Chan Kai Yuen and Another v. The Director of Lands

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

Lands Resumption Application No. LDLR 8 of 1999

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J U D G M E N T

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Background

1. The subject premises, being Ground Floor of No. 432 Reclamation Street, Kowloon, form part of a major resumption of the Land Development Corporation's Redevelopment Scheme K2 ("the Scheme"). The Scheme covers a site enclosed by sections of Argyle Street, Portland Street, Hong Lok Street, Shanghai Street, Reclamation Street and Shantung Street.

2. Under Notice of Resumption (GN No. 61) dated 18 December 1996 registered by Memorial No. 6875738, the subject premises reverted to the Government on 3 April 1997 pursuant to Section 3 of the Lands Resumption Ordinance Cap 124.

3. The Applicants were the registered owners of the subject premises prior to the reversion.

4. A compensation claim amounting to $11,030,000 was made by the Applicant based on the following calculations :-

Applicable Unit Rate of $233,100 psm x Weighted Saleable Floor Area of 47.3 sm= $11,025,630 rounded to $11,030,000.

5. The Respondent disputed both the Applicable Unit Rate and the Weighted Saleable Floor Area in the compensation assessment.

6. The Compensation submitted by the Respondent is as follows:-

Applicable Unit Rate at $195,000 psm x Weighted Saleable Floor Area of 38.2 sm = $7,449,000.00 rounded to $7,500,000.00.

Selection of Comparables

7. In arriving at the Applicable Unit Rate, both experts of the Applicant and Respondent made reference to a set of 6 comparables which are basically the same except for the two different dates of transactions in respect of G/F of No. 632 Shanghai Street ("Comparable No. 2"). The Applicant's Expert adopted the transaction on 18 June 1997 of Comparable No. 2 at $10.28M in the comparable analyses whereas the Respondent's Expert adopted the transaction of the same property on 17 April 1997 at $9.2M.

8. It is considered more logical to adopt the transaction closer to the date of valuation for the purpose of comparable analysis.

9. The Respondent's Expert confirmed that the floor areas of the cockloft and yard as listed in the Summary of Adjustment at Appendix II of his Supplementary Rule 20 Submission dated 9 June 2000 were obtained from Rating & Valuation Department records and are on internal floor area basis. The Applicant's expert also on examination confirmed that the yard area should be on internal floor area basis. The Tribunal, on balance prefers to adopt the facts and dimensions of those comparables as tabled by the Respondent's Expert.

10. Before arriving at the "Applicable Unit Rate" the expert witnesses applied adjustments to the selected comparables. Having considered the available evidence and arguments of both parties, the Tribunal has the following determinations on the various adjustments.

Location

11. When questioned by the Tribunal, the Respondent's Expert opined that the subject premises could be adjusted by -40% when compared to G/F 538 Shanghai Street which was the subject in LDLR No. 6 of 1998 (the "Poon Chao Fai Case"). The Applicant's Expert suggested an adjustment of -35% for this comparison. It is also noted that the Respondent's Expert adopted 0% locational adjustment for Comparable No. 4 at 451 Shanghai Street whilst the Respondent's Expert adopted -5%.

12. The Tribunal has made reference to the Tribunal's findings on locational characteristic in the "Poon Chao Fai Case". The Tribunal has found the set of locational adjustments to the comparables proposed by the Respondent's Expert consistent with the findings of the Tribunal in the "Poon Chao Fai Case". Hence, the Tribunal decides to adopt the adjustments for location proposed by the Respondent's Expert.

Time

13. Except for Comparable No. 2 for which the Applicant's Expert adopted a transaction of later date than that adopted by the Respondent's Expert, the Time Adjustment of the two witnesses are basically the same except a minor difference for Comparable No. 6. The Tribunal has decided to adopt the facts of the comparables of the Respondent's Expert. Similarly the set of time adjustments of the Respondent's Expert is adopted.

Frontage

14. There is only minor difference in the frontage of the subject premises and the comparables.

15. Having regard to the type and uses of similar properties in the vicinity as described in "Poon Chao Fai Case", the Tribunal accepts the Respondent's proposal that no adjustment for Frontage is necessary.

Size

16. Both witnesses adopted similar adjustments for size to the comparables except for Comparable No. 4, which has a main shop area of 80.1 sm. In this regard we prefer to adopt the 15% adjustment proposed by the Applicant's Expert in the analysis of Comparable No. 4.

17. The market transactions of the selected comparables are analyzed with the various adjustments as follows:-

Note:In calculating weighted area, yard and (cockloft) C/L are taken respectively at 1/6 and 15% of G/F area for Comparables No. 1 to 5 and 25% in respect of C/L for Comparable No. 6.

18. It is considered as fair and reasonable to adopt a rate of $200,000 per square metre as the appropriate adjusted unit rate for assessing the compensation for resumption of the subject premises in respect of the main shop area, with reference to the analyzed adjusted unit rates of the selected comparables.

Cockloft

19. There is no evidence that the cockloft is an authorized structure. From the authorities presented by the Respondent, there is the established practice of the Lands Tribunal that the value of unauthorized buildings is to be excluded from assessment of compensation.

20. Nevertheless, it should be noted that the analyzed rate of $200,000 psm is based on a G/F shop area of normal headroom of around 10 feet or 3 metres. Both experts admitted that the cockloft has a headroom of 2.1m.

21. The space occupied by the unauthorized cockloft will provide extra headroom to the G/F area and enhance its market value that has been set at $200,000 psm.

22. The Tribunal is of the view that even without the properly constructed cockloft, be it authorized or unauthorized, willing buyers in the market will derive additional benefit out of the headroom space, of 2.1m in this case, and hence are prepared to offer an extra bid for the subject premises when making comparison with other properties without such benefit of the unusual headroom. This extra bid will vary for different types of properties and uses.

23. With reference to the type and use of the subject premises and the other properties in the vicinity which mainly are engaged in hardware and machinery trades, the Tribunal decides to adopt an enhancement of 5% to the adjusted unit rate in assessing the G/F area with an extra 2.1m of headroom.

Weighted Saleable Floor Area

24. The Tribunal prefers to adopt the calculation of floor area by the Respondent's Expert who has made reference to building plans and site measurement records. It adopts the internal floor area for valuing the yard.

25. The open market value of the subject premises at the reversion date of 3 April 1997 is therefore assessed as follows :-

G/F 36.0 sm @ $200,000 x 105%	$7,560,000
yard 13.3 sm @ $200,000 x 1/6	$ 443,333
	$8,003,333
say :	$8,000,000

Order

26. We order that the Respondent pay the Applicant compensation in the sums of $8,000,000, being the open market value of the subject premises.

27. Leave is reserved to apply for the rate of interest, to be determined under Section 17(3A) of the Lands Resumption Ordinance Cap. 124, if not agreed.

28. There is an order nisi that the Respondent is to pay the Applicant s' costs to be taxed if not agreed, to be made absolute unless application is made by either party within 21 days for another order in place thereof .

29. There is liberty to apply for ancillary & consequential matters.