特廣有限公司 v. 華都中心業主立案法團

LDBM 27/2017

[2018] HKLdT 61

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATION NO 27 OF 2017

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J U D G M E N T

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Undisputed Background

1.  The applicant is and was at all material times the registered owner of Shop Nos. 30-60 on the 2/F (“the Premises”) of Waldorf Centre (“the Building”) and the respondent is the Incorporated Owners of the Building (“IO”).

2.  A Deed of Mutual Covenant with memorial no. 577485 was executed on 22 March 1989 (“DMC”) which governs the rights and obligations of the owners of the Building.

3.  According to the DMC, the Building is a 24 storey building consists of 20 car parks at basement level (“Parking Spaces”), the commercial podium on G/F, 1/F and 2/F (“Commercial Podium”), recreational area on 3/F (“Recreational Area”) and 8 residential units on each of 4/F to 24/F (“Residential Block”) (B/98).  The land and the Building have been divided into 154,306 equal undivided shares and 152,069 management shares (B/169-173).  The Premises is within part of the Commercial Podium allocated 7,443 management shares of the Building.

4.  Clause 11 of the DMC governs the levy and calculation of management fees which provides:

“11. (a) For the purpose of fixing the contribution payable by the Owners an annual budget showing the estimated Management Expenses for the ensuing year shall be prepared by the Manager…

(b) …

(c) All owners for the time being of the Buildings shall bear and pay for all expenses incurred or to be incurred by the Manager as the Manager in their absolute discretion deem fit or determine for the proper management of the Buildings and the Vehicular Access and the Covered Public Passages. Without limiting the generality of the foregoing such expenses shall include but shall not be limited to the following, namely: -

(i) The Crown Rent … Crown Lease.

(ii) The costs of maintenance, repair and renewal of the Buildings, Common Areas, Common Facilities, Vehicular Access, Covered Public Passages, roads … and other common parts of the Buildings…

(iii) The remuneration of the Manager and Management Staff for carrying out their duties …

(iv) Premia payable for the insurance of the Buildings including the Common Areas and Common Facilities and other common parts of the Buildings…

(v) The costs of keeping in good and tenantable repair and condition the foundations, pavements, main walls… and all external parts of the Buildings … and all other Common Facilities and the Common Areas and other common parts of the Buildings…

(vi) The costs of employing all necessary persons…for the proper management and maintenance of the Buildings…

(vii) The costs of purchasing or hiring all necessary plant and equipment for common use in the Buildings as a whole.

(viii) Any rent or other sums payable for the use of any place or premises within the Lands…solely for the management of the Buildings, Vehicular Access and Covered Public Passages.

(ix) The costs of electricity, fuel or oil incurred in connection with the operation of the central air-conditioning system for the Commercial Podium…

(x) The costs of providing and maintaining appropriate lighting for all Common Areas, Common Facilities and other common parts of the Buildings and external lighting.

(xi) The costs of operating the Recreational Areas…and other facilities for the benefit of all Owners of the Buildings as a whole.

(xii) Legal and accounting fees…

(xiii) The costs of electricity, water and … in connection with the Buildings as a whole …

(xiv) The costs of refuse disposal.

(xv) The costs of the supply of salt and fresh water to all taps and lavatories within the Buildings for common use.

(xvi) The costs of cleaning the Common Areas, Common Facilities and other common parts of the Buildings…

(xvii) The costs for the provision of security services for the Buildings…

(xviii)The costs of providing … services to be performed by the Manager…

(xix) The costs of postage, stationery … incurred by the Manager in connection with the management of the Buildings.

(xx) Any tax … payable by the Manager…

(xxi) All other expenditures which in the opinion of the Manager…especially referable to the Parking Spaces within the Buildings…

(d) …

(e) Each Owner shall bear and pay a proportion (hereinafter called “the management fee”) of the total sum budgeted by the Manager to cover the Management Expenses. Such proportion shall be calculated by reference to the Management Share(s) allocated to the portion(s) of the Buildings…The monthly management fee for the first financial year shall be calculated by the following formula: -

(i) For each Residential Unit or Parking Space:

No. of Management Shares x $0.61

(ii) For each Commercial Unit:

No of Management Shares x ($0.61+$1.343).

(f) Notwithstanding the provisions of the last preceding sub-clause: -

(i) The expenses for or in connection with the operation, maintenance, repair and replacement of the central air-conditioning system…in the Commercial Podium shall be borne and paid for by all the Owners for the time being of Commercial Podium by reference to the Management Shares…

(ii) The expenses determined by the Manager as especially referable to the Parking Spaces under clause 11(c)(xxi) shall be borne and paid for by all the Owners for the time being of the Parking Spaces by reference to the Management Shares…

(iii) …

(iv) The costs and expenses for keeping in good and tenantable repair and condition the interior, fixture and fittings and the windows and doors of any portion of the Buildings in separate occupation and…services used exclusively by any portion or portions of the Buildings, shall be solely borne by the Owner or Owners for the time being of that particular portion or portions of the Buildings.

(g) …

(h) …

(i) The Manager may at any time if they deem it fit for the proper management of the Buildings do the following: -

(i) Adjust each Owner’s management fee and air-conditioning charges and the monthly amount payable in respect thereof by giving to each Owner not less than one month’s prior notice in writing.

(ii) If the Manager determines that the sum budgeted by them for the Management Expenses is or will be insufficient by reason of any further Management Expenses whether incurred or to be incurred over and above the said budgeted sum, such deficiency shall be carried forward to and be made good by adjusting the annual budget and the management fee for the next financial year Provided always that the Manager may, at their discretion, demand from each Owner on giving not less than one month’s prior notice in writing such additional amount as they in their absolute discretion deem fit to meet the said further Management Expenses including their remuneration due thereon.” (B/125-132)

5.  At a meeting held on 6 April 2016, the Management Committee of the IO had, by resolution, resolved to increase the management fees payable by the owners of the Commercial Podium from $1.42 to $2.18 per management share with effect from 1 June 2016 to maintain a balanced account as well as to cover up the deficit for the Commercial Podium for the past 12 months (B/50).

6.  The applicant’s share of management fees becomes $16,226 ($2.18 x 7,443 management shares) and the IO failed to answer the query from the applicant as to the basis of calculation for the new management fees.

7.  On 26 January 2017, the applicant issued these proceedings alleging that the levying of management fees by the IO is not consistent with Clause 11 of the DMC and claimed against the IO for an order that such should be rectified within 14 days and an order that the IO should not levy upon the applicant the adjusted management fees.

Parties’ Case

8.  The applicant contends that according to Clause 11(e) of the DMC, management expenses should be shared by all owners by reference to each management shares so each share should be of same amount.  The fact that management fees payable for 1 management share of the Commercial Podium is at $2.18 whilst that for the Residential Block is at $1.44, such a sum is not justified and in breach of Clause 11(e) of the DMC. 

9.  The IO avers that since the management expenses for the Commercial Podium is much higher than the Residential Block and Parking Spaces, the IO had all along maintained separate accounts for the 3 portions of the Buildings, ie Commercial Podium portion, Residential Block portion and Parking Spaces portion (collectively referred to the “3 Portions”).  The management expenses will be divided amongst the 3 Portions according to their respective usage and then management expenses in each account will be apportioned with reference to the management shares of that particular portion.  It is the contention of the IO that this apportionment is in line with Clause 11(e) of the DMC.  As for the adjustment of management fees to $2.18, the IO avers that Clause 11(i)(i) and 11(i)(ii) empowered such an adjustment.

10.  So the issue in this case is:

a)   whether the DMC allows levying of management fees by division of the total management expenses amongst the 3 Portions of the Building; and

b)   whether the management fees adjusted for the Commercial Podium at $2.18 per management share is justified under the DMC.

Division Amongst the 3 Portions

11.  The IO contends that given the Building is being divided into 3 Portions as provided throughout the DMC (eg Recital 3, Clause 11, Clause 20 and 5^th Schedule) and make differentiation as to Residential Units, Commercial Units and Parking Spaces in Clause 11(e), management of the Building will have to pay regard to such physical state and this tends to support the IO’s division of the management expenses amongst the 3 Portions.  I do not agree the mere fact that there are 3 portions in the Building, the management expenses have to be divided as suggested by the IO.  One should look at the relevant terms of the DMC to decide on this issue.

12.  The levying of management fees to cover the management expenses of the Building is provided in Clause 11 of the DMC.  Clause 11(a) provided that the IO shall prepare “an annual budget showing the estimated Management Expenses for the ensuing year” and not an annual budget for each portion of the Building.  If the splitting of account by the IO for the 3 Portions is justified, there should be 3 separate annual budget, 1 for each portion.  The fact that only 1 annual budget is required for the whole Building tends to refute the contention of the IO.

13.  The IO argues that the wordings “the Manager in their absolute discretion deem fit or determine for the proper management of the Buildings” in Clause 11(c) implied that it is within the IO’s discretion to factor in the user-pay principle in working out the total management expenses for each portion.  I beg to differ. The sentence quoted above gives the IO the absolute discretion to decide what to be included as management expenses is different from splitting the management expenses amongst the 3 Portions.  I do not agree that the wordings in Clause 11(c) allows a splitting of management expenses amongst the 3 Portions according to the user-pay principle.  On the contrary, wordings of Clause 11(c) is “all owners…shall bear and pay for all expenses incurred” and not just those expenses incurred by that particular portion. 

14.  Furthermore, Clause 11(c) of the DMC provided for the items of expenses to be borne by all owners and from the items named therein, one can see that these covered the expenses for common areas and common facilities which are enjoyed by all owners and to be shared by all owners (except for item (xxi) which is in fact to be borne by owners of Parking Spaces as stipulated in Clause 11(f)(ii) of the DMC).  Since these items are expenses incurred for common areas or common use, it is just natural for all owners to bear the same without any differentiation unless the DMC provided otherwise.  There is nothing in Clause 11(c) to suggest that the owners have to share the management expenses according to their use of the same.  This tally with the prescription under Clause 11(e) for each owner to bear a proportion of the total sum according to the management shares assigned and the division of these common expenses or management expenses amongst the 3 Portions according to the user-pay principle is not in line with the provision under Clause 11(c) and 11(e) of the DMC.

15.  The wordings in Clause 11(e) is even more explicit.  The owner is required to “bear and pay for a proportion…of the total sum budgeted by the Manager to cover the Management Expenses”.  The liability of each owner is a proportion of the total sum budgeted by the Manager and there is no mention about the division of the total management expenses budgeted for each of the 3 Portions. 

16.  Furthermore, it is stipulated in Clause 11(e) about the amount of monthly management fee for the first financial year for the 3 Portions, namely $0.61 per management share for all 3 Portions and the Commercial Podium Portion have to pay an additional amount of $1.343.  It is not in dispute that for the owners of the Commercial Podium, they have to pay, in addition to the management fee, the expenses for the central air-conditioning system of the Commercial Podium under Clause 11(f)(i).  There is no other provision in the DMC which provided for h/ow the amount is to be levied for such air-conditioning expenses for the Commercial Podium. The only inference to be drawn must be that the extra $1.343 in Clause 11(e) should be for the air-conditioning expenses.  So, the management fees to be borne by the 3 Portions are at the same rate per management share.  This supports the wordings in Clause 11(e) that “the total sum budgeted…be calculated by reference to the Management Share(s) allocated to the portion(s) of the Buildings” and each management share carries the same liability at same amount.  The IO’s contention that there is nothing in Clause 11(e) to imply that each management share would pay the same rate is apparently misconceived.

17.  The IO argues that the wordings in Clause 11(e) permits the levying of management fees with reference to Residential Unit, Commercial Unit and Parking Spaces as portions or divisions.  The basis of this argument is by reference to the wordings “such proportion shall be calculated by reference to the Management Share(s) allocated to the portion(s) of the Buildings…” (emphasis added).  This turns on the understanding of the word “portion”.  In Clause 1(a) of the DMC, “Unit” is being defined as “shall mean a portion or portions of the Buildings intended for the exclusive use occupation and enjoyment by an Owner thereof and where the context requires include a Parking Space”.  So, “the portion(s) of the Buildings” must mean the unit(s) of the Building and the apportionment shall be construed as by reference to the management share(s) allocated to the unit(s) of the Building, and have nothing to do with a division of the management expenses amongst the 3 Portions.  The argument by the IO that the “portion(s) of the Buildings” must refer to the 3 main categories set out in the 5^th Schedule, ie the Residential Premises, Commercial Premises and Parking Spaces is in total ignorance of the definition of “Unit” in Clause 1(a) of the DMC.

18.  Judging from the findings above, there is no basis to support the contention that user-pay principle is the necessary result of construction of the DMC in this case.  The IO argues that the levying of management fees according to the user-pay principle is more akin to the reality that the Commercial Podium do consume more and do cost more expenses than the other 2 portions and there is nothing in the DMC to show that owners of the Residential Block and/or Parking Spaces have to subsidise the expenses of the Commercial Podium, hence the levying of management fees with regard to the 3 Portions or divisions must be permitted if not intended by the DMC.  I find such a contention is inconsistent with the findings above and had turned a blind eye to the wordings of Clause 11(c) and 11(e) of the DMC.

Justification for $2.18

19.  Given the findings that the levying of management fees by dividing the management expenses amongst the 3 Portions is not in line with the DMC, the levying of $2.18 based on such an apportionment must be unjustified as well.

20.  The IO further contends that the increase of management fees resolved on 6 April 2016 is an adjustment of management fees which is allowed by Clause 11(i)(i) and 11(i)(ii) of the DMC.

21.  Whilst Clause 11(i)(i) allows the IO to “adjust each Owner’s management fee…and the monthly amount payable in respect thereof by giving to each Owner not less than one month’s prior notice in writing”, there is no evidence before this Tribunal that written notice had been given to each owner of the Commercial Podium for the adjustment made with effect from June 2016.  The adjustment of the management fees of the Commercial Podium to $2.18 is not in line with Clause 11(i)(i).

22.  Even though the adjustment of management fees to $2.18 is said to cover deficit for previous years which should be caught by Clause 11(i)(ii), the adjustment made is apparently not in line with the relevant provision.  Clause 11(i)(ii) provided that “such deficiency shall be carried forward to and be made good by adjusting the annual budget and the management fee for the next financial year” or “demand from each Owner on giving not less than one month’s prior notice in writing such additional amount…to meet the said further Management Expenses”.  The adjustment to $2.18 was only made by way of a resolution of the management committee and not by way of adding the deficit to the annual budget of the next financial year.  Nor is there any evidence that there was written notice to each owner about the adjustment.  The adjustment of management fee in June 2016 is apparently in breach of Clause 11(i)(i) and 11(i)(ii) and cannot be justified.

Conclusion

23.  The levying of management fees by dividing the total management expenses amongst the 3 Portions of the Building according to usage, to apportion the total expenses in each separate account according to the management shares allocated to each portion of owners and the adjustment made for management fee in June 2016 are in breach of Clause 11 of the DMC and must be rectified.  What the IO should do is just to apportion the total management expenses according to the management shares assigned to each owner.  

24.  This Tribunal considers it right and proper to make the following declarations against the IO, namely:

i)   A declaration that the IO’s apportionment of management fees is inconsistent with and in breach of the DMC;

ii)    A declaration that it is unlawful for the IO to charge $2.18 per management shares to each of the owners of the Commercial Podium; and

iii)    A declaration that each owner of the Building should pay the management expenses by reference to the proportions in accordance with the management shares assigned under 5^th Schedule of the DMC.

25.  And the IO should be restrained from levying from the applicant the adjusted management fees at $2.18 per management share and there be a mandatory injunction against the IO to rectify the breach in the levying of management fees within 14 days.

Costs

26.  Costs should follow the event.  Costs of these proceedings be to the applicant, to be taxed if not agreed on party-and-party basis at District Court scale, with certificate for counsel.  This is a costs order nisi.  Unless any of the parties applies by summons to vary it, the costs order nisi shall be made absolute upon expiry of 14 days.