TITANO LTD v. CHEUNG SO AND OTHERS

LDCS 9000/2007

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

Land Compulsory Sale Main Application No. 9000 of 2007

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JUDGMENT

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1.  This is the Applicant’s application for a compulsory sale order under the Land (Compulsory Sale for Redevelopment) Ordinance, Cap. 545 (“the Ordinance”) in respect of all the undivided shares of the Remaining Portion of Kowloon Inland Lot No. 2340 (“the Lot”).

2.  The Applicant was the majority owner of over 90% of the undivided shares of the Lot at the time when the application was issued.  Subsequently, the Applicant was able to purchase the shares owned by the 1^st to the 4^th Respondents and became the majority owner of over 98% of the undivided shares of the Lot.  The application against the 1^st to 4^th Respondents has been discontinued before the trial of this application.

3.  The estate of the late Lo Kam Lin owns the remaining undivided shares of the Lot which is allotted to the unit known as 1^st Floor, No. 215C Prince Edward Road West (“the Unit”).  When the late Lo Kam Lin passed away in 2004, she left a will appointing her 4 children as executors and bequeathing her estate to the 4 children as tenants-in-common in equal shares.

4.  Gong Do-Guay is one of the 4 children and is applying for the grant of probate in respect of the estate of the late Lo Kam Lin.  The grant of probate has not been issued yet.  By an order of this Tribunal dated 20 May 2008, Gong Do-Guay is appointed as person to represent the estate of the late LO Kam Lin, i.e. the 5^th Respondent.

5.  The 4 children have no objection to sell the Unit to the Applicant, but as the grant of probate has not been issued, they are not able to complete the sale and purchase with the Applicant, even though a conditional sale and purchase agreement has already been executed with the Applicant to sell the Unit for the price of $6,007,520.00.

6.  Thus, the Applicant has to proceed with the application to obtain a compulsory sale order in respect of the Lot, even though the 5^th Respondent has no objection to the application at all.

7.  Moreover, the Applicant submits that by virtue of section 4(2) of the Ordinance, the Tribunal has to be satisfied that the redevelopment of the Lot is justified due to the age or state of repair of the existing building and the majority owner has taken reasonable steps to acquire all the undivided shares of the Lot before making an order for sale.  Thus, the Applicant is required to adduce evidence to satisfy the Tribunal in this regard even though there is no objection from the 5^th Respondent to the granting of the order.

8.  Accordingly, the Applicant called 3 experts and 1 factual witness to give evidence and produced 8 bundles of documents as exhibits (i.e. “AR1” to “AR8”).  The Applicant also produced a letter concerning the appointment of trustees for sale of the Lot, which is marked as Exhibit “A1”, and the Particulars and Conditions for Sale, which is marked as Exhibit “A2”.  The 5^th Respondent did not adduce any evidence at all.

9.  Having considered all the evidence before us, particularly when there is no contradicting evidence from the 5^th Respondent, we are satisfied that the requirements laid down in section 4(2) of the Ordinance have been complied with.  In particular, we are satisfied that the existing building on the Lot has reached the end of its economic life, as the cleared site value of the Lot significantly exceeds the value of its existing use because of its age as reflected by features of obsolescence (see Mr. Benson Wong and Mr. Charles Chan’s reports).  We are also satisfied that the structural frames of the existing building are in poor conditions and urgently require repairs (see Mr. K.S. So’s report).  The cost of repair is not economically justified (see Mr. Benson Wong and Mr. Charles Chan’s reports).

10.  Thus, we find that the redevelopment of the Lot is justified both on the ground of the age and state of repair of the existing building (see Intelligent House Limited v. Chan Tung Shing & ors. LDCS 11000/2006).

11.  As to the reasonable steps taken by the Applicant, the Applicant has in fact managed to purchase all the undivided shares of the Lot including those of the 5^th Respondent, save that the Applicant cannot complete the sale and purchase with the 5^th Respondent because of the lack of grant of probate.  We accept that it is reasonable for the Applicant to impose the condition for the 5^th Respondent to obtain the grant of probate first before completing the sale and purchase, as it might affect the title of any new development on the Lot.  There is no issue that the price offered to the 5^th Respondent was unreasonable at all.  Thus, we find that the Applicant has already taken reasonable steps to acquire all the undivided shares in the Lot.

12.  In the circumstances, we shall make an order for sale in respect of the Lot.

13.  In fixing the reserve price for the Lot, we have considered Mr. Charles Chan’s evidence carefully.  Mr. Chan’s evidence is that the redevelopment value (“RDV”) of the Lot should be $345,000,000.00 and hence the reserve price should be fixed at $345,000,000.00.  We are satisfied with the valuation approach and the RDV assessment of Mr. Chan.  In particular, we have asked Mr. Chan to elaborate his valuations in respect of 2 parameters he adopted in his valuation: (i) the choice of 2 different sets of gross development value’s unit rates and costs in the Residual Valuation (at p. 176 of “AR5”) and the “After Valuation” (at p. 163 of “AR5”), and (ii) the allowance for the 20% developer’s profit in the deduction of the land premium before arriving at the RDV of the Lot.

14.  In accounting for the different assumptions he adopted for the Residual Valuation of the Lot and the “After Valuation” (for the purpose of determining the land premium the owners of the Lot has to pay to the Government in order to effect the proposed lease modification), Mr. Chan justified that in the former case, he assumed the optimum market development of a higher quality building (with higher quality finishes and services) as he envisaged, whilst in the latter case, he considered that it would be appropriate to adopt the average quality development as what the Lands Department would accept in lease modification applications.

15.  We queried that when deducting for the estimated capital outlay of land premium payable to the Government, an allowance for the 20% developer’s profit may be a double counting since a similar developer’s profit has already been allowed for in both the “Before” and “After” valuation.  Mr. Chan confirmed that this was appropriate.  He reckoned that a developer would always expect to have remuneration in the form of a developer’s profit whenever a capital outlay was made.  As a result, there was no double counting in his computations.

16.  Since there is no other evidence to contradict Mr. Chan’s evidence, we accept his explanations.  In the circumstances, we are satisfied with his RDV valuation and the final estimate of the RDV.  The reserve price of $345,000,000.00 is therefore correct.

17.   Under section 10 of the Ordinance, the apportionment between the majority owner and minority owner of the Lot shall be on the basis as specified in Part 3 of Schedule 1 of the Ordinance.  Under the said Schedule, the proceeds are to be apportioned on the basis of the existing use values (“EUV”) as stated in the Applicant’s Notice of Application.  In this connection, we have considered the evidence of Mr. Chan, as shown in his EUV valuation at pp. 8 to 50 of “AR5”.  We are satisfied with his EUV valuation of all the residential units and car parks including the EUV valuation of the Unit.

18.   We accept that Mr. Ma Ho Fai and Ms. Tsang May Ping are suitable persons to be appointed as trustees for sale as per the terms stipulated in Exhibit “A1”.  The conditions of sale as stated in Exhibit “A2” are also appropriate.

19.   In the circumstances, we grant the following orders as sought by the Applicant:-

(1)  The existing use value of the Unit and those of the Applicant’s be fixed as set out in paragraph 9 of the Valuation Report of 31 July 2007 appended to the Application herein.

(2)  All the undivided shares of the Lot be sold by way of public auction for the purpose of redevelopment under section 4(1)(b) of the Ordinance.

(3)  Mr. Ma Ho Fai and Ms. Tsang May Ping be appointed under section 4(1)(c) of the Ordinance as trustees for sale of the Lot and be authorized to charge such remuneration for their services in accordance with the terms set out in Exhibit “A1”.

(4)  For the purpose of a sale of the Lot by public auction under section 5(1)(a) of the Ordinance:

(a)  The sale of the Lot be on the particulars and conditions substantially the same as those in Exhibit “A2”;

(b)  The reserve price be set at $345,000,000.00;

(c)  Subject to further extensions that the Tribunal may subsequently allow upon the application of the purchaser of the Lot or its successors in title, the redevelopment of the Lot shall be completed and made fit for occupation within a period of 6 years after the date on which the purchaser of the Lot shall become the owner of the Lot as specified by section 9 and Schedule 3 of the Ordinance.

(5)  Liberty to the Applicant, the 5^th Respondent and the said trustees to apply for further directions under the Ordinance.

20.  We shall now hear the parties on costs.