ELVERA KWONG MAN LING v. RAYMOND K. HUNG AND ANOTHER

Property law - Part IV application for new tenancy - Government Private Tenancy Allowance scheme - any valuation or advice supplied by Commissioner of Rating and Valuation to civil servant by arrangement with the Secretary for the Civil Service under Private Tenancy Allowance scheme is an internal administrative procedure between the Government as employer and the tenant as employee - such valuation or advice is not an exercise by the Commissioner of any of his statutory powers under Part IV or otherwise of the Landlord and Tenant (Consolidation) Ordinance - the Private Tenancy Allowance for which a tenant may be eligible and the amount of the landlords mortgage repayments are subjective factors personal to the parties and not relevant to the objective determination by the Tribunal of the prevailing market rent - observations on limited weight to be given merely to evidence of asking prices for new rents - corner influence - Landlord and Tenant (Consolidation) Ordinance, Cap. 7, Sections 50(5)(1), 116, 117.

IN THE LANDS TRIBUNAL OF HONG KONG

Application No. L.T. 292 of 1984

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JUDGMENT

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1. The applicant is the tenant of the domestic premises known as House No. 2, 4th Street, River North, Section P, Fairview Park, Yuen Long, New Territories of which the respondents are the landlords. The premises were first let by the respondents to the applicant under a tenancy agreement for 2 years which commenced on the 16th day of August, 1982 at a rent of $5,000 per month exclusive of rates.

2. The premises are subject to Part IV of the Landlord and Tenant (Consolidation) Ordinance, Cap. 7 being domestic premises in respect of which the occupation permit was issued after the 19th day of June 1981 - Sections 116 and 50(5)(1). The applicant now applies, pursuant to Section 117, for the grant of a new tenancy for a duration of 2 years from the 1st day of August 1984 at a new rent of $4,000 per calendar month exclusive of rates. The respondents do not oppose the grant of a new tenancy but object to the applicant's proposed new rent of $4,000 per month. Initially the respondents sought a new rent of $6,500 per month but after obtaining a report from their chartered surveyor, submitted that the new rent should be $4,600 per month.

3. The original wide rental difference between the applicant and the respondents largely arose from factors personal to the parties. Those factors while very real to them, are of no direct relevance to the fundamental issue facing the Tribunal, which is to determine the prevailing market rent of the subject premises as at the 16th day of August 1984. The principal factor personal to the applicant is that she is a civil servant employed by the Agriculture and Fisheries Department. As a consequence of that status she is eligible to apply to the Hong Kong Government for the discretionary grant of a Private Tenancy Allowance. The Secretary for the Civil Service periodically announces rates for Private Tenancy Allowances which vary according to the salary of the civil servant, whether the civil servant is married and, if so, whether she has children.

4. On the 25th day of February 1984, the Secretary for the Civil Service announced, by Circular No. 5/84, reduced rates effective for new tenancies from the 1st day of April 1984. No doubt the reduction in rates was to reflect a recent general drop in rents for domestic premises. The applicant is a single person and under the new rates her maximum Private Tenancy Allowance for a new tenancy is $4,870 per month.

5. However, that allowance is a maximum. Each particular allowance is also only approved if the Commissioner of Rating and Valuation advises the Secretary for the Civil Service that the new rent is reasonable. The procedure devised by the Secretary for the Civil Service is for civil servants to seek the advice of the Commissioner of Rating and Valuation before entering into any negotiations for a new tenancy or for a renewal of an existing tenancy. The applicant followed that procedure and informs us that the Commissioner of Rating and Valuation advised her that prevailing rents for similar domestic premises at Fairview Park were $4,300 per month and that in her particular case she should seek a new tenancy at a rent of $4,000 per month. On the basis of that advice she has brought the present application.

6. The applicant further points out that in addition to the new rent, she would have to pay monthly management fees of $350 and rates of $429 every 3 months. On this basis, her gross monthly outgoings, on a new rent of $4,000 would, after management fees and rates are added, amount to $4,493. In addition, as the first occupant of the premises she incurred decoration and landscaping expenses which she will not recover on termination.

7. We appreciate that all these matters are obviously very real considerations for the applicant. However, eligibility for a Private Tenancy Allowance is a subjective factor personal to the applicant. In determining the prevailing market rent we merely have to determine the rent the premises currently command in the market. That determination is made objectively. In making that objective determination it is not proper for us to take into account how a tenant obtains funds to pay that rent; whether that rent is reasonable in relation to the tenant's income; or whether the tenant enjoys the benefit of a tenancy allowance from her omployer.

8. Similarly the advice of the Commissioner of Rating and Valuation to the applicant is not relevant unless the applicant elects to call him to give evidence before the Tribunal. Recently there have been several applications where the applicant, a civil servant eligible to apply for a Private Tenancy Allowance, has obtained the advice of the Commissioner on the new rent. There seems to be confusion among some applicants as to the Commissioner's status in giving that advice and it may be helpful if we were to comment upon his position.

9. Under the Landlord and Tenant (Consolidation) Ordinance the Commissioner has a number of statutory responsibilities including, in certain circumstances, the determination of rents and increases of existing rents. Where the Commissioner exercises those statutory powers his determinations have the legal consequences, including altering the rent payable between tenant and landlord, provided for in the Ordinance.

10. However, the Commissioner has many other functions some of which are of an advisory nature to other Government departments. When the Commissioner gives such advice he is not exorcising any of his statutory powers under the Landlord and Tenant (Consolidation) Ordinance. One example of where he tenders advice is to civil servant tenants, under the arrangement organised by the Secretary for the Civil Service in relation to the Government's Private Tenancy Allowance scheme. The Secretary for the Civil Service has recommended in writing that tenants should obtain this advice before entering into negotiations.

11. In view of the fact that for the purposes of the Private Allowance scheme, the Secretary for the Civil Service requires the Commissioner to be satisfied that the new rent is reasonable, it seems to be a commonsense arrangement for the civil service tenant to consult with the Commissioner at this early stage before negotiations for a new rent commence. It was solely under this consultative arrangement that the Commissioner supplied the applicant with the rental figures referred to earlier of $4,000 and $4,300 per month.

12. We set out this background to emphasise that neither the recommended figure of $4,000 per month or the indication of current new rents of $4,300 per month, were figures the Commissioner determined in discharge of any statutory duties under the Landlord and Tenant (Consolidation) Ordinance. They were neither calculated nor determined pursuant to statutory duty under the Ordinance. Nor can we in this application give them any evidential weight. It is, of course, always open to an applicant in such circumstances to call the Commissioner or one of his officers to give evidence before us in support of a rental figure contained in any earlier advice to a civil service tenant. In this application the applicant did not elect to call such evidence.

13. In the instant circumstances the advice of the Commissioner to a civil service tenant is no different and has no greater evidential effect than any pre-hearing advice given to a party by their own privately employed chartered surveyor from the private sector. The Commissioner's involvement before this hearing, in the dealings between the applicant and the Secretary for the Civil Service, were purely of an internal administrative nature. We therefore confirm that they have no effect or significance under the Landlord and Tenant (Consolidation) Ordinance nor was the Commissioner exercising any of his powers thereunder.

14. The respondents were obviously concerned that the old rent of $5,000 per month might be reduced to a lesser sum under the new tenancy agreement. In their notice of opposition they sought a new rent of $6,500 per month in terms of an alleged agreement for renewal. No such agreement was established. This increased rent was further claimed to be reasonable in view of the respondents mortgage out goings on the subject promises. The subject premises were purchased for $850,000 subject to a mortgage for 12 years under which the monthly repayments are $7,106. We accept that the old rent and the new proposed rents are all less than the respondents mortgage repayments. Again, however, the purchase price and the mortgage repayments are factors personal to the respondents and not relevant to the objective determination of the prevailing market rent.

15. Accordingly, in ascertaining the prevailing market rent of the subject premises we are not permitted to take into account any rental subsidy the applicant may be eligible for under the Hong Kong Government's Private Tenancy Allowance scheme nor the advice she may have received in relation thereto from the Commissioner of Rating and Valuation. Nor are we able to take into account the purchase price paid by the respondents or the substantial monthly mortgage payments they are required to meet. We have set out on a number of previous occasions why these subjective factors are not relevant and do not need to repeat them again - Union Carbide Asia Ltd. v. The Hong Kong Land Co. Ltd. (1982) H.K.D.C.L.R. 75; Mass Transit Railway Corporation v. Hsu and Sons Ltd. (1982) H.K.D.C.L.R. 93.

16. Turning to the evidence adduced, the applicant in giving evidence produced a copy of the "Sing Tao Yat Po" newspaper dated the 22nd day of June 1984 which advertised for letting a similar Fairview Park house of 1700 square feet, at an asking rental of $4,500 per month. The applicant pointed out that the rent included the provision of an air conditioner and furnishings by the landlord. This advertised property at No. 16, 3rd Street, Section C, Fairview Park was only inspected from the outside by the applicant who stated that it was an identical property to the subject premises and that the Tribunal should infer that the negotiated rent would be for a sum less than the asking rental of $4,500 per month. In cross-examination she agreed that the subject premises were a corner site while the advertised property was not a corner site.

17. We have in the past adverted to the danger of giving substantial weight to mere asking rents - Lee v. The Hong Kong & Shanghai Hotels Ltd. L.T. 15/83; Rhoades v. Lee Wai Lee L.T. 42/83. The danger is the greater where the applicant, as here, only quotes one single property. An asking price by a landlord as well as a counter-offer by a tenant, will often be influenced by factors other than actual market values. This quickly became evident as the evidence evolved in this application. The applicant in applying for a new rent of $4,000 was clearly substantially influenced by her eligibility for a Private Tenancy Allowance the maximum rate of which is based on factors personal to her namely salary and marital status. Similarly, the respondents original claim for a new rent of $6,500 was founded more on the sum required to meet the monthly mortgage payments than on the market value of the premises. Real evidence of market value only arises when agreement has been reached between parties freely negotiating. In such cases even an agreed rent must then be tested by comparison with other agreed rents for similar premises.

18. The respondents called Mr. Pang Ho Chuen, Chartered Surveyor, to give evidence. Mr. Pang is an Associate of the Royal Institute of Chartered Surveyors and has been employed by Collier Potty, Chartered Surveyors, since 1981. In his opinion the prevailing market rent of the subject premises was $4,600 which he rounded up from unit rate calculations which had produced a figure of $4,566 per month. In arriving at those figures he considered recently negotiated rents of five other Fairview Park houses. None of the comparable were for corner sites and he stated that there were relatively few corner sites in Fairview Park. In his opinion a corner site attracts a higher value. He pointed out that the subject premises, by virtue of being a corner site, had greater privacy and a better view than other comparables.

19. A corner site generally attracts a higher value. This factor is known under the valuation concept of "corner influence". A typical corner site has two street frontages while a non-corner site will usually have only one street frontage. A corner site usually has only 2 neighbours or contiguous sites while other sites will have 3 neighbours or contiguous sites. The higher value of a corner site is due to a number of factors including additional light and air; one less neighbour; and a degree of prominence.

20. In this particular application in addition to there being no evidence of actual transactions in Fairview Park supporting the existence of corner influence in that complex, we were not supplied with information from any similar residential complexes in Hong Kong. If such evidence had been adduced it might have been possible to confirm not merely that corner influence exists but also to quantify its degree. Hopefully, in the future where corner influence is relevant this detailed evidence will be available.

21. In the absence of such detailed evidence, Mr. Pang relied on the general principle that a corner site will attract a higher unit rate value than a non-corner site. On this basis he allowed 3% for corner influence. While he was unable to support that figure with any detailed analysis, in the circumstances 3% is not an excessive allowance.

22. After considering the whole of the evidence we reject the applicant's submissions that $4,000 represents the prevailing market rent. We accept Mr. Pang's general approach. However, we would again draw attention to a lack of any form of analysis to support the adjustments made in his Report. We refer to the adjustments for age, location and more particularly for the open terrace and garden. In the result, rather than rounding up Mr. Pang's calculations from $4,566, they may reasonably be reduced a little to $4,400 per month to better reflect the prevailing market.

23. The applicant submitted that the new tenancy should be for 2 years from 1st August 1984. However, she appears to have overlooked that the existing tenancy agreement did not expire until the 15th day of August 1984. The earliest a new tenancy could commence would therefore be on the 16th day of August 1984. The respondents did not object to the new tenancy commencing on the later date.

24. We therefore order:-

DATED this 17th day of September 1984.