LEE HO SEOK v. KANVEST LTD

DCCJ 5074/2002

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 5074 OF 2002

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JUDGMENT

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1.  This case involves a trivial dispute between landlord and tenant.  I am confident to say that most of such kind of disputes could have been resolved amicably between the parties, and it is very unfortunate that the present case needs to be ended up in court.

2.  Under a tenancy agreement dated 6 April 2001 (“the Agreement”), the Defendant let the premises known as Flat A2, 32/F, Block A and Car Parking Space No. 130 on Car Park 1 of Beverly Hill, 6 Broadwood Road, Hong Kong (“the Premises”) to the Plaintiff for residential purpose for a term of 2 years from 7 April 2001 to 6 April 2003 at a monthly rental of $47,000.  About one year after the commencement of the tenancy, the Plaintiff exercised the right under the break clause in the Agreement to terminate the tenancy on 6 June 2002.

3.  A director of the Defendant, Mr. Wong Hung-ho (“Mr. Wong”), accepted the key of the Premises when he met the Plaintiff on 6 June 2002.  During the term of the tenancy, the Plaintiff put various nails in the walls to hang pictures and to secure the back-panels of the bookshelves to the walls.  When Mr. Wong inspected the Premises on 6 June 2002, he complained about the holes in the walls.  There is dispute as to whether Mr. Wong did on that occasion also complain about the dirt marks in the walls, but I do not find it to be material to the issues of the case.  The parties discussed the matters again on 8 June 2002, and it was finally resolved that the Plaintiff would engage his own contractor to mend the holes.

4.  The repair work commenced on 11 June 2002 and lasted for 3 days.  After such repair work, Mr. Wong was still not satisfied.  He complained that the holes were not mended properly, and there were considerable dirt marks in the walls.  He therefore engaged: (i) a surveyor to conduct an inspection of the Premises on 19 June 2002; and (ii) a contractor to carry out further repair works, including mending the holes and repainting nearly all the walls in the Premises, from 22 to 25 June 2002.  After that, Mr. Wong deducted a sum of $48,066.60 from the rental deposit of $94,000, and issued a cheque in favour of the Plaintiff for the balance in the sum of $45,933.40.  The Plaintiff complained that the deduction was unjustified and refused to accept the cheque, and he commenced the present action against the Defendant to claim for the return of the whole rental deposit in the sum of $94,000.

5.  According to the Defendant’s case, the deductions mentioned in the last paragraph include:

(i)	costs of the repair work	:	$14,000
(ii)	surveyor’s fee	:	$2,800
(iii)	loss of rental income from 7 to 25 June 2002	:	$29,766.6
(iv)	legal costs and disbursement	:	$1,500

The issues

6.  The relevant clauses of the Agreement are set out as follows:

“	7.	The Tenant shall not make or permit to be made any structural alterations in or additions to the said premises without first obtained the written consent of the Landlord therefor which consent shall not be unreasonably withheld or delayed or cut maim or injure or suffered to be cut maimed or injured any doors, windows, walls ………
		………
	11.	The Tenant shall constantly maintain and keep in proper and tenantable repair and condition the whole of the non-structural interior of the premises and every part thereof including but not limited to all doors, windows, locks, hinges, bolts, ceilings, floor, water pipes, water closets, unconcealed electrical wiring and sanitary fittings and apparatus (fair wear and tear and structural latent and inherent defects all excepted).”

7.  In the beginning of the trial, the Plaintiff sought to argue that the drilling of the holes in the walls was done with the consent of the Defendant.  However, after listening to the evidence in the trial, in particular, the Defendant could not have known about the nails used to secure the back-panels of the bookshelves to the walls, Mr. Suen for the Plaintiff, quite sensibly, dropped this argument.  In such case, and by virtue of clause 7 of the Agreement, the Plaintiff was required to repair the holes in the walls.  As the key was handed back to the Plaintiff for his contractor to carry out the repair work, the Plaintiff should be liable to pay for the Defendant’s loss of rental income from 7 to 13 June 2002.  The figure of $10,967 is accepted by the parties to be the loss of rental income for such period of time.

8.  The remaining issues are therefore as follows:

(i)	whether the Plaintiff had, by the work carried out by his contractor, discharged his obligation under the covenant to repair?
(ii)	whether the alleged dirt marks complained of by the Defendant fall within the meaning of “fair wear and tear” excepted under clause 11 of the Agreement? and
(iii)	whether the Defendant has suffered the alleged losses which justifies the deduction made by the Defendant in respect of the rental deposit?

The evidence

9.  In the trial, the Plaintiff and his contractor, Mr. Chan Chi-kin, testified in support of the Plaintiff’s case, and Mr. Wong and his contractor, Mr. Lui Ip-choi, testified on behalf of the Defendant.  Since no leave for expert evidence has been sought, the parties accept that all the witnesses are witnesses of fact only.

10.  There is no great difference between the Plaintiff’s and the Defendant’s evidence.  The witnesses did disagree as to whether Mr. Wong complained about the dirt marks during the inspection of the Premises on 6 June 2002, and whether the Defendant had consented to the putting of nails in the walls, but such disputes are not relevant to the issues of the present case.  The witnesses also disagreed as to whether there were shadings in the walls and whether the wall surface was smooth after the Plaintiff’s repair work, but in my judgment, these are matters of degree which depend very much on the subjective evaluation and demand of a particular person.  Ultimately, they are matters for the court to decide having regard to the photographs taken by the parties after the completion of the Plaintiff’s repair work.  To me, the photographs are certainly more objective and reliable evidence than the subjective opinion of the witnesses.

Holes in the walls and the obligation under the covenant to repair

11.  By looking at the photographs taken by the Plaintiff and the Defendant’s surveyor, I do not notice that there was any shading in the walls after the completion of the Plaintiff’s repair work.  I may perhaps accept that some shadings might be noticeable under a minute examination, but the shadings cannot be regarded as serious to any extent.  I can also see that some of the wall surface was not perfectly smooth, but again the alleged defect was, in my judgment, very minor.  On the whole, I find that the condition of the Premises was quite acceptable considering that they had been occupied by the Plaintiff as a lawful tenant for 14 months.

12.  Mr. Wong of the Defendant complained that he could not rent out the Premises in such condition to another tenant.  The Premises are located in a neighbourhood with high income, and the prospective tenants are usually senior executives of reputable companies, hence they would not tolerate such defects in the Premises.

13.  In support of the argument that the Plaintiff had a heavier burden under the duty to repair, Ms. Chan, counsel for the Defendant, referred me to some authorities on the standard of such obligation, including Proudfoot v Hart (1890) 25 QBD 42 and Fujitsu Hong Kong Ltd. v Kwan Sit-cham [1991] HKDLR 23.  Perhaps a good summary of the law on this area can be found in the book of Hong Kong Tenancy Law by Malcolm Merry, 4 ed., at p. 116:

“The standard will vary with the length of the lease, the obligations to repair undertaken by tenant and landlord in other covenants, and the age, character and location of the premises at the time the lease was entered into.  In one old case it was said that:
	‘good tenantable repair’ is such repair as, having regard to the age, character and locality of the house, would make it reasonably fit for the occupation of a reasonably-minded tenant of the class who would be likely to take it.
This means that a higher standard of repair would be expected, for instance, in a modern flat in a middle-class district than in a flat in an old tenement block in a crowded area.  The character of the district and the character of the premises may change over time, so it is important to consider the nature of the location and the premises at the beginning of the lease.  Where, as is common in Hong Kong, the lease is for three or fewer years these considerations are, however, unlikely to make a difference.”

14.  If the leased premises are in a very bad condition in need of repair, obviously the outgoing tenant, before he vacates the premises, has a duty to carry out reasonable repair work, the standard of which is to be judged according to factors such as the neighbourhood of the premises.  However, that does not necessary mean that the outgoing tenant has a duty of redecorating the leased premises to the satisfaction of the new tenant.  This was exactly what the Defendant had asked the Plaintiff to do, which simply cannot be right.

15.  As the learned author of the Hong Kong Tenancy Law by Malcolm Merry, supra, has noted in the passage above, the standard of the duty to repair for leases in Hong Kong has to be decided according to the local circumstances.  In England, a lot of the leases are long-term leases involving large estates.  In such cases, prospective tenants would not expect the premises to be in perfect condition when they take up the leases.  In Hong Kong, most of the leases are short-term leases involving small flats, and the tenants would usually demand the premises to be in much better condition.  They would not tolerate minor “fair wear and tear” defects, and so the landlords would usually have to carry out some minor redecoration work before leasing out the properties again.  Hence, the outgoing tenants do not have the burden of redecorating the premises to the satisfaction of the new tenants.  In the present case, one may perhaps say that the repair work by the Plaintiff’s contractor was not perfect.  However, taking into account that the landlords in Hong Kong are usually expected to carry out some minor redecoration work before letting out the properties again, and that the condition of the Premises after the Plaintiff’s repair work was quite satisfactory, I do not find that the Plaintiff was in breach of the covenant to repair.  The Defendant’s complaint in this regard is therefore unjustified.

Dirt marks and “fear wear and tear”

16.  From the photographs, I can see that there were some dirt marks in the walls.  However, I am of the view that these marks were “fair wear and tear” caused by reasonable use of the Premises on the part of the Plaintiff.  Bearing in mind that the Plaintiff had to move furniture in and out of the Premises during the term of the tenancy, which could easily result in some marks being left in the walls, and that the dirt marks were not particularly serious, I do not find that the Defendant’s complaint is justified in this regard.  The new tenant might not particularly like these dirt marks, but as they were “fair wear and tear”, the Plaintiff had no duty to remove these marks to the satisfaction of the new tenant.

Other issues relating to damages

17.  Even if the Plaintiff was in breach of the covenants under the Agreement, there are other obstacles barring the Defendant from claiming any damages in the present case.  Firstly, leaving aside the larger and the more noticeable dirt marks, some of the minor dirt marks in the walls were undoubtedly “fair wear and tear”.  According to the Defendant’s case, it was not possible to repaint part of a wall because of the shading problem.  Hence, even with some minor marks, the Defendant would have had to repaint the walls in any event in order to place the Premises for lease again in the market.  That was exactly what the Defendant did before it leased the Premises to the Plaintiff.  As the Defendant was expected to incur such costs in removing the “fair wear and tear” defects to the satisfaction of the new tenants, the presence of the larger marks did not make a difference as far as the Defendant’s costs are concerned.  In other words, the Defendant has suffered no real loss in this regard.

18.  Stuart Brown QC, sitting as a deputy judge of the Queen’s Bench Division, made a similar observation in Burkeman v G E Capital Europe Limited [2002] EWHC 2863 (QB).  In that case, the learned judge was asked to, inter alia, assess the damages for breach of covenant to repair on the part of the tenant.  The lease involved an “attractive” property with high rent.  In assessing the loss, Stuart Brown QC made the following observations:

“	25.	……… Any tenant moving into a property of this quality would expect, if not perfection, something approaching perfection.  A landlord would, as previous experience …… demonstrates, thus be required to do some works before tenants moved in.  In any event, I re-emphasise that this was not a repairing tenancy.  Any landlord letting property under a tenancy of this kind would expect to have to redecorate on a regular basis.
		………
	41.	……… Common sense, one’s own experience and, indeed the evidence, would suggest that a property would require to be redecorated perhaps every three or five years, a distinction being drawn between emulsioned areas, woodwork and wallpapering.  Though it was fresh, it was not without defects.  I have already made the point that if the Claimant succeeded in full for that figure of 21,000 pounds, she would be able to move a new tenant in every two or three years without expending another penny on the décor.  That cannot possibly be right.  However, even in the context of this property, there are large sums and there were clear breaches. ……..
		………
	43.	The matter can perhaps be tested in this way.  What if, in the early stage of the tenancy, the tenant had removed some curtain poles, leaving holes behind?  He could, at that stage, have been required to make good the damage, but he could not possibly have been expected at that stage to redecorate.  It does not seem to me that his obligation at the conclusion of the tenancy can be a different one.  Fair wear and tear was something everyone expected.  Fair wear and tear necessarily involved contemplated redecoration at the end of a tenancy of this length.  Mr. Kremen, in large measure, accepted as much.  Thus, my task, properly expressed, uneviable though it is, is to identify and compensate, if anything can be identified consequent thereon, for the extra redecoration necessitated by the proven or admitted breaches. ………

The learned judge then went through the painful exercise of going through all the items in the repair bill and tried to identify and compensate for the extra redecoration work necessitated by the breaches.

19.  In the Burkeman case, Stuart Brown QC expressly found that the property was left by the outgoing tenant in “appalling condition”, and so the learned judge was able to identify the costs for the extra redecoration work.  Whereas in the present case, the Premises were in reasonable condition in the end of the tenancy.  As it was not possible to repaint part of a wall by reason of the shading problem, and that the Defendant was expected to repaint the walls in any event to remove the “fair wear and tear” defects to the satisfaction of the new tenant, I cannot identify any extra redecoration works necessitated by the alleged breach of covenant on the part of the Plaintiff, which I do not find it be the case.  Hence, the Defendant has suffered no real loss even if the Plaintiff was in breach of the covenants under the Agreement.

20.  Further, the court has to take into account the factor of betterment in assessing any possible damages.  As Stuart Brown QC has described in the Burkeman case, betterment can be described “as the mirror side of the same coin”, and such factor should be taken into account in the assessment exercise.  Based on the same reasoning as stated in the last few paragraphs, I doubt whether the Defendant has suffered any real loss after taking into account the betterment that had been obtained by it after the repair work by its own contractor.

21.  By reason of the aforesaid, apart from the loss of rental income in the sum of $10,967, the Defendant was not justified in making further deduction from the rental deposit.  The Plaintiff’s claim should therefore succeed.

22.  In the final submission, Mr. Suen inadvertently revealed to me that the Defendant had made a payment into court in the sum of $45,933.40 on 22 August 2002.  However, it has all along been the Defendant’s case that such sum of money should be returned to the Plaintiff, and the only issue is whether the deduction made by the Defendant as to the balance of the rental deposit is justified.  Hence, the revelation of the payment into court would not prejudice the defence.  Indeed, the Defendant pleaded such fact in the original Defence and Counterclaim, and so the court would have been able to know about the payment by reading the pleadings in the agreed bundles for the trial.  It shows that the Defendant did not mind the court knowing about the payment, and no retrial is therefore necessary.

23.  Hence, I grant judgment in favour of the Plaintiff in the sum of $83,033 ($94,000-$10,967) and dismiss the counterclaim.  I also make an order nisi that:

(i)	there be interest on the said sum at the rate of 8% per annum from 13 August 2002 to the date hereof and thereafter at judgment rate;
(ii)	the costs of this action be to the Plaintiff with certificate for counsel.

The order nisi is to be made absolute 14 days after the date of the handing down of this judgment.

25.  Finally, I would like to express my gratitude to both counsel for their able submissions and the assistance that they have rendered to this court.