FUNG LING YIN v. COMMISSIONER OF RATING & VALUATION AND ANOTHER

Property law - landlord and tenant - determination on whether premises are within Part I of the Landlord and Tenant (Consolidation) Ordinance, Cap. 7 - pre-war business premises excluded from Part I from 1st July 1984 - question is whether premises are within the definition of domestic or business premises - relationship of Part I and Part II user determinations - relevance of the procedure for the endorsement of a permitted rent or the assessment of the rateable value. Held: Commissioner's certificate upheld - appeal dismissed - Sections 2, 3, 10, 32 and 51 Landlord and Tenant (Consolidation) Ordinance, Cap. 7.

IN THE LANDS TRIBUNAL OF HONG KONG

(Appellate Jurisdiction)

Landlord & Tenant Appeal No. 31 of 1984

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JUDGMENT

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1. This is an appeal under Section 32(aa) of Part I of the Landlord and Tenant (Consolidation) Ordinance, Cap. 7 against the determination of the Commissioner of Rating and Valuation that the premises situated at 21 Yiu Wa Street, Ground Floor, Hong Kong were subject to Part I of the Landlord and Tenant (Consolidation) Ordinance. This determination dated 10th October 1984, was made under Section 3(2) of the Ordinance and followed an application remade by the appellant in this case on 4th July 1984. The determination was based on the Commissioner's opinion that the primary use of the premises is domestic. Business premises ceased to be within Part I from 1st July 1984, so that the question before the Tribunal is whether the premises are business or domestic within the meaning of the Ordinance.

2. The appellant became the registered owner of the entire building in August, 1981. The ground floor was formerly let to the 2nd respondent, Chan Yuk. However, it transpires that the 2nd respondent died in March, 1971. His widow, So Tim, applied to the Commissioner of Rating and Valuation on 17th February 1982, for a certificate of user, which she duly obtained. I shall deal with this certificate later. During his lifetime the 2nd respondent sub-let the suit premises to one Lee Sang. Since the 2nd respondent's death Lee Sang or his son Lee Shing Kwok has paid rent directly to the appellant's rent collector Mr. Jee Sun Pui who has given receipts therefor in the name of the 2nd respondent. Lee Sang has given those receipts to Chan Bor, the son of the deceased 2nd respondent, and Chan Bor in turn has given Lee Sang receipts for those receipts. It perhaps goes without saying that Chan Yuk, deceased, is involved in this case in spirit only and cannot be a respondent to the instant appeal. The object of the somewhat bizarre arrangements which have obtained since his death is a matter for surmise. Chan Bor, who attended the Tribunal as the representative of his deceased father, apparently considers that he has inherited a responsibility for the premises and visits it once a week on Sundays. However, these arrangements have no bearing upon the decision which I have to make.

3. In cases such as this it is usually a relief to be reminded that, provided it is given such weight "as may be appropriate", this Tribunal under Section 10(6) of its ordinance may admit evidence which might not otherwise have been permitted in another court. This provision together with that for the Tribunal being conducted "with as much informality as is consistent with attainting justice", enables information to be considered which would perhaps never come to light if unrepresented parties were held to the strict rules of evidence.

4. According to Mr. Jee Sun Pui who gave evidence on behalf of the appellant, the solicitor handling the transfer of the property to Fung Ling Yin advised at that time that the ground floor premises were commercial Mr. Joe collected the rent for the appellant from the time the property was purchased up to July 1984. After July the rent was sent to the landlord through the post. When he collected the rent directly from the tenants, Mr. Jee visited the premises on the third or fourth of each month at about midday. At first he collected from Lee Sang and later from his son, Lee Shing Kwok who also resides there. Mr. Jee said that on several occasions in 1981, he saw the younger Mr. Lee selling congee on the premises. The congee was served to customers who sat at a long wooden table. There was no menu or any signs or notices, save for an old sign which is located above the entrance, and reads "Sun Kee" in Chinese characters.

5. In 1982 for a period of about three months, he saw a red car parked within the premises. Then in July and August of 1983 he saw about 20 boxes of watermellons stacked inside the premises. There was also a handcart and some empty baskets inside the premises for some 5 to 6 months.

6. In 1984 he said the rear courtyard was being used to store iron pipes similar to those stacked outside the premises next door and shown on a tendered photograph. He said that apart from an ancestral table, a television and a refrigerator, the premises were empty. There was no evidence of any domestic use. He saw a cubicle at the rear of the premises, but he had no idea what was inside it.

7. The appellant submitted that based on the observations of Mr. Joe, the premises were primarily used for business purposes and therefore should be excluded from Part I of the Landlord and Tenant (Consolidation) Ordinance in accordance with Section 3(1)(i). Section 3(1)(i) merely states: -

The definition of "business premises", is simply "premises which are not domestic premises", and "domestic premises" are defined as, "premises the subject of a separate letting (including any bed-space, cubicle, room, floor, or portion of a floor or building) which are used wholly or primarily for human habitation."

8. Counsel for the appellant drew the Tribunal's attention to an earlier decision in the case of Mee Sun Cheong v. Sun Kee L. T. A. 8/84 in which this Tribunal considered that the provisions for determining primary user under section 51 of Part II of the Landlord and Tenant (Consolidation) Ordinance provided a useful basis for approaching the user question under Part I. The relevant considerations under Section 51 were summarised in that decision and it was mentioned that the Court of Appeal gave considerable weight to most of these factors in the Part II appeal in Chan Kwok-kwan v. Chan Cheong-wai trading as Chan Cheong Kee Store (1980) H. K. L. R. 450 in which case the suit premises had originally been let as a garage and there were no expressed provisions in the agreement permitting domestic use. The premises were in fact used as a provisions store. The tenant fitted out the premises as a store with a sign "Chan Cheong Kee Store" at the front and the business was registered as a grocery dealer. However, the premises were also used for domestic purposes in that it was also the residence of the tenant and his family. In that case an officer of the Rating and Valuation Department produced a sketch plan showing 71% of the 834 square feet premises as being for non-domestic use and 29% as being used for domestic purposes. It was held that there was a joint usage and the court should not be mesmerised by such arithmetic. The matter was not simply the position during business hours as the premises was also totally used outside those hours as a place of residence. Ascribing a 10% domestic use to the shop area, which was used as a sitting room for the family in the evenings and 50% to the passage used partly for storage purposes, the balance shifted in favour of the domestic use. The court also found that the financial benefit to the tenant was greater as a dwelling than as a business when the net income for the grocery business was only roughly equivalent to the rent paid. The primary use was held to be domestic.

9. Officers of the Rating and Valuation Department have inspected the suit premises in connection with two separate applications. The first occasion was, as mentioned previously, on the application of So Tin the widow of Chan Yuk the deceased former principal tenant. So Tim's application dated 17th February 1982 was made under the repealed section 7A with respect to user and inspection was apparently carried out on 28th and 31st May 1982. The Commissioner issued a certificate on 3rd June 1982 under the provisions then existing, certifying the premises as being domestic. At that time the premises were wholly let to Lee Sang, who according to the enquiries made by the inspect-ing officers, had been the "sub-tenant" in these premises from 1962. Section 7A(6) excluded premises which were sub-let from the provisions of this section. While this should have precluded the premises from such a determination, the Commissioners, none the less issued a decision based on the inspection. The question of the validity of this certificate or whether the premises were in fact the subject of a sub-tenancy is not before the Tribunal.

10. The second occasion followed the appellant's application when the premises were inspected on 10th August 1984. The officers of the Rating and Valuation Department who made this inspection were not the same as those who made the earlier inspection. The reports of both inspections have been included in Mr. Yuen's affidavit submitted on behalf of the Commissioner. Mr. Yuen, who is a Senior Rating and Valuation Surveyor also gave evidence and assured the Tribunal that no appointments were made before any of the visits to the premises. The large table which Mr. Jee said was used by the customers who purchased congee from Mr. Lee was not recorded in either of the two reports but other articles such as beds, tables, a refrigerator, a television and some chairs were included. The kitchen was recorded on both occasions. The existence of a fruit trolley and empty fruit cartons being stored on the premises was included in the latest report. There was no mention of any storage of pipes in the rear yard. On the earlier occasion the officer responsible considered the premises to be "wholly domestic". On latest inspection a different officer wrote, "No alteration effected. Certified domestic premises on 28.5.82. Promises used mainly for dwelling on 10.8.84". These remarks were apparently made by the inspecting officers' superior in each case and based on the reports of the inspecting officers.

11. Mr. Yuen said he did not attach any significance to the omission from the reports of the existence of the sign "Sun Kee". He inspected the premises himself and noticed the sign. He said the paint on the sign was peeling and it was undoubtedly over 10 years old. In accordance with Section 3(i), he was not concerned with the use prior to May 1979.

12. Mr, Yuen admitted that the Commissioner had endorsed an increase in rent from $120 per month to $630 per month effective from 1st March 1982. The standard rent is $35 and the new rent of $630 represents 18 times the standard rent. This rent, under the repealed Section 10(1)(b), was the permitted rent for business premises. The rent permitted for domestic premises was at the same time only 8 times the standard rent. It has been established that the wife of the deceased principal tenant asked for a user determination in February 1982 and the Commissioner certified the premises domestic in June 1982. There was no evidence of any action having followed this determination. From what Mr. Yuen said in evidence it appears that the Commissioner takes no action on the receipt of a copy of a notice of increase received under Section 10(1c) other than to record it. He said it is up to the tenant to dispute any increase.

13. Mr. Yuen was asked about some notes made on a Rating and Valuation. Department works sheet. This sheet was used in relation to the notice of increase and gave an estimate of the market rental value at that time being $4,000 per month. Mr. Yuen said this would have been the rent if the premises were used for business. Counsel for the appellant apparently considered this note on the works sheet was relevant to his case, but it would appear on the evidence, that the officer dealing with this matter was unaware or not concerned with any user determination and was treating the ground floor premises as being capable of being let for business purposes. Because there is such a provision in Section 9A, he might have been checking that the increased rent did not exceed the prevailing market rent. 18 times the standard rent was acceptable as it was less than the assessment of the prevailing market rent which of course must be based on a hypothetical case and consequently must disregard the actual occupation by the Lee family. In fact the user was not determined on the application of the tenant until after the notice of increase was sent to the Commissioner. These events do nothing to suggest there was a business use.

14. The appellant appeared to put some weight on the assessed rateable value being based on business use but did not pursue this argument once he was aware of the definition of rateable, requiring that a hypothetical tenancy has to be assumed and that the actual tenancy arrangements or the Lee's present occupation of the premises must also be disregarded for the purposes of this assessment.

15. Neither the occupant of the premises Lee Sang nor his son Lee Shing Kwok who paid the rent to Mr. Jee were called to give evidence. However, Chan Bor who visits the premises each week and is the son of the deceased principal tenant Chan Yuk gave evidence. He confirmed that Lee Sang was a fruit hawker and that fruit was stored on the premises from time to time. He also Said the handcart used by Mr. Lee was kept inside the premises when Lee was not using it for his fruit selling business which he carried out on the street away from the premises itself. He knew nothing of the sale of congee on the premises, nor had he ever seen a vehicle parked within the premises. With respect to the Storage of pipes, Mr. Chan thought Mr. Jee may have mistaken those pipes Stored in the yard next door as having been Stored in the yard of the Subject premises. He thought it was possible to confuse the adjacent yards when viewing them from the upper floors as Mr. Jee Said he had done. Chan Bor stated that the premises had always been occupied for the purpose of a dwelling both by his father Chan Yuk who until his death, occupied a bed-space and also by his father's sub-tenant Lee Sang and his family who have been there since 1962.

16. The suit premises is the residence of Lee Sang and his son Lee Shing Kwok. In one of the reports there is a reference to Lee Sang's wife also being on the premises during the inspection made on 31.5.82. The premises have always been described by the tenants as being a dwelling. If there has been any business carried out on the premises, it has been done intermittently. There was no evidence of any business registration. The selling of congee for a period in 1981, the garaging of a car for a few months in 1982 or the storage of some fruit and a hawker's handcart, would appear on the evidence to be secondary to the use as a residence. If there was in fact any storage of pipes in the courtyard in mid 1984, it would appear that the pipes were stored in connection with the business next door.

17. I am therefore not persuaded that the primary use of the suit premises is non-domestic. But rather on the evidence I am satisfied that the premises are domestic and properly come within the provisions of Part I of the Landlord and Tenant (Consolidation) Ordinance. The appeal is dismissed. There will be no order as to costs.

18. Dated this 20th day of March, 1985.