plaintiff (also referred to as the “Tenant”) for a term of 7 months and 14 days from 1 July 2020 to 14 February 2021 (being the original expiry date of VWHK’s 2018 Lease) (“Tenancy Agreement”). Pursuant to the Tenancy Agreement, the Tenant paid a deposit of $1,734,000 (“Deposit”) to the Landlord.

15.  It is noted that the Tenancy Agreement did not record the arrangements between VWHK, the Landlord, and the Tenant. Further, the “reinstatement” clause in VWHK’s 2018 Lease, namely clause 2.1(hh), was not carried over into the Tenancy Agreement. However, the “yield-up” clause, namely clause 2.1(ii) of VWHK’s agreement, was retained in the Tenancy Agreement (and became clause 2.1(hh)), and “yield-up” requirement was changed from “all the Landlord’s fixtures, fittings and additions therein and thereto” to “bare-shell” condition. Clause 2.1(hh) of the Tenancy Agreement reads as follows:

“Quietly to yield up the said premises in “bare-shell” condition at the expiration or sooner determination of this tenancy in good clean and tenantable repair and condition (fair wear and tear excepted) and in the event that the Tenant has made any alterations or installed any fixtures or additions to the said premises or affixed or displayed any signboard sign decoration or other device outside the said premises, whether with or without the Landlord's written consent, the Tenant shall reinstate and remove such alterations fixtures or additions and such signboard sign decoration or device and make good and repair in a proper and workmanlike manner any damage to the said premises as a result thereof before delivering up the said premises to the Landlord provided that the Tenant’s obligations relating to reinstatement and removal under this Clause may be modified or varied by the Landlord agreeing with the Tenant in writing to retain all or any of the said alterations fixtures or additions which the Tenant is otherwise liable hereunder to remove. Upon delivery up of possession of the said premises in the condition aforesaid, the Tenant shall surrender to the Landlord all keys giving access to all parts of the said premises held by the Tenant and to remove at the Tenant's expense all lettering and characters from all the doors, walls or windows of the said premises and to make good any damage caused by such removal.” (underlining added)

16.  It is not disputed that the Tenant did not carry out any substantial alterations to the Premises after taking over from VWHK in July 2020.

Return of the Premises

17.  In around January 2021, as the Tenant had decided not to renew the lease of the Premises, Mr Patrick Ng of the Tenant and Mr Princip Poon of the Landlord (“Mr Poon”) commenced discussions regarding the reinstatement of the Premises.

18.  On 21 January 2021, the Landlord issued to the Tenant a document entitled “還原摘要” (“Reinstatement Notice”), to which a plan (“Floor Plan”) was attached[8]. The Reinstatement Notice contained the following two tables:

(a)  “保留及還原項目”

序號	位置	內容	備註
1	A	後門電捲閘 (馬角里)	能夠保持正常運作
2	B	後門電捲閘 (馬角里)	能夠保持正常運作
3	C	正門電捲閘 (士古道）	能夠保持正常運作
4	D	總電房	需維持安全供電，所有總電掣箱，分箱及其關聯之線槽、電線需保留。單位內要保留足夠的照明裝置。
5	E	男女洗手間及更衣室	能夠保持正常運作
6	F	男洗手間及 pantry	能夠保持正常運作
7	G	正門電捲閘 (德士古道)	還原電捲閘

(b)  “拆卸及還原項目”

序號	內容	備註
1	拆除所有間牆、間隔、Shop Front 之 metal cladding、裝修等等 (上表之保留項目除外)	需修補所有破壞牆身、天花、鑽孔等，並補回表面油漆。如有玻璃缺損，需作更換。
2	拆除加厚了的地台面，包括後加在地面之排水渠	打鑿後加的地台後，需重新蕩平地台，以平順作為標準。
3	拆除所有後加之裝置及系統	包括但不限於 CCTV 系統、Smoke Detector 系統、電話系統、寬頻系統、抽風系統、壓縮機系統、冷氣系統等
4	清空單位	包括傢俬、雜物、泥頭等

19.  Subsequently, the Landlord and the Tenant engaged in negotiations concerning the Reinstatement Notice, and certain items were varied by mutual agreement.

20.  There is no dispute that vacant possession of the Premises was delivered by the Tenant to the Landlord on 27 February 2021, being 13 days after the expiry date of the Tenancy Agreement on 14 February 2021. Photographs and videos were taken at delivery[9] and there is therefore no dispute as to the condition of the Premises. The dispute between the parties is whether the condition of the Premises satisfied the requirements set out in the Tenancy Agreement.

The parties’ positions

21.  The Tenant’s position is that it was obliged only to yield up the Premises in a bare-shell condition and in good, clean, and tenantable repair and condition, and that it did so on 27 February 2021 in accordance with the Tenancy Agreement. The Tenant admits the liability to pay rent and rates for the period from 15 to 27 February 2021 in the sum of $285,661.53. It claims against the Landlord for the balance of $1,448,338.47 (ie the Deposit less the outstanding rent and rates).

22.  The Landlord’s position is that the Tenant failed to reinstate the Premises and to repair the damage to the Premises in a proper and workmanlike manner. As a result, the Landlord engaged contractors to carry out remedial works between 27 April and 4 June 2021. In the Amended Defence and Counterclaim (“ADC”), the Landlord claims:

(a)  Outstanding rent and rates in the sum of $285,661.53 for the period from 15 to 27 February 2021[10] (which claim is admitted by the Tenant);

(b)  Cost of preparation of surveyor’s report in the sum of $9,850[11];

(c)  Cost of the remedial works in the sum of $851,000[12]; and

(d)  Loss of rental income and rates from 27 April to 4 June 2021 in the sum of $783,475[13].

The Landlord’s total claim is $1,929,986.53. After giving credit for the Deposit, the Landlord counterclaims the balance of $195,986.53.

23.  Pursuant to the Order of Master Stanley Ho dated 25 September 2023, the Landlord filed an expert report dated 6 November 2023 (“Expert Report”) prepared by Mr Lau Wing-wai Patrick (“Expert”) to address the following:

(a)  Whether the Tenant had made any alterations or installation of fixtures or additions to the Premises;

(b)  Whether the items stated in the Reinstatement Note can be complied with; and

(c)  The quantum of conducting all further reinstatement works at the Premises by the Landlord.

24.  At the trial, the parties helpfully prepared a Scott Schedule (“Schedule”), listing the expert’s valuation and the parties’ latest stance.

25.  In closing submissions, both Mr Liu (for the Tenant) and Mr Sam (for the Landlord) very fairly made concessions to some of the items which further narrowed down the dispute between the parties.

III.  TENANCY AGREEMENT

26.  Apart from clause 2.1(hh), the parties also referred to the following clauses or schedules of the Tenancy Agreement:

(a)  Clause 2.1(e): “To keep all the interior parts of the said premises including the flooring and interior plaster or other finishes or rendering to walls, floors and ceilings and the Landlord’s fixtures and fittings therein including all doors, windows, electrical and gas installations, air-conditioning units (if any), light fittings, fire fighting apparatus (if any), security alarm system (if any), piping, drainage, wiring and meters and telecommunication cables in good, clean and substantial repair and condition (fair wear and tear excepted) and so to maintain the same at the expenses of the Tenant and to deliver up the same to the Landlord at the expiration or sooner determination of the term in like condition”;

(b)  Clause 2.1(j): “On receipt of any notice from the Landlord or his authorized representatives specifying any works or repairs which they require to be done and which and the extent of which are the responsibility of the Tenant hereunder, within one month from the date of receipt of such notice to put in hand and execute the same with all possible despatch. Failure by the Tenant so to do within the said period shall entitle the Landlord or its servants or agents to enter upon the said premises to carry out any such works or repairs at the Tenant’s expenses”;

(c)  Clause 2.1(k): “To make good at the expenses of the Tenant any portion of the said building which may be damaged through any omission act or default of the Tenant or of any of his servants visitors which omission act or default are in breach of the provisions hereunder or through the escape of water, fire, smoke or fumes from or explosion in the said premises”;

(d)  Clause 2.1(ee): “To reimburse the Landlord for the reasonable costs of any work which the Tenant is liable to perform hereunder which the Landlord has the right to perform in the Tenant's default under the provisions hereunder and has defaulted in performing the same”;

(e)  Clause 4.1(k): “Without prejudice to the generality of the foregoing provisions, the Tenant shall be liable for, and shall fully indemnify the Landlord, and keep the Landlord indemnified against, loss, costs, expenses, actions, demands, proceedings, claims and liabilities made against or suffered or incurred by the Landlord arising out of any act, omission, neglect, default or negligence of the Tenant or any persons at the said premises with the Tenant’s authority and out of any breach or non-performance or non-observance by the Tenant of any of the conditions or other provisions of this Agreement. In particular, but without limiting the generality of the foregoing, all costs, fees, charges, disbursements and expenses (including but not limited to costs and fees chargeable by and payable to Counsel, solicitors, professionals and bailiffs) reasonably incurred by the Landlord in its enforcement of any of the agreements and stipulations hereunder on the part of the Tenant to be observed and performed and in relation to or incidental to the recovery of arrears of rent or other sums and moneys due and payable by the Tenant to the Landlord hereunder shall be recoverable from the Tenant on a full indemnity basis”;

(f)  Clause 4.1(s): “Vacant possession of the said premises shall be deemed to have been delivered by the Landlord to the Tenant on an “as-is” basis upon the commencement of the terms hereby by (sic) granted”;

(g)  Clause 5.2: “Subject as aforesaid, the said deposit shall be refunded to the Tenant by the Landlord without interest within 14 days after the expiration or sooner determination of this Agreement and the delivery of vacant possession of the Premises to the Landlord or within 14 days of the settlement of the last outstanding claim by the Landlord against the Tenant in respect of any breach, non-observance or non-performance of any of the agreements, stipulations or conditions herein contained and on the part of the Tenant to be observed and performed, whichever is the later.”;

(h)  Clause 9.1: “The additional terms (if any) as set out in the Fifth Schedule hereto shall also apply but in the event that any contradiction between such additional terms and the terms and conditions set out in this Agreement, the provisions of such additional terms shall prevail”; and

(i)  Fifth Schedule: “(1) 於租約期內，業主不需負責有關上述物業內之天花及牆身之滲水及剝落的維修，該等維修概由租客負責，租客可自行決定是否進行有關之維修，但若於租約期內，租客決定不進行維修，則所有因上述物業內之天花及牆身滲水及/或石屎剝落而引致的意外及構成的損失（不論是租客或是任何人士的損失），一概由租客獨自承擔。如業主因此遭任何人士追討法律責任，租客亦須對業主作全數彌償; (2) Subject to and without prejudice to the provisions of paragraph 1 stated in the Additional Terms, the Landlord shall pay reasonable maintenance costs of the structure except those caused by the default or negligence of the Tenant”.

IV.  LEGAL PRINCIPLES

Interpretation of tenancy agreement

27.  In Eminent Investment (Asia Pacific) Ltd v DIO Corp (2020) 23 HKCFA, the Court of Final Appeal held that the starting point in contractual interpretation is the ordinary and natural meaning of the words used in the contract. However, in more difficult cases where that approach is unhelpful because the parties may debate what constitutes the ordinary or natural meaning of the words, context provides a surer guide to interpretation. Where competing interpretations arise, regard should be had to the natural and ordinary meaning of the provision in question, the purpose of the contract and of that provision, the other relevant provisions, the facts and circumstances known to or assumed by the parties at the time the contract was made, the quality of the drafting, and commercial common sense.

“bare-shell” condition

28.  Both parties referred to the Court of Appeal’s decision in AFH Hong Kong Stores Ltd v Fulton Corporation Ltd [2022] HKCA 1243.

29.  In that case, the premises which comprised a number of individual floors were leased to the tenant for a term of 9 years commencing 1 November 2011. After entering into possession, the tenant, inter alia, demolished the entire mezzanine floor, as well as part of the ground, 1^st and 2^nd floors, removing floor slabs and staircases. On 11 November 2016, the tenant served a notice of early termination under the “break clause”.

30.  The “yield-up” clause in that case, which is very similar to the one in the present case, provided that it was the tenant’s obligation to “yield up the Premises in a “bare-shell” good clean state of repair and condition …” (clause 3) and “to return the Premises to the Landlord in a ‘bare shell’ good clean state of repair and condition on each floor of the Premises to the reasonable satisfaction of the Landlord” (Special Condition 13).

31.  On 6 September 2019, the tenant issued a summons for an order that three issues be determined pursuant to Order 14A rule 1. One of the issues concerned the meaning of the phrase “bare shell”, and in particular whether the tenant was obliged to reinstate the demolished floors. The judge answered the question in the negative and the landlord appealed.

32.  After citing the Eminent Investment, Yuen JA held that:

“26.1 It is clear in my view that the natural and ordinary meaning of the words “bare shell”, when applied to a building such as this, is the structural concrete frame of the building and that only, free of non-structural partition walls and (as both parties agree) unfurnished and undecorated. Where a building is divided into different floors, the obligation to return it in a “bare shell ... condition on each floor” means that the tenant must return the structural walls and floors on each of the floors demised.

26.2 In the Lease, each of the Lower Ground Floor, Ground Floor, Mezzanine Floor, 1^st Floor and 2^nd Floor was individually specified as a floor within the definition of the term “Premises”. A floor is separated from another floor by a floor slab between them. Accordingly, an obligation to return each individual floor is not fulfilled by leaving only a void in place of floors which have been entirely or partly demolished, and the natural and ordinary meaning of the words means that the entirely or partly demolished floors should be reinstated.” (underlining added)

33.  For completeness, Yuen JA went further to consider the contextual factors mentioned in Eminent Investment, ie the purpose of the contract and provision, other provision in the contract, quality of the drafting, commercial common sense, and formed the view that there was nothing that would detract from the natural and ordinary meaning of the term.

34.  Subsequently, the tenant applied for leave to appeal to the Court of Final Appeal. In dismissing the application for leave to appeal ([2023] HKCA 478), the Court of Appeal emphasized at §18.2 that “Even if the words “bare shell” can be found in other leases, their meaning must be resolved in the context of the individual lease” in accordance with the principle set out in Eminent Investment.

35.  The tenant’s further application for leave to appeal to the Court of Final Appeal was also dismissed by the Appeal Committee. In the Reasons for Determination ([2024] HKCFA 5), Lam PJ emphasized at §7 that the tenancy agreement should be construed against the facts of the case and “the determination of the construction issue in the present case would not provide guidance to the construction of this expression in other contexts”.

“good clean and tenantable repair and condition”

36.  In Proudfoot v Hart (1890) 25 QBD 42 (CA), the Court held that:

“Good tenantable repair appears to me to mean such repair as, having regard to the age, character and locality of the house, would make it reasonably fit for the occupation of a reasonably-minded tenant of the class who would be likely to take it”

37.  In Wong Kong Lee v Kung Cheung Fai Patrick, DCCJ 5693/2007, 21 December 2009, the tenant was required to maintain the interior of the property in “good and tenantable repair and condition”. The Court observed at §28 that:

“In determining the tenant’s repair responsibilities or extent in this regard, the court shall take into account factors such as the condition of the premises when they were handed over to the tenant at the beginning of the tenancy, the age and location of the premises, the length of the tenancy, and so on, and take into account what a reasonable new tenant would want from the premises, as well as the renovation work that the landlord usually has to carry out before reletting the unit (Lee Ho Seok v Kanvest Limited DCCJ 5074/2002; Burkeman v GE Capital Europe Limited [2002] EWHC 2863). The court also has to take into account that the tenant’s duty is only to repair, that is, to replace or repair or reinstate the incidental or auxiliary parts of the item, and not actually to renew or rebuild the whole item (see Halsbury’s Laws of Hong Kong, Vol 17(1), para 255.306)”

“fair wear and tear excepted”

38.  Paragraph 235.322 of Halsbury’s Laws of Hong Kong states that:

“… onus is on the tenant to prove that the matters complained of result from the fair wear and tear excepted. If fair or reasonable wear and tear are excepted, this means that the premises are not to be in perfect or even lettable condition. The exception entails that the tenant is not bound to make good dilapidations caused by the friction of the air and by exposure and ordinary use; but the exception does not mean that, if there is a defect originally proceeding from fair wear and tear, he is released from his obligation to keep in good repair and condition everything which it may be possible to trace ultimately to that defect.

…

The question whether wear and tear is fair or reasonable is not affected by the amount of the dilapidation. If the passage of time and the operation of the elements have a more deteriorating effect than usual because of the original unsoundness of the premises, the tenant is not liable for the resulting dilapidations.”

39.  Finally, when construing the Tenancy Agreement, I also bear in mind the following observation of Mimmie Chan J in Wo Kee Administration Ltd v Honco Management Ltd [2025] 2 HKC 329 at §17:

“I pay heed to and agree with the observation made by Atkin LJ in Anstruther-Gough-Calthorpe v McOscar [1924] 1 KB 716, 729, that it is not useful to take a number of terms which may be found in different leases, treat them all as synonymous, and so impute to all of them the special meaning attached by authority to one of them.”

V.  WITNESSES

40.  At trial, the Tenant called Mr Poon and Mr Ko Wai Kong (“Mr Ko”) to give evidence, and the Landlord called Mr Cho King Lung (“Mr Cho”). Neither party challenged the credibility of these witnesses in closing submissions. I shall refer to their testimony where it is necessary to do so.

41.  The Expert also gave evidence at trial. His evidence was not seriously challenged by the Tenant and I have taken it into account accordingly.

VI.  TENANT’S OBLIGATIONS

42.  As a starting point, I should first consider the Tenant’s obligations in respect of the condition of the Premises when yielding up the same upon termination of the lease.

Clause 2.1(hh)

43.  It is common ground that the Tenant’s primary obligations concerning the return of the Premises are governed by clause 2.1(hh), which may be divided into two parts:

(a)  The first part (“Part 1”) concerns the Tenant’s obligation “to yield up the said premises in “bare-shell” condition at the expiration or sooner determination of this tenancy in good clean and tenantable repair and condition (fair wear and tear excepted) …”; and

(b)  The second part (“Part 2”) concerns the Tenant’s obligation, “in the event that the Tenant has made any alterations or installed any fixtures or additions to the said premises or affixed or displayed any signboard sign decoration or other device outside the said premises, whether with or without the Landlord’s written consent, … [to] reinstate and remove such alterations fixtures or additions and such signboard sign decoration or device and make good and repair in a proper and workmanlike manner any damage to the said premises as a result thereof before delivering up the said premises to the Landlord ...” (underlining added).

44.  The Landlord argues that clause 2.1(hh) Part 2 is not limited to alterations made by the Tenant itself, but also covers those made by VWHK:

(a)  The Landlord submits that the past‑tense “has made” denotes past conduct that held significance throughout and at the end of the tenancy, and is wide enough to cover the alterations made by VWHK which the Tenant succeeded to and treated as its own for the operation of the Service Centre;

(b)  The Landlord relies heavily on the commercial context. It refers to the take‑over arrangement whereby the Tenant became the operator of the Service Centre at the Premises, inheriting the existing fit‑out and alterations. Under the Surrender Deed between the Landlord and VWHK, VWHK was released from its obligation to reinstate the Premises to the “2008 condition”, and it was acknowledged that the alterations would be taken over by the Tenant;

(c)  The Landlord says the parties’ clear intention was that the Tenant would assume responsibility for those alterations, even though they were installed by VWHK. Clause 2.1(hh) Part 2 should be construed to give effect to that bargain;

(d)  The Landlord also points to clause 4.1(s) and 4.1(r), under which the Tenant accepted the Premises “as is” with all existing alterations and was given the right to “do certain decoration work”. It says clause 2.1(hh) Part 1 and Part 2 are conjunctive and together govern the Tenant’s reinstatement obligations, including alterations it inherited;

(e)  It emphasises that the Tenant’s conduct during the reinstatement process, including its actual removal and reinstatement in respect of many of VWHK’s alterations (eg shopfront signage, glass wall, roller shutter), thereby acting on the understanding that it was responsible for them. The Landlord argues that this contemporaneous conduct confirms that both parties understood clause 2.1(hh) Part 2 to cover VWHK alterations, and that the Tenant’s current position is an afterthought devised for litigation.

45.  On the other hand, the Tenant’s argument is that:

(a)  Clause 2.1(hh) Part 2 refers to alterations, fixtures or additions which “the Tenant has made”. On its ordinary and natural meaning, “the Tenant” means the Plaintiff, not VWHK. VWHK is never mentioned in the Tenancy Agreement. There is no express provision making the Tenant responsible for alterations installed by VWHK;

(b)  The Tenant relies on the principle that, where the language is clear and unambiguous, the express wording of the agreement should be the start and end of the matter. It says the Landlord’s interpretation that “has made” covers succeeded alterations cannot be contained within the ordinary meaning of the clause;

(c)  The Tenant argues that, even if context was considered, it would make no commercial sense for a tenant renting the Premises for only 7½ months to agree to be responsible for all unknown damages and alterations made by the Previous Tenant to a 50‑year‑old premises. It contends that such an onerous obligation could only be imposed by an express provision specifically particularised in the terms agreed between the parties. But no such express provision exists;

(d)  It highlights that VWHK’s lease contained an express “reinstatement” clause (ie clause 2.1(hh)) requiring reinstatement to the “2008 condition” and making good damage caused by VWHK’s alterations. That clause was intentionally not adopted in the Tenancy Agreement;

(e)  There was no novation agreement under which the Tenant assumed all liabilities of VWHK. Instead, VWHK and Landlord entered into a Surrender Agreement releasing each other from all claims and liabilities under the VWHK’s 2018 Lease.

46.  I agree with the Tenant’s submissions on this point. As the Tenant rightly emphasises, where the language of a contract is clear and unambiguous, the express wording should be the start and the end of the matter.

47.  Clause 2.1(hh) Part 2 of the Tenancy Agreement is expressly conditioned on the Tenant itself having made alterations or installed fixtures or additions; it applies “in the event the Tenant has made any alterations or installed any fixtures or additions to the said premises …” (underlining added). The term “Tenant” is a defined term in the Tenancy Agreement and refers only to the Plaintiff. There is no reference in that clause, or elsewhere in the Tenancy Agreement, to alterations made by any predecessor in title, and no mechanism by which obligations in respect of such alterations are transferred to the Plaintiff. In my view, the natural and ordinary meaning of clause 2.1(hh) Part 2 is therefore clear; it governs only alterations made by the Tenant, and does not extend to alterations installed by VWHK.

48.  This construction is reinforced by the overall structure and drafting history of the relevant documents. If the Landlord had intended that the Tenant should assume responsibility for reinstating the alterations made by VWHK, it could readily have achieved that result in one of two obvious ways: (a) by retaining in the Tenant’s Tenancy Agreement the “reinstatement” clause in VWHK’s 2018 Lease, thereby expressly requiring reinstatement to the original condition and making good damage caused by the erection and removal of alterations; or (b) by entering into a deed of novation (or equivalent tripartite arrangement) with VWHK and the Plaintiff, expressly transferring VWHK’s reinstatement obligations to the Tenant. Neither step was taken. Instead, the Landlord and the Tenant executed a separate tenancy agreement with no mention of VWHK, its lease, or any assumption by the Tenant of VWHK’s reinstatement obligations. The deliberate omission of the VWHK’s “reinstatement” clause in the Tenancy Agreement, coupled with the absence of any novation or cross‑reference to VWHK’s lease, strongly indicates that the parties did not intend for the Tenant to “inherit” VWHK’s obligations under its lease.

49.  Further, the fact that the Tenant elected to remove certain VWHK’s alterations during the reinstatement process cannot be relied upon to construe the meaning of clause 2.1(hh) as it is not permissible to take into account subsequent conduct of the parties as an aid in construing the contract; Yuen Ching Yuen v Union Insurance Society of Hong Kong [1998] 1 HKLRD 650 at 657H-J per Cheung J (as he then was). The proper construction of a contractual clause depends on its language, read in light of the relevant context at the time of contracting, not on how one party subsequently chose to perform its obligations.

50.  In any event, the Tenant’s removal works may well have been carried out for the purpose of discharging its obligations under other provisions of the Tenancy Agreement (for example, the bare-shell condition), rather than in recognition of any obligation under clause 2.1(hh) Part 2 to reinstate alterations made by VWHK.

51.  I therefore find that the Tenant was not obliged under clause 2.1(hh) Part 2 to reinstate and remove the alterations made by VWHK.

Clauses 2.1(e) & (k)

52.  In addition to clause 2.1(hh), clause 2.1(e) is also applicable and the Tenant was required to “To keep all the interior parts of the said premises … in good, clean and substantial repair and condition (fair wear and tear excepted) and … to deliver up the same to the Landlord at the expiration or sooner determination of the term in like condition”. The clause expressly covers, inter alia, light fittings, fire fighting apparatus, piping, drainage, wiring.

53.  Clause 2.1(k) further requires the Tenant “To make good … any portion of the said building which may be damaged through any omission act or default of the Tenant … which omission act or default are in breach of the provisions hereunder …”.

54.  It is the Tenant’s argument that clauses 2.1(e) and 2.1(k), when construed together with clauses 4.1(s) and 9.1 and the Fifth Schedule, only required the Tenant to keep, maintain and deliver up the Premises in the state they were in when the Tenancy Agreement was entered into on 9 July 2020 and the Premises were delivered to the Tenant on an “as is” basis. The Tenant contends that the bare shell of the Premises could already have been damaged while VWHK was in possession, and refers to the bare-shell condition of the Premises as of July 2020 as the “2020 Bare‑shell State”.

55.  I do not accept the Tenant’s submissions.

56.  The maintenance obligation in clause 2.1(e) is to keep the interior parts of the Premises “in good, clean and substantial repair and condition fair wear and tear excepted” and to deliver them up at the end of the term “in like condition”. That covenant does not oblige the Tenant simply to maintain the Premises at the “2020 Bare‑shell State”. The standard is “good, clean and substantial repair and condition (fair wear and tear excepted)”. The condition of the premises at the commencement of the tenancy is merely one factor to be taken into account in assessing that standard, not the sole or determinative benchmark; Wong Kong Lee.

57.  That approach is consistent with the principle stated in §235.321 of Halsbury’s Laws of Hong Kong which provides that:

“Standard of repair: If he has expressly covenanted to put premises into tenantable repair and to keep it in such repair, and they are not in tenantable repair at the commencement of the tenancy, the tenant must do the necessary repairs, notwithstanding that the premises are thereby put in a better condition than when the landlord let them. The effect is the same if, without expressly covenanting to put it into repair, the tenant covenants only to keep them in tenantable repair. Such a covenant presupposes putting the premises in such repair, and keeping them in repair during the terms. The construction of the covenant is the same whether the covenant specifies “tenantable” or “habitable” or “good” repair. A general covenant to repair without any such words is satisfied if the premises are kept in a substantial state of repair.

The repairs which must be done in order to keep property in tenantable repair vary according to the circumstances of the building. Good tenantable repair is such a repair as, having regard to the age, character and locality of the property, would make it reasonably fit for the occupation of a reasonably minded tenant who would be likely to take it, accordingly the tenant must do such repairs as are necessary to preserve the premises and to make them suitable for a new tenant. The tenant is not, however, relieved from his liabilities by reason of deterioration in the neighbourhood since the time of the demise. He has to do such repairs as will make the property reasonably fit for occupation by a tenant who would have been likely to occupy it at the time of the demise.” (underlining added)

58.  In other words, a covenant to keep premises in good and substantial repair presupposes that the tenant must do the repairs necessary to achieve that standard, even if that means putting the premises into a better condition than they were in at the start of the term. The age, character and condition of the premises at the outset are relevant, but they do not reduce the tenant’s obligation to a duty merely to avoid making things worse.

59.  I do not consider that clause 9.1 and the Fifth Schedule assist the Tenant. The Fifth Schedule is concerned with seepage and the peeling or falling of concrete from the walls and ceiling, and the Tenant may elect whether or not to carry out repairs. It does not, however, alter the standard at which the Premises must be yielded up. If the Tenant chooses not to repair, it remains solely liable for the consequences of that choice, including any consequences arising from the Tenant’s decision not to carry out the repair. The Fifth Schedule is concerned with the allocation of responsibility for structural maintenance during the term; it does not redefine the condition in which the Premises must be delivered at the end of the tenancy.

60.  In those circumstances, I reject the Tenant’s argument that its obligations under clauses 2.1(e) and 2.1(k) are limited to maintaining the “2020 Bare‑shell State”. In my view, the Tenant was obliged to keep and deliver up the relevant parts of the Premises in good, clean and substantial repair and condition, fair wear and tear excepted, having regard to the age, character and locality of the building and the condition at the start of the tenancy, but not confined to that initial state.

Clause 2.1(j)

61.  Clause 2.1(j) requires the Tenant, within one month of receiving a notice from the Landlord specifying works or repairs that are the Tenant’s responsibility under the lease, to put those works in hand and execute them with all possible despatch. If the Tenant fails to do so within that one‑month period, the Landlord is entitled to enter the Premises and carry out the specified works or repairs at the Tenant’s expense.

62.  The Landlord’s position is that clause 2.1(j) applies in the present case. It contends that the Reinstatement Notice was issued pursuant to that clause and that the Tenant was therefore obliged to comply with its requirements within the period specified in the Reinstatement Notice and clause 2.1(j). This obligation was independent of the Tenant’s obligations under the other provisions of the Tenancy Agreement.

63.  The Tenant’s position is however that the Landlord could invoke clause 2.1(j) only in respect of works or repairs which were, upon a proper construction of the Tenancy Agreement, the Tenant’s responsibility. In other words, clause 2.1(j) does not enlarge the substantive obligations otherwise imposed upon the Tenant.

64.  On this issue, I agree with the Tenant’s view. By its express terms, clause 2.1(j) applies only to works or repairs “which … are the responsibility of the Tenant hereunder”. It provides a mechanism by which the Landlord may require the Tenant to perform, and, upon the Tenant’s default, may itself undertake, works which the Tenant is otherwise contractually obliged to perform. It does not create a separate or additional obligation as to the condition in which the Premises must be returned.

65.  Having determined the Tenant’s obligations upon yielding up the Premises, I turn to the Landlord’s counterclaim, the individual items of which are set out in the Schedule. Although the parties have helpfully prepared an Agreed List of Issues, the Landlord’s counterclaim was the main focus of the trial. It is therefore more convenient to address it directly. Rather than considering each item in the order in which it appears in the Schedule, I adopt Mr Liu’s approach and deal with the items by reference to the categories into which they fall.

VII.  AGREED ITEMS

66.  I shall start with the items that are agreed by the parties.

67.  As noted above, the Tenant has accepted that it was liable for the outstanding rent and rates for the period from 15 February 2021 to 27 February 2021 in the total sum of $285,661.53; ADC §13(1).

68.  The Tenant also admits liability in respect of the following items:

(a)  Schedule Item 6: The Landlord claims $6,000. The Expert’s estimate is $5,060;

(b)  Schedule Item 10: The Landlord claims $5,000. The Expert’s estimate is $4,740;

(c)  Schedule Item 12: The Landlord claims $3,500. The Expert’s estimate is $1,850; and

(d)  Schedule Item 17: The Landlord claims $5,000. The Expert’s estimate is $4,740.

69.  The total sum claimed for these items is $19,500.

70.  The Tenant submits that the Court should allow the estimated amounts made by the Expert, ie $16,390, the difference being $3,110.

71.  The Tenant argues that the Landlord instructed the Expert to give evidence on the reasonable costs. After seeing that the Expert’s opinions on the reasonable costs are not favourable to it, the Landlord cannot now invite the court to ignore the Expert’s opinion.

72.  The Landlord’s position is that its claim is based on the actual sum incurred, rather than the Expert’s estimate.

73.  The Landlord referred to Halsbury Law of Hong Kong, Vol 36 (2025 Re-issue) §235.334 where it is said that “[t]he general measure of damages is the sum which it would take to put the premises in the state of repair in which the tenant ought, under the covenant, to leave them. The actual cost to the landlord of carrying out such repairs is as a rule the amount of the recoverable loss and is the best guide to the diminution in value of the reversion”.

74.  The Landlord also relies on clause 4.1(k) which provided that “the Tenant shall be liable for, and shall fully indemnify the Landlord, and keep the Landlord indemnified against, loss, costs, expenses, actions, demands, proceedings, claims and liabilities made against or suffered or incurred by the Landlord arising out of any act, omission, neglect, default or negligence of the Tenant or any persons at the said premises with the Tenant’s authority and out of any breach or non-performance or non-observance by the Tenant of any of the conditions or other provisions of this Agreement”.

75.  In China Resources Property Management Ltd v Max Merit Ltd, DCCJ 2012/2010, 18 July 2012, §§86-88, the Court accepted the landlord’s reliance on a similar “indemnity cost” clause to justify the actual expenses incurred by the Landlord in the reinstatement work. The Court found that there was nothing “unreasonable” in the actual expenses claimed by the Landlord.

76.  I accept the Landlord’s submissions. The proper measure of damages is the amount reasonably required to put the Premises into the state of repair in which the Tenant was obliged to leave them. Where the Landlord has in fact incurred expenditure in carrying out the necessary works, the actual expenditure is ordinarily the best evidence of the loss suffered, subject always to the requirement that the works and the sums claimed were reasonably incurred. As stated in Halsbury’s Laws of Hong Kong, the actual cost of carrying out the repairs is, as a rule, the recoverable loss.

77.  The Expert’s estimates are to assist the Court in assessing whether the actual sums claimed were reasonable. They do not, without more, impose a ceiling on the Landlord’s recoverable loss. An estimate prepared by an expert is an assessment of the reasonable cost of works. It is not equivalent to evidence of the actual cost incurred, nor does it displace otherwise admissible evidence that the landlord in fact incurred a different sum.

78.  I therefore reject the Tenant’s submission that the Landlord is bound by the Expert’s estimates or can recover no more than the sums stated in the Expert Report. The fact that the Landlord did not obtain a further expert report, or cross-examine the Expert so as to challenge his estimates, does not assist the Tenant. The Landlord is entitled to rely upon the actual expenditure it incurred, provided that it establishes the necessary causal connection with the Tenant’s breach and proves that the particular works and expenditure were reasonably incurred.

79.  This conclusion is also consistent with clause 4.1(k), which provides for the Tenant to indemnify the Landlord against loss, costs and expenses incurred as a result of the Tenant’s breach or non-performance of the Tenancy Agreement.

80.  Accordingly, I shall assess each agreed item by reference to the actual sum claimed by the Landlord. I shall have regard to the Expert’s estimate as a useful cross-check on the reasonableness of that sum, but will not treat it as a ceiling.

81.  In the present case, the aggregate actual claim of $19,500 exceeds the aggregate estimate of $16,390 by $3,110 only. The difference is not significant. I am satisfied that the Landlord’s actual expenditure was reasonably incurred, and I allow the agreed items in the sum of $19,500.

VIII.  PREPARATION OF SURVEYOR’S REPORT RGARDING FIXTURES/DEFECTS

82.  This item concerns a report dated 9 April 2021 (“Wesley Report”) prepared by Wesley & Associates Company Limited (“Wesley”). The Landlord claims $9,850 in respect of the cost of obtaining the report; ADC §13(2).

83.  The Tenant submits that this item should be disallowed on two grounds. First, it contends that the Wesley Report was, in substance, a valuation report; it recorded the defects alleged by the Landlord and estimated the cost of remedial works at approximately $1.8 million. Secondly, the Tenant submits that the report was prepared without the leave of the Court.

84.  In my view, the mere fact that the Wesley Report was prepared before the commencement of this action does not determine whether its cost is recoverable as damages or as a litigation disbursement. The critical question is the purpose for which it was commissioned. Where a report is reasonably obtained to inspect, investigate and identify remedial works made necessary by a tenant’s breach, its cost may in principle constitute a recoverable consequential expense. Where, however, its substantial purpose is to value, quantify or substantiate a prospective claim in litigation, the cost is more appropriately treated as a disbursement in the proceedings, recoverable, if at all, pursuant to an order for costs and on taxation.

85.  The evidence shows that the Landlord engaged Wesley on 11 March 2021. Wesley’s scope of services was to: (a) inspect the Premises and make a record of their condition; (b) review the Tenant’s obligations concerning the yielding up of the Premises; and (c) prepare a report setting out its findings arising from the inspection and that review. According to the Wesley Report, the site inspection was carried out on 15 March 2021.

86.  I accept that the Wesley Report was commissioned not principally for the purpose of the present litigation, but to identify the condition of the Premises following their return and to ascertain the remedial works required to make good the alleged defects. In the circumstances, the cost of obtaining the report was a reasonable expense incurred by the Landlord in investigating and responding to the Tenant’s breaches. As there is no serious challenge by the Tenant on the amount, I would allow the Landlord’s claim for this item in full, ie $9,850.

IX.  FIRE-ALARM SYSTEM

87.  This category consists of three items:

(a)  Reconnection and testing of the fire-service system: The total amount claimed is $14,000. The Expert’s estimate is $16,030; ADC §13(4);

(b)  Installation of 6 fire-hose brackets: The Landlord claims $3,000. The Expert’s estimate is $4,580; Schedule Item 11[14]; and

(c)  Installation of conduits, alarm bells and break-glass units of the fire-alarm system and obtaining the relevant certificate: The Landlord claims $32,000. The Expert’s estimate is $30,490; Schedule Item 19[15].

88.  The Tenant denies the liability for these claims.

The Landlord’s arguments

89.  The Landlord’s case is that the Tenant reinstated only part of the fire-alarm system. It alleges that the Tenant wrongfully removed, and failed to reinstate, the break-glass units and alarm bells, and disconnected the system as a whole.

90.  The Landlord submits that the basic fire-alarm system formed part of the bare-shell condition and, in any event, fell within the Tenant’s maintenance obligations under clause 2.1(e), which expressly refers to “fire fighting apparatus”. It contends that the Tenant removed or failed to reinstate essential components, including wiring and cabling, fire-hose brackets, alarm bells and break-glass units, with the result that the system was disconnected and non-functional.

91.  The Landlord’s evidence is that the fire-service system had been in place and functional since at least 2004, was used by both VWHK and the Tenant, and was required to be returned in functional condition. It further relies on Mr Ko’s admission in cross-examination that the fire-alarm system was part of the bare-shell condition.

The Tenant’s arguments

92.  The Tenant says it did not remove or damage the fire-hose brackets. During VWHK’s occupation, the fire-hose water pipes were partly fixed to partition walls. When those walls were removed, the Tenant’s contractor secured the pipes to the ceiling with metal wires. The Tenant contends that it was entitled to perform its obligations in the manner least onerous to it and that metal wires were sufficient. It further submits that there is no evidence that the system would not function without brackets.

93.  The Tenant relies on photographs to suggest that the first fire-hose reel was probably newly installed by VWHK, and that no steel conduits were installed before February 2021, while the Service Centre was still in use.

94.  The Tenant contends that the Landlord bears the burden of proving that the three fire-hose reels seen in 2021 belonged to it and that the relevant conduits existed in 2021. It points to Mr Cho’s evidence that he could not identify his own three fire-hose reels and could not see the conduits in the photographs, and submits that the Landlord has therefore failed to discharge that burden.

95.  The Tenant argues that, in any event, the fire-hose system should have been removed as part of “alteration” in the Reinstatement Note, but the Landlord never requested its removal and instead reused the firefighting system.

96.  The Tenant further submits that the Landlord has failed to prove that the Tenant removed any such steel conduits and wiring, and that there are photographs showing that no such conduits were installed before February 2021.

97.  The Tenant maintains that it never tested or altered the fire service alarm system during the 7½ months of the tenancy and that it delivered up a bare shell under clause 2.1(hh). It also argues that clause 2.1(hh) Part 2 does not apply in this case.

My views

98.  There is no serious dispute that a fully functional fire-alarm system was in place when the Tenant took possession of the Premises. It is also not disputed that certain components of that system were removed during the Tenant’s reinstatement works.

99.  The Tenant’s case, in short, is that those components formed part of VWHK’s fit-out and were removed together with the associated fixtures when the Tenant restored the Premises to bare-shell condition. The Tenant contends that, as its obligation was limited to yielding up the Premises in bare-shell condition, it was not required to reinstall those components for the Landlord.

100.  I do not accept the Tenant’s submissions. Quite apart from Mr Ko’s admission that the fire-alarm system was part of the bare-shell condition of the Premises, the Tenant’s maintenance obligations under clause 2.1(e) expressly covered “fire fighting apparatus” and those obligations continued until the Tenant yielded up possession of the Premises. It follows that the Tenant was obliged to deliver up the fire-alarm system in a functional condition regardless of whether the said system was part of the bare-shell condition of the Premises or not. The Tenant cannot avoid that obligation by contending that the components in question had been installed as part of the fit-out and were removed when the Tenant restored the Premises to what it considered to be a bare-shell condition.

101.  I therefore find that the Tenant was in breach of clauses 2.1(e) and 2.1(hh) insofar as it removed, and failed to reinstate, the components necessary for the proper functioning of the fire-alarm system. The Landlord is entitled to recover the reasonable costs of the remedial works required to restore the system.

102.  I am satisfied that the items at §§87(a) & (c) are necessary for the proper functioning of the fire-alarm system and would allow the claim of these two items. Further, I am of the view that the amounts claimed, which are quite close to the Expert’s estimates, are reasonable and allow the Landlord’s claims for these two items.

103.  For the installation of fire-hose brackets, the Landlord complained that certain fire-hose water pipes were suspended from the ceiling by metal wires. Its position is that proper fire-hose brackets should have been installed to support those pipes. The Landlord relies on Mr Ko’s admission that the fire-alarm system was part of the bare-shell condition of the Premises. It further submits that the system had to be functional if the Premises were to be yielded up in “good clean and tenantable repair and condition”.

104.  The Tenant’s position is that, during VWHK’s occupation, the relevant fire-hose water pipes had been partly affixed to partition walls. When the partition walls were removed during the reinstatement works, the Tenant’s contractor secured the pipes to the ceiling with metal wires.

105.  The Tenant relies on the statement in Halsbury’s Laws of Hong Kong at § 235.321 that “[i]n general it is for the covenantor to decide how to carry out the repair and the tenant is entitled to perform covenants in the manner least onerous to him”. It submits that securing the pipes to the ceiling with metal wires was the least onerous method available to it. The Tenant further submits that there is no evidence that the fire-alarm system would not function properly in the absence of fire-hose brackets.

106.  I do not accept the Tenant’s submission. I have found that the Tenant was required to yield up the Premises with a properly functioning fire-alarm system. Once the partition walls to which the relevant fire-hose water pipes had been affixed were removed, the Tenant was obliged to secure those pipes properly to the walls or ceilings. Simply suspending them by metal wires was not an adequate substitute for proper supports.

107.  The Tenant’s further submission that there is no evidence that the fire‑alarm system would not function without the brackets misstates the issue. The question is not whether the system could be made to work by an improvised method, but whether the Tenant yielded up the fire‑fighting apparatus in the state of repair and condition required by the Tenancy Agreement. If the Tenant’s argument were correct, it could reinstall and leave the fire‑alarm components in whatever manner was most convenient to it, even placing all components on the ground, and still claim to have complied with its obligations. That would be an absurd result and cannot have been what the parties intended. The Tenant was obliged to secure the fire‑hose pipes and related components properly to the walls or ceiling in a workmanlike manner, not merely to leave them loosely suspended.

108.  The Tenant’s reliance on the principle that it was entitled to perform its obligations in the least onerous manner also does not assist it. That principle did not entitle the Tenant to adopt a method which fell short of the standard required to return a properly functioning and adequately supported fire-alarm system. In any event, I have considered the limited cost involved and the modest extent of the works required, and I do not consider that requiring the Tenant to install appropriate fire-hose brackets was onerous.

109.  In those circumstances, I would allow the Landlord’s claim for fire-hose brackets at $3,000.

110.  The total sum allowed for the fire-alarm system is $49,000 ($14,000 + $32,000 + $3,000).

X.  TOILET FACILITIES

111.  This category consists of four items:

(a)  Installation of fresh-water pipes: The amount claimed is $22,000. The Expert’s estimate is $16,030; Schedule Item 1[16];

(b)  Installation of flushing-water pipes: The amount claimed is $15,000. The Expert’s estimate is $15,170; Schedule Item 2[17];

(c)  Installation of wash basins and connecting drainage pipe: The Landlord claims $7,500. The Expert’s estimate is $7,590; Schedule Item 3[18]; and

(d)  Rebuilding the walls and doors of the toilet: The Landlord claims $45,000. The Expert’s estimate is $42,050; Schedule Item 4[19].

112.  It is not disputed that, after taking possession of the Premises, VWHK carried out substantial renovation works, including the relocation of the toilets to Zone E[20] (“Relocated Toilets”). During the reinstatement works, the Tenant demolished the Relocated Toilets at Zone E and constructed toilet facilities at Zone F, which was the location shown for the toilets on the Floor Plan.

113.  The Landlord’s complaints concerning the toilet facilities at Zone F are as follows:

(a)  There was no fresh-water or flushing-water supply;

(b)  The door and the surrounding outer wall of the female toilet were missing;

(c)  The sizes of the toilets were incorrect because the Tenant failed to remove a concrete partition wall adjacent to the wooden board separating the two toilets;

(d)  The Tenant failed to remove the artificial ceiling; and

(e)  The Tenant used wooden boards, rather than concrete, as partitions between the male and female toilets.

114.  The Tenant accepted that the Landlord had requested it to rebuild or reinstate the toilets, and that it had only partially done so, without connecting the fresh-water and drainage pipes. It also accepted that the Landlord complained about the size and standard of the partially constructed toilet facilities. However, the Tenant submits that:

(a)  In accordance with clause 2.1(hh) Part 1, it had removed the Relocated Toilets in order to yield up the Premises in a bare-shell condition;

(b)  Clause 2.1(hh) Part 2 was not engaged because it applied only to alterations made by the Tenant. It was common ground that the Relocated Toilets had been constructed by VWHK, rather than the Tenant. The Tenant therefore had no obligation under that part of the clause to reconstruct the toilets in accordance with the Floor Plan; and

(c)  Under clause 2.1(e), the Tenant was required only to maintain and yield up the Premises to the “2020 Bare-shell State”, subject to fair wear and tear. It was not required to construct new toilet facilities which, on its case, did not exist when the Tenancy Agreement commenced.

115.  I do not accept the Tenant’s submissions.

116.  I have already rejected the Tenant’s argument that clause 2.1(e) only required it to maintain the Premises to the “2020 Bare-shell State”. The clause expressly requires the Tenant to keep the Landlord’s fixtures and fittings, including “piping” and “drainage”, in good, clean and substantial repair and condition, fair wear and tear excepted, and to deliver them up in like condition upon the expiration or sooner determination of the tenancy. The fresh-water and flushing-water supplies, together with the associated pipes and drainage, plainly fall within that provision. The Tenant was therefore obliged to deliver up those facilities in a functional condition.

117.  Further, I do not agree that the expression “bare-shell” in clause 2.1(hh) Part 1 relieved the Tenant of any obligation to provide functioning toilet facilities. In AFH, the Court of Appeal considered the meaning of “bare shell” in the particular context of that case, which involved, among other matters, the removal of floor slabs and staircases. The decision does not establish a general proposition that a bare-shell condition necessarily excludes all basic facilities or that it permits a tenant to leave the premises with incomplete facilities which would otherwise be required by the relevant contractual provisions.

118.  More fundamentally, clause 2.1(hh) Part 1 does not impose a bare-shell requirement in isolation. It requires the Tenant to yield up the Premises in bare-shell condition and in “good clean and tenantable repair and condition”, fair wear and tear excepted. The latter words qualify the required condition of the Premises at delivery up.

119.  The assessment of whether premises are in good, clean and tenantable repair and condition is fact-sensitive. It requires regard to the condition of the Premises at the commencement of the tenancy and to the standard of repair that would make the Premises reasonably fit for occupation by a reasonably minded tenant of the relevant class; Wong Kong Lee. The question is therefore not whether the Tenant was obliged to improve the Premises beyond their original condition, but whether the Premises as returned satisfied the contractual standard.

120.  In the present case, it is not disputed that the Relocated Toilets at Zone E were fully functional when the Tenant took possession of the Premises. The Tenant removed them in the course of its reinstatement works. It thereafter constructed toilet facilities at Zone F, being the original toilet location shown on the Floor Plan, but accepts that the works were only partially completed.

121.  The Tenant’s contention that it had no obligation to reinstate the Relocated Toilets because they had been installed by VWHK does not address the position which resulted from the Tenant’s own removal and partial reconstruction works. The Tenant removed the Relocated Toilets in order to yield up the Premises in bare-shell condition. Once it proceeded to reconstruct toilet facilities at Zone F, it was under an obligation to ensure that the Premises were yielded up in the condition contractually required, namely “good clean and tenantable repair and condition”. It could not satisfy that obligation by leaving incomplete toilet facilities which were incapable of proper use.

122.  A reasonably minded incoming tenant would not regard toilet facilities lacking fresh-water and flushing-water supply, the necessary pipes and drainage, a door and surrounding wall for the female toilet, and proper partitions as being in good, clean and tenantable repair and condition. The use of wooden planks and boards as partitions, the omission of the door and surrounding wall, and the failure to remove the artificial ceiling further demonstrate that the works were incomplete and fell below the requisite standard.

123.  I therefore find that the Tenant failed to comply with clause 2.1(hh) Part 1, namely the requirement to yield up the Premises in bare-shell condition and in good, clean and tenantable repair and condition, fair wear and tear excepted. It also failed to comply with clause 2.1(e) in respect of the piping and drainage associated with the toilet facilities.

124.  Having regard to the expert’s estimates, which are broadly consistent with the sums actually claimed, I am satisfied that the amounts claimed are reasonable. I therefore allow the four claims in full, in the total sum of $89,500.

XI.  PAINTING, PLASTERING AND REPAIR OF WALLS, CEILINGS AND COLUMNS

125.  This category consists of four items:

(a)  Patching of wall damaged by the Tenant: The amount claimed is $15,000. The Expert’s estimate is $14,310; Schedule Item 9[21];

(b)  Painting and plastering of wall: The actual sum incurred is $165,000 and the Expert’s estimate is $141,040. The Landlord agrees to give a 10% discount for “wear and tear” and the revised claim is $148,500; Schedule Item 13[22];

(c)  Painting and plastering of beams (around 2,600 square feet): The actual sum incurred is $182,000 and the Expert’s estimate is $166,970. The Landlord agrees to give a 10% discount for “wear and tear” and the revised claim is $163,800; Schedule Item 14[23];

(d)  Repairing columns: The actual sum incurred is $22,000 and the Expert’s estimate is $19,080. The Landlord agrees to give a 10% discount for “wear and tear” and the revised claim is $19,800; Schedule Item 15[24].

Tenant’s argument

126.  The Tenant submits that the Landlord’s complaints about falling concrete from ceilings, walls and columns are: (a) within fair wear and tear; (b) matters of structural maintenance; and (c) contrary to the express agreement in clause 9.1 and the Fifth Schedule, which make the Landlord responsible for structural maintenance.

127.  The Tenant observes that most patches of fallen ceiling concrete and exposed rusted bars appeared in areas that had been covered by the Volkswagen office, toilets and changing rooms, with only two small patches in uncovered areas.

128.  It submits that apparatus such as air-conditioning and ventilation equipment in those covered areas could have been fixed to the ceiling and walls by the VWHK. Photographs taken while the Service Centre was still in use (before February 2021) show that even the uncovered areas had many fixtures attached to the ceiling (lighting, conduits, wire mounts, ventilation, machinery), yet there was hardly any fallen concrete there.

129.  Given that the iron bars are rusted and appear to have been rusted for some time, the Tenant argues it is more likely that the concrete had been falling for a considerable period, and that moisture trapped behind the covered areas over many years contributed to paint failure and concrete spalling. On that basis, the Tenant contends these are structural defects whose maintenance costs should be borne by the Landlord under the Fifth Schedule.

130.  It argues that the Landlord has failed to prove the “2020 Bare-shell State” of the walls and ceilings, and in particular has not shown that they were adequately painted in 2020. The Tenant characterises the work undertaken by the Landlord as repainting, upgrading and improving the whole of the Premises to a near brand-new condition, which goes far beyond the scope of the Tenancy Agreement.

131.  The Tenant repeats the submissions that the covenant to yield up in “good, clean and tenantable repair and condition” does not require the tenant to improve the premises or to repaint the whole property at the end of the term. It contends that requiring it to renovate the ceiling and walls to an almost “perfect, new and newly decorated condition” contradicts clause 9.1 and the Fifth Schedule, under which the Landlord is responsible for reasonable maintenance costs of the structure.

132.  Having regard to its interpretation of “bare shell”, the Tenant submits that it is not in breach of clause 2.1(hh) Part 1, and that clause 2.1(hh) Part 2 does not apply. It further submits that, under clause 2.1(k), it is only obliged to make good damage caused through its omissions, and under clause 2.1(e) it is only obliged to keep and maintain the “2020 Bare-shell State”.

133.  By way of alternative submission, if the Court finds the Tenant liable for any reasonable costs of painting, plastering and repairing the ceiling and columns (which it denies), the Tenant contends it should be responsible for at most 20% of the costs. It relies on: (a) the large size of the Premises (about 17,000 sq ft) and the disproportionate renovation cost (about $851,000) compared with the 7½ months’ rent; (b) the Landlord’s long-term rental income from the Premises (roughly over $100 million over 17 years) making it unreasonable for a short-term tenant to bear the cost of a significant upgrade; (c) the fact that the Landlord’s complaints relate to only a minority of the total area, yet the whole premises was repainted; and (d) a comparison with other industrial premises on the market, which it says shows the works amounted to an upgrade and improvement, producing a “perfect, new and newly decorated condition” that goes beyond “good, clean and tenantable” repair.

The Landlord’s argument

134.  The Landlord accepts that there was some wear and tear but says it was minimal and does not justify the extent of the damage now seen.

135.  It relies on the Expert’s opinion that the concentration and pattern of ceiling damage (spalling) is more consistent with damage caused by removal works (eg removal of artificial ceilings, air‑conditioning units and anchor bolts) than with homogeneous age‑related deterioration.

136.  It argues that, where the premises are not in good repair at the end of the term, the tenant bears the legal burden of proving that the complained‑of dilapidations result from fair wear and tear (Halsbury’s Laws of Hong Kong §235.322). Even if the premises were in a poor state at the start of the tenancy, clause 2.1(e) would still oblige the Tenant to put the interior parts (including plaster and rendering to walls, floors and ceilings) into repair (Halsbury’s Laws of Hong Kong §235.321).

137.  The Landlord submits that clause 2.1(e) imposes a clear obligation on the Tenant to keep in good, clean and substantial repair: (a) interior parts including flooring, plaster and rendering to walls, floors and ceilings; and (b) the Landlord’s fixtures and fittings, including fire‑fighting apparatus, electrical installations, lighting, piping, drainage and wiring. It says the photographic evidence shows the Tenant failed to keep those interior parts in the required standard, and that the damage went far beyond fair wear and tear.

138.  The Landlord denies that the works amount to an “improvement”. It says the repainting and plastering were necessary to remedy substantial, scattered damage to walls, ceilings and columns caused by the Tenant’s removal works. It refers to Taylor v Jones [2023] EWCA Civ 170 in which the English Court of Appeal applied and extended the principle in Harbutt’s, holding that that the owner of property who reasonably repairs the damage caused by the wrongdoer does not have to give credit for the fact that the repair involves replacing old materials with new. The English Court of Appeal at §58 further elaborates on the position that it is the wrongdoer who bears the burden of proving that there ought to be reductions:

“Harbutt’s was referred to by Lord Hope in Lagden. In that case the claimant’s car was damaged by the defendant’s negligence. He hired a replacement car, but was unable because of his financial circumstances to afford to pay spot hire rates and so took out a more expensive credit hire agreement. The question was whether he could recover the greater cost of doing so. That is some way removed from the present case, and raised rather different issues, and the House of Lords only decided that he could by a majority of 3 to 2. But Lord Hope, who was one of the majority, in the course of his speech discussed both Harbutt’s and an earlier decision of Dr Lushington in The Gazelle (1844) 2 W Rob 279, and at [34] said this:

‘Of course, the facts in these two cases were quite different from those in this case. But I think that the principles on which they were decided are of general application, and it is possible to extract this guidance from them. It is for the defendant who seeks a deduction from expenditure in mitigation on the ground of betterment to make out his case for doing so. It is not enough that an element of betterment can be identified. It has to be shown that the claimant had a choice, and that he would have been able to mitigate his loss at less cost. The wrongdoer is not entitled to demand of the injured party that he incur a loss, bear a burden or make unreasonable sacrifices in the mitigation of his damages. He is entitled to demand that, where there are choices to be made, the least expensive route which will achieve mitigation must be selected. So if the evidence shows that the claimant had a choice, and that the route to mitigation which he chose was more costly than an alternative that was open to him, then a case will have been made out for a deduction. But if it shows that the claimant had no other choice available to him, the betterment must be seen as incidental to the step which he was entitled to take in the mitigation of his loss and there will be no ground for it to be deducted.’” (underlining added)

139.  In reliance on the above, the Landlord argues the repainting of the Premises is an incidental betterment that should not be subject to deduction, because the observed damage was extensive and highly scattered throughout the Premises, which made it impracticable to only repaint those damaged areas individually with new white paint, giving off an awkward look mixed with scattered, patchy white and old paints.

140.  Further, it contends that wholesale repainting was more cost‑ and time‑efficient than sporadic repainting of scattered damaged areas, and that the Tenant has not shown that a cheaper, equally effective alternative was available.

My views

141.  I have already found that the Tenant’s obligation as to the condition in which the Premises were to be yielded up was not limited to the so‑called “2020 Bare-shell State”. The standard under clauses 2.1(e) and clause 2.1(hh) is “good, clean and tenantable/substantial repair and condition, fair wear and tear excepted”. That obligation does not require the Tenant to repair structural damage, but it does require the Tenant to make good damage to interior finishes caused by its own works or omissions, even if that results in the premises being in a better decorative condition than at the start of the term.

142.  On the evidence, I accept the Expert’s opinion that the pattern and concentration of the ceiling spalling are not consistent with homogeneous, age‑related deterioration across the whole Premises. Rather, the damage is concentrated in areas where fixtures and apparatus were removed from the walls and ceilings. I find that at least some of the falling concrete and associated damage was caused when the Tenant, through its contractors, removed fixtures or apparatus affixed to the walls or ceiling.

143.  Judging from the photographs relied on by both parties, I am also satisfied that the damage to the walls, ceilings and columns went beyond fair wear and tear.

144.  Having compared the condition of the Premises with that of other industrial premises of similar age and character produced by the Tenant[25], I am of the view that, by reason of the condition of the wall, ceiling and columns, the Premises were not in “good, clean and tenantable/substantial repair and condition, fair wear and tear excepted” as required in the Tenancy Agreement when they were yielded up.

145.  As to the quantum, I am satisfied that the patching of wall in item 9 was required to make good the damage which was not attributable to fair wear and tear. The amount claimed is reasonable and I allow it in full (ie $15,000).

146.  For the remaining three items, the photographs of comparable industrial premises show that patch marks, areas of localised repair and variations in paint colour or finish are not unusual in industrial premises of a similar age and character. A tenantable premises does not necessarily have to present a uniform, newly painted appearance throughout. I therefore do not accept that it was necessary, for the purpose of putting the Premises into the condition required by the Tenancy Agreement, to repaint all the walls, ceilings and columns.

147.  The fact that a uniform finish might be more aesthetically satisfactory, or more convenient for the contractor, does not by itself make wholesale repainting recoverable from the Tenant. The Landlord was entitled to carry out the works reasonably necessary to remedy the damage attributable to the Tenant, but not to require the Tenant to bear the cost of giving the whole Premises a uniform or substantially new decorative finish.

148.  The same consideration applies to the plastering works. The recoverable works should be confined to the damaged areas and such immediately associated works as were reasonably necessary to carry out those repairs properly. They should not extend to plastering sound or undamaged parts of the walls and ceilings merely to achieve a consistent overall appearance.

149.  As to the Landlord’s “economy of scale” argument, there is insufficient evidence of the labour and time savings said to result from wholesale repainting.

150.  Having considered the extent of the damage, I am of the view that the Tenant should bear 50% of the costs of item 13 (painting and plastering of walls), item 14 (painting and plastering of beams) and item 15 (repairing columns). The total amount is ($148,500 + $163,800 + $19,800) ÷ 2 = $166,050. Adding $15,000 for item 9, the final amount is $181,050.

XII.  REMOVAL OF TILES AND BRICK WALL AND REPAIR OF FLOOR

151.  This category consists of only one item, ie item 5[26]. The total amount claimed is $130,000. The Expert’s estimate is $66,790.

152.  The Landlord confirms that the amount claimed does not include the cost to reinstate the raised floor at Gate C. The amount claimed is to remove the tiles on some of the walls, remove brick walls left behind by the Tenant, repair damaged floor and address the unevenness of the floor.

153.  The Tenant does not seriously dispute the removal of tiles and brick walls. The focus is on the floor.

154.  Insofar as the floor is concerned, the Landlord’s claim covers:

(a)  Raised floor at Zone G: The Landlord says that VWHK raised the floor at Zone G to fit out an office and laid pipes and drain inlets on that raised floor. It contends that the raised floor is a structural alteration that is not part of the bare‑shell condition and should have been dismantled and the floor level restored. The Landlord alleges that the Tenant completely failed to dismantle the raised floor at the office area next to Zone G and did not restore the manhole to its original level, leaving the floor uneven and battered;

(b)  Damaged floor: It is the Landlord’s case that, prior to the lease to VWHK, the floor was generally levelled and even (except at certain entrances). It alleges that, in removing the raised floor and other alterations, the Tenant caused substantial damage to the floor, including patchy, uneven flooring with dents, screws and other damage, and failed to make good that damage. The Landlord relies on photographic evidence and the Expert’s report to say that the flooring was seriously uneven, battered and patchy after the Tenant’s works, and that this went beyond fair wear and tear.

155.  The Tenant’s position is that:

(a)  Raised platform at Zone G forms part of the 2020 Bare‑shell State and is therefore part of the bare shell;

(b)  A “good, clean and tenantable” floor is not necessarily perfectly even, referring to photographs of other rental premises on the market which show uneven floors and floors with drainage channels yet are plainly tenantable. In the present case, the extent of unevenness is insignificant.

156.  There is no dispute that the raised floor at Zone G was made by VWHK, not the Tenant. As it is my finding that clause 2.1(hh) Part 2 cannot properly be construed as imposing on the Tenant a liability to reinstate alterations made by VWHK, it follows that the Tenant has no obligation to reinstate the raised floor at Zone G.

157.  I also accept the Tenant’s submission that a floor in “good, clean and substantial/tenantable repair and condition (fair wear and tear excepted)” need not be perfectly even. The photographs of other comparable industrial premises show that uneven floors and floors with drainage channels are not uncommon in premises of this type and locality. Having regard to the videos of the Premises and the overall condition of the flooring, I am satisfied that the floor, as yielded up by the Tenant on 27 February 2021, generally met the contractual standard of “good, clean and substantial/tenantable repair and condition (fair wear and tear excepted)”. In these circumstances, I disallow the Landlord’s claim insofar as it relates to the general condition and evenness of the floor.

158.  It follows that the Landlord is entitled to recover only that part of item 5 which relates to the removal of the tiles and the brick wall, and not to works addressing the general condition or levelness of the floor. The difficulty is that the Landlord’s claim of $130,000 for item 5 is presented as a single sum without any breakdown between (a) removal of tiles and brick wall (which I have found recoverable) and (b) other flooring works (which I have disallowed). There is no sufficiently reliable evidence before me that would enable a reliable apportionment.

159.  I also note a substantial difference between the Landlord’s claim of $130,000 and the Expert’s estimate of $66,790, and there is no explanation from the Landlord or the Expert for this difference. In the absence of any evidential basis to quantify the recoverable portion of item 5, and bearing in mind that the burden of proving quantum rests on the Landlord, I am unable to make a reasoned assessment of damages for this item. I therefore award only nominal damages for the recoverable portion of item 5, in the sum of $1,000.

XIII.  LIGHTING AND ELECTRICITY

160.  This category consists of five items:

(a)  Installation of wire conduit: The claim is $25,000. The Expert’s estimate is $27,400; Schedule Item 7.1;

(b)  Installation of 100 sets of light fittings and the wiring and cabling connections: The claim is $90,000 and the Expert’s estimate is $91,340; Schedule Item 7.2;

(c)  Installation of four power switches: The actual sum incurred is $8,000 and the Expert’s estimate is $6,850. The Landlord abandoned the claim for one power switch connected to the roller shutter at Zone B as it was not in use at the material time, and the claim was reduced $6,000; Schedule Item 7.3;

(d)  Installation of MCCB: This item was abandoned by the Landlord in its closing submissions; Schedule Item 7.4;

(e)  “Extra lighting”: The claim is $13,500 and the Expert’s estimate is $13,700; Schedule Add-on Item.

161.  The Tenant admits that it did not reconstruct the electrical system or provide new lighting when it yielded up the Premises. Its case is that it removed the office partitions and false ceilings as part of the required bare-shell reinstatement, and that the electrical wires and light fittings associated with those installations necessarily had to be removed.

162.  The Tenant’s contentions are:

(a)  The electrical supply to the Premises was functioning when it delivered the Premises on 27 February 2021;

(b)  The relevant lighting and electrical installations had been installed, altered or removed by VWHK, not by the Tenant;

(c)  The Tenant was obliged to remove the partitions and false ceilings to yield up a bare shell, but was not required to reconstruct wiring, lighting, sockets or other electrical infrastructure for the Landlord;

(d)  The Landlord’s works would result in substantial upgrading, including new wiring and conduits, a new main switch box, new roller-shutter power switches, and about 100 new light fittings. Those works are said to exceed repair and amount to improvement;

(e)  The removal of wiring and lighting was carried out pursuant to the Reinstatement Notice. The Tenant says that, as the partitions were to be removed, the electrical wiring within them could not safely remain; and

(f)  Clause 2.1(e) required it only to maintain and yield up the Premises in the condition in which it was delivered in July 2020, subject to fair wear and tear. It did not require the Tenant to replace the Landlord’s alleged original lighting or electrical system.

163.  The Landlord submits that the electrical system and basic lighting were part of the Landlord’s fixtures and fittings or the basic infrastructure of the Premises. It argues that they had to be delivered up under clause 2.1(e), which expressly refers to electrical installations, light fittings, wiring, meters, etc., and that they were also relevant to whether the Premises were in good, clean and tenantable repair and condition under clause 2.1(hh).

164.  The Landlord’s case is that:

(a)  The Tenant removed all electrical wiring and lighting from the Premises, except for the lighting within the retained Main Switch Room. The lack of lighting is shown in the video in which the Landlord’s representative needed to bring some portable lighting when inspecting the condition of the Premises;

(b)  The Landlord had provided basic electrical infrastructure before VWHK took occupation in 2008, including general electrical wiring, power supply, wiring for the roller shutters and basic light fittings. Although VWHK subsequently modified or supplemented the system, it did not follow that all the Landlord’s basic infrastructure ceased to exist or became excluded from the Tenant’s obligations;

(c)  The absence of wiring, lighting and appropriate power connections meant that the roller shutters could not be operated and that the toilet facilities could not be illuminated. The Premises could therefore not be said to have been returned in good, clean and tenantable repair and condition;

(d)  In relation to the roller shutters, the Landlord alleges that the Tenant disconnected a three-phase socket and substituted a lower-voltage one-phase plug, with the result that the shutters could not be operated properly;

(e)  The Landlord denies that the Reinstatement Notice required the removal of all electrical infrastructure. It says that, in respect of the Main Switch Room, the Notice specifically called for the retention of wiring and lighting; and

(f)  The Tenant’s later reliance on the Reinstatement Notice is selective; it accepts requests that support its case while disregarding requirements to retain or restore the Landlord’s basic electrical system.

165.  I agree with the Landlord’s submissions that the Tenant was required to yield up the Premises with basic electrical wiring and lighting with a reasonable number of power switches. This follows both from clause 2.1(hh) Part 1, which required the Tenant to yield up the Premises in “good clean and tenantable repair and condition”, and from clause 2.1(e), which expressly required the Tenant to keep and deliver up the Landlord’s fixtures and fittings, including “electrical … installations”, “light fittings”, “wiring” and “meters”, in good, clean and substantial repair and condition, fair wear and tear excepted.

166.  I accept that, in the course of removing the partition walls, false ceilings, and other fit-out works, the Tenant might have been required to remove electrical wiring and light fittings associated with those particular installations. That, however, did not relieve the Tenant of its obligation to ensure that the Premises were returned with such basic electrical infrastructure as was necessary to render them compliant with the contractual standard. The Tenant could not remove the electrical system and rely upon the bare-shell requirement as a complete answer.

167.  The requirement to yield up the Premises in bare-shell condition must be read together with, and not in isolation from, the requirement that they be yielded up in good, clean and tenantable repair and condition. A bare-shell condition does not, in the circumstances of this case, mean a condition in which the Premises were devoid of any electricity supply, basic wiring, or lighting. Nor does it permit the Tenant to yield up an industrial premises of approximately 17,000 square feet without the basic electrical infrastructure necessary for its ordinary occupation and use.

168.  The Tenant submits that the electricity supply to the Premises was functioning when it delivered up possession on 27 February 2021. I do not accept the Tenant’s submissions as a complete answer to the Landlord’s claim. The question is not whether electricity was supplied to the Premises at the time of delivery. The relevant issue is whether the Premises were yielded up with the electrical installations, wiring and light fittings required by clauses 2.1(e) and 2.1(hh), and in a condition reasonably fit for occupation by an incoming tenant. The absence of basic wiring and lighting fell short of that standard.

169.  I therefore find that the Tenant failed to comply with its obligations under clause 2.1(e) to maintain and deliver up the Landlord’s electrical installations, light fittings and wiring in the requisite condition. It also failed to yield up the Premises in good, clean and tenantable repair and condition under clause 2.1(hh) Part 1, insofar as the Premises lacked basic electrical wiring, electricity supply and lighting. The Landlord is entitled in principle to recover the reasonable costs of the remedial works necessary to restore those basic facilities.

170.  However, I accept the Tenant’s submission that the Landlord’s claim, insofar as it concerns the installation of 100 light fittings and the further “add-on” lighting works, goes beyond what was reasonably required to restore the basic electrical infrastructure of the Premises[27]. The Tenant was obliged to yield up the Premises with basic electrical wiring, electricity supply and lighting sufficient to meet the contractual standard of good, clean and tenantable repair and condition. It was not, however, obliged to provide a substantially upgraded lighting installation or to fund lighting beyond what was reasonably necessary to restore the basic facilities.

171.  I have considered the photographs of the new light fittings installed by the Landlord[28], the size of the Premises (approximately 17,000 square feet), and their industrial character. I also have regard to the lighting shown in other industrial premises of similar age and character, which I consider to be useful reference[29]. Taking those matters into account, I consider that 50 sets of the new light fittings represented a reasonable provision of basic lighting for the Premises. This is necessarily a broad assessment, but I am satisfied that it fairly reflects the size and character of the Premises while avoiding an allowance for the more extensive lighting scheme installed by the Landlord.

172.  The Landlord claims $90,000 for the installation of 100 sets of light fittings, equivalent to $900 per set. I adopt that unit cost for the purpose of my assessment. I therefore allow $45,000 in respect of the installation of fifty light fittings.

173.  As to the installation of wire conduits and three power switches, I consider that the work was necessary and the claim is reasonable. I therefore allow these two items in full. The total sum for this category is $76,000 ($45,000 + $25,000 + $6,000)

XIV.  COVERS OF ROLLER SHUTTERS

174.  This category consists of the last two items of the Schedule[30]:

(a)  Checking of power supply to the roller shutter: The Landlord’s claim is $1,500 and the Expert’s estimate is $2,280; Item 16[31]; and

(b)  Installation of three metal covers to the roller shutters at Texaco Road: The Landlord’s claim is $36,000 and the Expert’s estimate is $28,420; Item 18[32].

175.  The Tenant disputes the liability on two grounds:

(a)  The cover is purely aesthetic and not required for the roller shutter to function; and

(b)  The Landlord could have mitigated by making use of the existing metal claddings instead of replacing them.

176.  The Landlord’s position is that:

(a)  The Landlord claims that the cover forms part of the roller shutter assembly and was part of the Landlord’s fixtures and fittings that ought to have been yielded up in good, clean and tenantable repair;

(b)  It says the overhead serves a protective function (shielding dust and rain) and that the existing metal cladding was in bad condition, so the contractor recommended redoing the overheads rather than trying to repurpose the old cladding; and

(c)  The Landlord contends that if the Tenant wishes to argue that it could have reused the old metal cladding or that the Landlord failed to mitigate, that is a positive case which the Tenant has not pleaded or supported with evidence, and remains speculative.

177.  I accept the Landlord’s submission on this point. The analysis is analogous to that in relation to the toilet facilities.

178.  It is not in dispute that, when the Tenant took over the Premises, the roller shutters were provided with overhead covers/metal cladding and that covers formed part of the roller shutter assembly as delivered to the Tenant. The Tenant elected to remove that cover as part of its reinstatement works. Having done so, the Tenant was obliged to yield up the roller shutters in “good, clean and tenantable repair and condition (fair wear and tear excepted)”, which, in my view, required the provision of a proper cover comparable to that which existed at the commencement of the tenancy.

179.  The Tenant’s position that the cover is merely aesthetic or that the roller shutter can still “function” without it is, in my judgment, misplaced. By the same reasoning, one might argue that a toilet can function without a door, or without certain fittings, and therefore a tenant who removes those elements is under no obligation to reinstate them. That cannot be right. The obligation is to yield up the fixture in the condition in which it was taken, subject to fair wear and tear. If a tenant removes part of a fixture, it cannot rely on the fact that the remainder is operable to avoid the obligation to reinstate what was removed.

180.  Accordingly, I find that the Tenant was obliged to reinstate the overhead covers to the roller shutters. I am satisfied that the amount claimed by the Landlord is reasonable and allow the claim for roller-shutter covers in full, ie $36,000.

181.  In respect of the claim for testing of the power supply to the roller shutters, the Landlord submitted that it was required as a result of the problem mentioned in the Expert Report, ie short circuit occurred when power was connected to the roller shutters when the Expert conducted the inspection on 15 March 2021.

182.  However, as shown in the videos, the roller shutters functioned properly when the Premises were returned to the Landlord on 27 February 2021, and there is no evidence from the Expert as to the cause of the short circuit. In such circumstances, I am not satisfied that the test was required because of the Tenant’s failure to discharge its obligations under the Tenancy Agreement and I would not allow this item.

183.  In other words, the total sum allowed in this category is $36,000.

XV.  LOSS OF RENTAL INCOME

184.  It is the Landlord’s case that, by reason of the Tenant’s failure to yield up the Premises in the condition required under the Tenancy Agreement, the Landlord was required to carry out remedial works from 27 April 2021 to 4 June 2021 (38 days). Based on the monthly rent of $578,000, the Landlord claims loss of rental income for that period in the sum of $732,133, together with government rent and rates in the sum of $51,342.

185.  The Tenant submits that the Landlord must prove causation. The issues relating to causation are:

(a)  Whether the Tenant’s breach was significant enough to be the “effective” or “dominant” cause of any loss of income to the Landlord?

(b)  Whether there was any intervening act or omission of the Landlord and/or any event outside the control of either party (such as the Covid‑19 pandemic and the prevailing economic conditions) which broke the chain of causation?

(c)  If the Court is minded to award loss of income, how the number of days of loss should be computed?

186.  The Tenant submits that:

(a)  On the first question, the Tenant’s breaches were insignificant and were not the “effective” or “dominant” cause of any loss of income to the Landlord;

(b)  On the second issue, even if the Tenant had returned the Premises on 14 February 2021 without breaching the Tenancy Agreement, the Landlord would not have been able to re‑let the Premises due to intervening events such as Covid‑19 and the prevailing economic conditions. The Tenant relies on the fact that the Landlord was unable to rent out the Premises for about two years after completion of the remedial works on 4 June 2021, and that the Premises were eventually sold on 28 June 2023;

(c)  On the third issue, if the Court awards loss of rental income, it should apportion and rule on the number of days reasonably required to remedy only those breaches which I have found established.

187.  On causation, it is provided in Chitty on Contracts, 36^th Ed, Vol. 1 §30-75 that:

“… The claimant may recover damages for a loss only where the breach of contract was the “effective” or “dominant” cause of that loss.457 The courts have avoided laying down any formal tests for causation: they have relied on common sense to guide decisions as to whether a breach of contract is a sufficiently substantial cause of the claimant’s loss…”

188.  Footnote 457 adds that “… the breach of contract need not be the sole cause: below, para 30-85. Where it is more likely than not that a breach caused the loss in question, it is not necessary for the claimant to show that other possibilities must be eliminated: Dana UK Axle Ltd v Freudenberg FST GmbH [2021] EWHC 1751 (TCC) at [227]-[242]”.

189.  In Worldwide International Corp Ltd v Gloryluck Industrial Ltd [2024] 5 HKLRD 722, Deputy District Judge Vaughan stated that:

“28. Further, the landlord’s duty to mitigate is not an onerous one. The landlord is not required to do anything other than in the ordinary course of business – see Wing Siu Company Limited v Goldquest International Limited, HCA 4145 of 2001, 18 August 2006, Master de Souza at paragraph 8.

29.  If a defendant wishes to set up a positive case that the plaintiff has failed to mitigate his loss, he must plead the allegation with specific particulars – see Foxhill Investments Limited v Sino Golden International Group Holdings Limited [2021] HKCFI 3662.”

190.  In Modern Beauty Salon (Hk) Limited v King Alliance International Limited [2026] HKDC 115, Deputy District Judge Alan Ng, citing Worldwide International Corp Ltd, stated the legal position at §58 as follows:

“The Court would allow the landlord’s claim against the defaulting tenant for loss of the property rental covering the period of time for the landlord to liaise with various parties including the contractor in preparing for the repair works to commence and the repair works carried out.”

191.  I have already made findings on the items claimed by the Landlord and have allowed most of them. In my view, it was most unlikely that any reasonably minded tenant would have been willing to rent the Premises in the condition in which they were yielded up, lacking basic infrastructure and facilities such as a functional fire-alarm system, proper toilet facilities, fresh‑water and flushing‑water supply, electricity, and the like.

192.  Based on those findings, I am satisfied that the Tenant’s breaches were the “effective” or “dominant” cause of the Landlord’s loss of income. I agree with the Landlord that it does not need to eliminate other possible causes (such as Covid‑19 related restrictions); it is enough that the Tenant’s defective reinstatement work was the effective or dominant cause necessitating the repair works during that period.

193.  Further, the Tenant has not pleaded any positive case that the Landlord failed to mitigate its losses. The evidence of Mr Cho and Mr Poon is that: (a) the Premises were already put up for letting at the end of January 2021; (b) there were enquiries and viewings from prospective tenants during the period before and after the repair works; and (c) Mr Cho received an offer around November 2021.

194.  For these reasons, I am satisfied that the Landlord is entitled to claim loss of rental income caused by the Tenant’s breaches of the Tenancy Agreement. I do not consider that the Covid‑19 pandemic or the alleged bad economy constituted an intervening event that broke the chain of causation.

195.  As for the period of loss, I consider it appropriate to apportion the 38‑day period by reference to the proportion of the repair costs which I have allowed. This approach is justified because the repair costs were incurred largely on a labour (man-day) basis, and the duration of the works is reasonably correlated with the scope of works allowed.

196.  The Landlord’s total claim for repair works under ADC §13(4)-(6) is $851,000, and the number of days claimed for the loss of rent is 38 days. The amount I have allowed for repair works is $452,050. On a pro‑rata basis, the number of days of loss attributable to the allowed works is 20.18 days: 38 days × ($452,050 / $851,000), and I would round it up to 21 days.

197.  The loss of rental income is therefore: $578,000 × 21/30 = $404,600. The corresponding loss of government rent and rates is: $51,342 × 21/38 = $28,373.21. The total award for this category is therefore $432,973.21.

XVI.  SUMMARY OF THE LANDLORD’S CLAIM

198.  My findings and assessment of the Landlord’s claim are summarised as follows:

Category	Amount
Outstanding rent and rates from 15 to 27 February 2021	$285,661.53
Other agreed items	$19,500.00
Fee of surveyor’s report	$9,850.00
Fire-alarm system	$49,000.00
Toilet facilities	$89,500.00
Lighting and electricity	$76,000.00
Painting, plastering and repair of walls, ceilings and columns	$181,050.00
Floor	$1,000.00
Covers of roller shutters	$36,000.00
Loss of rent and rates from 27 April 2021 to 4 June 2021	$432,973.21
TOTAL	$1,180,534.74

199.  After setting off the above sum from the Deposit, the balance of the Deposit is $553,465.26 which the Landlord should return to the Tenant.

XVII.  DISPOSITION

200.  For the reasons set out above, I would make the following orders:

(a)  Judgment be entered against the Defendant in favour of the Plaintiff for the sum of $553,465.26 with interest on the said sum from the date of Judgment at the judgment rate until payment[33]; and

(b)  The Defendant’s counterclaim be dismissed;

XVIII.  COSTS

201.  Although the Landlord succeeds on most of the items in its counterclaim, the damages I award to it are less than the Deposit. The outcome is that the Tenant is entitled to judgment in respect of the balance of $553,465.26 and the Landlord’s counterclaim is dismissed. In these circumstances, I am of the view that the general principle of “costs following the event” should apply.

202.  I therefore make an order nisi that the Defendant do pay the Plaintiff’s costs of the action, including the costs of the Defendant’s counterclaim and any costs reserved, with Certificate for Counsel, to be taxed if not agreed. The order nisi made will become absolute unless an application is made by any party to vary them within 14 days after the handing down of this Judgment.

203.  Lastly, I thank Counsel for their very helpful assistance to the Court.