LAT KIT LAU MUTUAL AID COMMITTEE v. COMMISSIONER OF RATING & VALUATION

IN THE LANDS TRIBUNAL OF HONG KONG

(Appellate Jurisdiction)

Rating Appeal No. 9/84

BETWEEN

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DECISION

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TRIBUNAL : His Honour Judge Leonard, Presiding Officer and M.W. Phillips Esq. Member

1. These two matters concerning the assessment of the rateable values of two similar Mutual Aid Committee rooms in a Housing Society Estate at Lai Tak Tuen Road Hong Kong came before the Court of Appeal which consolidated the appeals as they both involved the same points of law. One of the rooms is situated on the lst floor of a residential block and the other is on the 24th floor of the residential portion of another block. Both rooms have been partitioned off in what had formerly been designated as play areas. The Court of Appeal referred the matters back to the Tribunal to reconsider its earlier decisions in the light of certain principles which were set out in the Court of Appeal's Judgement. It is convenient to consider both matters together in setting out the decision we have reached after due reconsideration.

2. Counsel for the Respondent summarised these principles as follows. In assessing rateable value all realistic alternative uses to which the premises could be put are to be taken into account. The terms of section 7(2)(b) of the Rating Ordinance Cap 116 necessarily require the Commissioner to act on the hypothesis that the Crown is not the immediate lessor and the terms of any head lease from the Crown must be ignored. The financial ability of the tenant to pay is to be ignored unless the demand for particular premises is restricted to only one or to a very small number of hypothetical tenants. Any benefit received by a landlord in letting to a particular tenant is no more a relevant consideration than detriment and the fact of intermittent user at the material time is neither here nor there.

3. The respondent had previously assessed the Lai Kit Lau room, being Unit 111, 1st Floor, Lai Kit Lau, at $19,200 and the Tsuen Wing Lau room, being Unit 2432A, 24th Floor, Tsuen Wing Lau, at $21,600. Both rateable values were to come into effect on the 1st April 1984. Under section 12 of the Rating Ordinance, the designated date of assessment of the rateable values is let of July 1983. (The Hong Kong Government Gazette GN 2412 of 1983). The Tribunal formerly held that the conditions of the hypothetical tenancy assumed in accordance with the provisions of section 7(2) prevail over any contractual conditions in the actual tenancy, but not over the conditions of ownership as laid down in a Crown lease, and the tenement should be valued on the basis of lawful uses within the same mode and character as the existing occupation. The Court of Appeal ruled that the terms of the head lease from the Crown must be ignored. However, statutory restrictions which affect the use of premises must be taken into account as must the possibilities of waiver by the Crown or of the willingness of a potential occupier to risk breaking the law.

4. The Tribunal has heard further submissions and admitted additional evidence in the form of a comparable letting for storage purposes in the subject development some 3 months prior to the relevant date. It has not been asked, as it was originally, to consider rents for office premises. Counsel for the Commissioner has agreed that use as office premises does net come within the scope of realistic alternative uses, not being within the same mode or character as the use of the subject tenements. Nor were we asked, for the same reason, to consider the rents originally listed in respect of a medical clinic, a police post or a home for the elderly.

5. However we were requested to consider the probability of these tenements being let for storage purposes, workshops, or as study rooms. No direct evidence that there was any demand for workshops or study rooms was submitted and no comparables for these purposes were cited. At the original hearing two comparables of storage lettings were listed. One was for an area of 22.4 sq. metres in the Lai Kok Housing Estate at Cheung Sha Wan, Kowloon and the other one for an area of 23.8 sq. metros at the Sha Kok Housing Estate in Shatin in the New Territories. Each was let close to the relevant date of 1st July 1983 and the rents reflected unit rates per month of between $51.88 and $53.34 per sq. metre. We were told that these promises were let to estate shopkeepers as separate storage areas and were ground floor premises. This was also the case for the additional comparable submitted at this hearing, which was a letting of an area of 16.6 sq. metres of ground floor space in the subject estate. This storage space was let to an adjoining supermarket in April 1983 at $290 per month. This was interpreted by Mr. Chu Yue Bun, a Senior Rating and Valuation Surveyor in the Rating and Valuation Department who also gave evidence for the Commissioner at the earlier hearing, as being equivalent to $17.46 per sq. metre. In this analysis he deleted a considerable portion of the room. That is he deleted from the total area of approximately 29 sq. metres that area beneath a staircase and below what ho termed was "natural headroom" of five feet six inches, as well as a corridor adjoining the entrance. The Tribunal considered that, if this room were to be used for storage, these areas would be utilised. As a means of taking those areas into account, the Tribunal requested that Mr. Chu compare the volume of this room to that of the subject tenements.

6. The Lai Kit Lau Mutual Aid committee room has a volume of 116.82 cubic metros, while that for the Tsuen Wing Lau Mutual Aid committee is 95.98 cubic metes. The volume of the comparable storage area was calculated as 62.739 cubic metres which gives a unit rate $4.62 per cubic mete per month. Comparing the rents paid per month for the subject premises, the Lai Kit Lau room reflects a rate of $3.25 per cubic mete and the Tsuen Wing Lau a rate of $4.68 per cubic metre. Alternatively, on an area basis, with the corridor and that area below a height of 5 feet 6 inches included, the comparable equates to about $10.00 per square metre compared to $11.00 per sq. metre paid for each of the subject premises.

7. Mr. Chu considered that his comparable rent of $290 per month was on the low side. He arrived at this conclusion by reference to his other comparables for storage lettings of approximately $50 per sq. metre at Kowloon and Sha Tin. The Tribunal considered that these comparables were too remote from the subject tenements to be of any assistance in establishing any demand or appropriate level of value. Mr. Chu agreed that there was little demand for storage space in the subject estate. This, he believed, was mostly due to the policy of the Housing Society not to let such storage areas to any party, other than other than existing tenants, but there was no evidence that there is any potential demand from any interested parties outside the estate. In its earlier decision on page 29, paragraphs 2 and 3, the Tribunal said it was convinced that there was no general demand for storago in this predominatly residential estate. It was shown, on inspection, a storage area, which was vacant and unused. It was also shown storage areas which were underutilised. These had not been mentioned in evidence. The Tribunal came to the conclusion on page 30 of its earlier decision that there was, on the evidence, no demand for any alternative uses within the same mode or category as the use of the subject tenements. The Tribunal remains of that opinion. The evidence leads to the conclusion that any demand for storage or similar purposes has been met. We are grateful for the assistance that Mr. Chu has offered in submitting the additional comparable. However as pointed out in the case of Union Carbide Asia Limited v The Hong Kong Land Company Limited (1982) HKDCLR 75, this Tribunal does not think that any one transaction can be taken as a sound basis for valuation. The new comparable, the store room, is let to an adjoining occupier. It is established practice to treat with reserve any transaction involving an adjoining owner or occupier. There is very likely to be an element of special value to an adjoining occupier, resulting in a higher rent being paid than would be the case if the bargaining were confined to a hypothetical landlord and a hypothetical prospective tenant unaffected by any such considerations.

8. Bearing in mind these matters, we would not feel it safe to draw any firm conclusion based on this latest comparable, but we would observe that if it were to be taken as a guide, it would tend to support the Appellants case rather than that of the Respondent. Indeed, the subject tenements suffer from the disadvantage that they are not conveniently located whereas the comparable is adjacent to the ground floor premises which it serves.

9. All the evidence supports the view previously held by the Tribunal that the actual tenants are the only available tenants. In such circumstances the rents actually paid are the best evidence of market value. As the demand for these premises is so restricted it is proper to consider the financial ability of the tenants to pay but it is unnecessary for us to say more since we have already found the actual rent to be the best evidence of value on the particular facts of this case. In coming to this decision we have ignored the fact that the Crown is the immediate lessor as we have ignored any benefit derived by the landlord from the occupation of the premises. Nor have we speculated on the effect the intermittent use of premises might have on the rent paid although this, as with the ability to pay may be a factor which would influence the level of rent when there is only one or a small number of possible hypothetical tenants.

10. Taking into account the principles outlined by the Court of Appeal and all the evidence placed before this Tribunal, we determine that the rateable value of the Lai Kit Lau Mutual Aid Committee room, being Unit 111 1st Floor Lai Kit Lau, No. 38 Lai Tak Tsuen Road, Hong Kong, is $4,560 and the rateable value of the Tsuon Wing Lau Mutual Aid Committee room, being Unit 2432A, 24th Floor Tsuen Wing Lau, 16 Lai Tak Tsuen Road, Hong Kong is $5,400.

11. We accordingly order the Collector of Rates to amend the valuation list as follows :

 

(1)	The rateable value of the Lai Kit Lau Mutual Aid Committee Room, being Unit 111 1st Floor Lai Kit Lau, No. 38 Lai Tak Tsuen Road, Hong Kong is to be reduced from $19,200 to $4,560.