CHIU YUEN YIN previously known as CHIN SHIK SHIM v. THE DIRECTOR OF LANDS

LDLR 1/2019

[2021] HKLdT 22

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LANDS RESUMPTION APPLICATION NO 1 OF 2019

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JUDGMENT

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BACKGROUND

1.  This is the applicant’s application for determination of compensation pursuant to the Lands Resumption Ordinance, Cap 124 (“the Ordinance”).

2.  The applicant is the former registered owner of a shop on Ground Floor, No 242 Fuk Wing Street, Kowloon, being 1/7 undivided shares of and in the Remaining Portion of section G of New Kowloon Inland Lot No 435 (“the Property”).

3.  By a notice of resumption dated 28 September 2018 and published in G.N. 8021, the Government informed the applicant the Property would be resumed and reverted to the Government for implementation of Development Scheme SSP-015 by the Urban Renewal Authority at Tonkin Street / Fuk Wing Street on the expiration of 3 months from the date of affixing of the notice. The notice of resumption was affixed to the Property on 19 October 2018. Thus, upon expiration of the 3-month notice period, reversion took place at midnight on 19 January 2019.

4.  The applicant and the respondent have no dispute that the basis of compensation in the present proceedings should be the market value of the Property on the basis of vacant possession as at the date of resumption, i.e. 19 January 2019.  They also agree to adopt direct comparison method in the assessment.

5.  The applicant submits the compensation based on the applicant’s valuation should be $19,520,000. Whilst, the respondent contends the compensation should be $12,588,000 only

THE EVIDENCE

6.  The parties have produced the following expert reports and documents: -

Mr Wayne WK Lee (“Mr Lee”) of Wayne Lee & Associates Limited, valuation expert appointed by the applicant

 (i)     Valuation Report dated 4 September 2019; and

 (ii)     Rebuttal Report dated 4 December 2019

Mr Lai Wah Chi (“Mr Lai”) of AA Property Services Limited, valuation expert appointed by the respondent

 (i)     Valuation Report dated 20 August 2019; and

 (ii)     Supplemental Report dated 26 November 2019

7.  The 2 valuation experts have prepared a Joint Statement dated 20 February 2020. The parties together with the 2 valuation experts and I have also inspected the Property and the comparables externally on 2 March 2021.

8.  In the Joint Statement, the 2 valuation experts agree on the particulars and measurements of the Property and the comparables. They also agree on the adjustment for headroom at 2% per 1-meter, the adjustment for time in accordance with RVD private retail indices, the adjustment for frontage at 3% per 1-meter, the adjustment for size at 1% per 4.5-meter and nil adjustment for age.

THE ISSUES

9.  The issues remain to be determined by the tribunal are summarized as follows: -

 (i)     In the calculation of the effective floor area of the Property, whether a conversion factor of 1/2 or 1/1 is to be used for the space under staircase;

 (ii)     Selection of comparables;

 (iii)     The adjustments for location, return frontage and layout / depth;

 (iv)     In the analysis of Comparable 5, whether or not $500,000 should be deducted from the transaction price;

 (v)     As a matter of law, whether or not the cost of demolishing the unauthorized yard structure within the Property should be deducted from the market value to arrive at the amount of compensation; and

 (vi)     If the cost of demolishing the unauthorized yard structure should be deducted, how much is the cost.

Effective Floor Area of the Property

10.  While Mr Lai proposes to covert the space under staircase, where is below 2 meters in height, at 1/2, Mr Lee considers the conversion rate should be 1/1 because the subject space with a lower headroom can still be effectively used.

11.  I am of the view the space below 2 meters in height is less useful and the conversion rate at 1/2 is reasonable. Accordingly, the effective floor area of the Property should be 55.84 square meters, the figure proposed by Mr Lai.

Selection of Comparables

12.  Mr Lai and Mr Lee have proposed 6 and 4 comparables respectively, and only 1 of them (i.e. Comparable R6 (A4) – Shop F, Ground Floor, Springwide Mansion, Nos 205 – 209 Castle Peak Road) is common.

13.  I agree with Mr Lai not to adopt the other 3 comparables (i.e. Comparable A1 – Shop N, Ground Floor, Wing Lung Building, Nos 220 – 240A Castle Peak Road; Comparable A2 – Shop H, Ground Floor, Wing Lung Building, Nos 220 – 240A Castle Peak Road; and Comparable A3 – Ground Floor, No 250 Castle Peak Road) proposed by Mr Lee. I consider their respective locations, close to the junction between Castle Peak Road and Wing Lung Street, are much better than that of the Property.  In addition, they are larger than the Property in size.  Since there are other better comparables, they are not selected for analyses.

14.  Whilst, I consider the respective locations of the other 5 comparables (i.e. Comparable R1 – Ground Floor, No 172 Ki Lung Street; Comparable R2 – Ground Floor (including Cockloft), No 205 Ki Lung Street; Comparable R3 – Ground Floor, No 572 Fuk Wa Street; Comparable R4 – Ground Floor including Cockloft, No 442A Castle Peak Road; and Comparable R5 – Ground Floor including Cockloft, No 22 Pei Ho Street) proposed by Mr Lai are similar to that of the Property and they can be selected for analyses, though they are a bit far from the Property.  Nevertheless, the 2 comparables with cockloft (i.e. Comparables R2 and R5) should be analysed with care and their assessments should be further reviewed because the conversion of cockloft and the adjustment for headroom in this instance would affect their adjusted unit rates.

15.  Although Comparable R4 also includes cockloft in its description, Mr Lai revised its particulars at trial and took out the cockloft in his assessment, and these revisions are agreed by Mr Lee.

16.  On the other hand, the parties argue whether or not in the direct comparison the agreed building repair cost in the sum of $500,000 as stated in the Agreement for Sale and Purchase of Comparable R5 should be deduced from its consideration of $17,000,000.  Since the vendor of this transaction would contribute this $500,000, which would offset part of the purchase price, I agree with Mr Lai to adopt $16,500,000 only, which is in fact the actual purchase price of Comparable R5 subject to the various building orders and notices issued by the Building Authority.

Adjustments to the Comparables

17.  Regarding the adjustment for location, I agree with Mr Lai Comparable R6 (A4) is better than the Property, but the adjustment rate should be -7.5% only instead of -10% proposed by Mr Lai and 0% proposed by Mr Lee. This section of Tonkin Street is no doubt better than this section of Fuk Wing Street, and has greater exposure and heavier pedestrian flow. I also consider Comparable R4 along Castle Peak Road should be adjusted at -7.5% instead of -10% proposed by Mr Lai.

18.  Although I agree with Mr Lai not to adjust for location to Comparables R1 and R2 along Ki Lung Street, I consider Comparable R5 along Pei Ho Street should be adjusted at +2.5% only instead of +10%. Further, Comparable R3 in the middle of vehicle repairing shops and scrap metal recycling shops is worse than the Property and should be adjusted at +5% instead of 0% proposed by Mr Lai.

19.  Regarding the adjustment for return frontage, I agree with Mr Lee a positive adjustment should be made to reflect the advantage of the Property, but the adjustment rate should be +1% only instead of +5% proposed by Mr Lee. Even if the applicant had not utilized the return frontage in the past, it does not mean it could not be utilized by other occupants in the hypothetical transaction, but I am of the view that only a nominal adjustment should be made in this instance because the subject service lane is relatively inferior and cannot bring much benefit to the Property.

20.  In the adjustment for layout / depth, I agree with Mr Lee mainly depth and shape only instead of frontage should be considered in the assessment.  In this instance, since there is a separate adjustment for frontage, further consideration of frontage in the adjustment for layout / depth would doubt count the effects of frontage. In addition, I agree with Mr Lee greater weighting should be given to depth because the shop front area would have a higher value.  Nevertheless, except depth of the Property and Comparable R6 (A4), the parties have neither provided nor agreed depth of the other selected comparables.  On the evidence available to the tribunal including the floor plans of the selected comparables, I consider they should be adjusted at -5% to +3%.

21.  Although the parties have agreed the adjustment for headroom at 2% per 1-meter, Mr Lai proposes (1) to make an additional adjustment to Comparables R5 at +2% to reflect that parts of the shop space under its cockloft have lower headroom; and (2) to take the headroom under cockloft only of Comparable R2 for comparison. I consider if a positive adjustment at +2% is made to Comparable R5, a negative adjustment at say -1% should also be made to Comparable R2 to reflect that part of its shop space without cockloft would have higher headroom. Nevertheless, since the parties have not provided the full headroom of Comparable R2 and the headroom under cockloft of Comparable R5, a comprehensive analysis in this regard cannot be carried out.  In the circumstances, I agree with Mr Lee the headroom adjustments to the comparables with cockloft (i.e. Comparables R2 and R5) is arbitrary.

Deduction of Demolition Cost

22.  The Property was subject to a building notice dated 28 November 2006. It was provided in this notice that the building works comprising a structure at the yard of the Property was in contravention of section 14(1) of the Buildings Ordinance Cap 123.  It is also not in dispute between the parties that there was an unauthorized structure at the yard of the Property as at the date of valuation, but they argue whether or not the demolition cost of this unauthorized structure should be deducted from the compensation, and if the demolition cost should be deducted, how much is it.

23.  Mr Stanley Ng, counsel for the respondent, submits the applicant was under a legal duty to “repair uphold support maintain” the buildings or structures erected on the lot under the Government lease, and if the applicant failed to discharge this legal duty, it amounted to a breach of Government lease. As a result, no compensation shall be given in respect of any use of the Property which was not in accordance with the terms of the Government lease under which the Property is held (i.e. section 12(b) of the Ordinance).  Mr Ng also submits according to the definition of market value, it is more likely than not that a willing buyer having the knowledge of a building order, and if acting prudently, will have asked for the costs of demolition of the unauthorized structure.

24.  On the contrary, Mr Jun Lee, counsel for the applicant, submits it may well be that the unauthorized structure was erected to repair, uphold, support and / or maintain the building, and hence whether or not the unauthorized structure was erected has no bearing on whether the applicant had discharged or breached his obligations under the repair clause of the Government lease. Further, a breach of the Buildings Ordinance does not equate to a breach of the Government lease as there is no term in the Government lease requiring compliance with the Buildings Ordinance.  Hence, the building notice registered against the Property did not lead to a breach of the Government lease.

25.  I agree with the submissions of Mr Stanley Ng.  Logically, I do not accept the unauthorized structure might be erected to repair, uphold, support and / or maintain the building, and there was no breach of Government lease.  The repair clause in the Government lease is a positive covenant subject to satisfaction of the Government. No doubt, the unauthorized structure could not satisfy the Government in respect of repair and maintenance. The existence of the building notice issued by the Building Authority is the evidence that the applicant has breached the Government lease. 

26.  I accept section 12(b) of the Ordinance is engaged in this instance. In order to assess the value of the Property subject to the building notice under the Ordinance, I agree with the respondent that in principle the demolition cost of the unauthorized structure could be deducted from the market value of the Property free from the building notice.  However, I consider the respondent has failed to prove the amount of demolition cost in these proceedings. In the circumstance, I agree with the applicant the demolition cost as claimed by the respondent should not be deducted from the compensation.

27.  In the assessment of demolition cost, Mr Lai said at trial he had consulted an unnamed building surveyor, but this unnamed building surveyor had not inspected the Property and he did not know how the figure of $1,615 per square meter as advised by this unnamed building surveyor was arrived at.  I am of the view such bare allegation is far from satisfactory in a proof of expert evidence. 

28.  Further, Mr Lai has not inspected the selected comparables internally and cannot confirm whether or not these comparables (i.e. except Comparable R5 that was subject to building orders and notices) would have unauthorized structures too. In the circumstances, no matter whether there were registrations of building order and notice, since the market value derived from these comparables may have already reflected the demolition cost of the unauthorized structures if any, I am not persuaded to adopt the demolition cost in the sum of $43,121 (i.e. yard area of 26.7 square meter x $1,615 per square meter) suggested by Mr Lai. In any event, as compared with the market value, $43,121 is a relatively small amount and is not significant in valuation, particularly when the adopted figures including the adjusted unit rates and the final assessment have been rounded off in the process of assessment.

CONCLUSION

29.  In accordance with the above discussions and determinations, the valuation is listed in Appendix of the judgment. The average adjusted unit rate of the 6 selected comparables is about $231,223 per square meter and the average excluding Comparables R2 and R5 that have attachment of cockloft is about $235,489 per square meter.

30.  I consider the adopted unit rate should be close to the adjusted unit rate of Comparable R6 (A4), the common comparable adopted by the parties and close to the Property, and therefore the market value of the Property is assessed at 55.84 square meter x $240,000 per square meter = $13,404,600, say $13,400,000.

31.  I determine the value of the Property, for the purpose of section 10(2)(a) of the Ordinance, should be in the sum of $13,400,000.

ORDERS

32.  Accordingly, I order that the respondent do pay the applicant compensation for the Property in the sum of $13,400,000.

33.  The matters of professional fees, interest and costs shall be adjourned to a date to be fixed by parties in consultation with counsel’s diaries if it needs, with liberty to apply for any other ancillary and consequential matters.