RUTH KING v. NIGEL SMITH

LDNT 59 of 2004

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

NEW TENANCY APPLICATION NO. 59 OF 2004

________________________

JUDGMENT

________________________

Background

1. The Applicant is the tenant and the Respondent the landlord of the premises known as Apartment 20B (including Roof and Car Parking Space 39) of Vista Mount Davis, 52-54 Mount Davis Road, Hong Kong (“the Premises”).  The Premises is Apartment B, one of the two apartments on the 20^th Floor of the building Vista Mount Davis located at the Mount Davis area of Hong Kong.  It includes an open roof area above the apartment as well as a covered car parking space No. 39 on the ground floor of the building.

2. The Premises was previously subject to a residential lease for a term of 2 years commencing from 1 May 2002 at a rent of $36,000 per month, on the basis of exclusive of rates, management fee and utility charges.  The lease was entered into between the Applicant as the tenant and a Mr. Richard Lamb, the predecessor in title, as the landlord.

3. Mr. Nigel Bacon (“Mr. Bacon”), a lawyer of Messrs. Kennedy, Solicitors represented the Applicant in the hearing.  He called for the expert evidence of a valuation surveyor Mr. Simon Lynch (“Mr. Lynch”), Head of Professional Services of Cushman & Wakefield (HK) Limited who submitted a valuation report (Exhibit A1).  The Respondent Mr. Nigel Smith gave evidence himself.  He was a director in the Office Services Asia department of CB Richard Ellis, an international firm of real estate consultants.  He prepared his own valuation and cross-examined the evidence of Mr. Lynch during the hearing.  After the Tribunal decided to have a hearing on 19 January 2005, Mr. Smith called for the evidence of a valuation surveyor Mr. Alex PW Leung (“Mr. Leung”), who is a director in the Valuation department of his firm.  Mr. Leung submitted a valuation report dated 2 December 2005 and subsequently in an adjourned hearing on 23 February 2005, a revised valuation report dated 18 January 2005 (Exhibit R4) and a revised valuation schedule (Exhibit R12).

The issues

4.  This is one of the last few cases of new tenancy applications that had been initiated by the parties under the former Part IV procedure prior to the enactment in July 2004 of the Amendment Ordinance 2004 to the Landlord & Tenant (Consolidation) Ordinance (Cap. 7).  In this case, there was no dispute that the Applicant’s application fell within the provisions of the former Part IV of the Ordinance.  Both parties agreed that if the opposition put up by the Respondent failed, the commencement date of the new tenancy to be granted should be 1 May 2004.  Other than that, the parties could not agree on the terms of the new tenancy to be granted by the Tribunal and also could not agree on virtually everything in the valuation.  It has also come to the notice of the Tribunal that the number of issues in dispute actually increased after the hearing continued on 19 January 2005.

5. The issues, which are the subject matter of this Judgment, include the following:

Summary of the valuation by the expert surveyors

6. Mr. Lynch estimated at the end of the hearing the PMR of the Premises to be $26,000 per month, on the same basis of exclusive of rates and management fee.  He added that if the Respondent as the landlord would not carry out the necessary repairs, he would have to make a downward adjustment of 13%, bringing down his estimated PMR to $22,620 per month.

7. On the other hand, Mr. Leung in his revised valuation estimated that (i) based on the average of all the adjusted unit rates of his 6 comparables plus the new comparable of Apartment 20A, the PMR of the Premises should be $42,596 per month, on the basis of exclusive of rates and management fee and (ii) based on the adjusted unit rate of the new comparable of Apartment 20A, the PMR of the Premises should be $36,197 per month, on the same basis.  He submitted that this latter figure, being the lowest of his various estimates based on all his comparables, should be discarded.  He therefore concluded that the PMR of the Premises should be $42,596 per month.

8. The difference in the estimated PMR between the 2 surveyors is very large, with the estimate of Mr. Leung being over 188% of that of Mr. Lynch.  Mr. Leung’s overall adjustments are between 25.1% and 41.0% whilst those of Mr. Lynch are between 1.4% and –10%.  The differences in the adjustments are the main reason for the large differences between the two surveyors who gave evidence to the Tribunal.  Their differences in evidence in virtually every aspect of this valuation exercise obviously did not make the task of the Tribunal any easier.  The other reason is in the treatment of roof area and the disputed rear corridor area.

Opposition to the granting of a tenancy to the Respondent

9. The Respondent initially opposed the granting of a new tenancy to the Applicant.  However after an adjournment to 18 October 2004, the Respondent changed his stance and no longer opposed the granting of a new tenancy.  The parties only differed in opinion as to the duration of the new tenancy.  However, they agreed to continue the hearing on the determination of the PMR rent after which the Tribunal would give the Judgment in one-go.

The duration of the new tenancy to be granted by the Tribunal

10. Mr. Bacon for the Applicant submitted that the term of the new tenancy should be 2 years, the same as that of the previous tenancy.  He submitted that the Respondent only purchased the Premises on 14 May 2004.  The purchase was made subject to the existing tenancy of the Applicant and with the knowledge of the Form CR101 issued by the former landlord and the Form CR102 issued by the Applicant as the tenant who confirmed that she would not give up possession of the Premises but would intend to apply for a new tenancy.  Since the Respondent as the landlord had been the owner of the Premises for less than one year, he could not apply for possession on the ground of self-occupation.  Therefore, the Respondent could not be allowed to use his personal reason of requiring the Premises as a residence for himself and his fiancé to justify his claim that the new tenancy should be granted to the Applicant for a term of one year only.  Mr. Bacon cited various authorities and the provisions of the Ordinance in support of his contention.

11. On the other hand, the Respondent submitted that the term of the new tenancy should be 1 year.  He submitted written evidence in support of his case that he urgently required the Premises for the occupation of himself and his fiancé.

12. Having regard to the provisions of the Ordinance and all the circumstances of this case, I decide that the term of the new tenancy for the Premises should be the same 2-year term as for the previous tenancy.

Other terms of the new tenancy, in particular the option by the Applicant to have an earlier determination of the new tenancy

13. Similarly, I decide that the other terms of the new tenancy should be the same as for the previous tenancy.  This includes the option exercisable by the tenant (the Applicant) to have an earlier determination of the new tenancy at any time after giving the landlord (the Respondent) 2 months’ notice in writing or rent in lieu of notice.

Dispute as to the saleable area of the Premises, in particular the dispute over the treatment of the area of rear corridor (the store room)

14. Mr. Lynch reported that according to the information from the Rating & Valuation Department, the saleable area of the Premises and other Apartments B in the subject building was 171.30 sq. m. whilst the saleable area of Apartments A was 174.8 sq. m.  Mr. Lynch also reported that according to his computations based on the copy of building plan provided by the Respondent, the saleable area of Apartment B, which was inclusive of the rear corridor (the store room) that was the subject of dispute, was 170.3 sq. m. whilst that of Apartment A was 173.8 sq. m. Therefore, Mr. Lynch concluded that the differences between the Apartments A and B in both the Rating and Valuation Department’s figures as well as his computations were the same 3.5 sq. m., which was roughly equal to the area of the service lift well.  Mr. Lynch therefore opined that the disputed rear corridor area of 2.76 sq. m. should have been included in the saleable area of the typical Apartment A in the building as reported by the Rating & Valuation Department.  Because this 2.76 sq. m. could be accessed by the management and the utility companies on a regular basis to inspect the meters inside, he opined that no rental value should be attributed to it.  To conclude, Mr. Lynch adopted the saleable area of the Premises, excluding the top Roof, to be 171.30 sq. m. less 2.76 sq. m., or 168.54 sq. m.

15. On the other hand, Mr. Leung opined that the saleable area of the Apartment B did not include the disputed rear corridor area (the store room).  He thought that the saleable area of the Premises should be the sum of the saleable area of the typical Apartment A as given by the Rating & Valuation Department, i.e. 171.30 sq. m., and the disputed rear corridor area (the store room area) of 2.76 sq. m., giving a total saleable area of 174.06 sq. m.  However, Mr. Leung conceded that in view of the need for access to the disputed rear corridor area for inspection by the building manager and the utility companies, he agreed to give a discount of 20% for the value of the disputed 2.76 sq. m. before arriving at an effective floor area of the Premises at 173.51 sq. m.

16. After considering the evidence of Mr. Lynch and Mr. Leung, I incline to agree with Mr. Lynch on the treatment of the disputed rear corridor area.  However, I disagree with Mr. Lynch that this area does not attract any rental value just because this rear corridor area (store room) could be accessed by the building manager and the utility companies.  I would agree with Mr. Leung that his discount of 20% would be sufficient to allow for the disruption caused by the said access.  Therefore, my estimated effective saleable area of the Premises including the disputed rear corridor area is the sum of Mr. Lynch’s estimated area of 168.54 sq. m. and 2.76 sq. m. x 80%, or 170.75 sq. m.

Dispute as to the area of the Roof that formed part of the Premises

17. Mr. Lynch estimated the area of the Roof that formed part of the Premises to be 128.29 sq. m.  He adopted a factor of 1/10 to this area in arriving at the effective saleable area of the Premises including the top Roof, i.e., 168.54 sq. m. plus 128.29 sq. m. x 1/10, or 181.37 sq. m.  Mr. Leung on the other hand estimated the area of the top Roof above the Apartment B on 20/F be the same as the area of Apartment B.  In addition, he also adopted a factor of 1/6 in converting the value of the top Roof to the equivalent value of the Apartment below.  Therefore, using the same approach as Mr. Lynch, the equivalent saleable area of the Premises including the top Roof as estimated by Mr. Leung would be 173.51 sq. m. plus 173.51 sq. m. x 1/6, or 202.43 sq. m.  Mr. Leung supported his factor of 1/6 by reference to a written agreement between the Applicant and a former landlord back in 2000 when they agreed that the Applicant be compensated by $6,000 per month for 3 months in respect of the loss of use of the top Roof.  Mr. Lynch said that this figure might be the result of un-informed players in the market and could not be relied upon in deciding on the appropriate factor to be applied in the valuation. 

18. Having regard to the evidence of both surveyors, I decide to adopt Mr. Lynch’s estimated area of 128.29 sq. m. as it was based on his estimate of the existing usable area of the top Roof that formed part of the Premises whilst Mr. Leung just assumed that the top Roof to be of the same size as the Apartment below.  In addition, I also decide in favor of Mr. Lynch in adopting his factor of 1/10 instead of 1/6 in assessing the enhancement in value due to the top Roof.  As rightly pointed out by Mr. Lynch, this factor of 1/10 has been widely accepted by most valuation surveyors in their valuations submitted to the Tribunal in the past.   Hence, I decide to adopt an equivalent saleable area of the Premises, after taking into account the disputed rear corridor area and the top Roof, to be 170.75 sq. m. plus 128.29 x 1/10, or 183.58 sq. m.

Whether the Tribunal should continue the hearing of the case on 19 January 2005

19. Mr. Bacon for the Applicant sent a letter objecting to the hearing of the case on 19 January 2005 after receiving a hearing notice from the Tribunal.  He re-affirmed his position in the beginning of the hearing on 19 January 2005.  In his final submission on costs in favour of the Application, he also stressed on the unreasonableness of the Respondent seeking a re-opening of the case by the latter’s letter dated 3 December 2004 to the Tribunal.

20. I gave direction to the Deputy Registrar to notify the parties for a hearing on 19 January 2005 because I agreed with the Respondent that the hearing should be continued to give him and the Applicant the opportunity of clarifying a number of issues that had not been covered in the original hearing on 18 October 2004.  Besides, the Respondent stated a number of errors that could only be dealt with in a hearing.

Whether the evidence of the Respondent’s witness, Mr. Alex PW Leung (“Mr. Leung”) should be admissible

21. Although Mr. Bacon, counsel for the Applicant queried the status of Mr. Leung as an expert witness as he was working in the same company as the Respondent and that Mr. Leung did not qualify this relationship in his valuation reports, contrary to the established Code of Practice of Royal Institution of Chartered Surveyors of which both experts were qualified members, he did not oppose Mr. Leung as an expert witness.  

22. The Respondent said that Mr. Leung did not have a conflict of interest in giving evidence in this case.  The Respondent said that both he himself and Mr. Leung belong to different departments of his employer CBRE and that he was not the immediate superior of Mr. Leung.  Also, the Respondent gave evidence that he had paid for the services of Mr. Leung.  Finally, in support of his contention, the Respondent quoted the following passage from the case of Tang Ping Choi & Another v. The Secretary for Transport [2004] 2HKLRD 285E in which the Court of Appeal decided that,

“However, it was not uncommon for expert witnesses to be employees of the party calling them.  Whilst it was undesirable that an expert was disinterested in the proceedings, such dis-interest was not a pre-condition to the admissibility of their evidence.”

23. I agree with the Applicant that expert witness in his written report and oral evidence should spell out the relationship between himself and his employee with the client.  The Courts including the Tribunal are expecting the experts to be open in disclosing the said employment or other relationship, if any.  However, I agree with the Respondent that the mere fact that both the expert witness and the client work in the same firm shall not bar the witness from giving evidence in the Tribunal.  There is no evidence to support the contention that Mr. Leung’s evidence should not be accepted in its entirety.

Determination of the Prevailing Market Rent (“PMR”) of the new tenancy including the choice of comparables and their adjustments

24. The disputes between the parties include the choice of comparables and their adjustments.  Mr. Lynch used all the comparables in the subject apartment building, Vista Mount Davies, as shown in a schedule of rental comparables given to him by the Rating & Valuation Department after he applied for rental information.  There are altogether 5 common comparables.  Mr. Lynch discarded the use of the 6^th comparable, an apartment in No. 56 Mount Davies Road, a building next door.

25. Mr. Leung on the other hand used all 6 comparables in the said rental schedule provided by the Rating & Valuation Department.  The reference numbers of the first 5 comparables are the same as those of Mr. Lynch.  In his revised valuation dated 18 January 2005, Mr. Leung also added the analysis of Apartment 20A, the apartment leased by the Respondent in December 2003.

26. I agree with Mr. Lynch that where there is sufficient number of comparables in the same building as the Premises, we should concentrate on those comparables as the differences for properties within the same building should be less than for properties in different buildings, notwithstanding the proximity in their location.  Therefore, I agree with Mr. Lynch to discard the use of Comparable 6 of Mr. Leung.  In addition, I also include the latest evidence of the leasing of Apartment A on 20/F, hence increasing the number of relevant comparables to 6 again.

Adjustments of comparables

27. Both surveyors adjusted the comparables under the factors of provision of air-conditioners, differences in time, view, floor level, size and break clause.  In addition, Mr. Lynch adjusted the comparables under the factors of effect of top floor, internal condition and the allowance for carrying out repairs to the top roof of the Premises.  On the other hand, Mr. Leung disagreed that there should be adjustments for these 3 factors but he instead suggested that the comparables should be adjusted in terms of the factors of internal layout and the condition of car parking space.  Therefore, between the 2 surveyors, a total of 11 factors of adjustments were warranted for these comparables.  They will be considered below.

28. I agree with Mr. Lynch that the factor of provision of air-conditioners should be dealt with in the beginning of the adjustments, by way of a lump-sum figure instead of a percentage adjustment.  Likewise, the adjustment of car parking space, if appropriate, should be adjusted by way of a lump-sum figure.  These will be considered below.

Provision of air-conditioners

29. Mr. Lynch and Mr. Leung had different adjustments for the monthly equivalent amounts in relation to the provision of air-conditioners under the previous tenancy lease, the term of which will be included in the new tenancy.  Mr. Lynch estimated the capital expenditure required for purchasing the conditioners and applied a monthly equivalent of $1,000 to all the comparables.  Mr. Leung applied an adjustment of –0.1% to all the comparables.  Applying this to the net rents of the comparables, the adjustments are between $26 and $31 per month.

30. The Respondent disagreed with the estimated costs of new air-conditioners.  He challenged the figures provided by Mr. Lynch, and in the course of sending the written submission of costs, also provided the Tribunal with some data on the quotations for new air-conditioners.

31. I decide that Mr. Lynch’s approach is preferred.  I also agree with him that with the removal of security of tenure for any new tenancy and the term of the new tenancy of the Premises being 2 years, it is appropriate to discount the new air-conditioners for 24 months period.  As to the estimated costs of the new air-conditioners, I estimate that to be about $12,800 (one at $7,600, plus 2 others at $2,600 each) and applying a Years Purchase factor of 22.89 (24 months at 5%, following Mr. Lynch previous computation), I estimate that the monthly equivalent is $559, rounded to $560.

Car parking provision

32. Mr. Lynch did not allow for the difference in the state of the car parking space of the comparables as against that of the Premises on the ground that in a commercial car park, a car park with a different location will not be charged differently.  This is obviously not a sound reason because in a commercial car park, for the convenience of management, the manager will not choose to charge differently for different spaces.  Likewise, the user will not be too concerned as this is only short-term parking.  On the other hand, I cannot understand why a prospective tenant is not prepared to pay a little more for a covered car park.  However, I find Mr. Leung’s estimated adjustments of 0.5 to 1.0% (equivalent to about $150 to $300) to be too much.  I adopt 50% of his adjustments.

Estimates of net monthly rents of the comparables

33. Based on the information set out in Mr. Leung’s schedule at Exhibit R12 and the adjustments for the provision of air-conditioners and car parking provision, I have calculated the net monthly rents of the comparables and their unit rates, as follows:

Other adjustments to the comparables

34. Having regard to the evidence and the opinion of the expert surveyors and the parties, I set out below my other adjustments to the comparables as well as the new comparable rent for Apartment 20A (i.e., the apartment leased by the Respondent from Chinachem Group, which was the landlord for all the Apartments A in the building)

Time

Mr. Lynch applied the Cushman & Wakefield Island South Index whilst Mr. Leung adopted the Rental Index for Private Residential Properties (Class D & E) as published by the Rating & Valuation Department.  In this case, I prefer to use the latter index.

View & noise

Mr. Lynch opined that no adjustment should be required.  Both Mr. Leung and the Respondent gave evidence that the side and the rear view of Apartments A and B differed a lot in the subject building.  Also, there was noise to Apartments A due to its proximity to school.  I agree that there is a difference in view and I allow a downward adjustment of 2% for Apartments A.  I do not agree that a further adjustment for noise is required.

Floor level

Both surveyors agreed that adjustments are required for this factor.  Mr. Lynch suggested an adjustment of 0.25% per floor, as against Mr. Leung’s 1% per floor.  I adopt an adjustment of 0.5% per floor.

Top Floor and heat effect

I agree with Mr. Lynch that allowance should be made for this factor.  I reduce his suggested downward adjustment to –2%.  On the other hand, I do not follow the evidence of Mr. Leung that an upward adjustment be made for the comparable Apartment 20A.

Size

I do not agree with Mr. Lynch that any adjustment is needed for the minute differences in areas of the comparables as against the equivalent area of Premises.

Condition

I follow the evidence and opinion of Mr. Leung and do not agree with Mr. Lynch that any adjustment is needed. 

Special Break clause

Both agreed that an allowance is warranted.  I agree to adopt Mr. Leung’s 3% for all comparables except Apartment 20A for which 1% is allowed.

Layout

I do not agree with Mr. Leung that any layout allowance is required.

Allowance for the repair works to the roof

35. Mr. Lynch made allowance for the disturbance to the tenant during the period when the landlord carried out repairs to the top roof above the Apartment 20B.  He allowed a reduction of 25% of rent for 2 months and divided the reduction over the term of 24 months.  He at the end estimated the monthly equivalent of this to be about $1,000.  Mr. Leung disagreed with Mr. Lynch’s computation in that there was no need for such an allowance in principle.  Having considered the evidence adduced in the hearing, I agree with Mr. Leung’s opinion.  Although Mr. Lynch complained of certain damp spots in the Apartment 20B that might be caused by the leakage from the top roof above, I agree with Mr. Leung and do not find the said disrepairs to be serious enough as to justify a reduction in rent caused by the repairs to the roof.

Determination of the PMR of the Premises

36. I sum up in the table below all the adjustments that I have made to the comparables:

Reconciliation of values

37. From the above table, the average of the adjusted unit rates of all 6 comparables is $180.49 per sq. ft.  If the highest and the lowest unit rates are excluded (Comparable 4 and Apartment 20A respectively), the average of the remaining 4 comparables is $182.13 per sq. m., which is very close to the overall average figure.  I decide to adopt the average overall adjusted unit rate of $180.49 per sq. m. and apply that to the equivalent saleable area of the Premises of 183.58 sq. m. arriving at a figure of $33,134, which I round to $33,100.  Therefore, I determine this to be the PMR of the Premises for this new tenancy application.

Costs

38. Mr. Bacon submitted that the costs of the Applicant for the hearing dates of 19 January 2005 and 23 February 205 should be borne by the Respondent on the ground that the conduct of the Respondent had been frivolous.  However, he agreed that the conduct of the Respondent had not been vexatious. 

39. Basically, Mr. Bacon said that the Respondent asked for “a second bite of the cherry” by requesting the Tribunal to re-open the hearing although it was mutually agreed at the end of the hearing on 18 October 2004 that the hearing of the case was completed, apart from a mutual agreement by the parties that both would only sent to the Tribunal written clarification regarding the disputed area of the rear corridor (store room) next to the staircase.  The reasons given by the Respondent were disputed by the Applicant.

40. The Respondent disagreed with the submission of Mr. Bacon.  He sent a long written submission on 4 March 2005 refuting all the points given by Mr. Bacon.

41. Section 117R of the Landlord & Tenant (Consolidation) Ordinance (Cap. 7) provides that “In any proceedings under this part, the Tribunal shall not make any order as to costs against a party unless the party has conducted his case in a frivolous or vexatious manner.”  Since even Mr. Bacon admitted that the conduct of the Respondent had not been vexatious, I only have to decide whether the conduct of the Respondent had been frivolous.

42. According to The Concise Oxford Dictionary, Sixth Edition, the word “frivolous” means “paltry, trumpery, trifling, futile; given to trifling, not serious, silly.”  And, under American Heritage Dictionary, Third Edition, the word “frivolous” means “unworthy of serious attention; trivial; inappropriately silly.”

43. After considering all the points made by the parties, I do not find that the Respondent had conducted himself in a frivolous manner.  Although the parties differ a lot in very minute matters, I do not think that this necessarily mean that the Respondent had been frivolous.  On the contrary, I agree with the Respondent that during the last 2 days of the hearing, both the Respondent, his expert surveyor as well as Mr. Lynch have given much more detailed evidence to enable the Tribunal to have a more thorough background for preparing this Judgment.  Therefore, I give an order that there be no order as to costs.

Orders

(1)	The Tribunal hereby orders that a new tenancy be granted to the Applicant on the following terms: -
	(a)	A fixed term of two years commencing on 1 May 2004;
	(b)	The rent at $33,100 per month, exclusive of rates and management fee but inclusive of the rent of the top Roof and the Car Parking Space 39 of Mount Vista Villa;
	(c)	A deposit equivalent to the sum of two months’ rent, any excess held by the Respondent to be refunded to the Applicant within one month from the date hereof;
	(d)	Apart from the above, other terms of the new tenancy shall be the same as in the previous tenancy for the Premises.
(2)	No order as to costs of this new tenancy application.