LACHLAN DAVID RUTHERFORD v. KING FIELD INTERNATIONAL LTD.

LDNT 274/2001

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

New Tenancy Application No. LDNT 274 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 House K13, Marina Cove (Stage IV), Ho Chung Marina, Sai Kung, New Territories, Hong Kong ("the Premises"). The Respondent is the landlord of the Premises. The Applicant's application is for a new tenancy of 3 years from 27 June 2001 under Part IV of the Landlord and Tenant (Consolidation) Ordinance, Cap. 7. The Respondent has no objection to grant a new tenancy to the Applicant, but in the Notice of Opposition, the Respondent stated that the new tenancy should be for 2 years from 20 December 2000.

2. Nevertheless, the parties have agreed at the hearing that the new tenancy shall be for 2 years from 27 June 2001. The only outstanding issue is therefore the amount of the new rent.

The Applicant's case

3. The Applicant did not give evidence himself but called an expert Ms Hamilton-Meikle to give evidence on the prevailing market rent. The Applicant's expert refers to 6 comparables provided by the Rating and Valuation Department ("Comparables 1 to 6") as well as a comparable from her own resources, i.e. House K12 of the same development ("Comparable 7"), which is just adjacent to the Premises. The relevant information of Comparables 1 to 7 are as follows:-

4. The Applicant's expert makes various adjustments to the comparables as follows:-

5. However, the Applicant's expert considers that Comparables 1, 2 and 4 are less useful as they all benefit from pontoons and are in a very different location. She also considers that Comparable 6 is well out of line with the rest of the evidence and looks to have been substantially renovated and extended. The best comparables in her opinion are Comparables 3 and 7 with unit rates of $174 and $197 respectively. Of these 2 comparables, she considers that Comparable 7 is the most useful one because it is adjacent to the Premises. She therefore adopts a unit rate closer to that of Comparable 7, i.e. $190, to assess the rent for the Premises, which has a saleable area of 169.0 sq. m.

6. The Applicant has installed a storage level in the roof area above the exit door to the top roof terrace of the Premises and this area extends to around 5 sq. m. The Applicant's expert allows an additional amount for this area and adopts a unit rate of $50 to assess the rent for this area.

7. Based on the calculation of the Applicant's expert, the rent is therefore in the sum of $32,360, and the Applicant's expert opines that the prevailing market rent of the Premises is $32,500.

The Respondent's case

8. The Respondent called a witness Mr NG Ka-leung and an expert Mr LEE Wing-kwan to give evidence. The Respondent's expert also refers to the 6 comparables provided by the Rating and Valuation Department, i.e. Comparables 1 to 6. However, he discards Comparable 3 because it includes some domestic appliances and he cannot deduce the net rent. He also discards Comparables 1 and 5 because they have larger gardens than the Premises and the other comparables, and their views and characters are not the same as the other comparables.

9. The Respondent's expert therefore makes the following adjustments to the 6 comparables:-

10. The Respondent's expert adopts $251.4 as the average adjusted unit rent, which gives a rental of $42,486.6 for the Premises. The Respondent's expert therefore opines that the prevailing market rent of the Premises is $42,500.

Unit Rent for Comparable 6

11. The unit rent for Comparable 6 used by the Applicant's expert is $266, whereas the one used by the Respondent's expert is $289.1. The Applicant's expert has taken into account the unauthorized area at the 3/F level, which provides further saleable area of 29.2 sq. m., but since it could be removed by the Building Department, the Applicant's expert has only included 50% of this area in the calculation. The saleable area for Comparable 6 adopted by the Applicant's expert is therefore 183.6 sq. m., which gives the unit rent of $266. On the other hand, the Respondent's expert has not taken into account this unauthorized area and only used the saleable area of 169 sq. m. to calculate the unit rent.

12. However, the Applicant's expert relies only on her external inspection of Comparable 6 and the registered floor area to conclude that there is this further saleable area of 29.2 sq. m. She did not inspect Comparable 6 internally. So she could not tell what the actual use is for this extended area. There is also no evidence that the tenant of Comparable 6 pays a higher rent for this unauthorized area. I therefore do not accept the approach adopted by the applicant's expert, but the one adopted by the Respondent's expert in this regard.

Adjustment for Time

13. The Applicant's expert opines that no adjustment for time is necessary, whereas the Respondent's expert applies a 2.2% upward adjustment for time to Comparable 2. The Respondent's expert bases his opinion on the rental index of luxury residential property published by Chesterton Petty International Property Consultants. However, this index has not been produced in evidence and it is not clear if the luxury residential property referred to in the index includes properties in Sai Kung area.

14. Without any evidence that this index concerns the properties in Sai Kung area, I do not accept that there should be any adjustment for time based on this index. I therefore agree with the Applicant's expert that no adjustment for time is necessary for the comparables.

Adjustment for View

15. The Applicant's expert has made some adjustments for location, but they are actually for views. The Applicant's expert opines that the Premises and Comparables 3 and 7 have the same view, Comparables 4 and 6 have more open view than the Premises, and Comparables 1, 2 and 5 have views looking onto Type E houses of the development. Comparable 2, however, has a more open view looking onto the main marina area than Comparables 1 and 5.

16. The Respondent's expert has only given his adjustments for view for Comparables 2, 4 and 6. His adjustments are different from that of the Applicant's expert. He opines that Comparable 2 has an inferior view because it enjoys view of the inner harbour only. He also opines that the views of Comparables 4 and 6, although overlooking Hebe Haven, are inferior to that of the Premises.

17. There are, however, no photographs produced to show the views of the comparables. I can only rely on the Location Plan produced in the report of the Respondent's expert (exhibit "R1") to make my own assessment. From the Location Plan, it seems that the Premises and Comparables 3, 4, 6 and 7 all have open sea views. The 2 experts have in fact come to opposite conclusions on the views for Comparables 4 and 6 as compared to that of the Premises. Without any evidence like photographs or a site visit, I cannot tell which expert is correct in this aspect. I believe it is ultimately a very personal and subjective opinion as to which view is better. Since the Premises and Comparables 3, 4, 6 and 7 all have open sea views and there is no evidence for me to compare, I do not find it necessary to make any adjustment on the views for these comparables.

18. As to Comparable 2, since it has an inner harbour view, instead of an open sea view, its view should be inferior to that of the Premises. However, I do not adopt the adjustments used by both experts as I find that they are either too low or too high. I find it appropriate to adopt an upward adjustment of 5% for the view of Comparable 2.

19. Comparables 1 and 5 have no open sea view, nor inner harbour view, but looking onto houses only. The adjustment made by the Applicant's expert is too low. I would adopt an upward adjustment of 10% for the views of Comparables 1 and 5.

Adjustment for Size

20. Both experts agree that there should be adjustment for size, but the adjustments adopted by them are slightly different. In this aspect, I accept the evidence of the Applicant's expert and apply an adjustment of 1% for every 10 sq. m. However, for Comparable 6, since I do not accept that the unauthorized area should be included, there should be no adjustment on size for Comparable 6.

Adjustment for Domestic Appliances

21. I do not accept that Comparable 3 should be ignored simply because it includes some domestic appliances. I accept that it can still be used after adjustment is made. In this regard, I accept the evidence of the Applicant's expert and apply the adjustment adopted by her for Comparable 3 as well as her adjustment for Comparable 7.

Adjustment for Garden

22. I also do not accept that Comparables 1 and 5 should be discarded because they have larger gardens. I accept the adjustments made by the Applicant's expert in relation to the gardens and find that Comparables 1 and 5 can be used after the adjustments are made.

Adjustment for Condition

23. I accept the adjustments made by the Applicant's expert in relation to the conditions of Comparables 2 and 3 because the conditions of new lettings are usually better than those of renewed tenancies.

24. However, as to the adjustment made to Comparable 6, I do not accept that there should be a downward adjustment of 10% to reflect the good external condition of Comparable 6. It is clear from the evidence that the Premises have also been renovated externally and it is also in good condition. Thus, there should be no adjustment for Comparable 6.

Adjustment for Pontoons

25. The Applicant's expert discards Comparables 1, 2 and 4 because they benefit from pontoons and are in a very different location. The Respondent's expert is of the view that a pontoon may not affect the rental value of the house concerned. In this regard, I accept the view of the Respondent's expert and find that pontoons would not affect the rentals in any significant way. I do not think that there are so many tenants owning boats or requiring pontoon in the market who are prepared to pay higher rents for houses with pontoons. On the other hand, normal tenants who do not own boats or require pontoons also would not pay higher rents for the presence of pontoons. I therefore find that there is no adjustment necessary for pontoons. I also do not accept that Comparables 1, 2 and 4 should be discarded because of the presence of pontoons.

Summary for Adjustments

26. I summarize the adjustments I made as follows:-

Assessment of Prevailing Market Rent

27. From the above figures, the average adjusted unit rent is $223.01. The adjusted unit rent for Comparable 6 is 29.63% above this average adjusted unit rent. On the other hand, the adjusted unit rent for Comparable 3, is 21.80% less than this average adjusted unit rent. I consider that the adjusted unit rents for Comparables 3 and 6 are outside the range of the average adjusted unit rent as they are more than 20% different from the average adjusted unit rent. I will therefore discard Comparables 3 and 6.

28. The average adjusted unit rent for Comparables 1, 2, 4, 5 and 7 is $219.52. I will therefore use this average adjusted unit rent to assess the rental of the Premises. The floor area of the Premises is 169 sq. m. I do not consider that it is necessary to include the unauthorized area of 5 sq. m. in the calculation, because I do not think that tenants would pay a higher rent for this unauthorized area.

29. Thus, I assess the prevailing market rent of the Premises to be at $37,098.88 ($219.52 x 169), or a round figure of $37,100.

Orders

30. I therefore make the following orders:-

(1) A new tenancy be granted to the Applicant for a term of two years from 27 June 2001 to 26 June 2003;

(2) The rent for the new tenancy is at $37,100 per month exclusive of rates and management fees;

(3) The rental deposit is to be reduced in proportion to the new rent; the Respondent has to refund the excess of the deposit to the Applicant within 14 days;

(4) Save as aforesaid, the terms of the new tenancy are the same as the previous tenancy agreement; and

(5) No order as to costs.