LAI LEUNG AND ANOTHER v. LEE CHAU WING

HCA 2119/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2119 OF 1998

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J U D G M E N T

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The Plaintiffs are the registered owners of business premises in Tsuen Wan. On 16th December 1989 they let the premises to the Defendant. There is no dispute that for the first two years the Plaintiffs let the shop to the Defendant on a two year lease with an option to renew for a further two years. There is further no dispute that the premises are those to which Part V of Landlord and Tenant (Consolidated) Ordinance, Cap. 7 apply.

By this action the Plaintiffs are now seeking possession, mesne profits and other relief. The Defendant has carried on his business from the premises since December 1989 and continues to do so. He claims he has a right to remain under an oral tenancy agreement. The dispute between the parties comes down to three issues :-

1) The terms upon which the tenancy continued after the termination of the first, and only, written agreement in 1989.

2) The validity of the notice to quit served on the Defendant on 15th May 1997 and whether or not it was superceded by an oral agreement for a further two year term.

3) Whether a tenancy by conduct was created after the expiration of the notice to quit by the receipt of rent paid by the Defendant to the Plaintiffs.

The Plaintiffs' evidence consisted of testimony and production of documents from both named Plaintiffs and a solicitor's clerk who served the Notice to Quit on 15th May 1997. The Defendant, who had instructed solicitors earlier in the proceedings, appeared at trial in person. He also gave evidence.

Having heard the evidence and submissions thereon, I make the following findings of fact in relation to the three issues set out above.

1) The terms of the tenancy after 1991

The original 1989 written agreement had been signed by all the parties. It was produced and agreed. It created a four year term from 1st January 1990 to 31st December 1993 with an option to renew after two years.

When the two years was up, the Plaintiffs invited the Defendant to sign a new tenancy agreement for a further fixed period of two years but he declined to do so. The original option therefore took effect and the tenancy continued with no problem up to its termination in December 1993. Between 1990 and 1997 there had been two alterations to the rent payable but these changes have no bearing on the issues to be determined.

I accept from the 2nd Plaintiff's evidence that the reason the Defendant did not sign any subsequent written agreement after 16th December 1989 was because he did not want to be committed to a specific fixed term. He wanted the flexibility of being able to terminate the tenancy on one month's notice. I am satisfied therefore that from 1st January 1994 onwards the legal nature of tenancy was a monthly tenancy.

It was the Defendant's contention, which I do not accept, that the 2nd Plaintiff granted him an oral two year tenancy commencing in January 1994. That tenancy would have expired on 31st December 1995. The Defendant further contended that he was granted another oral two year agreement commencing one month before the expiration of the 1994 tenancy, namely on 1st December 1995. That agreement would have expired on 30th November 1997 but the Defendant further contended that, in May 1997, the 2nd named Plaintiff again orally granted him another two year term which is still valid and due to expire on 30th November 1999.

I reject this version of events. It is clear that since January 1994, the tenancy has simply continued on a month to month basis.

2) The validity of the Notice to Quit

In view of the monthly tenancy, a one month notice to quit would have been sufficient. However, out of an excess of caution and on legal advice, a notice to quit was served on the Defendant on 15th May 1997 requiring delivery of vacant possession on 30th November 1997. The Defendant does not dispute that he received the notice but, as referred to above, contends he was granted a new two year tenancy only a few days after the notice was served.

Not only is this contrary to the 2nd Plaintiff's evidence, which I accept, but it is also illogical. The suggestion that the Plaintiffs would serve a notice to quit one day and make a specific offer for a two year term the next makes no sense.

Section 122(3) of Cap.7 having been duly complied with, the tenancy was terminated on 30th November 1997 (subject to the third issue which I deal with next).

It is at this point that it is appropriate to refer to the matter which is behind and has caused this litigation. In mid 1997 the Plaintiffs learnt that the Land Development Corporation might make them an offer to purchase the premises. Indeed, later in 1997, offers were made but, I was informed by Counsel for the Plaintiffs, as yet nothing has materialized partly due to the economic downturn in Hong Kong. Be that as it may, the Plaintiffs very understandably wanted their property to be unencumbered should an acceptable offer be made. Even if the Defendant's evidence that a two year tenancy was orally agreed commencing 1st December 1995, which I do not accept, it would have terminated on 30th November 1997. The Plaintiffs accordingly served a notice to quit. The Defendant, again understandably, but in fact, hopelessly, saw the prospects of receiving a substantial payment from the Plaintiffs in return for his vacating the property. However, he would only have this bargaining tool if his security was greater than that of a monthly tenant. Hence his claim that he was granted a further two year tenancy which would run until 30th November 1999.

3) Subsequent payments of "rent" after the expiration of the Notice to Quit

The agreed rent from 1st December 1995 onwards was $20,000 per month. It was also agreed that the Defendant would pay two-thirds of the Government rates which amounted to a further $3,150 per quarter.

The Defendant was informed by the 2nd Plaintiff that he should cease making the monthly payments after 30th November 1997. However, the Defendant continued to occupy the premises and continued to make the monthly payments by way of deposits into the Plaintiffs' bank account. The Plaintiffs could not stop him making the payments but have not treated it as "rent". The money has been kept as security against possible non-payment of mesne profits in the event of possession being granted by the Court. Rent receipts, which were regularly issued prior to the Notice to Quit were no longer issued thereafter.

The Defendant claims that a continuing tenancy has been created by the acceptance of rent which had the effect of waiving the Notice to Quit.

It is clear from the facts as I have found them to be that the Plaintiffs did not intend to enter into a legal relationship with the Defendant after 30th November 1997. The retention of the monthly payments did not give rise to the creation of a tenancy.

In view of all these findings, there will be judgment for the Plaintiffs in the following terms :-

(a) the Defendant shall deliver up vacant possession of the premises known as Ground Floor, No. 19 Yeung Uk Road, Tsuen Wan, New Territories, Hong Kong forthwith;

(b) the Defendant shall pay to the Plaintiffs mesne profits at the rate of $20,000 per month from 1st December 1997 until delivery of vacant possession;

(c) the Defendant shall pay to the Plaintiffs the sum of $3,150 per quarter, being two-thirds of the Government rates, from 1st December 1997 until delivery of vacant possession;

(d) in calculating the sum due under (b) and (c), the Plaintiffs shall account for and give full credit for all monies paid by the Defendant to the Plaintiffs since 1st December 1997;

(e) liberty to apply under (d); and

(f) costs against the Defendant.