PERSONAL ELECTRONICS LTD. v. PANTAI INVESTMENTS LTD.

LDNT 22/2002

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

New Tenancy Application No. LDNT 22 of 2002

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J U D G M E N T

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1. The Applicant is the tenant of the premises known as House 6, Golden Time Villas, 33 Shatin Heights Road, Shatin, New Territories, Hong Kong and 2 Covered Carparks Nos. 8 & 9 ("the Premises"). The Respondent is the Landlord of the Premises. The Applicant's application is for a new tenancy under Part IV of the Landlord and Tenant (Consolidation) Ordinance, Cap 7. The Respondent does not object to the grant of a new tenancy to the Applicant subject to the determination of the new rent by the Lands Tribunal. Both parties agree that the new tenancy can be for two years commencing on 1 May 2002. Thus, the only issue in this case is the amount of the prevailing market rent for the new tenancy.

The Applicant's case

2. The Applicant did not call any expert but its representative, Mr. Middleton, gave evidence as per exhibit "A1". In essence, Mr. Middleton argued that the property market from 2000 to 2002 was a downward trend. He relied on the rateable value of the Premises in May 2000, i.e. $356,400, and the rateable value of the Premises for April to June 2002, i.e. $291,000, to show that there was a decrease of 18.35%. He referred to a comparable letting in the same development of the Premises, i.e. House 13, which fetched a rental of $18,000 per month inclusive of rates, Government Rent and management charges in September 2001. According to the Price Indices for Selected Popular Developments in the New Territories issued by the Rating and Valuation Department, for private domestic premises sized D and E, as of the year 2000, the indices showed 91.4, and in September 2001, the indices showed 75.8, a substantial drop. Mr. Middleton also produced other rental indices prepared by Chesterton Petty and Jones Lang LaSalle to substantiate the downward trend.

3. Mr. Middleton argued that it was in contradiction of the property market situation for the Respondent to seek to increase the rental of the Premises from the current amount of $23,713 to $29,500. The rateable value of $306,600 used by the Respondent in calculating the suggested rental of $29,500 was in fact adjusted 5% downwards to $291,000 as of April 2002. He disagreed with the Respondent that the decoration charges incurred 6 years ago by the Respondent should be included in the rental, and submitted that I should take credence of the said comparable letting as being reflective of the current and depressed property rental situation in the New Territories and the current market rental for the Premises.

The Respondent's case

4. In the Notice of Opposition, the Respondent stated that the suggested rental of $29,500 was calculated from the rateable value of $306,600 divided by 12, i.e. $25,550, plus $3,950 being the decoration, design and all inventories charges. The Respondent did not call any expert. Only the Respondent's representative, Mr. Lam, gave evidence. Mr. Lam produced a Schedule of Rental Information from Rating and Valuation Department, i.e. exhibit "R1", which gave information for the Premises and 6 comparables as follows:-

5. Mr. Lam, however, did not comment on the 6 comparables. He simply submitted that different houses could have different rents and if Mr. Middleton did not like the Premises, he could leave the place.

Assessing the Prevailing Market Rent

6. In assessing the rent for the new tenancy, I have to assess the prevailing market rent as at the relevant date on 30 April 2002. The rent is determined by the market force, not what the Respondent desires in its own wish. It is also not assessed by reference to the rateable value because the rateable value is assessed annually and reflects the value in October of the previous year only. The best way to assess the prevailing market rent is by direct comparison method, i.e. by comparing the Premises with some suitable comparables, or in other words, by comparing like to like.

7. There are 6 comparables provided by the Rating and Valuation Department in exhibit "R1" as aforesaid. House 13 referred to by the Applicant is included in the 6 comparables. There are 2 other houses in the same development of the Premises included in the 6 comparables, i.e. House 3 and House 17. The other 3 comparables are from different developments. Both parties did not give any evidence concerning these 3 other comparables. In the absence of further information concerning these 3 other comparables, it is very difficult, if not impossible, for me to compare them with the Premises and make suitable adjustments. I do not know, for examples, the facilities provided, the views and the surrounding environment of these comparables. I am not prepared to use these 3 other comparables in assessing the prevailing market rent of the Premises, as there will be too many uncertain factors included.

8. Although the Applicant alleged that all the houses in the same development of the Premises have the same rateable value and are 186 sq.m. in size, they are in fact different from each other as stated in exhibit "R1". In the absence of better evidence, I assume that the information provided in exhibit "R1" for the Premises and the 3 comparables within the same development, i.e. Houses 3, 13 and 17, are all accurate except for the amounts of the management charges. Both parties have agreed that the management charges for all the houses within the same development are the same, i.e. $2,600.00 per month. I will therefore take $2,600 as the management charge for House 3 even though it is stated as $2,000 in exhibit "R1".

9. For House 13, it is not stated in exhibit "R1", nor the lease provided by the Applicant in exhibit "A1", that the rent is inclusive of 2 carparks. Since there is no evidence on the value of a carpark in the development, I am unable to calculate the effective rent for House 13 inclusive of 2 carparks and I will ignore this comparable.

10. The Premises and the 2 comparables of the same development, i.e. House 3 and House 17 all have terraces, gardens and top roofs as ancillary accommodations. I take the values of these ancillary accommodations as 1/10 of the value of the saleable area. Thus the effective areas for the Premises and the 3 comparables are as follows:-

11. The unit rates of these 2 comparables are therefore as follows:-

12. There should be adjustment for time since these 2 comparables were rented out in October 2001 and July 2001 respectively, whereas the relevant date is on 30 April 2002. The Applicant has provided various indices but I find that the Private Domestic - Rental Indices by Class published in the Hong Kong Property Review - Monthly Supplement, May 2002 being more accurate and reliable than the others. I will therefore adopt the figures therein to assess the time adjustment. There is however no figures provided for the month of April 2002. The figures provided are only up to March 2002. I assume that there is no change between March 2002 and April 2002, and hence using the figures for March 2002 will suffice. It is also not clear whether the Premises falls within Class A, B, C, D or E. I will therefore use the figures for all Classes in making the time adjustment.

13. The figures for the months of October 2001, July 2001 and March 2002 are 93.2, 95.8 and 86.7 respectively. The percentages of drops from October 2001 to March 2002 and July 2001 to March 2002 are therefore 6.97% and 9.50% respectively. This will be the percentages I adopt for making time adjustment for House 3 and House 17 respectively.

14. I note that in the previous Lands Tribunal hearing between the same parties, i.e. Case No. LDNT 93/2000, the parties had disputes about whether the Premises had a better view or the houses opposite the Premises had better views. In the present case, however, the parties did not adduce much evidence on the views of the Premises and the 2 comparables. In the absence of clear evidence on the views of the Premises and the 2 comparables, I cannot make proper adjustments for views. I will therefore make no adjustment for views at all.

15. The Applicant raised the issue that the conditions of the Premises were Poor because of a broken roof tile allowing rain water to enter the house via internal wall conduits and there was water damage extended from the staircase wall conduit to the master bedroom walls, centre living room ceiling and elsewhere in the house. The Applicant's contention is supported by the photographs produced in exhibit "A4(1)-(16)". The Respondent, on the other hand, contended that there was a substantial sum incurred for the renovation of the Premises. The photographs produced by the Respondent in exhibit "R2(1)-(21)" showed the conditions of the Premises when it was newly renovated. However, it was not disputed that the renovation was in fact done about 6 years ago. So the photographs in exhibit "R2(1)-(21)" do not show the present conditions of the Premises.

16. Since the renovation was done about 6 years ago, I do not find it reasonable to include the amount spent on renovation as a consideration for the new rent. In fact, the 2 comparables were new lettings, they should have better conditions then the Premises, as landlords in Hong Kong would normally renovate their properties before renting them to new tenants. In view of the water damage in the Premises and that the Premises was a renewal letting, I find it appropriate to make a downward adjustment of 3% for each of the 2 comparables.

17. As to the fixtures and domestic appliances provided by the Respondent to the Applicant as stated in the Inventory List, I find them to be just the normal items included in normal lettings. There was no evidence on what were provided in the 2 comparables as compared to the Premises. In the absence of such evidence, I cannot make proper adjustment for the fixtures and domestic appliances. I will not therefore give any extra value for the items provided as suggested by the Respondent.

18. Save as aforesaid, I do not find it necessary to make any other adjustments, as the Premises and the 2 comparables are all within the same development. The total adjustments and the adjusted unit rates are therefore as follows:-

19. The average adjusted unit rate is therefore $94.80/sq.m. Since the effective area of the Premises in 187.82 sq.m., the net rent of the Premises is $17,805.34 p.m. exclusive of rates and management charges, or a round figure of $17,800.00 p.m.

20. In the circumstances, I assess the prevailing market rent of the Premises to be at $17,800.00 p.m.

Orders

21. I therefore make the following orders:-

(1) There shall be a new tenancy for 2 years commencing on 1 May 2002 and the new rent shall be at $17,800.00 per month exclusive of rates and management charges.

(2) Deposit to be decreased pro rata in accordance with the new rent.

(3) Leave to the Respondent to refund to the Applicant excess payments of rent and deposit, if any, within 1 month from the date hereof.

(4) No order as to costs.