CHARLES EDWARD WHITE v. MEMFUS WONG SURVEYORS LTD.

LDNT 192 OF 2001

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

NEW TENANCY APPLICATION NO. 192 of 2001

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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 Flat D on the 23rd Floor, Fairlane Tower, No. 2B Bowen Road, Hong Kong ("the Premises"). The Respondent is the Tenancy Manager appointed by the landlord of the Premises, Fairlane Holding Corporation, to act on their behalf in respect of the Applicant's tenancy in the Premises. The old tenancy was for a period of 2 years from 1.6.1999 to 30.5.2001 at a monthly rental of $54,000 exclusive of rates, Government rent and management fees.

2. The Respondent did not file any Notice of Opposition, but at the hearing on 23.8.2001, the Respondent agreed that a new tenancy could be granted to the Applicant for a period of 2 years commencing on 1.6.2001, subject to the determination of the new rent by this Tribunal. Thus, the only issue in this case is the amount of the monthly rental payable for the new tenancy.

The Applicant's case

3. The Applicant did not call any expert witness but produced a Schedule of Rental Information from the Rating and Valuation Department (exhibit marked "A1"), in which the information concerning 6 comparables are stated as follows:

Schedule of Rental Information from Rating and Valuation Department

說明：實用面積不包括附屬部份 Saleable area excludes any ancillary accommodation.

Legend B/W = Bay window, A/C RM = Air-conditioning room

4. The Applicant pointed out that the rent for Flat 18D, i.e. comparable 3 in exhibit "A1", was stated to be $58,000 inclusive of management fee of $5,376. The net rent for Flat 18D should therefore be about $52,700. Thus, even after taking into account of adjustment for floor levels, the new rent for the Premises, which is only 5 floors above Flat 18D, should not be too much from $52,700. It could not be as high as 20% above the old rent as suggested by the Respondent.

5. The Applicant challenged the expert report of the Respondent by saying that as there was a difference between the views of Flat A and Flat D, only Flat D on the other floors should be used as comparables. He argued that a 0.8 % to 1% adjustment per floor should be made to the comparables, but when he was told that the Respondent's expert was only using 0.5% as adjustment for each floor level, he agreed to use 0.5% as the adjustment.

6. The Applicant further argued that the other tenants in the same development were big corporations and hence they would not bother to bargain the rents with the landlord.

The Respondent's case

7. The Respondent's 1st witness, Mr WONG Hoi-ki, testified that Flat 18D belonged to the same landlord and was also under the Respondent's management, and that the information in exhibit "A1" stating that the rent was inclusive of management fee of $5,376 was wrong. He produced the relevant pages of the lease for Flat 18D (exhibit "R1") to confirm that the monthly rent of $58,000 was exclusive of rates, Government rent and management fees. He also testified that the rents for all the flats in the same development were exclusive of rates, Government rent and management fees. He agreed that in assessing the new rent, the Tribunal could ignore comparables concerning Flats B and C because they were smaller in size. As there was no material difference between Flat A and Flat D, the landlord had applied the same rental policy for Flat A and Flat D. The landlord was however prepared to accept lower rents from good tenants in renewal situations.

8. The 2nd witness of the Respondent was the expert Mdm Sat Wei-ling and she produced her expert report as exhibit "R2". In Appendix 4 of her report, she listed out the information concerning 6 comparables and the adjustments made as follows:

Comparables and Analysis for the assessment of open market rent of Flat D on 23/F Fairlane Tower, No. 2B Bowen Road, Hong Kong

Note: Monthly rent of all comparable lettings are exclusive of rates, government rent and management fee but inclusive of domestice applicances.

9. Comparables 2, 3 and 4 in exhibit "R2" are the same as comparables 1, 2 and 3 in exhibit "A1". Mdm Sat assessed the adjusted unit rents for comparables 4, 5 and 6 in exhibit "A1" as $506.7, $481.7 and $511.4 respectively, details of which are stated in exhibit "R3".

10. According to Mdm Sat, the market was stable from April 2001 to June 2001 and hence there was no adjustment made for time. She used 0.5% as adjustment for each floor. The facing aspect of Flat D was inferior to that of Flat A. Thus, a -2% adjustment was made to Flat A. However, as Flat D had more harbour view than Flat A, which in her opinion was more favourable than Flat A, a 2% adjustment was made to Flat A. These 2 adjustments in fact set off against each other.

11. Mdm Sat used all the comparables for Flats A & D, i.e. comparables 1, 2, 3 and 4 in exhibit "R2" and comparables 4, 5 and 6 in exhibit "A1" to derive an average unit rent of $518.4. This in turn gave an amount of $60,964 for the monthly rental of the Premises, and Mdm Sat rounded it to $61,000.

12. There was also a rental index prepared by the firm Jones Lang La Salle and produced as exhibit "R4", showing that the rental market for luxurious flats had a slight rise since 1999.

Assessing the new rent

13. I note that in the expert report, exhibit "R2", Mdm Sat used the term "open market rent" to denote the new rent. However, by virtue of s. 115 of the Landlord and Tenant (Consolidation) Ordinance, Cap. 7, the new rent should be the "prevailing market rent" of the Premises, and it means the rent, exclusive of rates at which the Premises might reasonably be expected to be let, at the date on which the current tenancy would have come to an end, i.e. on 1.6.2001. Although Mdm Sat used a different term, I see no difference between the way she assessed the new rent and the way one would assess the prevailing market rent.

14. Having heard all the evidence and the submissions made by the parties, I accept that there was a mistake made in exhibit "A1" concerning Flat 18D in that the rent should be exclusive of management fees rather than inclusive. I accept all the adjustments made by Mdm Sat for the comparables and that there is no need to make any time adjustment. I also accept that the adjustments made for the facing aspect and the view set off against each other and hence the combined effect is that the rentals for Flat A and Flat D on the same floor should not have any significant difference.

15. As there should not be any significant difference between the rentals for Flat A and Flat D, I reject the Applicant's submission that only those comparables concerning Flat D should be used to assess the new rent. In any good exercise of assessment, there should be as many comparables as possible because it would give a better average figure to assess the new rent. When Flat A and Flat D are so similar to each other, I see no reason to ignore the figures obtained for Flat A. I therefore adopt Mdm Sat's approach in using comparables 1, 2, 3 and 4 in exhibit "R2" and comparables 4, 5 and 6 in exhibit "A1" to assess the new rent.

16. I find it irrelevant to consider whether the other tenants were big corporations or not. If the tenants are prepared to pay the rents, the rents are market rents and can be considered in assessing the prevailing market rent.

17. However, I think Mdm Sat has omitted to include the adjustment concerning whether the comparables were situations of renewal or new letting. Mr Wong's evidence was that the landlord was prepared to accept lower rents from good tenants in renewal situations. Of course, there was no evidence to show who was good tenant or not, but I do not think that this factor should be discounted at all. Moreover, it is common in Hong Kong that landlords would renovate the flats for new lettings and pass the cost of renovation to the tenants. On the other hand, there would usually be no such cost incurred in renewal situations. Thus, the rents for new lettings are usually higher than those of renewal cases. I think an adjustment should be made to the comparables which were new lettings and I think a -3% adjustment is reasonable in the circumstances.

18. Comparables 1 and 4 in exhibit "R2" and comparable 6 in exhibit "A1" were new lettings. Applying a -3% adjustment as aforesaid, the adjusted unit rents for these 3 comparables will then be $523.8, $490.8 and $496.1 respectively. The average adjusted unit rent for all 7 comparables concerning Flat A and Flat D is therefore $511.7. This means that the monthly rental for the Premises should be $60,176 or say $60,200.

19. By reason of the matters aforesaid, I assess the prevailing market rent of the Premises on 1.6.2001 as $60,200 per month exclusive of rates, Government rent and management fees.

Orders

20. I therefore make the following orders:

(1) The Applicant is granted a new tenancy for 2 years from 1.6.2001 to 31.5.2003, at a monthly rental of $60,200 exclusive of rates, Government rent and management fees;

(2) The rental deposit of the new tenancy is to be adjusted in accordance with the new rental of $60,200 and to be made within 1 month from today;

(3) Save as aforesaid, the other terms of the new tenancy are to be the same as those under the expired tenancy agreement; and

(4) The parties shall bear their own costs.