TAI CHUNG PROPERTY LTD v. CHEN LAN SUM IRENE

LDCS 4000/2023

[2025] HKLdT 40

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE MAIN APPLICATION NO 4000 OF 2023

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BETWEEN

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JUDGMENT

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Background

1.  This is an application for a compulsory sale order (“the Application”) under the Land (Compulsory Sale for Redevelopment) Ordinance, Cap 545 (“the Ordinance”) to sell all the undivided shares of New Kowloon Inland Lot No 3941 (“the Lot”) on which two pairs of 5-storey tenement buildings (collectively “the Buildings”) are erected, having their addresses respectively as 308 & 310 and 312 & 314 Shun Ning Road, Cheung Sha Wan, Kowloon (respectively, “308/310 Building” and “312/314 Building”). The Buildings are collectively named as Tai Chung Court.

2.  By reference to a Permit No K279/58 issued by the Building Authority on 15 October 1958 (“Occupation Permit”), permission was granted to occupy and use the Buildings for domestic purposes. Each of the Buildings has two domestic units per floor, giving a total of 20 domestic units. Each of the Buildings is served by one common staircase.

3.  According to the record of the Land Registry, the Buildings are subject to a Deed of Mutual Covenant dated 27 February 2021 whereby each unit was allotted one equal and undivided share of and in the Lot.

4.  As at the date of the Application, being 10 July 2023, the applicant owned all the equal undivided share of and in Lot save the following owned by two respondents:

(1) the 1^st respondent (“R1”) who owned 3/F, together with Balcony and Veranda Appertaining Thereto, 308 Shun Ning Road; and

(2) the 2^nd respondent (“R2”) who owned 3/F, together with Balcony and Veranda Appertaining Thereto, 314 Shun Ning Road.

5.  The Lot was granted under Conditions of Grant No 5721 (“the Land Grant”) dated 12 March 1957 under the Civil Servants’ Co-operative Building Society Scheme which was launched by the Government in 1952 to provide accommodation to Co-operative Building Societies’ members and their families (“the Scheme”). The grantee in the present case was Tai Chung Co-operative Building Society Limited.

6.  Co-operative Building Societies were formed by eligible civil servants, governed by the Co-operative Building Societies Ordinance, Cap 33. Under the Scheme, Co-operative Building Societies were granted lands by Government at a concessionary rate, together with Government loans to Co-operative Building Societies at preferential interest rates so as to enable them to build residential buildings for their members and families. Therefore, Co-operative Building Societies were lessees under the Government leases but Co-operative Building Societies can grant underleases to their members who shall have the right to the exclusive use of their respective flats in Co-operative Building Societies’ buildings.

7.  In response to requests of the Co-operative Building Societies’ members, the Government in 1987 introduced the “Guidelines to be followed to achieve the transfer of title to flats and land from Civil Servants’ Co-operative Building Societies and Government Built Housing Schemes to their individual members and underlessees” under a surrender and regrant approach. Basically, it would allow the dissolution of the Co-operative Building Societies concerned and the transfer of legal titles from the dissolved Co-operative Building Societies to individual Co-operative Building Societies’ members subject to the unanimous consent to all members.

8.  In 1993, the Government replaced the surrender and regrant approach with the “Guidelines to be followed to achieve the transfer of title to flats and land from Civil Servants’ Co-operative Building Societies to their individual members” by modification of the Government leases. Under this new approach, a Co-operative Building Society may, upon obtaining the consent of 75% of its members, apply for dissolution whereby the individual member may acquire title to his/her own flat and land by deed of assignment but subject to a alienation restriction.

9.  The members of Tai Chung Co-operative Building Society Limited followed the new approach and dissolved the Tai Chung Co-operative Building Society Limited with the appointment of liquidator on 20 March 2020. The Land Grant was then modified by a Modification Letter dated 29 June 2020 vide memorial No 20071001420025 (“the Modification Letter”).

10.  The Land Grant as modified by the Modification Letter dated 29 June 2020 contained provisions to restrict, inter alia, alienation save as provided by paragraph (F) under Special Condition No (18) of the Third Schedule to the Modification Letter. The following provisions of the Modification Letter are relevant to the removal of the non-alienation provision:

(a) Paragraph (F) under Special Condition No (18) of the Third Schedule to the Modification Letter provides, inter alia, the following:

“any owner … of a Relevant Interest in the lot may assign mortgage or charge underlet part with possession of or otherwise dispose of or permit or suffer any other person to use or occupy such Relevant Interest if … (b) he/she/it shall have first paid to the Government either an amount equal to two-thirds of the existing use land value of the Relevant Interest or if the lot is economically suitable for re-development at the relevant date an amount equal to two-thirds of such sum as the Director shall on a fair and impartial valuation certify to be the full market value of such Relevant Interest at the said date it being agreed and declared that upon payment of either of the amounts as hereinbefore provided in respect of any Relevant Interest the restriction on alienation contained in Special Condition No (18) hereof shall be null and void and shall cease to have effect but only in so far as it relates to such Relevant Interest and no further.”

(b) The term “Relevant Interest” is defined in Special Condition (19)(A)(a) of the Modification Letter to mean, is essence, the undivided shares allotted to individual units in the Buildings together with exclusive possession of such units.

11.  Paragraph (B) under Special Condition No (18) of the Third Schedule to the Modification Letter further provided that:

“the grantee [namely the Liquidator of Tai Chung Co-operative Building Society Limited who executed the Modification Letter (“the Liquidator”)] may assign unto the Former Members undivided shares of and in the lot together with the right to the exclusive possession of premises in the building or buildings erected thereon subject to and together with the benefit of a deed of mutual covenant on condition that each of the Former Members on taking such assignment shall execute a First Legal Charge in a form approved by the Director (of Lands) on his Relevant Interest (as hereinafter defined) in favour of The Financial Secretary Incorporated for securing the payment to the Government of the amount (hereinafter more particularly specified in Special Condition No (18)(F) below) for the removal of the restriction on alienation contained in Special Condition No (18) hereof so far as that restriction is a restriction of alienation of those undivided shares the subject to each such First Legal Charge. The condition contained in this Special Condition shall run with the lot and be binding on the grantee’s successors in title and assigns” (underline added).

12.  By an Assignment dated 17 February 2023 and registered in the Land Registry by Memorial No 23022001210035 executed by the Liquidator in favour of R1, she became the registered owner of her unit in the Buildings, ie 3/F, together with Balcony and Veranda Appertaining Thereto of No 308 Shun Ning Road (“R1’s Unit”).

13.  By an Assignment dated 17 February 2023 and registered in the Land Registry by Memorial No 23022001210015 executed by the Liquidator in favour of R2, the latter became the registered owner of 3/F, together with Balcony and Veranda Appertaining Thereto of No 314 Shun Ning Road.

14.  The Legal Charge Memorial No 23022001210048 was executed by R1 in favour of The Financial Secretary Incorporated (“FSI”) in respect of 3/F, 308 Shun Ning Road; the Legal Charge Memorial No 23022001210028 was executed by R2 in favour of FSI in respect of 3/F, 314 Shun Ning Road.

15.  Clause 3 and Clause 4 under either of the two Legal Charges provided as follows:

Clause 3:

“Provided that upon payment to the Government of the Hong Kong Special Administrative Region of all sums and amounts hereinbefore covenanted to be paid by the Chargor the Chargee will at the request and cost of the Chargor duly discharge this security.”

Clause 4:

“The Chargor hereby irrevocably appoints the Chargee and any receiver or receivers appointed by the Chargee by way of security jointly and each of them severally to be the attorney of the Chargor (with full power of substitution) and in the Chargor’s name or otherwise and on the Chargor’s behalf and as the Chargor’s act and deed to sign, seal, execute, deliver, perfect and do all deeds instruments acts and things which may be required or which the Chargee or any such receiver or receivers shall think fit for carrying into effect any sale, lease, charge or dealing by the Chargee or by any such receiver or receivers or for giving to the Chargee the full benefits of this Legal Charge.”

16.  The applicant and R2 had on 17 April 2023 entered into an agreement for sale and purchase to purchase R2’s unit. Pursuant to the provisional agreement for sale and purchase, completion would take place within 28 days from the date of notice in writing issued by the solicitors of the applicant notifying that the applicant has received original of the demand note for premium payable for removing the restriction on alienation.

17.  Subsequent to the commencement of the Application, on 17 August 2023, the applicant acquired R2’s interest and share of the Lot when he became the registered owner on the same day. The Application against R2 was discontinued by an Order of the Tribunal dated 25 August 2023.

18.  R1 has her own property as early as in 1993, being a joint tenant of a property at Laguna City, Lam Tin, Kowloon[1]. The other joint tenant, Mr Eric Ma, is her husband. By the Assignment from Tai Chung Co-operative Building Society Limited dated 17 February 2023, R1 came to be the owner of her unit in the Buildings, ie R1’s Unit. As can be gathered from the recital of the Assignment[2], R1 was not the nominated beneficial successor of her deceased father’s membership in Tai Chung Co-operative Building Society Limited. She only came to be eligible to her deceased father’s interest and rights after her siblings had waived their rights and interests.

19.  As recounted by Ms Chow Ka Kay (“Ms Chow”), the Senior Manager and authorized representative of the applicant, in her supplemental witness statement dated 26 February 2024[3], the applicant had offered assistance to enable R1 to obtain title to R1’s Unit and incurred costs and expenses in the process.

20.  By her Notice of Opposition dated 14 July 2023, R1 only took issue on valuations pursuant to the Ordinance and requested the applicant to pay the premium for removal of the alienation restriction and special stamp duty[4]. No issue was taken as to whether redevelopment of the Lot is justified due to the age or state of repair of the Buildings as prescribed under section 4(2)(a)(i) of the Ordinance.

The Issue at Trial

21.  A list of “agreed” issues dated 15 February 2025 is as follows:

(1) Whether the applicant is entitled to apply for an order for sale of all the undivided shares in the Lot under section 3(1) of the Ordinance;

(2) Whether redevelopment of the Lot is justified under section 4(2)(a)(i) of the Ordinance due to the age or state of repair of the Building;

(3) Whether the applicant has taken reasonable steps to acquire all the undivided share in the Lot on terms that are fair and reasonable in accordance with section 4(2)(b) of the Ordinance;

(4) What should be the market value of each of the properties on the Lot as at 25 April 2023 (which is commonly coined by the valuation profession in similar compulsory sale applications as the “Existing Use Value” or simply “EUV”) for the purpose of the Ordinance and in accordance with section 3(1)(a) and 4(1)(a)(i) of and Part 1 of Schedule 1 thereto;

(5) What should be the reserve price for the sale of the Lot by public auction in accordance with Paragraph 2 of Schedule 2 to the Ordinance if an order for sale of the Lot shall be made;

(6) In case an order for sale of all the undivided shares in the Lot is made under section 4(1)(b) of the Ordinance:

(a) who should be appointed as trustees; and

(b) what should be the terms for the particulars and conditions of sales of the Lot by auction; and

(7) What should be the costs order of the Application for order of sale of the Lot?

22.  In addition to the agreed issues, in the context of the Application, there is the question as to who should be responsible for the payment of premium for removing the non-alienation restriction. This issue has not been resolved legally albeit it had been addressed to by way of agreement by the applicant to pay the premium.

23.  Indeed, at the hearing on 16 May 2024, the Tribunal enquired as to whether there was any legal issue which would necessitate the case to be listed before a judge and a member. R1 also pressed the applicant to indicate whether the applicant would shoulder the payment of the premium. According to the applicant, in order to avoid further delay to have the case to be heard before a panel of judge and member whose diaries may take a longer time to be fixed, the applicant came to indicate that the applicant was willing to pay the premium for R1’s Unit so that there would be no longer any legal issue. The applicant emphasised that this indication was made out of expediency so as to secure an early hearing date. Nevertheless, the applicant will abide by its indication.

Legal Representation

24.  The applicant is represented by Mr C Y Li SC (“Mr Li”), leading Mr Axis Yu, instructed by Messrs Ma Tang & Co whereas R1 is represented by Mr Ross M Y Yuen, leading Ms Eunice Lui, instructed by Messrs Foo & Li.

The Evidence

25.  The applicant has filed the following documents in support of the Application:

(a) A witness statement and supplemental witness statement dated 21 December 2023 and 26 February 2024 respectively by Ms Chow;

(b) A Condition Survey Report by Dr James Pong Kam Keung (“Dr Pong”) of JP Maestro Limited dated 20 December 2023;

(c) A Structural Assessment Report by Mr Yau Wing Keung (“Mr Yau”) of Alex Yau & Associates Engineers and Planning Limited dated 20 December 2023;

(d) The following reports by Mr Patrick W C Lai (“Mr Lai”) of AA Property Services Limited:

(i) the Application Report of 18 May 2023 pursuant to Part 1 of Schedule 1 to the Ordinance;

(ii) Supplemental Valuation Report of 15 December 2023 on both the EUV and redevelopment value (“RDV”) of the Lot;

(iii) Rebuttal Report dated 22 February 2024 on the valuation report prepared by Dr Wong Tsz Choi (“Dr Wong”) on behalf of R1 dated 25 January 2024; and

(iv) An Updated RDV report dated 13 February 2025.

26.  As afore-mentioned, R1 has appointed Dr Wong of Albert So Surveyors Limited to prepare the following reports:

(i) Valuation and Rebuttal report on EUV dated 25 January 2024;

(ii) Valuation and Rebuttal report on RDV dated 25 January 2024;

(iii) An Updated RDV report dated 12 February 2025.

27.  In addition, Mr Lai and Dr Wong compiled the following joint statements:-

(1) 1^st Joint Expert Statement dated 5 April 2024 on the EUV of the Buildings; and

(2) 2^nd Joint Expert Statement dated 6 March 2025 on RDV.

28.  In gist, as confirmed by R1 to the Tribunal at the Pre-Trial Review hearing held on 17 February 2025, subject to proof of the statutory requirements for granting an order for sale by the applicant, R1 only took issue on valuation. R1 had not filed any expert evidence on building condition nor structural assessment. Instead, R1 agreed that the applicant’s reports on the two issues could be adduced without calling the experts.

Whether the Applicant is Entitled to Make the Application

29.  A prerequisite for an application for compulsory sale order is to meet the statutory ownership threshold of undivided shares in the lot(s) concerned as stipulated in section 3 of the Ordinance (before its amendment in 2024) as follows:-

3. Application to Tribunal for compulsory sale of lot

(1) Subject to subsection (5), the person or persons who owns or own, otherwise than as a mortgagee, not less than 90% of the undivided shares in a lot may make an application—

(a) accompanied by a valuation report as specified in Part 1 of Schedule 1; and

(b) to the Tribunal for an order to sell all the undivided shares in the lot for the purposes of the redevelopment of the lot.

(2) Without prejudice to the operation of subsection (5), an application under subsection (1) may cover—

(a) 2 or more lots where the majority owner owns not less than the percentage specified in subsection (1) of the undivided shares in each lot; or

(b) 2 or more lots—

(i) on which one building is connected to another building by a staircase intended for common use by the occupiers of the buildings; and

(ii) where the average of—

(A) the percentage of the undivided shares owned by the majority owner in the lot or lots on which one of the buildings stands; and

(B) the percentage of the undivided shares owned by the majority owner in the lot or lots on which the other of the buildings stands,

is not less than the percentage specified in subsection (1).

30.  Section 3(1) of the Ordinance requires an applicant to have not less than 90% of the undivided shares in a lot before he can make an application for an order to sell all the undivided shares in the lot for the purposes of the redevelopment of the lot.

31.  Section 3(5) of the Ordinance provides that the Chief Executive in Council may, by notice in the Gazette, specify a percentage lower than the percentage mentioned in section 3(1) in respect of lots specified in the notice.

32.  The Land (Compulsory Sale for Redevelopment (Specification of Lower Percentage) Notice was gazetted on 22 January 2010 and came into operation on 1 April 2010 (“the Notice”). Section 3 of the Notice lowered the threshold for compulsory sale in respect of the classes of lots specified in the Notice from 90% to 80%. Those classes of lots include: “a lot with each of the buildings erected on the lot issued with an occupation permit at least 50 years before the relevant date”.

33.  Given the Buildings were more than 50 years old prior to filing of the Application, the Notice is therefore applicable and the threshold percentage should be 80%.

34.  It is undisputed that at the time of the commencement of the Application, the applicant owned 18/20 undivided share or 90% of the Lot. It is obvious that the applicant was entitled to make the Application for an order of sale of all undivided shares of the Lot for the purpose of redevelopment.

EUV AS AT 25 APRIL 2023

35.  According to section 4(1)(a)(i) of the Ordinance, there is a need to determine the respective values of the properties as assessed in the Application Report by which Mr Lai stated the valuation date was as at 25 April 2023.

36.  By the 1^st Joint Expert Statement between Mr Lai and Dr Wong dated 5 April 2024, most of the particulars of the units in the Buildings had been agreed:

Floor	Unit	Saleable Area (m2)	Area of Yard (m2)	Internal Condition	View	Aspect
G/F	308 Shun Ning Road	83.6	20.2	Poor	Blocked	Southeast & Southwest
	310 Shun Ning Road	66.9	37.1	Fair	Blocked	Southwest
	312 Shun Ning Road	66.9	37.1	Fair	Blocked	Southwest
	314 Shun Ning Road	66.9	35.7	Poor	Blocked	Southwest
1/F	308 Shun Ning Road	124.2		Poor	Corner Building	Southeast & Southwest
	310 Shun Ning Road	81.5		Fair	Building	Southwest
	312 Shun Ning Road	81.5		Poor	Building	Southwest
	314 Shun Ning Road	81.5		Good	Building	Southwest
2/F	308 Shun Ning Road	124.2		Poor	Corner Building	Southeast & Southwest
	310 Shun Ning Road	81.5		Fair	Building	Southwest
	312 Shun Ning Road	81.5		Fair	Building	Southwest
	314 Shun Ning Road	81.5		Poor	Building	Southwest
3/F	308 Shun Ning Road	124.2		Fair	Corner Building	Southeast & Southwest
	310 Shun Ning Road	81.5		Fair	Building	Southwest
	312 Shun Ning Road	81.5		Fair	Building	Southwest
	314 Shun Ning Road	81.5		Fair	Building	Southwest
4/F	308 Shun Ning Road	124.2		Very Poor	Corner Building	Southeast & Southwest
	310 Shun Ning Road	81.5		Good	Building	Southwest
	312 Shun Ning Road	81.5		Fair	Building	Southwest
	314 Shun Ning Road	81.5		Fair	Building	Southwest

37.  Mr Lai and Dr Wong also agreed to adopt 3/F, 310 Shun Ning Road as the reference unit which had a unit rate of $70,000 per sq m as at 25 April 2023. They also agreed that the unit rate of the yard on G/F would fetch 1/5 of the unit proper.

38.  Mr Lai and Dr Wong had, however, the following agreements/disagreements on the adjustment factors that may be applicable:

Adjustment Factors	Mr Lai	Dr Wong
Floor	2% per floor difference
Noise/Nuisance	-2% for all units on G/F -0.5% for all units on 1/F
Headroom	2% per metre difference
View	Blocked View: -5% Corner Building View: 5% Building View: 0%
Quantum/Size	1% per 10 sq m difference
Top Floor	-3%
Lighting and Ventilation	Inferior for ground floor units Superior for upper floor units at corner position
Internal Condition	Good: 3.0% Fair: 0.0% Poor: -3.0% Very Poor: -6.0% Unacceptable: -9.0%
Privacy & Security	N A	-4% for all units on G/F -2% for all units on 1/F
Deferment for removal of alienation restriction	Discount on value to allow for the time in the receipt of the purchase price	No Deferment
Reinstatement Costs	Reinstatement Costs deducted from market value for units subject to building orders or with unauthorised alterations at about $11,000, $32,000 or $113,000 as the case may be
Total Adjustment	By Multiplication

39.  In respect of the adjustment for privacy and security, I tend to agree with Dr Wong as the boundary wall of the yard is only about 2.4 metres[5] high. Although the top of the boundary wall is installed with barbed wires, there are various structures in the yard along the scavenging lane, providing an easy environment for burglars who should have no difficulty in climbing across the wall[6].

40.  And because of the need to apply to the Government for the removal of the alienation clause as afore-mentioned, Mr Lai proposed a discount on value to allow for the time in receipt of the purchase price. But this only applies to evaluating the market value of R1’s unit which is the only one remaining.

41.  In such regard, I had requested the applicant to provide the timeframe of removal of the alienation restriction for the 18 owners of the Buildings which is set out as follows:

Date	Event
25 June 2021	Premium Application
27 September 2021	Granted Waiver Application[7]
2 October 2021	Acceptance of Waiver
19 October 2021	Acknowledgement of Acceptance of Waiver
26 November 2021	Offer of Premium by Lands Department
29 April 2022	Payment of Premium
29 April 2022	Assignment

42.  Thus, the whole process appeared to have taken 10 months.

43.  However, as stated in §§16-17 above, the whole process taken for acquiring R2’s interest took only some 4 months though the applicant argued it was only a special case.

44.  Firstly, I am persuaded by Mr Yuen on behalf of R2 that this special case should have a good chance to be repeated in light of the Application.

45.  Secondly, I suppose a willing seller under the definition of market value should have paid the premium for removal of the non-alienation clause beforehand, failing which he/she would not be in the position to sell his/her unit at market value.

46.  Indeed, by reference to the letter dated 26 November 2021 issued by the Lands Department[8], the premium assessed was open for acceptance for 2 months (ie from 26 November 2021 to 25 January 2022). The letter also stated that, upon receipt of the applicant’s acceptance of the premium, the Demand Note for premium will be issued by 29 March 2022 which shall be settled within 28 days thereafter. It wonder how soon the premium was accepted, how soon the Demand Note for premium was issued and finally how soon the premium was paid. Obviously, this period could have been shortened by prompt actions.

47.  Thirdly, I consider it fair and reasonable to value the market value of all units in the Building on equal basis. Otherwise, the value of the minority owner’s property, ie R1’s unit, as assessed in the Application is less than fair and reasonable when compared with the value of the applicant’s property as assessed in the Application, in breach of section 4(1)(ii)(B) of the Ordinance.

48.  Therefore, I agree with Dr Wong that no deferment would be applicable.

49.  As a result of the above, I can simply adopt the assessments of market value by Dr Wong as follows[9]:

Floor	Unit	EUV
G/F	308 Shun Ning Road	$5,340,000
	310 Shun Ning Road	$4,726,000
	312 Shun Ning Road	$4,726,000
	314 Shun Ning Road	$4,484,000
1/F	308 Shun Ning Road	$8,851,000
	310 Shun Ning Road	$5,659,000
	312 Shun Ning Road	$5,489,000
	314 Shun Ning Road	$5,829,000
2/F	308 Shun Ning Road	$9,076,000
	310 Shun Ning Road	$5,808,000
	312 Shun Ning Road	$5,808,000
	314 Shun Ning Road	$5,634,000
3/F	308 Shun Ning Road	$9,173,000[10]
	310 Shun Ning Road	$5,694,000
	312 Shun Ning Road	$5,694,000
	314 Shun Ning Road	$5,694,000
4/F	308 Shun Ning Road	$8,197,000
	310 Shun Ning Road	$5,575,000
	312 Shun Ning Road	$5,412,000
	314 Shun Ning Road	$5,423,000
	Total:	$122,292,000

50.  Thus, the total EUV of the Buildings is $122,292,000 as at 25 April 2023 and the pro rata share of R1’s interest should be 7.5%.

Whether Redevelopment of the Lot is Justified

51.  Section 4(2) of the Ordinance provides that the Tribunal shall not make an order for sale unless it is satisfied that redevelopment of the Lot due to the “age or state of repair” of the Buildings is justified and that the applicant has taken “reasonable steps” to acquire all the undivided shares of the Lot.

52.  R1 had not produced any expert report or evidence in relation to the question as to whether redevelopment of the Lot is justified due to the “age” or “state of repair" of the Buildings.

53.  Top Sail International Limited v Cheng Kai Ming, LDCS 18000/2010 (unreported, 15 November 2011) and Charmlink Limited v Lee Tong Hing & Others, LDCS 16000/2010 (unreported, 29 November 2011) laid down the factors that the Tribunal should consider in determining whether redevelopment is justified due to age and state of repair.

54.  In Top Sail, the Tribunal stated that:

“23. ……, we are of the view that when the requirement of “the age” of the Buildings is considered, we should not restrict our consideration to just the physical age of the Buildings.…… we are of the view that the absence of a specific physical age in the Ordinance indicates that the Tribunal has discretion to determine at what stage a building should be redeveloped after considering all the relevant factors concerning the age of the building in question.

24. The physical age of a building is clearly one of the considerations…... The physical conditions of a building and the amount that would be required to maintain the building are other factors that the Tribunal should consider, as they would affect the decision on whether the life of a building should be ended or prolonged. The obsolete design of a building should also be considered as it has an important impact on whether it is too old to serve a modern society.”

55.  Such approach was followed in Charmlink:

“30. We are of the view that the Tribunal has discretion to determine at what stage a building should be redeveloped after considering all the relevant factors concerning the age of the building in question. The relevant factors in the present case are that the Building is over 50 years old and it has passed its designed life. It is also obsolescent in design and not economical to maintain. All these factors point to the fact that the Building has come to an end of its physical as well as economical life. Thus, we find that redevelopment is justified on the ground of the age of the Building.

31. …… It is also within the Tribunal’s discretion to determine in what conditions a building should be redeveloped after considering all the relevant factors concerning the state of repair of the building in question. With the clear evidence from the two experts that the Building is in a poor state of repair and in fact untenantable without substantial repair works to be carried out over a long period of time, we have no hesitation in finding that redevelopment is justified by the state of repair of the Building.”

56.  There is no disagreement on the principles set out in Top Sail and Charmlink in determining whether redevelopment is justified due to age and state of repair. The Tribunal is entitled to take into account the modern construction requirements. See §134 of Harvest Treasure Limited & Others v Cheung Fat Enterprises Limited & Others, LDCS 8000/2014 (unreported, 31 December 2015).

57.  For the age and state of repair requirements, the applicant adduced the expert evidence of two experts: Dr Pong who is an authorized person and a building surveyor, and Mr Yau who is a civil and structural engineer. Their expertise was not disputed and the legal representative of R1 confirmed at the Pre-Trial Review hearing that there was no need for the applicant to call Dr Pong and Mr Yau for R1’s cross-examination.

Structural Assessment

58.  Firstly, in his Structural Assessment Report dated 20 December 2023, Mr Yau commented that the Buildings were designed and constructed more than 65 years ago, well exceeding the normal design working life of reinforced concrete buildings of 50 years. The existing condition of the reinforced concrete of the Buildings is considered to be very poor because very deep carbonation penetration was found with average carbonation depth of 75.4 mm which is far greater than the provided concrete cover of 25.4 mm. According to Mr Yau, the steel reinforcement inside the existing reinforced concrete structural elements are subject to serious carbonic acid attack. Hence, the effective area of steel reinforcement should have been significantly reduced and the strength of the structural elements should also have been significantly reduced[11].

59.  The table below shows the comparison of the Factor of Safety (“FOS”) of the two critical existing reinforced concrete cantilevered beams with steel area adjusted for carbonation effect, 3,941 mm² and 3,473 mm² respectively[12]:

Canti-levered Beam Mark	Original design (steel area required)	Original design adjusted by field & lab test results and actual site set up (steel area required)	Modern COP[13] (steel area required)	Remark / Observation
RCB6	4,052 mm2 (3% overstressed)	4,143 mm2 (5% overstressed)	5,426 mm2 (38% overstressed)	This main roof cantilevered beam was chosen because it is fully exposed to weather.
CB6	3,577 mm2 (3% overstressed)	5,800 mm2 (67% overstressed)	7,701 mm2 (222% overstressed)	This cantilevered beam is the heaviest loaded cantilevered beam in the Buildings.

60.  In addition, the following structural defects and damages were observed by Mr Yau[14]:

(a) The waterproofing system of the main roof has experienced a significant failure. This has resulted in water seepage into the flat units below, leading to degradation of structural integrity.

(b) The presence of mould growth, loose plaster, structural distress such as cracks and concrete spalling were observed in numerous slabs, beams, columns and external walls throughout the Buildings.

(c) The steel reinforcement within the structure of the Buildings has exhibited a significant level of corrosion and reaching an advance stage that led to a noticeable reduction in diameter of the steel bars.

(d) The exterior walls and light well, which serve as the Buildings’ external envelope for weather protection, have presented severe defects. There were peeling-off paint, cracks, de-bonded plaster and concrete spalling on external walls.

61.  Mr Yau was also of the view that the Buildings are founded on shallow pad footing foundation on soil around 2m below existing ground level. Also, the deterioration of the reinforced concrete is so serious that it cannot be restored to its original design quality through standard repair methods but complete recasting of key structures like the cantilevered beam is impractical due to existing structural limitations. Hence, the many cantilevered balconies over street pavement would render the Buildings becoming a hidden threat to occupants and the public. The Buildings should be completely demolished and rebuilt.

Building Condition Survey

62.  Dr Pong, in his Condition Survey Report also dated 20 December 2023, remarked that the Buildings were in poor conditions.

63.  Dr Pong identified defects and deficiencies in, inter alia, the following aspects of the Buildings[15]:

(a) Concrete spalling, de-bonded plaster, loosened rendering, cracks with steel reinforcements exposed, peeling-off paint and extensive damp stains were found on the external walls;

(b) Severe concrete spalling with deep-cut cracks, de-bonded plaster were found at the structural columns, beams, ceiling slab and walls in individual flats, which were probably caused by water seepage and carbonation of concrete;

(c) Defective waterproofing membrane on the main roof allows water to seep to the floors below;

(d) Existing above-ground drains and water supply plumbing pipes are in dilapidated state;

(e) No transformer or TBE room; exposed wiring and broken metal trunking were found in the common stair shaft with rusty main switch boxes, MCB boxes, and electric meters;

(f) Aged and deteriorated cables with broken armour present additional hazards;

(g) Fire services installation fell short of current standards in terms of the provision of emergency lighting, fire alarms, hand-operated fire extinguishers, and the provision of protected lobbies;

(h) Though the existing width of staircase 900 mm is still allowed under the Building (Planning) regulations, the installation of steel handrail at the side of staircase wall has rendered the clear width of the stairs less than 900 mm. A fortiori, the current updated code of practice for fire safety requires a minimum width of 1,050 mm.

64.  Dr Pong estimated substantial repairs at the total estimated costs of $30,930,000 are required to be carried out in order to restore the Buildings to a tenantable standard[16]. This amounts to over 39% of the construction costs for new similar superstructures. However, the estimate mainly consisted of patch repair to the existing defects and no account had been made on upgrading the obsolete design of the Buildings. Thus, the repair cost, which is disproportionately high, demonstrated that the deterioration of the Buildings’ superstructure has been very serious and had reached a state which is beyond reasonable economic repair.

65.  In any event, having carried out the joint inspection on 21 March 2025 and having considered the evidence before the Tribunal, I am satisfied that redevelopment of the Buildings is justified due to the age and state of repair of the Buildings.

Whether the Applicant has Taken Reasonable Steps to Acquire

66.  The applicant is under an obligation to take reasonable steps to negotiate on terms that are fair and reasonable for the purchase of the interest of the respondents under Section 4(2)(b) of the Ordinance.

67.  It is not disputed that the applicant has made the following offers to R1 through their solicitors to acquire R1’s interest in 3/F, together with Balcony and Veranda Appertaining Thereto, No 308 Shun Ning Road:

Round of Offer	Date of Offer	Offer Price
1st Offer	20 April 2022	$15,827,514.40
2nd Offer	7 March 2023	$15,827,514.40
3rd Offer	16 June 2023	$10,320,000.00
4th Offer	28 September 2023	$14,000,000.00
5th Offer	11 October 2023	$12,500,000.00
6th Offer	10 May 2024	$12,800,000.00
7th Offer	14 February 2025	$11,238,000.00

68.  Besides the offers, there had also been unsuccessful mediations on 21 August 2023 and 9 April 2024.

69.  According to the applicant, the first 5 offers were made on the basis of the valuation assessed by Mr Lai while the later 2 were on the basis of the valuation assessed by Dr Wong. In the last offer on 14 February 2025, the offer was not only calculated on Dr Wong’s figure but also on the basis that the applicant was willing to pay the premium for removal of the alienation clause on behalf of R1. Nonetheless, R1 still rejected the last offer though the offer was to all intent and purpose the best price which R1 could obtain.

70.  R1 did not accept any of the aforesaid offers made by the applicant though obviously, the offers were higher than the EUV of R1’s property at 3/F, together with Balcony and Veranda Appertaining Thereto, 308 Shun Ning Road at $9,173,000.

71.  The applicant also explained that, in relation to the last offer, R1’s concern about paying Special Stamp Duty on selling her unit to the applicant was misplaced. The Government stated in a letter dated 22 May 2020 to all Chairpersons of Civil Servants’ Co-operative Building Societies that for assignment of legal title of a unit under the Scheme within 3 years after acquisition from the liquidator of a Co-operative Building Society after 22 May 2020, the Special Stamp Duty “may be remitted[17]”. In any event, there has been amendment to the Stamp Duty Ordinance whereby instruments executed after 28 February 2024 are not subject to special stamp duty.

72.  More importantly, the Court of Final Appeal in Capital Well Limited v Bond Star Development Limited (2005) 8 HKCFAR 578, [2005] 4 HKLRD 363 (“Capital Well”), has emphasized at paragraph 33 that:

“In making that assessment (whether an offer is reasonable) the Tribunal is not conducting a valuation exercise. It does not need to adjudicate upon any disputes about the correct valuation principles to be applied. It does not itself arrive at any conclusion as to what figure represents the correct valuation. It merely needs to be satisfied that, on the evidence available, the offer falls within the range of what may broadly be regarded as fair and reasonable compensation for the interest in question.”

73.  The Court of Final Appeal stated further at paragraph 36 of the judgment that:

“What the Tribunal must do is to consider whether, in the circumstances of each case, the offer falls within a band of what represents a fair and reasonable assessment of the value of the minority owner’s interest reflecting a proportionate share of the redevelopment value of the whole site.”

74.  Thus viewed, I am satisfied that on the evidence available and in the circumstances of the Application, the applicant has taken reasonable steps to acquire all the undivided shares in the Lot including negotiating for the purchase of such share as owned by R1 on terms that are fair and reasonable.

The Estimation of the RDV of the Lot

75.  The main dispute in these proceedings was on the estimation of the RDV of the Lot, which shall be taken into account in fixing the reserve price for the public auction when the order for sale is granted.

76.  The Lot altogether comprises a rectangular site at the corner of Shun Ning Road and Cheung Fat Street with a net site area of 445.93 sq m.

77.  Both Mr Lai and Dr Wong agreed to resort to the residual valuation method in determining the RDV. This can be done by deducting development cost (including construction costs, professional fees, finance costs etc) and developer’s profit from the estimated gross development value (“GDV”) of the completed optimum development.

78.  Again, both Mr Lai and Dr Wong agreed the hypothetical development as follows for the purpose of carrying out their respective residual valuation[18]:

Floor	Accommodation
Basement 1 and Basement 2	Car Parking
G/F	Three Shops with Domestic Entrance and Lift Lobby, Access to 1/F Shops, Car Lift, Waiting Area & Loading/Unloading, E&M Facilities & Access to 1/F Plant Room, Caretakers’ Office, Motorcycle Parking Spaces
1/F	Shops, E&M Facilities
2/F	Clubhouse, E&M Facilities
3/F	Transfer Plate
4/F	Domestic Units with Flat Roofs
5/F – 22/F	Domestic Units
23/F	Domestic Units with Roofs
Saleable Area	G/F: 145.215 sq m 1/F: 388.930 sq m Totally 80 flats on Upper Floors: 2,627.48 sq m
Non-Domestic Gross Floor Area	579.445 sq m
Domestic Gross Floor Area	3,344.475 sq m
Total Gross Floor Area	3,923.920 sq m

79.  On the basis of this latest hypothetical development, Mr Lai arrived at a residual value for the Lot at $92,400,000[19] while Dr Wong arrived at $153,350,000[20].

Gross Development Value for G/F

80.  Mr Lai and Dr Wong agreed there would be 3 shops on G/F

Shop No	Saleable Area (m2)	Frontage (m)	Onto Street	Depth (m)	Headroom (m)
1	60.970	6.7	Shun Ning Road	9.10	5.5
2	60.970	6.7	Shun Ning Road		5.5
		9.10	Cheung Fat Street
3	23.275	4.69	Cheung Fat Street		4.9

81.  Mr Lai and Dr Wong agreed that they would adopt the hypothetical Shop 1 as a reference shop unit for the purpose of making comparison with transactions in the vicinity. By reference to the 1^st Joint Expert Statement between Mr Lai and Dr Wong dated 5 April 2024, they happened to agree the unit rates for the three shops at $503,900, $554,300 and $501,000 respectively[21].

82.  However, when Mr Lai and Dr Wong prepared their more updated valuation, they departed. They could not agree the unit rate applicable, especially when they relied on different comparables:

Comp	Address	Age of Building	Consideration	Date of Agreement	Saleable Area (m2)	Converted Area (m2)	Frontage (m)	Depth (m)	Head-room (m)	Unit Rate (/m2)
CR1	Shop 2 & Shopfront 2, G/F, One New York, 468 Castle Road	2007	$9,900,000	6 Dec 24	39.32	39.32	4.50	8.70	4.85	$251,780
CR2	Shop 1 & Shopfront 1, G/F, One New York, 468 Castle Road	2007	$15,500,000	17 Sep 24	55.76	55.76	6.03	10.30	4.85	$277,977
CR3	Shop E, G/F, 9 Wing Lung Street	1954	$12,380,000	28 Mar 24	21.41 + Detached Toilet: 4.95	23.89	2.87	7.62	4.65	$518,208
CR4	G/F, 273 Castle Peak Road	1961	$22,000,000	10 May 23	78.44 + Yard: 9.55 + Toilet: 3.50 + C/L: 45.32	93.11	3.54	19.22	2.74*	$236,280
CR5	Shop 3, G/F & C/L, Ever Wealth Building, 9-11 Fat Tseung Street	1994	$13,000,000	9 Jun 22	17.45 + C/L: 12.08	18.96	2.4	7.27	3.20*	$685,654
CR6	Shop E, G/F, On Fat Building, 28 Cheung Fat Street	1992	$12,800,000	4 Jun 22	21.89	21.89	3.28	6.31	5.45	$584,742
CR7	Shop 9, G/F, The Addition, 350 Un Chau Street	2021	$28,180,000	29 Sep 21	54.53 + Yard: 16.26	57.24	3.67	15.15	5.00	$492,313

* Having reviewed the shop fronts of these comparables as well as their layout plans, I prefer to adopt Mr Lai’s adjustment for headroom on the basis of height under cockloft because both of these two comparables do not make use of the higher headroom in the front.

83.  Relying on their corresponding comparables, Mr Lai arrived at an adjusted unit rate of $385,100 per sq m while Dr Wong arrived at $465,000 per sq m.

Choice of Comparables and Adjustment for Location

84.  As said, the Lot is situated at the corner of Shun Ning Road and Cheung Fat Street which lies some 80 metres to the northwest of Po On Road Municipal Services Building where a regional wet market and next to it is a public library and a sports centre are accommodated. This is a focal point in the district which enjoys heavy pedestrian flows to and fro the vicinity during day time. In some respect, this portion of Cheung Fat Street leads residents of So Uk Estate, a public housing estate in and out. An off-course betting centre of the Hong Kong Jockey Club is situated on the other side of the corner across Cheung Fat Street. Castle Peak Road, a busy distributor which is traversed by a variety of public transports, runs in parallel to Shun Ning Road.

85.  Comparable CR1 lies on Castle Peak Road but at a position that traffics run from the industrial areas further west before they turn right onto the captioned section of Castle Peak Road which is perhaps bounded by Cheung Wah Street running in perpendicular. I agree with Dr Wong that this area has significantly lighter pedestrian flow and a smaller catchment. There are various vacant shops here that include this comparable though it was transacted some 6 months ago. I also agree with Dr Wong that the business potential of this location is adversely affected by the Urban Renewal Authority’s urban renewal project SSP-017 at Kim Shin Lane which is targeted to be completed by 2032. This is a quieter and much inferior location when compared to the subject; Comparable CR1 should be disregarded as a comparable.

86.  My same comments on Comparable CR1 above apply similarly to Comparable CR2 which lies just next to Comparable CR1. Indeed, there was one more vacant shop in the same development as observed during the joint site inspection.

87.  Though having an address at Wing Lung Street, Comparable CR3 lies on Shun Ning Road on the other side of Po On Road Municipal Services Building as a restaurant. This is a comparable that was relied on by both valuation experts though they had different opinion on the adjustments for location that may be applicable: Mr Lai applied -30% while Dr Wong applied -15%. I prefer an adjustment of -20%.

88.  Comparable CR4 lies on Castle Peak Road but at a little distance away from its junction with Fat Cheung Street. In fact, this transaction was also considered by the Tribunal in Smart Base Holding Limited & Another v Wong Tak Shing, LDCS 16000/2021 (unreported, dated 28 June 2024)[22]. In this latter case, Mr Lai was also one of the valuation experts. He had hesitation to adopt this transaction as a comparable because he considered the unit price achieved too low when compared with the others. In the present case, Mr Lai applied an adjustment for location at -5% while Dr Wong adopted +10%. I prefer Dr Wong’s adjustment.

89.  Comparable CR5[23] lies on Fat Tseung Street which benefits from the heavy pedestrian flow to and from Po On Road Municipal Services Building. I agree with Mr Lai that the size of this comparable is too small but I prefer to adopt Dr Wong’s adjustment for location at -25% on de bene esse basis.

90.  Surprisingly, Comparable CR6[24] is a comparable adopted by both Mr Lai and Dr Wong though it has a size only marginally larger than that of Comparable CR5. Certainly, this comparable lies closest to the Lot on the opposite side of Cheung Fat Street. This time, I prefer Mr Lai’s location adjustment of +5% to Dr Wong’s 0% for the reason that the reference shop unit lies on Shun Ning Road.

91.  Mr Lai did not adopt Comparable CR7 because it was dated. Again, I adopt Dr Wong’s adjustment for location on de bene esse basis because there might not be sufficient good comparables.

92.  Notwithstanding the above, Mr Lai and Dr Wong were able to agree the other adjustment factors as follows[25]:

Adjustment Factors	Adjustments
Time	Private Retail Price Indices published by Rating and Valuation Department (“RVD”)
Frontage	4% per 1 m difference
Quantum/ Size	1% per 5 m2 difference
Age of Building	1% per 4 years difference plus 5% for Comparables CR3, CR4, CR5 and CR6
Headroom	4% per 1 m difference
Totalling Adjustments	By Multiplication

93.  Apart from the above, Mr Lai and Dr Wong had difference in opinion on the layout adjustment for the comparables. Having reviewed the layout plans of the comparables, I prefer Dr Wong’s proposed adjustments in case there is difference in opinion between him and Mr Lai.

94.  Bearing in mind the above, my analysis for the GDV of the hypothetical shop is as follows:

Comp Ref	Unit Rate (/m2)	Adjustments								Adjusted Unit Rate (/m2)
		Time	Location	Age	Size	Frontage	Layout	Headroom	Total
CR3	$518,208	-16.1%	-20.0%	22.8%	-7.4%	15.3%	-1.0%	3.4%	-9.9%	$466,905
CR4	$236,280	-23.9%	+10.0%	21.0%	6.5%	12.4%	5.0%	11.0%	41.3%	$333,864
CR5	$685,654	-28.6%	-25.0%	9.3%	-8.4%	17.2%	-2.0%	6.2%	-34.6%	$448,418
CR6	$584,742	-28.6%	5.0%	13.3%	-7.8%	13.7%	-3.0%	0.2%	-13.5%	$505,802
CR7	$492,313	-31.5%	-5.0%	1.2%	-0.7%	12.1%	6.0%	2.0%	-20.7%	$390,404
									Average:	$429,079

95.  While the average of the above analysis gives an adjusted unit rate of $429,079 per sq m, Comparables CR5 and CR7 are adopted only on de bene esse basis:

(a) Comparable CR5 suffers from the highest adjustments for both location, size and frontage which are all judgmental in nature; and

(b) Comparable CR7 suffers from the highest adjustment for time.

96.  If these later two comparables are excluded, the average will become $435,524 per sq m. I am prepared to accept therefore a unit rate of $435,000 per sq m for the reference shop unit.

97.  But in view of the very small size of Comparables CR5 & CR6, I am prepared to check the above result by applying the zoning analysis.

98.  The zoning concept is based on the principle that the area closest to the frontage (Zone A) is the most valuable part of a shop, but as the distance away from the front of the shop increases the value per unit of area decreases. Thus, when a value per square metre is arrived at Zone A by reference to sales or lettings of comparables, rates for the other zones in the rear will be derived formulaically and from that the value for the shop is analyzed whereby a process, often known as “halving back”, is used most extensively.

99.  I assume that the depth of Zone A is 7 metres and therefore the whole area of these two comparables can be assumed as having a Zone A value of $685,654 per sq m and $584,742 per sq m respectively. They are then analysed as follows:

Comp Ref	Unit Zone A Rate (/m2)	Adjustments								Adjusted Unit Zone A Rate (/m2)
		Time	Location	Age	Size	Frontage	Layout	Headroom	Total
CR5	$685,654	-28.6%	-25.0%	9.3%	The application of the zoning analysis would have already dealt with minor layout differences like depths or even awkward shape when customers would be attracted into the same zone			6.2%	-37.8%	$426,477
CR6	$584,742	-28.6%	5.0%	13.3%				0.2%	-14.9%	$497,615
									Average:	$462,046

100.  Thus, value of the hypothetical Shop 1 is assessed as follows:

Shop 1	Analysis		Unit Value (m2)	GDV
Zone A	6.7 m x 7 m	46.9 m2	$462,046	$21,669,957
Zone B	60.97 m2 – 46.9 m2	14.07 m2	$231,023	$3,250,494
			Total:	$24,920,451
				$408,733/m2

101.  This $408,733 per sq m is only 6% lower than $435,000 per sq m and I am prepared to adopt the latter as the unit rate of $435,000 per sq m for the reference shop unit.

102.  Whereas Mr Lai and Dr Wong were able to agree all the adjustments that may be applicable to other hypothetical units[26], I determine the GDV of the G/F of the hypothetical development as follows:

Shop No	Saleable Area (m2)	Adjustments						Adjusted Unit Rate[27] (/m2)	GDV
		Frontage	Return Frontage	Headroom	Size	Layout	Total
1	60.970	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	$435,000	$26,520,000
2	60.970	0.0%	10.0%	0.0%	0.0%	5.0%	15.5%	$502,425	$30,630,000
3	23.275	-8.0%	0.0%	-2.4%	7.5%	3.0%	-0.6%	$432,390	$10,060,000
Total:	145,215							Total:	$67,210,000
						Average Unit Rate (/m2):			$462,831

Gross Development Value for 1/F

103.  In respect of the unit value for the hypothetical 1/F, Mr Lai and Dr Wong agreed that it would be 51.5% that of the G/F.

104.  That is, the GDV for 1/F (including G/F access) can be assessed as follows:

398.23 sq m x $462,831 per sq m x 51.5% = $94,921,292

Say $94,920,000

Gross Development of Parking Spaces

105.  Mr Lai and Dr Wong agreed the value of the parking spaces as follows[28]:

Private Carparking Spaces on B1/F & B2/F	$1,335,000 each
Accessible Carparking Space	$1,469,000 each
Motorcycle Parking Spaces	$258,000 each

Gross Development Value for Upper Floors

106.  Mr Lai and Dr Wong were able to reach agreements on the particulars of the domestic portion of the hypothetical development:

Floor/ Accommodation	Saleable Area	Headroom
4/F	31.181 sq m x 4 units	3.5 m
Flat Roof on 4/F	37.063 per unit
5/F – 22/F	32.931 sq m x 4 units per floor	3.5 m each
23/F	32.931 sq m x 4 units	4.0 m
Roof	26.488 sq m per unit

107.  Mr Lai or Dr Wong relied on sales of units in the following developments as their comparables, arriving at $169,500 per sq m and $185,300 per sq m for a hypothetical domestic unit on 12/F which has a saleable area of 32.931 sq m[29].

The Harmonie

108.  The Harmonie, which is situated at No 233 Castle Peak Road, is within 5 minutes’ walking distance from the hypothetical development. While this development was completed in November 2022, I am surprised that Dr Wong could only provide transactions of units only up to February 2024 where Flat E on 6/F was sold for $8,612,800 or $181,242 per sq m. I agree with Mr Lai that these transactions were dated. More particularly, I note that this development comprises 12 residential units on each typical floor[30] which is quite different from that of the hypothetical development. I decline accepting transactions provided by Dr Wong in this development as comparables.

109.  Notwithstanding the above, I note two recent sale in March 2025, one being Flat J on 26/F at $5,590,000 or $186,532 per sq m and the other being Flat D, 28/F at $5,900,000 or $197,252 per sq m.

The Addition

110.  Both Mr Lai and Dr Wong relied on transactions of units in The Addition as comparables. This development is situated at No 350 Un Chau Street some mid-way between its junction with Fat Tseung Street and Cheung Fat Street. It was completed a little earlier in April 2021, comprising mostly studio flats of smaller size at about 25 sq m. This development comprises 8 units on each typical floor. The two latest transactions as provided by the two valuation experts are as follows:

Unit	Date of Sale	Consideration	Saleable Area (m2)	Headroom	View	Unit Rate
Flat D, 23/F	5 Nov 24	$4,700,000	25.691	3.5	Building	$182,943
Flat B, 27/F	27 Oct 24	$4,638,000	24.992	3.5	Building	$185,579

Amber Place

111.  Both Mr Lai and Dr Wong relied on transactions of units in Amber Place as comparables. Completed more recently in July 2023, this development is situated at No 1 Cheung Wah Street at its junction with Cheung Sha Wan Road which is another distributor running to an extent in parallel with Castle Peak Road but at a distance away from the Lot. This development comprises only two units per floor with Flat As being the larger but corner units.

112.  While Mr Lai suggested that Amber Place is close to the MTR Lai Chi Kok Station and there are shops on daily necessities in the vicinity, I agree with Dr Wong that this development is comparatively less accessible to the daily necessities which concentrate around the subject locality. I prefer however a minor +3% adjustment for location to Dr Wong’s 5%.

113.  There appear to have more recent sales by the developer:

Unit	Date of Sale	Consideration	Saleable Area (m2)	Headroom	View	Unit Rate
Flat A, 26/F	28 Feb 25	$8,185,000	41.030	3.33	Open Building	$199,488
Flat A, 25/F	26 Nov 24	$7,845,000	41.030	3.33	Open Building	$191,202
Flat A, 22/F	12 Nov 24	$7,306,000	39.530	3.33	Open Building	$184,822
Flat A, 21/F	3 Nov 24	$7,765,000	42.959	3.33	Open Building	$180,754
Flat B, 26/F	2 Nov 24	$5,532,000	27.842	3.33	Open Building	$198,693
Flat A, 18/F	27 Oct 24	$7,697,000	42.959	3.33	Open Building	$179,171
Flat B, 22/F	27 Oct 24	$5,292,000	27.842	3.33	Open Building	$190,073
Flat B, 18/F	17 Oct 24	$5,028,000	27.842	3.33	Open Building	$180,590

Echo House

114.  Again Echo House comprises a development at a corner site at the junction of Tonkin Street and Fuk Wing Street. It is the first private residential development[31] developed by employing Modular Integrated Construction (MiC) whereby free-standing integrated modules (completed with finishes, fixtures and fittings) are manufactured in a prefabrication factory and then transported to site for installation in a building.

115.  While this construction method is not new in Hong Kong, being promoted by the Government due to its numerous benefits, including enhancing project safety and productivity, minimising construction time and cost, as well as mitigating the existing problems in the local construction industry (e.g. labour shortage), buildings of this kind, mainly developed by the Government initiated projects or by the Hong Kong Housing Authority for public housings, receive unfavourable public media coverage.

116.  In a typical MiC project, the architect divides the floor plates into different modules to facilitate their productions. Usually, one module is used for a small studio flat. Two or three modules are used for a larger-sized apartment. A general rule is to locate the joints at the partition walls so that touching-up work in the future would be limited to the doorway locations. However, the walls will become double-layered once two modules are assembled, resulting in loss of internal floor spaces. More importantly, complaints have been directed towards the limitation on implementing design changes by prospective owners and water seepage problems. Thus, Dr Wong was hesitant to adopt transactions of units in Echo House as comparables.

117.  Nevertheless, owing to this Echo House being in the same locality of the subject and completed recently on 15 August 2024, I am prepared to include two more transactions on lower floors as proposed by Dr Wong for the purpose of analysis and to check if such units built by MiC fetch lower market values:

Unit	Date of Sale	Consideration	Saleable Area (m2)	Headroom	View	Unit Rate
Flat B, 16/F	27 Oct 24	$5,650,100	32.514	3.26	Open Building	$173,774
Flat G, 17/F	27 Oct 24	$5,090,700	32.502	3.26	Building*	$156,627
Flat B, 26/F	27 Oct 24	$6,010,600	32.514	3.26	Open Building	$184,862
Flat B, 23/F	27 Oct 24	$5,939,000	32.514	3.26	Open Building	$182,660
Flat B, 28/F	27 Oct 24	$6,119,700	32.514	3.26	Open Building	$188,217
Flat E, 23/F	27 Oct 24	$8,038,600	43.648	3.26	Open Building	$184,169

* I do not agree with Mr Lai that this unit has “close building view” as the building has been set-back some distance from Un Chau Street.

118.  Notwithstanding the above, Mr Lai and Dr Wong were able to agree to have a hypothetical unit on 12/F as the reference unit. They had the following agreements/ disagreements[32]:

Adjustment Factor	Mr Lai	Dr Wong
Floor Level	1% per 1 floor difference
Time	Private Domestic Price Index (Class A) published by RVD
Quantum/Size	1% per 5 sq m difference
View	Comparables: Building View = 0% Open Building = -10%
	Subject: Building View = 0% Corner Building = +5% Open Building = +10%
Headroom	4% per 1m difference
Age	1% per annum
Holding Cost	Not Applicable	The 4 transactions in Echo House had their preliminary agreements for sale and purchase signed on 27 October 2024 whereby the purchasers have to pay off the balance of the purchase price within 120 days, ie 24 February 2025. Dr Wong considered necessary to make allowance for the holding cost for these 114 days.
Layout	Not Applicable	The units in Echo House have thicker walls with no flexibility for alteration or removal. Dr Wong allowed adjustment at +3%
Dark Toilet	Not Applicable	+2% applied to units in Echo House with windows in toilets facing enclosed light well
Lift Provision	Not Applicable	1% for units in Harmonie and The Addition, -1% for units in Amber Place
Facilities & Building Quality	+2% for units in Amber Place and The Addition, -1% for units in Echo House	+5% for units in Amber Place, 0% for units in The Addition and The Harmonie
Parking Provision	Not Applicable	1% for units in The Addition and Amber Place
Noise/ Environment	+4% for units in Amber Place, 0% for units in Harmonie and The Addition
Aspect	Not Applicable	Comparables: NW = +2% NE = +1% SW: 0% SE: -1%
		Subject: SE = 1% NE = -1%
Specialty	+15% for 4/F & 23/F domestic units
Totalling Adjustment	By Multiplication

Holding Cost

119.  The 4 transactions in Echo House had their preliminary agreements for sale and purchase signed on 27 October 2024 whereby, after paying an initial deposit of 5% of the purchase price, the purchasers have to pay off the balance of the purchase price within 120 days, ie 24 February 2025. Dr Wong considered necessary to make allowance for the holding cost for the period between 24 February 2025 and the material date of 18 June 2025 as shown on the sale brochure, ie a total of 114 days.

120.  I do not agree as I consider 120 days not unreasonably long or abnormal though the usual completion period is 1 to 3 months. Indeed, according to the Register of Transactions in Echo House, there have been 4 transactions where the purchasers found preferable to change their payment plans:

Unit	Original Purchase Price as at 27 Oct 2024	Date of Change	Revised Purchase Price	Difference
Flat C, 10/F	$5,453,500	4 Dec 2024	$5,388,700	-1.19%
Flat F, 29/F	$5,514,800	20 Dec 2024	$5,323,000	-3.48%
Flat J, 18/F	$7,987,600	17 Jan 2025	$7,709,700	-3.48%
Flat J, 29/F	$9,061,400	24 Jan 2025	$8,746,200	-3.48%

121.  In any event, occupation permit for Echo House has been issued on 15 August 2024 by the Building Authority. Whereas according to clause 6(1) of the Provisional Sale and Purchase Agreements, delivery of vacant possession is subject to the issuance of the Certificate of Compliance which was in fact issued on 2 April 2025.

Layout for Echo House

122.  Having reviewed the layout and floor plans of Echo House, I agree with Dr Wong that its units have thicker walls with no flexibility for alteration or removal. Indeed, by reference to the Joint Practice Note No 8 issued by Buildings Department, Lands Department and Planning Department, it was stated that MiC involves “repetitive double walls between MiC modules, thicker enclosure walls” for rigging and hoitsting during transportation and assembly, and for this reason GFA and site coverage concessions are granted[33]. However, I prefer to adopt an adjustment of +2% to Dr Wong’s +3%.

Dark Toilet

123.  According to the Building (Planning) Regulations, toilets/bathrooms should be provided with windows for natural lighting and ventilation. However, the Buildings Department was sympathetic with the argument on advancement of ventilation technology and the need for greater freedom in the design of buildings. In December 1997, it issued Practice Note for Authorized Persons, Registered Structural Engineers and Registered Geotechnical Engineers (“PNAP”) 219 on Lighting and Ventilation for Bathrooms and Lavatories in Domestic Buildings so as to allow flexibility in designing domestic flats. The PNAP is now replaced by PNAP APP 98 so that bathrooms and toilets in domestic buildings provided with artificial lighting, if mechanical ventilation and permanent ventilation facilities fulfilling the requirements under the said PNAP are provided, can be exempted from the provision of windows for natural lighting and ventilation. These are commonly referred to as “dark toilets/bathrooms”.

124.  Unfortunately, there is no supervision on the repair or maintenance of the mechanical ventilation and permanent ventilation facilities to fulfill the requirements. As time passes, such dark toilets/bathrooms are notorious for becoming humid and contaminated with bacteria and virus[34].

125.  While it is true as stated by Mr Lai that the provision of dark toilets/bathrooms has now becoming common in modern residential buildings, people or prospective buyers still distinguish dark toilets/bathrooms from the ones with windows and natural lighting.

126.  Having said that, I agree with Dr Wong to an adjustment of +2% for those unit in Echo House.

Lift Provision

127.  In Dr Wong’s Valuation and Rebuttal Report on RDV dated 25 January 2024, he stated at §6.38 as follows[35]:

“There are 337 residential units in The Harmonie which is served by 3 lifts, and 200 residential units in The Addition which is served by 2 lifts. Their relevant lift-to-unit ratios are at 1 lift to 112 units and 1 lift to 100 units respectively. The lift provisions in these two developments are inferior to that of the Proposed Development (RDV Scenario), and I consider it is reasonable to adopt +1% adjustments to all comparables for their inferior lift provisions.”

128.  Then in his Supplemental Valuation Report on RDV dated 12 February 2025, Dr Wong stated at §3.53 as follows[36]:

“… Amber Place has a total of 42 residential units served by 2 lifts or a lift provision rate at 1 lift to 21 units. I have adopted -1% adjustments to all comparables in Amber Place for its higher lift provision rate.”

129.  Mr Lai argued otherwise however in his Rebuttal Report dated 26 February 2024[37]:

“11.9 With the advance technology in building facilities, the speed and capacity of lifts have been improved to a very great extent. The efficiency of one lift could possibly by equivalent to that of two lifts which are of relatively low quality in terms of speed and capacity.

11.10 Therefore, in the absence of the specifications of the lifts provided in the two residential buildings, I consider the consideration of the relevant lift-to-unit ratios is meaningless.

11.11 On the other hand, I consider the number of lifts provided in residential buildings would not have significant effect on the values of residential premises except for those domestic premises in single block buildings with only one lift.”

130.  With respect to Mr Lai, I do not agree with him. In a competitive property market, developers would definitely employed lifts modernised with similar efficiency. The efficiency of one lift would never be equivalent to that of two lifts. As a result, I agree with Dr Wong’s allowance for lift provisions.

131.  In their closing submission for the applicant, Mr Li, leading Mr Yu, referred to Alliance Fame Limited & Others v Mak Kam To & Others, LDCS 9000/2015 (unreported, dated 4 August 2017) where the Tribunal remarked at §137 that “the comparison columns regarding the number of office floors or total GFA served by a lift in the office comparables … is however illusionary and misleading”. With respect, Mr Li, leading Mr Yu had read the sentence quoted out of context.

132.  In Alliance Fame, the comparison was not between buildings with one and two lifts. In §133 of the judgment, a table showing the differences in provision of lifts of various is now extracted for reference:

Name of Development	Road Fronting	Description of Road Fronting	Typical Floor Size (m2) (GFA)	Carparking	Main Lobby (m2)	No of office Floors	Total GFA (m2)	Escalator Area to Office Lobby (m2)	Total no of lifts	GFA served by 1 lift (m2)
			[A]			[B]	[C] = [A] x [B]		[D]	[C]/ {D}
CNT Tower	Hennessy Road (in front of the Building)	Totally 5 lanes, dual way, plus a tram lane	526.28	2 basement levels with 47 CPS	133.45	23		126.50	5	2,421
Emperor Group Centre	Hennessy Road Wan Chai Road Mallory Street Heard Street	Ditto Totally 2-3 lanes, dual way Single lane Single lane	805.60	B2/F with 12 loading bays/ lorry parking spaces	205.75	22		N A	7	2,532
Tesbury Centre	Queen’s Road East	Totally 4 lanes, dual way	370.10	2 loading bays on G/F	205.22	26		N A	4	2,406
AXA Centre	Gloucester Road Jaffe Road Tonnochy Road	Totally 10 lanes, dual way Single lane Totally 4 lanes, dual way	1,204.78	2-4/F carparking levels with total 114 CPS	311.11	20		N A	9	2,677
Pico Tower	Luard Road Gloucester Road	Totally 6 lanes, dual way Totally 10 lanes, dual way	218.52	Nil	78.91	22		N A	2 + 1 (which serves between G/F and 5-7/F only)	2,246

133.  In such circumstances when several serving units (ie in that case, the number of lifts) are involved, “the efficiency of lift loading (usually denoted as ρ in the lift queueing evaluation process) is also determined by lift zoning, speeds of the lifts, appropriate waiting time designed etc. Such information or differentiations between office buildings are important as, generally speaking:

where

λ is the passenger arrival rate μ is each lift’s passenger processing rate, and c is the number of lifts”

134.  Again, such a complex calculation assuming a Poisson arrival process would not be required when it is obvious that the efficiency of one lift would never be equivalent to that of two lifts. The complex calculation is only necessary to determine the capacity of a multi-car lift system, ie the total number of passengers it can transport within a specific time frame[38] .

Facilities & Building Quality

135.  At this juncture, it is firstly noted that Mr Lai applied +2% for units in and Amber Place and The Addition whereas Dr Wong applied none. This difference in opinion was however clarified when Mr Lai explained that the +2% was to reflect the lack of car parking spaces in The Addition. On the other hand, Dr Wong had separately applied +1% for units in these two developments. Thus, the difference between Mr Lai and Dr Wong was just 1%.

136.  The similar difference occurred when Dr Wong applied +1% for units in Harmonie and The Addition, -1% for units in Amber Place when Mr Lai proposed none.

137.  Indeed, Dr Wong, in his Supplemental Valuation Report on RDV dated 12 February 2025, stated at §3.51 as follows[39]:

“The quality of a building will affect the enjoyment of the residents. According to the sample inspection of newly handover units by the media[40], the units in Amber Place are suffered (sic) from various defects such as hollow tiles on external wall, improper installations of balcony railings, and water leakages in water sinks. Upward adjustments +5% are therefore made to all comparables in Amber Place to reflect the inferior building quality.”

138.  In response, in their closing submission, Mr Li, leading Mr Yu, submitted that such media reports are inadmissible hearsay evidence. However, under section 10(6) of the Lands Tribunal Ordinance, Cap 17:

“The Tribunal may admit in evidence any statement, document, information or matter, whether or not it would otherwise be admissible in evidence and attach such weight to it as may be appropriate in the circumstances.”

139.  Mr Li, leading Mr Yu, further submitted that even if such media reports are admitted for reference, they should be given no weight because there are a total of 42 units in Amber Place but the media reports concerned only 3 units. However, a fraction of 3 out of 42, ie more than 7% is not an insignificant consideration.

140.  Next, Dr Wong compared Echo House, which as afore-mentioned is the first private residential development applying MiC, with a similar MiC project developed by the Hong Kong Housing Society using MiC method – Eminence Terrace which were found to have suffered from a lot of defects, including floor misalignment and water seepage[41]. He was of the view that there might be public concern on the quality of buildings constructed by MiC and therefore proposed +10% adjustment to be made on all transactions of units in Echo House.

141.  Mr Lai did not agree with Dr Wong. However, Mr Lai was prepared to adopt +2% for sales in Amber Place and The Addition to reflect that there was no provision of car parking spaces there when compared with the hypothetical development.

142.  Thus, having reviewed the above, I am going to apply the following adjustments for facilities/ building quality of the comparable developments:

Development	Adjustments for Facilities/ Building Quality
The Harmonie	0%
The Addition	+2%
Amber Place	+5%
Echo House	+5%

Noise/Nuisance

143.  Notwithstanding the agreement above, Dr Wong considered that if transactions of Echo House be adopted as comparables, an allowance of +1% would be required to reflect there being a public toilet across Un Chau Street at the corner. I agree with Mr Lai that the public toilet is small and appears to be reasonably maintained. More particularly, the entrance of Echo House is located on the side of Fuk Wing Street which leads to the MTR Cheung Sha Wan station to the southwest along Tonkin Street. In addition, the development itself has been set-back some distance from Un Chau Street.

144.  I agree with Mr Lai that the public toilet should have no effect on the living environment of the domestic units in Echo House.

Aspect

145.  I agree with Dr Wong’s proposed adjustments for the different aspects.

146.  On the other hand, in their closing submission for the applicant, Mr Li, leading Mr Yu, referred to Peace Ever Limited & Others v Chan Shui Ching & Others, LDCS 28000/2018 (unreported, dated 1 August 2023) and suggested that the Tribunal considered the adjustment to orientation/ aspect “against common understanding and should be disregarded”. With respect, Mr Li, leading Mr Yu, had read the sentence out of context.

147.  In that case, Mr Lai (who happened to a valuation expert as well) agreed with the other valuation expert that the unit rate for the EUV of the reference domestic unit of the existing developments was $114,100 per sq m[42]. Thus, it was necessary to apply adjustments to this agreed unit rate in assessing the EUV of the other domestic units in the developments.

148.  Like the present case, one of the adjustments in dispute was that on orientation. At §245, the Tribunal remarked as follows:

“Mr Charles Chan made no allowance for the different orientation of the subject domestic units but Mr Patrick Lai applied +2% to those units that face north, northeast and northwest. The latter means units that face north, northeast and northwest should enjoy a higher unit rate while the subject domestic units face southwest. With respect to Mr Patrick Lai, we consider his application against common understanding and should be disregarded.”

149.  The sentence quoted by Mr Li, leading Mr Yu, meant Mr Lai’s proposed adjustments on orientation/ aspect in that case was against common understanding because he suggested that units that face north, northeast and northwest should enjoy a higher unit rate while the subject domestic units face southwest.

150.  Also in that case, the existing developments which comprised 8 or 9 storeys were built in 1959/ 1960. For such aged developments without service of lifts, the orientation or aspect of a domestic unit may not be an important factor affecting its value. In comparison, in the present case, the hypothetical development is a high-rise modern building with wider and different orientation or exposure. I consider the adjustments on the different aspects of the various domestic units proposed by Dr Wong reasonable.

Assessment of the GDV of the Reference Domestic Unit

151.  In view of the above, I analysed the various sales of the above comparables as follows:

The Harmonie

Unit	Unit Rate (/m2)	Adjustments										Adj Unit Rate (/m2)
		Time	Floor	Size	View	Age	Headroom	Aspect	Lift	Toilet	Total
Flat D, 28/F	$197,252	0.0%	-12%	-0.6%	-10.0%	3%	1.0%	2.0%	1.0%	2.0%	-13.9%	$169,834
Flat J, 26/F	$186,532	0.0%	-10.0%	-0.6%	-10.0%	3%	1.0%	1.0%	1.0%	2.0%	-12.8%	$162,656

The Addition

Unit	Unit Rate (/m2)	Adjustments									Adj Unit Rate (/m2)
		Time	Floor	Size	View	Age	Facilities	Lift	Toilet	Total
Flat D, 23/F	$182,943	-1.8%	-8.0%	-1.4%	0.0%	4%	2%	1%	2%	-2.7%	$178,004
Flat B, 27/F	$185,579	-1.7%	-11.0%	-1.6%	0.0%	4%	2%	1%	2%	-5.9%	$174,630
									Average:		$176,317

Amber Place

Unit	Unit Rate (/m2)	Adjustments										Adj Unit Rate (/m2)
		Time	Location	Floor	Size	View	Age	Facilities	Lift	Nuisance/ Noise	Total
Flat A, 26/F	$199,488	0.0%	3.0%	-11.0%	1.6%	-10%	2.0%	0.7%	5.0%	4.0%	-6.9%	$185,723
Flat A, 25/F	$191,202	-1.8%	3.0%	-10.0%	1.6%	-10%	2.0%	0.7%	5.0%	4.0%	-7.6%	$176,671
Flat A, 22/F	$184,822	-1.8%	3.0%	-8.0%	1.3%	-10%	2.0%	0.7%	5.0%	4.0%	-5.8%	$174,102
Flat A, 21/F	$180,754	-1.8%	3.0%	-7.0%	2.0%	-10%	2.0%	0.7%	5.0%	4.0%	-4.1%	$173,343
Flat B, 26/F	$198,693	-1.8%	3.0%	-11.0%	-1.0%	-10%	2.0%	0.7%	5.0%	4.0%	-10.9%	$177,035
Flat A, 18/F	$179,171	-1.7%	3.0%	-4.0%	2.0%	-10%	2.0%	0.7%	5.0%	4.0%	-0.9%	$177,558
Flat B, 22/F	$190,073	-1.7%	3.0%	-8.0%	-1.0%	-10%	2.0%	0.7%	5.0%	4.0%	-7.8%	$175,247
Flat B, 18/F	$180,590	-1.7%	3.0%	-4.0%	-1.0%	-10%	2.0%	0.7%	5.0%	4.0%	-3.8%	$173,728
										Average:		$176,676

Echo House

Unit	Unit Rate (/m2)	Adjustments											Adj Unit Rate (/m2)
		Time	Floor	Size	View	Age	Headroom	Aspect	Facilities	Toilet	Layout	Total
Flat B, 16/F	$173,774	-1.7%	0.0%	-0.1%	-5.0%	1.0%	1.0%	0.0%	5.0%	2.0%	2.0%	2.9%	$178,813
Flat G, 17/F	$156,627	-1.7%	0.0%	-0.1%	0.0%	1.0%	1.0%	1.0%	5.0%	2.0%	2.0%	8.3%	$169,627
Flat B, 26/F	$184,862	-1.7%	-10.0%	-0.1%	-5.0%	1.0%	1.0%	0.0%	5.0%	2.0%	2.0%	-6.4%	$173,031
Flat B, 23/F	$182,660	-1.7%	-8.0%	-0.1%	-5.0%	1.0%	1.0%	0.0%	5.0%	2.0%	2.0%	-4.4%	$174,623
Flat B, 28/F	$188,217	-1.7%	-12.0%	-0.1%	-5.0%	1.0%	1.0%	0.0%	5.0%	2.0%	2.0%	-8.5%	$172,219
Flat E, 23/F	$184,169	-1.7%	-8.0%	2.1%	-5.0%	1.0%	1.0%	0.0%	5.0%	2.0%	2.0%	-2.2%	$180,117
											Average:		$174,738

152.  Having reviewed the above, I am prepared to adopt $176,000 per sq m for the hypothetical unit on 12/F. And following the adjustments proposed by Dr Wong, I determine the GDV of the domestic portion of the hypothetical development as follows:

Unit	Floor	Saleable Area (m2)	Adjustments							Adjusted Unit Rate (/m2)	GDV
			View	Floor	Headroom	Aspect	Size	Specialty	Total
A	4/F	31.181 + Flat Roof: 37.063	5.0%	-8.0%	0.0%	1.0%	0.3%	15.0%	12.5%	$198,000	$6,170,000
	5/F-22/F	32.931	5.0%	1.5%	0.0%	1.0%	0.0%	0.0%	7.6%	$189,376	$112,320,000
	23/F	32.931 + Roof: 26.488	5.0%	11.0%	2.0%	1.0%	0.0%	15.0%	38.1%	$243,056	$8,000,000
B	4/F	31.181 + Flat Roof: 37.063	0.0%	-8.0%	0.0%	0.0%	0.3%	15.0%	6.1%	$186,736	$5,820,000
	5/F-22/F	32.931	0.0%	1.5%	0.0%	0.0%	0.0%	0.0%	1.5%	$178,640	$105,840,000
	23/F	32.931 + Roof: 26.488	0.0%	11.0%	2.0%	0.0%	0.0%	15.0%	30.2%	$229,152	$7,550,000
C & D	4/F	31.181 + Flat Roof: 37.063	0.0%	-8.0%	0.0%	-1.0%	0.3%	15.0%	15.6%	$203,456	$12,680,000
	5/F-22/F	32.931	10.0%[43]	1.5%	0.0%	-1.0%	0.0%	0.0%	10.5%	$194,480	$230,400,000
	23/F	32.931 + Roof: 26.488	10.0%	11.0%	2.0%	-1.0%	0.0%	15.0%	41.8%	$249,568	$16,440,000
										Total:	$504,080,000

Other Parameters of Residual Valuation

153.  In respect of other parameters of the residual valuation, Mr Lai and Dr Wong also had the following agreements or disagreements[44]:

Other Parameters of Residual Valuation	Mr Lai	Dr Wong
Marketing Cost	3% of GDV
Professional Fees	6% of costs
Demolition Cost	$3,419,262 (ie 1,554.21 m2 x $2,200/m2)
Demolition Period	6 months
Construction Cost	$217,972,000
Construction Period	31.5 months
Interest Rate	4.75%	4.3%
Developer’s Profit	17% on costs
Stamp Duty	4.25%
Legal Cost	0.1%

Interest Rate

154.  While HIBOR rates had fluctuated around 3.6% for some time, they have been dropping since the second week of May 2025. Nevertheless, the best lending rate quoted by HSBC has remained at 5.25% since 20 December 2024. In such regard, I prefer to adopt 4.75% as proposed by Mr Lai.

Premium for Modification of Government Lease

155.  There are development restrictions in the Government Lease as modified on 29 June 2020. In the Second Schedule of the Modification Letter[45]:

“(1) (a) Subject to these Conditions, the grantee shall not use or permit or suffer the use of the lot or any part thereof or any building or buildings erected or to be erected thereon or any part or parts of such building or buildings for any purpose other than private residential purposes.

(b) The total gross floor area of any building or buildings erected or to be erected on the lot shall not exceed 1,856.359 square metre.”

156.  Thus, to facilitate development of the Lot as envisaged for the hypothetical development, a premium would be payable to the Government so as to remove the restrictions.

157.  Mr Lai and Dr Wong was able to agree the amount of premium payable at $140,575,000[46].

158.  As well, Mr Lai and Dr Wong was able to agree that premium would be payable for the exemption of green features such as balconies and utility platforms under the Joint Government Practice Notes Nos 1 and 2 from gross floor area and site coverage calculations. Under the current land administration practice, the land premium for these exemption is calculated based on standard rates[47]. The two valuation experts agreed that it would be $2,979,200[48].

159.  The time assumed by the two valuation experts for such modifications is 18 months.

Finding on RDV and the Reserve Price

160.  Thus, on the basis of what I have stated above, I determine the land value of the Lot at $83,300,000 as shown in the Appendix herein.

161.  This is, with respect, lower than the $92,400,000 assessed by Mr Lai, not to mention the $153,350,000 determined by Dr Wong.

162.  I adopt the estimated RDV of $83,300,000 as the Reserve Price for the auction of the Lot.

Incidental Matters

163.  The applicant proposes to appoint Mr Lam San Keung and Ms Ma Lap Yan, being senior partner and partner respectively of Messrs Grandall Zimmern Law Firm, as the sale trustees. Based on the information on their background and experience as set out in their letters dated 14 November 2024[49], I am satisfied that they are proper persons to be appointed as trustees to discharge the duties imposed on trustees under the Ordinance. The remuneration package proposed in the said letter appears to be reasonable.

164.  The applicant has prepared a set of draft Particulars and Conditions of Sale of the Lot[50]. Subject to any amendment that may become necessary as a result of our agreement, the said particulars and conditions of sale of the Lot by public auction submitted by the applicant are also reasonable.

165.  Earlier in this judgment at §22, I have referred to there being a question as to who should be responsible for the payment of premium for removing the non-alienation restriction. This issue has not been resolved legally albeit it had been addressed to by way of agreement by the applicant to pay the premium.

166.  Paragraphs 16 & 17 above have briefly described how the applicant acquired R2’s interest. In all respects, the sale and purchase was not different from that of a property subject to a legal charge, for instance, in favour of a bank in Hong Kong. The purchaser would only pay the market value of the property subject to the discharge of the legal charge.

167.  In the present case where the property is subject to the non-alienation clause under the Civil Servants Co-operative Scheme, the discharge process has appeared to have taken a longer time, particularly when the premium payable for the discharge was unknown at the first instance. But the nature is not materially different. The intending vendor may, of course, avoid the long process, by paying the premium beforehand. Alternatively, he/she can wait until a prospective buyer is secured and make use of the purchase price at stake to pay off the premium just prior to completion of the transaction. In either case, it would usually be the case that the vendor is responsible for the payment of premium for removing the non-alienation restriction unless the vendor and purchaser are willing to agree otherwise.

168.  Subsequent to the commencement of the Application, on 17 August 2023, the applicant acquired R2’s interest and share of the Lot when he became the registered owner on the same day. The Application against R2 was discontinued by an Order of the Tribunal dated 25 August 2023.

169.  Indeed, in Fuller Holdings Limited & Another v Hsu Ling Ling & Another, LDCS 13000/2019, the Tribunal had come across similar application for compulsory sale of a building subject to the non-alienation clause under the Civil Servants Co-operative Scheme. In that case, likewise, the Tribunal did not have to rule on the issue because of the concession by the majority owners.

170.  Notwithstanding the above, the Tribunal observed at §§22-23 minor differences between the Legal Charge entered into under the Civil Servants Co-operative Scheme and normal charges or mortgages. With respect, those differences as stated would not affect the nature of the Legal Charge.

171.  I agree with the counsel’s submission in Fuller Holdings, supra, as quoted by the Tribunal that the alienation restriction secured by the Legal Charge is no different in nature from the kind of encumbrances envisaged by the Ordinance and is also no different in nature of any ordinary legal charge entered into by a purchaser/ owner over his property to charge the land he purchased/ owned as security in favour of the vendor for a portion of the unpaid purchase price. By section 11(7)(a) of the Ordinance, “the application of the proceeds of sale to discharge any liability or incumbrance referred to in subsection (2)(a) or (b) shall be on the basis that the majority owner or minority owner of the lot shall pay for the discharge to the extent that the liability or incumbrance, as the case may be, is attributable to that majority owner or minority owner, as the case may be[51]”. The removal of the non-alienation clause under the Civil Servants Co-operative Scheme is obviously an incumbrance attributable to the individual minority owner like R1.

172.  The perceived “hardship” as touched upon by the Tribunal in Fuller Holdings, supra, at §23, if any, faced by a minority owner under Civil Servants Co-operative Scheme is no different from the position of the other minority owners faced in a compulsory sale application under the Ordinance.

173.  On the other hand, by reference to the Procedure and Estimated Time for Removal of Alienation Restrictions published by the Lands Department in August 2024[52], if an owner of a property subject to the non-alienation clause under the Civil Servants Co-operative Scheme put his/her property on the market but insisting that the prospective buyer should pay for the premium for removing the non-alienation clause which is unknown at that time. The latter is an uncertainty which renders no sale at all or the property owner has to accept a discount in market price. As stated by me during the trial, this can be compared to a prospective sale of a property under the Home Ownership Scheme or that of a village-type house owned by an indigenous villagers subject to a non-alienation clause in the Government land grant[53].

174.  For instance, in the Provisional Agreement for Sale and Purchase with R2 dated 17 April 2023, Clause 8 stated it was for R2 as vendor to pay for the premium for the removal of the non-alienation clause[54].

175.  For the sake of clarity, the process of removing a non- alienation clause must be distinguished from an acquisition of land for development by a developer subject to certain user or development restriction in the Government lease. In such latter case, as stated by Lord Millett NPJ of the Court of Final Appeal in Director of Lands v Yin Shuen Enterprises Limited & Another [2003] 2 HKLRD 399, (2003) 6 HKCFAR at §14:

“Purchasers are often willing to pay more for land than its intrinsic value would justify…”

176.  With respect, the latter market reality is not applicable to R1. The developer would be willing to pay a premium higher than the sum of the existing use value of the land and the estimated premium payable to Government for modification of the Government lease because the developer is not only acquiring an existing use value of the land but also an option for modification which, unlike other options being traded in the financial market, has no expiration date. In another respect, in such circumstances, the developer has acquired an option to delay or expand a development until he/she sees fit to proceed with the modification process[55]. A willing seller under the definition of market value cannot enjoy this option to delay or expand a development until and unless he/she is in the position to sell after the premium for removal of the non-alienation clause is paid beforehand.

177.  Indeed, the Tribunal had on one occasion tried to quantify the value of a similar option in Kwok Lee Sau Sang v Director of Lands & Survey [1977] HKLTLR 105, 111-112:

“… After consideration, the Tribunal has come to the conclusion that a developer, bearing in mind the amalgamated site potential set out above, would be prepared to purchase such a site only upon a ‘no loss basis’. By this it is meant that he would only purchase the site at a price which would leave him, even if he was unable to collect one or more adjoining sites for amalgamation, without a loss after a redevelopment of the subject site upon a single site basis. In other words he would be prepared to risk his profit from a single site development and the fact that his capital would be immobilized for a period of about 18 months against the substantially greater profit which he would be able to realize if he were able to purchase one or more of the adjoining lots. The Tribunal has found this assessment a difficult one but it is satisfied that, in the context of Hong Kong, this is the maximum price that would be paid by a reasonable purchaser for such a property on the open market.”

178.  Notwithstanding this crude method of analysis, it dealt with the uncertainty associated in the lease modification process before the development of the option pricing model by Fischer Black, Robert C Merton and Myron Scholes, the latter two being the Nobel Price laureates[56].

Order

179.  Thus analyzed, I make the following orders:

(1) This Tribunal is satisfied that the redevelopment of the Lot is justified due to the “age” and “state of repair” of the Buildings and that the applicant has taken reasonable steps to acquire all the undivided shares in the Lot including that of the 1^st respondent;

(2) All the undivided shares in the Lot be sold by way of a public auction for the purposes of the redevelopment of the Lot under s.4(1)(b) of the Land (Compulsory Sale for Redevelopment) Ordinance (“the Ordinance”);

(3) Mr Lam San Keung and Ms Ma Lap Yan of Messrs Grandall Zimmern Law Firm nominated by the applicant, be appointed trustees (“the Trustees”) to discharge the duties imposed on trustees under the Ordinance in relation to the sale of the Lot and the Trustees be authorized to charge such remuneration for their services in accordance with the terms set out in the letters of Grandall Zimmern Law Firm dated 14 November 2024.

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

(i) The sale of the Lot be on the particulars and conditions of sale substantially the same as those in the draft Particulars and Conditions of Sale (including any amendments thereof proposed by the Trustees) to be initialed and approved by the Tribunal.

(ii) The reserve price of the Lot be set at $83,300,000.

(iii) Subject to further extensions that the Tribunal may subsequently allow upon the application of the purchaser of the Lot or its successor in title, the redevelopment of the Lot and the Buildings shall be completed and made fit for occupation within a period of 7 years after the date on which the purchaser shall become the owner of Lot.

(iv) Liberty to the applicant, the 1^st respondent and the Trustees to apply to the Tribunal for further direction(s) under the Ordinance.

Costs

180.  In accordance with the compensation approach as determined by the Court of Appeal in Good Faith Properties Ltd and Others v Cibean Development Co Ltd [2014] 5 HKLRD 534, the respondent is entitled to costs notwithstanding the outcome of the Application. However, Mr Li (leading Mr Yu) submits that the Tribunal has to make a different costs order here in that R1 should pay the applicant costs after 14 February 2025 inclusive of the trial.

181.  In Good Faith Properties, supra, the Court of Appeal referred at §28 to particularly Purfleet Farms Ltd v Secretary of State for Transport [2003] 1 P & CR 20 as a concise summary of the approach:

“29 Leaving aside the impact or influence (if any) of the CPR upon awards of costs in the Lands Tribunal it is my view that the proper approach of the Tribunal for the costs of a successful claimant (i.e. a claimant who is awarded more than the amount of an unconditional offer by the respondent) should be that he is entitled to his costs incurred in the proceedings in the absence of some “special reason” to the contrary. Whether such special reason exists in any given case is a matter for the judgment of the Lands Tribunal. Plainly it may exist where wasted or unnecessary costs have been incurred for procedural reasons as a result of the conduct of the claimant (e.g. abandoned issues, unnecessary adjournments, or failure to comply with directions of the Tribunal). However, so far as the nature and substance of the case advanced by the claimant is concerned, special reasons should only be regarded as established where the Tribunal considers that an item of costs incurred or an issue raised was such that it could not on any sensible basis be regarded as part of the reasonable and necessary expenses of determining the amount of the disputed compensation. This would apply not only to a claim advanced without any statutory basis but to other examples of manifestly unreasonable conduct which may give rise to unnecessary expense in the course of the proceedings. It means, in my view, that, following the hearing of a compensation reference in the Lands Tribunal in which the claimant has been successful, a special reason for departing from the usual order for costs should only be found to exist in circumstances where the Tribunal can readily identify a situation in which the claimant’s conduct of, or in relation to, the proceedings has led to an obvious and substantial escalation in the costs over and above those costs which it was reasonable for the claimant to incur in vindication of his right to compensation.

…

36 I accept Mr Barnes’s submission that, if as a result of applying the principles of ordinary litigation to the hearing of compensation references, the Lands Tribunal adopts a practice of ‘ready departure’ from the principle that the successful claimant is entitled to his costs in the absence of a special reason to the contrary, that would involve a change of approach which has previously and properly been adopted in compensation reference cases. However, I equally consider that, in exercising its wide discretion under s.3(5) of the 1949 Act and r.52(1) of the 1996 Rules, and in considering the question of whether or not special reason exists to depart from the usual order, it may usefully “have regard” to the matters set out in para.19.2 of the Lands Tribunal Practice Directions including whether or not the claimant has exaggerated his claim. In considering that last question, however, exaggeration alone is not enough in the event of a large disparity between the sum claimed and the sum awarded. The matters to which the Tribunal should have regard are (a) the reasons for that disparity, and (b) their effect upon the conduct of the claim. As to (a), if the reasons are defensible, in the sense that there was a legitimate, albeit unsuccessful, argument put forward in support of the figure concerned, there can be no good reason to regard the claim as exaggerated in the pejorative sense necessary to justify a sanction in costs. As to (b), if, in any event, the effect on the proceedings in terms of the time spent and the costs incurred in disposing of the issue or argument concerned is relatively insignificant, then again an adverse order is unlikely to be appropriate.

37 Turning to the question of expert evidence, if the amount of the “exaggerated” claim is based on the valuation, opinion and evidence of the claimant’s expert witness, it will rarely be appropriate in my view to make an adverse costs order against the successful claimant. Valuation is an inexact science. In any case where, by reason of the nature or features of the subject site and/or the state of the market in respect of sites for similar development, there is no close or obvious comparable available, there is bound to be legitimate room for argument and difference of opinion as to the validity or usefulness of a proffered comparable, whether by reason of its location, nature or proposed use. If the Tribunal concludes that, on examination, or as a result of argument, the comparison between the comparable relied on and the subject site is inapt or unhelpful, that should not ordinarily invite a penalty in costs on the grounds that its assertion or resultant discussion has taken up the time of the Tribunal unnecessarily.

38 In my view, Mr Barnes is correct when he submits that, in such cases, disallowance of a proportion of the claimant’s costs will usually only be justified where the Tribunal is satisfied that (a) no competent valuer could reasonably have regarded the comparable as of real relevance or assistance in the valuation exercise; (b) as a result of its introduction and discussion, a significant amount of the Tribunal’s time has been wasted and the proceedings unduly prolonged; (c) no equivalent or near equivalent proportion of the proceedings has been spent dealing with issues unreasonably and unsuccessfully raised by the respondent; (d) the amount or proportion of the costs disallowed is proportionate to the time wasted.” (underline added)

182.  Then the Court of Appeal ventilated, inter alia, the following considerations:

“44. If a minority owner raises objections and puts forward proper evidence to support his objections, as explained above, he is only exercising his legitimate right to object as conferred by the LCSRO. He should not be penalised even though he is doing so for a motive which the applicant may, perhaps with some justification, characterise as an attempt to extract a ransom. It is only in very plain cases where the rejection of an offer or the pursuit of a line of opposition is obviously unreasonable that the Tribunal should consider imposing costs sanction. In this connection, Chadwick LJ said at para 43 of Purfleet Farms, supra:

“It follows that the fact that the claimant has not been awarded as much as he was seeking by way of compensation --- or that the award is nearer (even much nearer) to the amount that the acquiring authority had offered than to the amount sought – cannot, of itself, be a reason for depriving the claimant of his costs of the reference. But that does not lead to the conclusion that the claimant’s conduct in exaggerating his claim can be of no relevance. The Tribunal may be satisfied, in the particular case before it, that the fact that the claimant has exaggerated his claim has led to costs which were not reasonable for the claimant to incur in pursuit of the compensation to which he was entitled; or that it has been the pursuit of issues which it was not reasonable for the claimant to pursue that has led to the exaggeration of the claim. Where the Tribunal makes an award of compensation which is well below the amount claimed, it is appropriate for it consider, in the context of an award of costs, both whether the fact that the claim was exaggerated has led the claimant to incur costs which (given a more realistic evaluation of his claim) he would not have incurred and whether the explanation for the difference between the award and the amount claimed is that issues were pursued on which the claimant had no real chance of success.”

…

46. In our view, in that sort of scenario, viz where a minority owner pursued an issue which had no real chance of success in an unreasonable manner, the Tribunal can, in addition to ordering that he be deprived of his costs in such pursuit, in a serious case, order him to bear the costs of the applicant in meeting such hopeless challenge. In deciding whether it is a serious case, the Tribunal must also have regard to the position of the applicant. Sometimes, experts engaged by both sides adopt polarised positions and their lack of realism often leads to protracted disputes on issues which should not have been litigated to the extent they were. The lack of a realistic offer from one side sometimes leads to the lack of a realistic counter-offer from the other side. In that kind of situation, it may be more appropriate to order each party to bear his own costs.

47. Thus, the real concern is about the unreasonable conduct of proceedings and the delay and prolongation of the LCSRO process (with the attendant increase in costs) when a minority owner takes obviously unmeritorious point to challenge an application. We do not think that such a concern has to be addressed by the rejection of the compensation approach to costs. In our judgment, the proper solution to such concern is two-fold:

(a) The Tribunal should exercise firm and effective case management to ensure that its proceedings are conducted efficiently and in a proportionate manner; and

(b) The Tribunal should impose costs sanction against unreasonable litigation conduct, including the unreasonable rejection of reasonable offers.”

(underline added)

183.  In the present case, although R1 had taken the position to put the applicant to prove that the statutory criteria for granting an order for sale is satisfied and she only took issue on valuation, it should be as plain as a pikestaff to R1, who had been legally represented, that

(1) at the time of commencement of the Application, the applicant had acquired 90% of the undivided shares of the Lot and Building, fulfilling the requirement of ownership threshold of making the Application under section 3(1) of the Ordinance,

(2) the question of age and state of repair of the Building were all established by incontrovertible evidence whereby R1 had as early as on 5 October 2023 indicated to the Tribunal that she was not going to run any argument on them by adducing expert evidence or otherwise.

184.  Even as regards the reasonableness of the offers by the applicant, it is important to note that in the offer made by the applicant on 14 February 2025 in particular, it was calculated on the basis of Dr Wong’s figures and the applicant even agreed to pay the premium for removal of the non-alienation clause in the Government lease of the Lot[57]. By reference to the Supplemental Valuation Report on RDV dated 12 February 2025, Dr Wong determined the RDV of the Lot at $149,800,000[58].

185.  Without accepting this latest offer, by reference to Messrs Foo & Li’s letter of 20 February 2025, there was only the bare assertion that R1’s Unit had sentimental value to R1 because it was said that R1’s parents, ‘her own family’ and her nephews had been living there for so long. With respect, such an argument never formed one of the consideration prescribed by the Ordinance that the Tribunal has to take into account before granting an order for sale of the Lot. In fact, the allegation appears to be a bare assertion, notwithstanding R1 and her husband had since 1993 owned a property at Laguna City, Lam Tin. R1 only became the owner of her unit only on 17 February 2023.

186.  As an aside, I agree with the applicant that it is a distortion for R1 to suggest that it was the applicant who came to the Tribunal to pray for an order for sale when R1 had done nothing wrong. More particularly, according to the applicant, R1 was not the eligible successor to R1’s Unit. It was with the assistance of the applicant that she got the title where the applicant was induced by representation made on R1’s behalf that R1 would sell R1’s Unit to the applicant after obtaining title.

187.  In any event, with respect to R1, her decision to drag on with the proceedings had only jetted up costs and wasted the judicial resources. The trial of 4 days to deal with the so-called valuation issue was also totally unnecessary in view of the offer made by the applicant on 14 February 2025.

188.  Accordingly, I order that the applicant do pay the 1^st respondent’s costs in these proceedings on High Court scale, with certificate for one counsel, including any costs reserved, up to 20 February 2025, ie the date of reply from Messrs Foo & Li.

189.  On the other hand, I order the 1^st respondent to pay the applicant’s cost in these proceedings on High Court scale, with certificate for one counsel, after 20 February 2025, inclusive of the trial.

190.  The above costs will be taxed if no agreement can be reached by the parties.

191.  Last but not least, the Tribunal thanks the Counsel for their assistance.