Yaacov Ozer v. Kwan Siu Man Joshua

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

APPLICATION NO. L.T. 2051 of 1994

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JUDGMENT

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1. This is an application for a new tenancy filed on 27th May 1994. Applicant is the tenant of 2nd Floor and Car Parking Space No. 4 on Ground Floor of K.Y. Mansion on No. 4A Shiu Fai Terrace, Stubbs Road, Hong Kong (suit premises). The Respondent is the landlord of the suit premises. The tenancy agreement is subjected to Part IV of Landlord and Tenant (Consolidation) Ordinance.

2. The Respondent, the landlord， served a Form CR101 to the Applicant, the tenant, on 4th November 1993, giving notice to terminate the tenancy agreement between the parties on 31st May 1994 on grounds that the Respondent reasonably required the suit premises as a residence for the Respondent and his family. The Applicant, the tenant, responded with a Form CR102 dated 27th November 1993. On 27th May 1994, the Applicant made the present application.

3. Before the application was fixed for hearing, Applicant brought proceedings in High Court, seeking specific performance of an agreement of sale and purchase relating to the suit premises. The present application was not pursued pending the outcome of the High Court case.

4. That case finally was resolved by the Court of Final Appeal on 21st December 1998. The Applicant did not obtain specific performance. The Respondent remains the owner and landlord of the suit premises. The Applicant now seeks to continue with the application for a new tenancy.

5. Under S.117(1) of Landlord and Tenant (Consolidation) Ordinance, the Lands Tribunal can on the application of the tenant, provide for terms of a new tenancy by deciding the Prevailing Market Rent for the premises, the length of the tenancy agreement, and any variation deemed necessary.

6. The Applicant disagreed with the Prevailing Market Rent, as found by his surveyor, who provided a survey report on the suit premises in 1994. His evidence was that he left the matter to his lawyers, who arranged for the survey report. He was not involved.

7. The Respondent called his surveyor to produce his calculation of what was the Prevailing Market Rent at 31st May 1994.

Assessment of the Prevailing Market Rent of the subject premises

Evidence from the Applicant

The Applicant, Mr. Ozer Yaacov, gave evidence himself. He described at length the poor condition of the premises at the relevant date. This included the rusting and deformation of the window frame, the electrical wiring which were exposed, leading to electricity leakage at times, rocking floor tiles, problems in the sewage system and flooding from the ceiling. It was very difficult to heat the flat in winter times and the electricity consumption was high.

The Applicant stressed that the landlord had not spent any money in the maintenance of the flat. He himself had been doing all the repairs, despite the maintenance clause in the tenancy agreement which imposed a duty on the landlord. Upon cross examination, he conceded that under the last tenancy agreement, the tenant was responsible for repairs and maintenance of the interior of the subject premises, fair wear and tear through normal use excepted. However, as the problems in the subject premises were due to aging which could not have been prevented by any tenant, the Applicant reckoned that he was not responsible for all the disrepairs in the subject premises.

The Applicant also explained that although his previous tenancy agreement stated that he should have the use of a covered car parking space, he only had the use of a open car park (Car Park No. 9) for years.

The Applicant, without giving any rental evidence of other comparable properties himself, asked the Tribunal not to accept the valuation as stated in the expert's report filed by the Respondent The expert had made two mistakes because comparisons were made with the subject flat even though no inspection was made of the internal condition of the comparable flats, and assessment based on Jones Lang Wootton Index was not correct.

The Applicant finally stated that because the landlord had not honour the sale and purchase agreement, the rent for the subject premises should remain at $26,000 per month, from 1994 to today.

Upon cross examination, the Applicant admitted that he had not made any written request to the Respondent for repairs, but the Applicant thought that the Respondent should have known about the disrepair condition.

The Applicant also disagreed with the Respondent's expert in the description of the environment of the subject building. The Applicant opined that it was a noisy area, not a quiet, pleasant area, generally regarded as a high class residential area, as suggested by the counsel for the Respondent

Evidence from the respondent's expert witness

On the other hand, the Respondent called an expert witness, Mr. Simon Dominic Lynch to give evidence of the opinion of the prevailing market rent for the subject premises. Mr. Lynch is a qualified surveyor with several years' experience in Hong Kong. He agreed to adopt the valuation report prepared and filed by his former colleague, Ms. Clare Yabsley who completed the report in May 1996. Ms. Yabsley could not give evidence to the Tribunal as she had left Hong Kong. Mr. Lynch had himself visited the premises in 1997 and once again about a fortnight ago to refresh his memory. He admitted that he had only inspected his comparables externally.

Mr. Lynch gave evidence that during his second visit, he was reminded by the tenant that there were loose tiling on the floor, broken windows and some signs of dis-coloring on the ceiling of the study. His view was that the flat had not been decorated for sometime and show some signs of aging. The internal condition of the flat was reasonable although the finishes were quite dated throughout.

Mr. Lynch described the locality as a generally pleasant and quiet area. For the subject premises, it enjoyed good view towards Muslim Cemetery and Causeway Bay.

A total of 7 comparables were quoted in the valuation report. These were based on information provided by the Commissioner of Rating and Valuation. These comparables were analysed and adjusted with reference to the subject premises. Details were set out in Page 6 of the report. Adjustments for the factors of time, size of flat, floor level, view and aspect and the existence of car parking space were made. Mr. Lynch considered the best comparables to be Comparables Nos. 4 and 5, both of which are open market lettings of upper floor flats similar to the subject. They show after adjusted unit rates of $246 and $254 per m². In the final analysis, Mr. Lynch's opinion was that, a fair and reasonable assessment of the prevailing market rent for the subject, as at the relevant valuation date of 31st May 1994, would be $52,000 per month, or at a unit rate of about $254 per m².

Upon cross examination, Mr. Lynch gave evidence that he had already used the lower end of the range of value as revealed by the comparables. The comparables show that the subject premises should fetch a value of between $52,000 and $58,000. Therefore, even if the subject premises had some disrepairs as suggested by the Applicant, the adoption of a value at the lower end of the range of value should have already reflected this point.

Tribunal's findings and assessment

The Tribunal had the benefit of hearing evidence from the Applicant who had lived in the subject premises for 16 years. Unfortunately, the Applicant failed to produce any evidence in support of his claims of the disrepairs. In addition, the Applicant had not carried out any valuation himself nor instructed any professional surveyor to value the premises for the purpose of this application. He had criticized the only expert witness's evidence without giving any credible reason. The expert's approach was considered by this Tribunal to be fair and reasonable. He had used the traditional comparison approach for this type of rental valuation exercise. His comparables were provided by the Rating and Valuation Department which normally selected the comparables at random, after taking into account the location and characteristics of the subject premises.

In the valuation report, the surveyor had used professional skill and judgment in making the assessment, the reconciliation and the final valuation. The adjustments were given with sound reasons. There is no basis at all for the Tribunal to refute the valuation in its entirely, as suggested by the Applicant.

The comparable are all located in Shiu Fai Terrace. Therefore, whether the locality is a quiet, pleasant area as suggested by the expert or a noisy location as advocated by the applicant is really irrelevant. The Tribunal however accepts the expert's opinion as to be a much more appropriate description of Shiu Fai Terrace,

In the choice of the comparable that are closest in most respects to the subject, however, the Tribunal holds the view that given the differences between the subject and the comparables, the factor of similar size and price range should be the paramount factor. We note that of all the 7 comparables, only three have areas close to 200 m2 (by comparison, the subject has a saleable area of about 204.3 m²). They are Comparables Nos. 1, 3 and 7 which fetch monthly rents of $45,500, $45,000 and $50,000. These bring them to be in a group different from the other 4 comparables, which not only have a much smaller size range of between 104.0 m2 and 157.6 m2 but also have a lower rental range of between $29,576 and $40,000. Prospective tenants naturally fall into two different categories, by virtue of the differences in their rental budgets and the areas of the flats they are looking for. Therefore, we decide that the best comparables are actually dictated by these size and price factors, rather than by other factors, such as the exact location of the comparable building, as suggested by the expert surveyor.

In the circumstances, Comparables Nos. 1, 3 and 7 were chosen for detailed analysis, as below:

We have basically accepted the expert surveyor's levels of adjustments for various factors, with the exception of floor level. We decide that the expert's estimated adjustment of 0.25% for each level difference to be too small. We increase that to 0.50% per floor.

In particular, as to the time adjustment, we accept the surveyor's adoption of the Jones Lang Wotton Index as the basis of estimates. This Index (now renamed as Jones Lang LaSalle Index following the reorganisation of the firm which publishes this Index) has a long history and is generally accepted in the surveying profession as one of the most commonly used and quoted index for rental of large and luxury domestic premises. The Tribunal is aware that the Applicant has in the hearing stated his objection to its use. However, the Applicant has not elaborated how and why the surveyor was wrong in the interpretation and the application of the Index in this valuation exercise. When we read the Applicant's written submission, we note that the Applicant has actually mistook the index figures as to be the unit rental (in dollar terms) per unit area. That is probably the reason that the Applicant refused to accept the surveyor's time adjustments in the report.

Of these 3 comparables, we find the Comparables Nos. 1 and 3 to be better as they, similar to the subject premises, are also upper floor flats thus requiring less subjective assessment than Comparable 2. On the basis of the above analysis, we decide that a fair unit rate for the assessment of the market rent for the subject premises at the relevant date would be $250 per m2. This gives a rent of $51,075.

However, although we had not been provided with evidence showing the state of disrepair as claimed by the Applicant, we find that it is common ground that there are generally signs of aging and some signs of discoloring at the roof of the study. Mr. Lynch suggested that if account should be taken of the time for the repairs, a 2% reduction in the rent would suffice.

It has been well established that valuations under Part IV of the Landlord and Consolidation Ordinance are made on the assumption that both parties will perform their contractual repair obligations. Where one party has defaulted, the other party has the right to enforce performance under the tenancy agreement. This basis was decided in Union Carbide Aisa Ltd. V The Hong Kong Land Co. Ltd. [1982] HKDCLR 75. There are, however, exceptions to this general principle. For example, if a defect such as structural defect such as dampness cannot reasonably be rectified, that defect, notwithstanding any contractual obligation on the part of the landlord, may be taken into account in favour of the tenant: Nordic Asia Ltd. v Strawberry Hill & Anor [1980-82] CPR 95. Also, allowance should be given to the tenant for the time and inconvenience of undertaking the repairs during the continuation of tenancy,

The Tribunal accepts that certain defects in the subject premises may be of a long lasting nature and cannot reasonably be rectified. Based on the evidence available to us, the defects appear to be relatively minor. An allowance of say 5% is considered to be sufficient to reflect for the time and inconvenience of undertaking the repairs. Applying this to the rent assessed above, the estimated rent becomes:

Estimated monthly rent (before reflecting the condition of the subject premises):	$51,075
Discount	5%
Estimated rent after reflecting the condition and the time for competing the repair	$48,521
rounded to	$48,500

8. The Lands Tribunal accepts and finds the prevailing market rent to be $48,500 per month as at the relevant date of 31st May 1994 which is the date of the termination of the tenancy agreement. What the Lands Tribunal has to decide next is the date from which the new tenancy agreement is to take effect.

9. In normal circumstances, an application for a new tenancy would have been dealt with within a relatively short period of time after the expiration of the existing tenancy term. It would take effect from the date of the expiration , for a term of not more than 3 years. The Lands Tribunal has no jurisdiction to order a tenancy agreement to run for longer than 3 years.

10. The circumstances of the present application is exceptional in that there is a lapse of 5 years, between the date of the application, and the time it came to be dealt with.

11. The Lands Tribunal has the power to order a tenancy agreement to run from "any date it thinks fit". However, it would be impracticable to disregard the statutory tenancy which would have arisen from June 1994 to date of new tenancy so ordered, if the Lands Tribunal were to fix a date some 5 years from that date for the commencement date of the new tenancy. The Lands Tribunal does not consider that it has the jurisdiction to order a new tenancy after a statutory tenancy had intervened. The Landlord & Tenant (Consolidation) Ordinance has not envisaged a situation such as the present. There is no specific provision to cater for this.

12. The Lands Tribunal has only the power to fix the Prevailing Market Rent as at the relevant date; which is 1st June 1994. There is no power to consider the Prevailing Market Rent as at the date of the hearing of the application. It would be artificial to order the date of new tenancy to run from April 1999, as suggested by Respondent. The Prevailing Market Rent would not reflect the rent as at that date.

13. But for the High Court application, the present application would have run its natural course, with Respondent being entitled to decide whether to accept the new terms within 1 month of Lands Tribunal's decision.

14. Because of effluxion of time, the option is no longer opened to the tenant to back date his decision to 1994.

15. Landlord & Tenant (Consolidation) Ordinance S119NA (1):-

"Where a tenant remains in possession of any premises after the date on which the current tenancy would, apart from section 119N, have come to an end by virtue of a notice given under section 119(1) or under section 119A(5) and the Tribunal does, not, for any reason, make an order for the grant of a new tenancy, the tenant shall be liable to pay rent, as determined by the Tribunal under subsection (2), for the period from that date until the tenant delivers up vacant possession to the landlord."

Landlord & Tenant (Consolidation) Ordinance S119NA (2):-

"The Tribunal may, on the application of the landlord or the tenant, determine the rent payable by the tenant under subsection (1) and the Tribunal shall determine that rent as the rent it would have determined if it had ordered the grant of a new tenancy of the premises for a term of 2 years and otherwise on the same terms as the terms of the current tenancy."

16. These sections are applicable to a situation, which is somewhat similar to the present application, but there is no provision for the present situation.

Order

17. There is order for new tenancy at Prevailing Market Rent of $48,500 inclusive of rates and exclusive of management charges per month, to commence from 1st June 1994, for a period of 2 years. The deposit to be adjusted pro rata. The other terms of the tenancy agreement to remain the same. Leave to pay balance of rent in arrears within 3 months from the date of order.

Liberty to apply.

No order as to costs.