Abdoolally Ebrahim & Co. (H.K.) Ltd. v. Formalex Ltd.

LDNT43 OF 2000

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

New Tenancy Application No. 43 of 2000

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J U D G M E N T

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Background

The Applicant is the tenant and the Respondent is the landlord of the subject premises known as Flat E on 41st Floor of Block 3 and Car Parking Space No. 233 on 2nd Floor, Estoril Court, 55 Garden Road, Mid-levels, Hong Kong ("the subject premises"). The subject premises was held under a tenancy for a term of 2 years from 16th April 1998 to 15th April 2000 at a rent of $110,000 per month, on the basis of exclusive of rates and management charges. In the Notice of Application (Form 22) dated 16th February 2000, the Applicant applied for an order for the granting of a new tenancy at such terms to be determined by the Tribunal. The Respondent opposed the application on the ground, inter alias, that the Applicant had persistently failed to pay the rents punctually on due date(s) since July 1999, causing unnecessary inconvenience to the Respondent.

2. On 6th July 2000, a preliminary hearing was held by the Tribunal to determine whether the Respondent succeeded in establishing any ground to oppose the application. On 4th August 2000, the Tribunal held that the Respondent had failed to do so and it granted the parties to the liberty to fix a date for the determination of the terms of the new tenancy. On 11th August 2000, the Applicant fixed a hearing on 3rd November 2000 for the said determination. Meanwhile, on 18th August 2000, the Respondent filed a Notice of Appeal against the judgment of the Tribunal delivered on 4th August 2000. On 5th October 2000, the Respondent took out a summons by which it applied for an order that the hearing date fixed on 3rd November 2000 be vacated. H.H. Judge Chow granted the application on 20th October 2000.

3. On 23rd January 2001, the Court of Appeal dismissed the Respondent's appeal.

4. An application was made by the Applicant for leave to fix a date for the determination of the terms of the new tenancy. The application was opposed by the Respondent and was heard by H.H. Judge Chow on 14th March 2001. The following orders were made on 20th March 2001:

(1) This case be heard on 21st and 22nd May 2001 at 10:00 a.m., Court No. 2 before a Presiding Officer and a Member of the Lands Tribunal.

(2) Parties are at liberty to file and serve further expert report/witness statements (if any) on or before 15th May 2001.

5. At the beginning of the hearing, the parties consented that the new tenancy shall be for a term of 2 years commencing from 16th April 2000 at a prevailing market rent (PMR) to be determined by the Tribunal but otherwise on the same terms as in the previous tenancy agreement entered into by the parties. Both parties also agreed that for the purpose of estimating the PMR at the relevant valuation date of 15th April 2000, the Tribunal shall assume that the air conditioning system for the subject premises was in a normal, reasonable state.

The Applicant's case

6. Mr. Ebrahim J. Abdoolally, a director of the Applicant, gave evidence. He had been residing in the subject premises since around November 1988. He gave evidence that previously the subject premises enjoyed unobstructed panoramic harbour view. Over the years, a number of buildings had since been erected and these had blocked the view from the subject premises. As a result, he could only see part of the harbour in between buildings. Also, he complained that the flow of water in the subject premises had not been constant.

7. The Applicant called for the evidence of an expert witness, Ms. Sat Wei Ling, Chartered Surveyor. Ms. Sat produced a valuation report, which can be found in page 25 to page 65 of Exhibit A1. Ms. Sat gave evidence that during her inspection, she had manually tested the water pressure of the subject premises by turning on and off the water taps of the baths and the sinks one by one. She had the observation that the water flow was slow.

8. Ms. Sat produced a revised summary sheet (produced as Exhibit A2) setting out the details of her valuation and the valuation of Mr. Ian R. C. Cullen, Chartered Valuation Surveyor, another expert witness. Ms. Sat considered and made reference to all her four comparables in the subject development originally set out in page 60 of Exhibit A1 as well as the fifth comparable which had been originally considered by Mr. Cullen but not by Ms. Sat:

Comparable (1) (same as Mr. Cullen's comparable Ref. 8.1): Flat B on 42th Floor & 1 car park

Comparable (2) (same as Mr. Cullen's comparable Ref. 8.2): Flat D on 24th Floor & 1 car park

Comparable (3) (same as Mr. Cullen's comparable Ref. 8.5): Flat D on 34th Floor & 1 car park

Comparable (4) (same as Mr. Cullen's comparable Ref. 8.3): Flat D on 35th Floor & 1 car park

Mr. Cullen's comparable Ref. 8.4: Flat D on 25th Floor & 1 car park

9. Ms. Sat adjusted the comparables for the factors of time, floor level, view and domestic appliances. After giving appropriate adjustments to the 5 comparables, she found that the comparables had after adjustment unit rates of $340.2, $358.9, $297.1, $349 and $296.9 per sq. m. respectively. After revising the weightings she gave to the various comparables, she arrived at a weighted average of $337.2 per sq. m. for the subject premises. She applied this weighted average to the agreed saleable area of the subject premises of 278.6 sq. m., giving an estimated rental value of $93,944. She further proposed one downward adjustment of 3% to reflect the low water pressure of the subject premises and she arrived at a value of $91,126 which she rounded to $91,000. This was Ms. Sat's estimated PMR for the subject premises.

The Respondent's case

10. The Respondent called for the evidence of an expert witness, Mr. Ian R. C. Cullen, Chartered Valuation Surveyor, who produced a valuation report which was in page 66 to page 111 of Exhibit A1. His comparables Ref. 8.1 to Ref. 8.5 show unadjusted unit rates of $348, $323, $330, $269 and $280 per sq. m. respectively. During the hearing, Mr. Cullen revised pages 82 and 83 of Exhibit A1, adding his adjustments to Ms. Sat's Comparable (3) and revising the weightings for his comparable Ref. 8.3. Mr. Cullen adjusted the comparables for the factors of time, appliances, floor level and view. The total adjustments he estimated for his comparables Ref. 8.1 to Ref. 8.5 were, in the order of his comparable, -0.23%, +22.36%, +19.6%, +20.33% and +19.93%.

11. In particular, Mr. Cullen's estimated adjustments for view alone accounted for +15% . Obviously, this factor was considered by Mr. Cullen to be the most important factor which had the most significant effect in his valuation. Mr. Cullen produced some photographs (Exhibits R3, R4 and R5) in support of his estimates for the sorts of view that the comparables might or might not enjoy. These photographs were taken from Mr. Cullen's office at 12th Floor of Baskerville House, 22 Ice House Street, Central, Hong Kong. Mr. Cullen also testified that he had walked from Central to Admiralty on foot in order to ascertain the sort of view that the comparables might command.

12. Mr. Cullen in his valuation arrived at adjusted unit rates of $347, $395, $395, $324 and $335 per sq. m. Mr. Cullen also revised his weightings for the comparables. In the final analysis, Mr. Cullen estimated the weighted unit rate of the comparables to be $357 per sq. m. Applying this to the saleable area of 278.6 sq. m. gives an estimated monthly rental value of $99,460. Therefore, he estimated the PMR for the subject premises to be $99,000.

Determination by the Tribunal

13. The two experts had considered the same 5 comparables before arriving at their estimates of the PMR for the subject premises. The estimates of Ms. Sat and Mr. Cullen were $91,000 and $98,000 respectively. Their difference was $7,000. On further analysis, we note that their main differences rested on their adjustments for view and whether or not an allowance should be given for the alleged low water pressure to the subject premises. Both Ms. Sat and Mr. Cullen gave very conflicting evidence as to whether or not the comparables enjoyed view similar to the subject premises and hence, the quantum of adjustment, if any, that should be given. Similarly, the two experts and the parties had diverging views as to whether an allowance should be made for the alleged situation of low water pressure.

14. However, without the benefit of actually viewing the subject premises and all the comparables and without direct evidence from the parties, we decide that it would be very difficult for the Tribunal to decide to accept exclusively either Ms. Sat or Mr. Cullen's opinion and hence their adjustments for the differences in the view from the comparables vis-à-vis the subject premises. During the hearing, the parties asked if the Tribunal would like to make an inspection of the subject premises. However, since the parties stated that they could not arrange for an inspection of any of the comparables, we decide that any such site inspection would not serve any useful purpose.

15. We note that both experts considered the best comparable to be Flat B on 42th Floor of the subject building, which is Ms. Sat's Comparable (1) or Mr. Cullen's comparble Ref. 8.1. This is evidenced by both the weightings the experts gave to this particular comparable, as well as the relatively small adjustments made to this comparable by the two experts. Mr. Sat gave a weighting of 4 for this comparable out of a total weighting of 10 for all 5 comparables, whilst Mr. Cullen's's respective figures were 6 out of 11. Mr. Sat estimated that a total adjustment of -2.3% to this comparable was appropriate and Mr. Cullen suggested an even lower total adjustment of -0.23%.

16. We find that although the comparables considered by the two experts were similar flats in the same development, Estoril Court, the parties had big differences in terms of the appropriate adjustments for view. Therefore, although it is not very desirable in general to rely on the evidence of a single comparable, out of a number of comparable properties, we find and decide in this case that we prefer to rely on the best comparable of "Flat B on 42th Floor" for the purpose of determining the PMR of the subject premises. We find that the use of this comparable will avoid the adoption of an adjustment percentage for the factor of view since it is common ground that both the subject premises and this comparable enjoy the same view, whether it is a panorama view as submitted by the Respondent or a restricted view as presented by the Applicant's witness. This is especially important since the Tribunal could not have the benefit of direct evidence from the parties as to the actual view that could be commanded from the comparables. The experts had worked diligently in order to gauge the sort of view that might be commanded. However, they were not able to have the opportunity of actually viewing from the comparables or similar flats from the same levels of the comparables. Hence, their evidence of view from the Central or Admiralty at different levels might only paint a limited picture of the reality of the actual situation for the comparables. It could well be that the experts were both right when they gave evidence that they estimated that the view from the comparables were of such and such magnitude. This was because they viewed the comparables from different locations at different levels and angles.

17. Next, we consider the details of the best comparable, Flat B on 42th Floor of Estoril Court. The tenancy for this comparable is a new tenancy for a term of 2 years commencing from 14th February 2000 at a rent of $97,000 per month, on exclusive basis. The two experts' adjustments to this comparable are set out below:

	Ms. Sat (the Applicant)	Ms. Cullen (the Respondent)
Time	0	0.4%
Floor	-0.3%	-0.33%
View	0	0
Domestic Applicance	-2%	-0.3%
Total Adjustment	-2.3%	-0.23%
Adjusted unit rate (per sq. m.)	$340.2	$347.4
Estimated PMR for the subject premise	$94,780	$96,786

18. We note that the differences in the adjustments of this comparable by both experts are quite small. Therefore, we decide to take the average of their estimated PMR for the subject premises, based on this comparable alone. This we calculate to be $95,783 which is rounded to $95,750.

19. Regarding the Applicant's submission that an allowance should be made to reflect the undesirable low water pressure situation for the subject premises, we agree with the Respondent that this is unnecessary. We consider that even if the Respondent's alleged problem exists, it will not affect the subject premises alone but will have a similar effect on other flats of similar floor level, including the comparable that we are considering.

20. Accordingly, we make the following orders:

Orders

1. New Tenancy for 2 years from 16th day of April 2000;

2. New rent at $95,750 per month (exclusive of rates and management charges); leave to the Respondent to pay the Applicant the over-payment of rent (if any) within 1 month;

3. Deposit to be adjusted pro rata in accordance with the new rent; leave to the Respondent to pay the Applicant the adjustment within 1 month;

4. Other terms of new tenancy same as in the previous tenancy agreement;

5. Regarding the trial of the preliminary issue conducted on 6th day of July 2000, the Tribunal makes an order nisi, to be made absolute in 14 days' time, that each party is to bear its own costs;

6. The Tribunal makes an order nisi, to be made absolute in 14 days' time, that there be no order as to costs for this new tenancy application.