YU PUI PUI PRISCILLA AND ANOTHER v. CHOW HEI YIN DEREK

LDPD 843/2021

[2021] HKLdT 56

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

APPLICATION NO. LDPD 843 OF 2021

__________________________

BETWEEN

__________________________

________________

REASONS FOR JUDGMENT

________________

Background

1.  By a tenancy agreement dated 19 April 2021 which is in both English and Chinese (“the Tenancy Agreement”), the applicants as the landlord let to the respondent as the tenant the premises at Flat A on 2/F of Block 2 and Car Parking Space No 16 on Car Park 6, Lyttelton Garden, 29 Lyttelton Road, Hong Kong (“the Premises”) for a term of 2 years[1] from 28 April 2021 to 27 April 2023 at a monthly rent of $36,000 inclusive of management fee, Government rates and Government rent. 

2.  The Tenancy Agreement is also inclusive of a schedule of fixtures, furniture’s and electrical appliances provided by the applicant:

Living Room & Dining Room		Master Bedroom
1	Built-in Wall Unit	1	Hanging Lamp
2	Ceiling Lamps	1	Air-Conditioner
2	Curtain Rails	1	Built-in Wardrobe
9	Spot Lights	1	Curtain Rail
4	Remote Control for Air-Conditioners
No 1 Bedroom		No 2 Bedroom
1	Hanging Lamp	1	Hanging Lamp
1	Air-Conditioner	1	Air-Conditioner
1	Curtain Rail	1	Curtain Rail
Kitchen		Bathroom (Master)
1	Ventilation Fan	1	Water Heater
1	Refrigerator	1	Ventilation Fan
1	Wall Unit Cabinet	3	Spot Lights
1	Towngas TGC Range / Stove
1	TGC Range Hood	Bathroom (Guest)
1	Gaggenau Steam Oven	1	Water Heater
1	Gaggenau Grill Oven	1	Ventilation Fan
1	Whirlpool CS2320 4S Combi Steamer	3	Spot Lights
2	Spot Lights

3.  Also, by the Tenancy Agreement, the respondent was entitled to a rent free period from 19 April 2021 to 27 April 2021 (both days inclusive).

4.  On 11 June 2021, the applicants applied to the Tribunal for recovery of possession of the Premises on the ground that the respondent had failed to pay rent from 28 May 2021 (“the Application”). The applicants also suggested in the Notice of Application that the respondent sought to determine the Tenancy Agreement during the fixed term without their agreement by leaving the keys in the letter box on 11 June 2021.

5.  In the Application, the applicants also claimed other losses which included agent’s commission paid for the Tenancy Agreement and the disposal of (near) new washing machine at the respondent’s request.

6.  Whereas no Notice of Opposition was filed by the respondent within the prescribed period, the Tribunal on 8 July 2021 made the order (hereinafter referred to as “the Judgment”) as follows:

(1) Subject to paragraph 4 below, the respondent do deliver vacant possession of the Premises to the applicants;

(2) The respondent do pay the applicants arrears of rent/mesne profits at the rate of $36,000 per month from 28 May 2021 until delivery up of vacant possession;

(3) The respondent do pay the applicants the costs of the Application which is summarily assessed at $1,200;

(4) If the respondent should on or before 22 July 2021 (“Relief Expiration Date”) pay into the Tribunal all the arrears of rent/mesne profits stated in paragraph 2 above (including all arrears of rent/mesne profits due on or before the date of payment) together with the costs referred to in paragraph 3 above, the respondent be relieved from the forfeiture incurred herein, and Tenancy Agreement be reinstated.

(5) …

(6) Leave be granted to the applicants to withdraw the claims on “agent’s commission paid for the lease” and “disposal of (near) new washing machine”.

Inter Partes Summons dated 15 July 2021

7.  On 15 July 2021, ie before 22 July 2021, on behalf of the respondent, Messrs Tsui & Co filed an Inter Parte Summons seeking to set aside the Judgment.

8.  Together with the Inter Parte Summons above was an Affirmation of the respondent which is summarized as follows:

The Judgment was irregular

(1) Whereas the respondent entered into the Tenancy Agreement on 19 April 2021, he suggested the applicants had repudiated the Tenancy Agreement and he would like therefore to terminate the Tenancy Agreement on or before 27 May 2021, The respondent moved out of the Premises on 28 May 2021.

(2) By letters dated 4 June 2021 and 9 June 2021, Messrs Tsui & Co had informed the applicants that the respondent had moved out of the Premises and returned the Premises to the applicants. Messrs Tsui & Co also asked when and where the applicants might accept the keys from the respondent. However, after a series of communications, the applicants have refused to come out to take back the keys of the Premises on the ground that the respondent should pay compensation for the early termination of the Tenancy Agreement.

(3) Whereas the applicants served the Notice of Application dated 11 June 202 1 by inserting the same into the letterbox of the Premises on 14 June 2021 and posting a true copy of the Application in a conspicuous place on or at the entrance of the Premises on 14 June 2021, 15 June 2021 and 16 June 2021, the respondent could not be aware of the Application until the Hong Kong Post redirected the Judgment to him.

(4) Notwithstanding the letter from Messrs Tsui & Co dated 4 June 2021 above telling the applicants to direct all future correspondence to them in relation to the dispute, if any, on the Tenancy Agreement, the Application was not sent to Messrs Tsui & Co.

(5) The respondent acknowledged that the Tenancy Agreement also contained his address at Taikoo Shing (“Taikoo Shing Address”) which was and is his office address but the Application was not sent to this Taikoo Shing Address anyway.

The Applicants Breached the Tenancy Agreement

(6) As per clause 9 of the Tenancy Agreement, it was agreed that the applicants, as the landlord of the Premises, would keep and maintain the structural parts of the Premises, including the drains and pipes in a proper state of repair. It is also an implied condition of the Tenancy Agreement that the Premises was in a fit state for habitation at the commencement of the Tenancy Agreement.

(7) On the first day of moving in the Premises, ie 26 April 2021, the respondent noticed some terrible smell of foul air from the kitchen. It was later discovered that the smell originated from some drain pipes behind the kitchen cabinet of the Premises, which was originally an area of a demolished toilet. Furthermore, upon removing the drop ceiling for inspection on 11 May 2021, it was discovered that a remaining part of the demolished toilet was not completely separated from the adjacent kitchen. The respondent stated that the applicants had never informed him as to the improper or illegal alterations to the Premises at all.

(8) The applicants asserted that the major works on the pipes behind the kitchen cabinet were supervised by the Management Office of Lyttelton Garden[2] (“Management Office”), and where the public pipe was involved, the Buildings Department and the Engineering Department of the Management Office’s approval were sought. However, despite repeated requests, the applicants had failed to produce documents in support of the approval by the Buildings Department and the Engineering Department of the Management Office to the alteration.

(9) The respondent was informed by his wife and verily believed that the Management Office told her on 30 April 2021 that the previous tenant of the Premises had moved out due to the bad smell in the Premises as well.

(10) According to the inspector from the Food and Environmental Hygiene Department who visited the Premises on 18 May 2021, the smell of foul air was especially strong over the drop ceiling of the kitchen. The respondent attached a letter from the Food and Environmental Hygiene Department dated 20 May 2021 stating that the smell of foul air appeared to come from the sewage pipes within the false ceiling:

「……. 在接獲投訴後， 本署派員到列堤頓道29號俊贀花園2座2A進行巡查， 期間發現臭味疑似源自假天花內的渠管， 本署已將個案轉介屋宇署跟進。」(underline added)

(11) Owing to the existence of foul air in the kitchen and germs could flow into the Premises from leaked sewage pipes, the respondent said he was unable to use the kitchen at all since moving into the Premises. In particular, during Covid-19, it is well known that virus could easily spread through the drainage or sewage system. In the circumstances, the respondent alleged that the Premises including the kitchen was unfit for habitation.

(12) During the relevant period, the applicants just sent a technician to put sealant around a drain pipe opening without investigating the source of foul air on 30 April 2021 and sealed the same drain pipe opening again with a cap on 11 May 2021. However, the location of the pipe was inside a kitchen cabinet drawer and below a malfunction steamer. The respondent considered such minimum measures did not resolve the problem of the foul air in the Premises. The respondent suggested that the applicants did not tackle the sewage pipes of the partly demolished toilet behind the kitchen cabinet.

(13) Worse still, the respondent stated that after the inspection by the Food and Environmental Hygiene Department on 18 May 2021, the applicants did not inspect the Premises again but insisted that the source of the terrible smell came from the flat above the Premises and refused to conduct further repairs and rectification work. In view of the above, the respondent claimed that he had no alternative but moved out of the Premises on 28 May 2021.

Vacant Possession had already been given to the Applicants

(14) As stated, the respondent had move out and on 4 June 2021, Messrs Tsui & Co wrote a letter to the applicants asking them when and where they might accept the keys to be delivered by him.

(15) On 9 June 2021, Messrs Tsui & Co wrote to the applicants again, chasing the applicants for the handover procedure again. Further, Messrs Tsui & Co informed the applicants if they did not receive any confirmation of the handover procedure, the respondent would insert the keys into the letterbox of the Premises and deem to have returned the Premises to them.

(16) On 13 June 2021, ie two days after the Application, Messrs Tsui & Co sent an email to the applicants, making further invitation for the applicants to indicate an arrangement such that the applicants might personally receive the keys of the Premises from the respondent.

(17) The applicants objected by an email dated 15 June 2021 to the procedure of inserting the keys to the letterbox of the Premises. They insisted to have a settlement agreement for payment of compensation to them first. The respondent alleged the applicants should have taken the Premises back first in any event and should not impose a condition of payment of compensation to them when the issue of liability is in serious dispute. The applicants did not mention about the Application.

(18) Then Messrs Tsui & Co, by a letter dated 18 June 2021, offered that if the applicants subsequently decided to change their mind and agreed to collect the keys from the respondent, the applicants were asked to let Messrs Tsui & Co know immediately so that a mutually convenient time and place may be arranged.

(19) The applicants thereafter maintained their stances and refused to take back the keys from the respondent or Messrs Tsui & Co.

(20) The respondent learned the address of the applicants from the Tribunal enclosing the Judgment through the mail redirection service of Hong Kong Post on 13 July 2021.

(21) Without prejudice to the respondent’s position of having delivered vacant possession to the applicants on 28 May 2021 and the application to set aside the Judgment, he instructed Messrs Tsui & Co to return the keys of the Premises and the carpark remote control in an envelope (“the Envelope”) to the applicants’ address of service as stated in the Application. The respondent claimed that the service of the Envelope was effected by insertion of the same into the applicants’ letterbox at the said address. Messrs Tsui & Co informed the applicants of the same by enclosing the relevant documents and photographs evidencing service in an email dated 16 July 2021.

(22) The Envelope was returned to Messrs Tsui & Co by a woman who had not identified herself despite Messrs Tsui & Co stated that it had no instruction to accept the return of the Envelope.

(23) The respondent received an email dated 19 July 2021 from the 1^st applicant stating that the applicants had returned the Envelope consisting the keys of the Premises to him/his solicitors in the morning of 19 July 2021.

(24) The respondent suggested that he had already delivered or agreed to deliver vacant possession of the Premises to the applicants as early as he moved out of the Premises on 28 May 2021 and informed the applicants the same from 4 June 2021 onwards, well before the Application on 11 June 2021.

The Respondent Denied Owing Rent to the Applicants

(25) The respondent said he paid rent up to 27 May 2021.

(26) The applicants had refused to take back the keys of the Premises despite many requests since 4 June 2021, well before the Application on 11 June 2021. Even Messrs Tsui & Co on his behalf returned the keys of the Premises to the applicants by insertion of the same into their letterbox on 16 July 2021, the 1^st applicant sought to return the keys of the Premises to Messrs Tsui & Co on 19 July 2021.

(27) Moreover, the applicants still hold the security deposit in the sum of $72,000, being two months’ rent.

Response by the Applicants

9.  Then on 27 July 2021, the applications submitted their response to the Tribunal (“the Applicants’ Submission”) which I summarize as follows:

(1) The respondent alleged that the applicants had failed to maintain/ repair the pipes, specifically the (defunct and cut) U-trap and the pipe system behind the kitchen false ceiling. The Premises is therefore alleged to be “unfit for habitation”.

(2) The (unused) U-tap was identified as the source of the problem by the Engineering Department of the Management Office on 30 April 2021, and confirmed by estate agent, Mr Cheung. The applicants sent the plumber to seal it on the same afternoon. The respondent’s wife allegedly said that there was still some lingering smell. The Engineering Department advised that the best method to completely seal the U-trap is to apply a cap on top. As soon as the respondent’s wife permitted access on 9 May 2021, the applicants went with the plumber to completely “cap and seal” the U-trap on 11 May 2021. No more smell was detected by the plumber, Mr Cheung and the 1^st applicant who alleged it was a minor issue which was solved promptly.

(3) The respondent’s wife moved her attention to the system of pipes behind the kitchen false ceiling. The Food and Environmental Hygiene Department reported some “suspected” smell from those pipes. But the applicants alleged that the entire system of pipes had been fully inspected and/ or replaced with brand new pipes in June 2020. The pipes then are only 1 year-old and therefore unlikely to cause any major issue. In fact, the pipe renewal project involved pipes belonging to Flat A, 3/F upstairs and the main public pipe. It was carried out by a Grade 1 licensed plumber and by an authorized contractor appointed by the Management Office[3].

(4) In support of the above, a letter from the Management Office dated 12 July 2021 was attached:[4]

「……

根據管業處的紀錄， 於二零二零年六月十七日， 接獲貴單位（即2座2樓A室）反映， 指其工人厠所後改建為廚房之厠所公眾污水喉懷疑出現滲漏， 同日 貴戶已自行安排師傅拆去廚櫃以便我們派員到貴戶進行拍照， 經本處職員當日視察後， 確見公眾污水喉出現生鏽及明顯滲漏鏽跡， 管業處已安排合資格承辦商於二零二零年六月三十日更換公眾污水喉管。

另外在來函中， 貴戶要求索取上層單位（即2座3樓A室）就工人厠所滲漏事宜， 管業處職員與上層單位業主之對話內容， 由於管業處與上層單位業主的私人對話， 我們仍未得到上層單位業主允許， 故此未能提供與貴戶作私人用途。

……」

(5) The applicants alleged the plumber who “cap and sealed” the U-trap on 11 May 2021, Mr Cheung and the 1^st applicant noted no smell at all on that day. The visit of the Food and Environmental Hygiene Department was a few days later on 17 May 2021.

(6) The Food and Environmental Hygiene Department had forwarded the case to the Buildings Department for further investigation. According to the applicants, the scope of the Buildings Department’s investigation covers (1) suspected unauthorized building works and (2) suspected defective drainage pipe.

(7) The report from the Buildings Department dated 21 July 2021[5], together with the clarification phone call with the responsible officer Ms Ng on 22 July 2021 confirmed that there is no reported issue regarding smell or suspected defective drainage pipe that requires follow-up:

“…

2. Please be advised that consultant staff appointed by this department had conducted site inspection on 24 May 2021. Site inspection revealed that the maid toilet was removed on site and there were also alteration of drainage pipes.

3. During the telephone conversation between you and our Miss Ng on 15 July 2021, you informed that the main stack and related pipes of the maid toilet were replaced by the Management Office of Lyttelton Garden in June 2020. In this connection, you are required to provide us supplementary information of the removal of maid toilet and drainage works in the above premises including the date of removal works, employment of contractor, site photos before commencement of works and after completion of works, Minor Works Submissions and etc on or before 4 August 2021 for our further consideration.

…”[6]

(8) Nonetheless, prior to the receipt of the Buildings Department letter above, the applicants had already obtained an agreement with Flat A, 3/F upstairs to undertake any repair, if necessary.[7] All the pipes behind the kitchen false ceiling belong to either Flat A, 3/F upstairs or to the Management Office, but not to the applicants.

(9) The allegation that the Premises is ‘unfit for habitation” is false and untrue.

(10) The applicants suggested that the follow-up actions by them had been prompt and continuous, demonstrating they are responsible landlord.

(11) There is no expert report to support the respondent’s one-sided claim of remaining smell.

(12) The applicants reiterated a few times that the Premises cannot be “deemed” to be returned, without proper settlement and inspection.

(13) The applicants also stated that during the several visits of the 1^st applicant and Mr Cheung, all windows in view were perennially closed, without a fan on, despite the high temperatures in May. It appeared that there is a strong desire of the respondent’s wife to keep all the flaps of the ventilation fans closed due to the proximity of the Premises to the playground and passageway with frequent human traffic.

(14) The applicants suggested the habitual closure of windows and openings is a contradictory behavior if the Premises is indeed smelly.

(15) The applicants also suggested that the respondent had no intention to honour the Tenancy Agreement as his decision to move out was made merely 4 days after the reporting of the smell issue.

Hearing on 29 July 2021

10.  Hearing of the Inter Parte Summons took place before me on 29 July 2021. I agree with Mr Sam Tsui  (“Mr Tsui”) of Messrs Tsui & Co that the Judgment was irregular.  However, I did not agree with Mr Tsui in respect of his other submissions.

11.  It is trite that there is no implied covenant on the part of the landlord that the tenanted property is fit for human habitation or for the purpose for which the property is let[8].  In the case of a furnished property, the law implies a covenant that it is reasonably fit for human habitation at the commencement of the tenancy.  The implied term does not extend to unfurnished property or throughout the term of the tenancy.

Discussion and Analysis

12.  Firstly, I do not agree with Mr Tsui that the Tenancy Agreement is in respect of a furnished letting. In 呂祖仲 訴 丁煒雄, HCSA 4/2018 (unreported, dated 12 September 2018), Godfrey Lam J of the Court of First Instance (as he then was) affirmed the decision of the adjudicator of the Small Claims Tribunal as follows:

“19. ..

(3) 申請人在本申請聆訊時作出口頭陳述，指說該物業是連傢具出租的（包括廚櫃及冷氣機）。本席亦留意到，租約附表二第5條提及「租金包括租用由業主提供之傢俬如下」，包括「天花燈連架、冷氣機、抽氣扇、煮食爐、雪櫃、廚櫃、抽油煙機、洗衣機及熱水爐」，但這並不足以顯示該物業是連傢具出租的。

(4) 本席並不認為該物業是連傢具出租的，因為 ...（3）表面，雖然租約附表二第5條訂明何謂「由業主提供之傢俬」，但實際上所謂的「傢具」都是家用電器，並不包括一般家庭常用的傢具如梳化、床、餐桌椅、書桌及衣櫃等，因此本席認為單憑租約附表二第5條的字眼不能證明單位是連傢具出租的，因此拒絕接納申請人指該物業是連傢具出租的說法。由此可見，申請人及答辯人之間的租約並不存在任何適宜居住的隱含保證。”

13.  I agree the same. In the present case, those fixtures or electrical appliances as listed in the Tenancy Agreement as shown in §2 above did not constitute furniture. Thus, the intending tenant or the respondent is presumed to have made his own inquiries as to the condition of the Premises, and, in the absence of a special stipulation, he took the Premises as he found it. This is so notwithstanding that the Premises is, to the landlord’s knowledge, required for immediate occupation. If the Premises was, in fact, uninhabitable, then, after accepting the Tenancy Agreement, the tenant is without remedy except where he has obtained a warranty of fitness, or where he has been induced to take the Tenancy Agreement by misrepresentation on the part of the landlord. However, the mere omission of the landlord to disclose defects is not such misrepresentation. [9]

14.  As regards the alleged unauthorized conversion of the maid toilet, even if it were, the letting of premises which are, or include, an ‘illegal structure’ is not illegal, for the structure is merely the consequence of building work that is unauthorised by the Building Authority.[10]

15.  I also consider the allegation of the so-called foul smell exaggerated if for that reason the respondent considered the Premises inhabitable. In Hong Kong, as I pointed out in court, the presence of foul smell in kitchen is not uncommon because, for example, of the dryness or malfunction of the U-trap. I agree with the applicants that it can be readily remedied and based on the evidence submitted by the applicants, the latter did act promptly to rectify the defect, if any.

16.  I agree with the applicants that there is no expert report to support the respondent’s one-sided claim of remaining smell. But for the purpose of verification, the Tribunal conducted a joint inspection of the Premises in the company of the parties in the afternoon. Whereas according to the respondent, he had vacated the Premises since 28 May 2021, we stayed inside the kitchen for more than 15 minutes without opening any of the windows. I could not detect any terrible, repugnant or repellent smell.

17.  In this connection, I also take note of the decision of Pearl City Investments Limited 訴 香港海星國際文化基金會有限公司, DCCJ 4/2017 (unreported, dated 5 February 2021) where it was decided that: “本席不認為因為一樓細房的空調壞了整個物業就不能居住。”

18.  Turning to the possibility of smell coming from the system of pipes behind the kitchen false ceiling, in view of their position or situation near the ceiling, I agree with the applicants that those pipes belong to either Flat A, 3/F upstairs or the main public pipe for which the Management Office is responsible. Thus, the applicants should not be liable for any nuisance or any disrepair contributed by a third party not deriving title from the landlord. For instance, in Chong Lap Fu George v. Hydra Shipping Services Limited and Others [2009] 4 HKC 445, HH Judge Au (as he then was) held that the Incorporated Owners is an entirely separate and distinct person from the individual owners as landlord in a lease. Clause 9 of the Tenancy Agreement is not a warranty of fitness or habitability or a covenant to repair to the extent of remedying the design defects, if it is so regarded, of having the drainage pipes installed under the ceiling of the Premises for the use of its neighbour.

19.  In view of the above, I consider the respondent had no right to request for an early termination of the Tenancy Agreement; pending otherwise agreement with the landlord, the obligations and liabilities of the respondent under the Tenancy Agreement, including that to pay rent, would have to continue.

20.  By law, a landlord is at liberty not to accept the tenant’s repudiation and the duty to mitigate does not arise until the Tenancy Agreement is terminated. The purported surrender of the Tenancy Agreement by the respondent by mere returning the keys on 4 June 2021 or otherwise was without consent of the applicants. In Hong Kong Tenancy Law, 6^th Ed, Malcolm Merry at page 209:

“The landlord, faced with a tenant who threatens to leave or has left, may stand on his rights and sue for rent up to the end of the tenancy. He should, however, make it clear to the tenant that he regards the lease as continuing by, for instance, sending back the keys with a letter demanding rent.”

21.  This is the case here. I do not consider the respondent had delivered vacant possession of the Premises to the applicant on 4 June 2021 or otherwise.

22.  As set out at McGregor on Damages, 21^st Ed §9-030:

“[In Reichman v Beveridge [2007] 1 P&CR 20] the defendant solicitors leased premises from the claimant for a five-year term. After three years the solicitors ceased practice and upon so doing ceased paying rent. A year later the claimants, not having forfeited the lease or instructed agent to market the premises, sued successfully for the rent, now in arrears. The Court of Appeal held that to resist the claim the defendant would have to show that it was wholly unreasonable for the claimants to elect to keep the contract alive and that damages would be an adequate remedy, or that the claimants had no legitimate reason for making such an election.”

23.  At Reichman §§39-42, Lloyd LJ said:

“39. Mr Gauntlett urges on us a modern approach to the relationship between landlord and tenant, focusing on principles of contract law, and a policy approach which would not leave premises empty, after the tenants had abandoned them and while the landlord waited for the end of the lease, so as to avoid the waste of useful space and to ensure that the property is put to beneficial use…

40. Leaving aside policy issues of that kind, it seems to me that Mr Gauntlett’s submission failed to take account of the present state of English law as to the consequences of the premature termination of the tenancy, or of the very limited scope for the intervention of equity as explained in White & Carter and subsequent cases. Having regard to the way in which that has been explored and explained in the cases… it seems to me impossible to say that a tenant could successfully invoke equity in that way... Secondly, if it be the case that in 2003 the market rent was lower than that reserved by the lease, damages would not be an adequate remedy for the landlord if they terminated the lease by way of forfeiture and then relet at a lower rent, because under English law as it stands they could not recover damages to compensate for the loss of rent…

41. It is also to be noted that it is for the party in breach to establish that the innocent party’s conduct is wholly unreasonable and that damages would be an adequate remedy. Mr Gauntlett’s position seems to be that any landlord, knowing that the tenants have abandoned the premises, ought to take the steps to relet, and therefore to terminate the tenancy and look to the tenant for damages to cover any resulting loss. It does not seem to me that this could be right. They cannot follow from Lord Reid said in White & Carter. It is clear from that and the later cases that it would be extremely rare for this principal to apply, whereas Mr Gauntlett seeks to apply it to what must be a very common set of circumstances.

42. … I have come to the same conclusion as each of them did, namely that, on the present state of English law, the contention which Mr. Gauntlett wishes to advance by way of defence on quantum is not open to him.  I do not decide whether or not repudiation plays any, and if so what, part in the English law of landlord and tenant… There is, however, no case in English law that shows that the landlord can recover damages from a former tenant the respect of loss of future rent after termination, and there is at least one case which decides that he cannot. In those circumstances, either damages are not an adequate remedy for the landlord or at least the landlord will be acting reasonably in taking the view that he should not terminate the lease because he may well not be able to recover such damages…”

24.  On the issue of whether the returning of the keys to the applicants took effect as a surrender of the Tenancy Agreement by operation of law, this was considered in Oastler v Henderson (1877) 2 QBD 575, Artworld Financial Corp v Safaryan [2009] EWCA Civ 303 and more recently in Padwick Properties Limited v Punj Lloyd Limited [2016] EWHC 502 (Ch) and Levett-Dunn & Others v NHS Property Services Limited [2016] EWHC 943 (Ch) where a number of propositions were enunciated:

(1) Even accepting back the keys without more will always be equivocal. As a matter of practicality and common sense, one party has to hold the keys to prevent an absurd situation in which they are passed back and forth because neither party wants to risk it being suggested that it has made an admission by holding them.

(2) Any act of the landlord which is consistent with its rights under the lease, such as entering the premises to inspect or to repair them, will not in itself give rise to a surrender because, by definition, it is not inconsistent with the lease continuing.

(3) Any further act of the landlord which amounts to protecting or preserving the property, such as taking security measures or doing necessary repairs, will not in itself give rise to a surrender because such self-help, necessary to preserve the landlord's interest in the value of his property, is a reasonable response to the tenant's evinced intention not to perform the obligations of the tenancy.

(4) Any further act of the landlord referable to the landlord's seeking to re-let the premises will not necessarily give rise to a surrender by operation of law, as it is no more than what the landlord might reasonably be expected to do in the circumstance for the potential benefit of all parties. The landlord must be entitled to seek to mitigate the damage caused in reality (even if not yet technically in law so long as the lease remains extant) by the tenant's abandoning the lease, by seeking to obtain another tenant, without thereby losing his rights against the original tenant if he is unable to do so.

Mitigation

25.  Mr Tsui also suggested that when the applicants made the Application for vacant possession of the Premises, they should have accepted the keys from the respondent for the purpose of mitigation their loss, if any. However, as I pointed out in court, on 15 July 2021, ie before the relief expiration date of the Judgment, the respondent had already sought to set aside the Judgment. The applicants were not in the position to rely on the Judgment to obtain vacant possession of the Premises.

Deposits

26.  Clause 7 of the Tenancy Agreement contains the following as regards the treatment of deposits:

“The Tenant shall pay to the Landlord the Security Deposit … for the due observance and performance of the terms and conditions herein contained … If the Rent and/or any charges payable by the Tenant hereunder or any part thereof shall be unpaid for seven (7) days after the same shall become payable (whether legally demanded or not) or if the Tenant shall commit a breach of any of the terms and conditions herein contained, it shall be lawful for the Landlord at any time thereafter or re-enter the Premises whereupon this Agreement shall absolutely determine and the Landlord may deduct any loss or damage suffered by the Landlord as a result of the Tenant’s breach from the Security Deposit without prejudice to any other right of action or any remedy of the Landlord in respect of such breach of the Tenant.”

27.  In reliance on the above provision, Mr Tsui submitted that no rent was owed to the applicants since 28 May 2021 as the applicants were entitled to deduct the rent in arrears from the deposit.

28.  With respect, similar submission or claim was rejected by the Court of Appeal in New Castle Investments Limited v Foo Wai Lok & Others, CACV 46/2020, CACV 47/2020 and CACV 399/2020 (unreported, dated 16 November 2020):

“30. For the reasons set out above, we are also unable to agree with Mr Cheung that the petitioner had made a final election on not returning the deposit when they commenced proceedings in HCA 1632/2018. Such submission was built on the false premise that the petitioner had an immediate obligation to pay an amount equal to the deposit back to the tenant when they sought to terminate the tenancy. Clause 5.04 provided otherwise. As we have seen, such election was only made by the petitioner, as it was entitled to, upon recovery of possession on 29 November 2018.”

Judgment

29.  Having reviewed the above therefore, I make an order as follows:   

(1) The Judgment dated 8 July 2021 be set aside because of irregularity;

(2) Subject to paragraph 5 below, the respondent do deliver vacant possession of the Premises to the applicants;

(3) The respondent do pay the applicants arrears of rent/mesne profits at the rate of $36,000 per month from 28 May 2021 until delivery up of vacant possession;

(4) The respondent do pay the applicants the costs of the Application which is summarily assessed at $1,200;

(5) If the respondent should on or before 10 August 2021 (“Relief Expiration Date”) pay into the Tribunal all the arrears of rent/mesne profits stated in paragraph 2 above (including all arrears of rent/mesne profits due on or before the date of payment) together with the costs referred to in paragraph 3 above, the respondent be relieved from the forfeiture incurred herein, and Tenancy Agreement be reinstated.

(6) Unless otherwise ordered, all sums ordered to be paid under this judgment shall be paid into the Tribunal in cash, by EPS, by cashier orders issued by banks in Hong Kong or by cheques drawn by firms of solicitors in Hong Kong, and such sums received by the Tribunal shall be released to the applicants.

Postscript

30.  After I delivered the Judgment on 2 August 2021, Mr. Tsui immediately handed over the keys to the Premises to the 1^st Applicant.