David Robert Ferrier v. Yu Yui Chiu and Another

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LDNT 381 of 2000

_________________

___________________

J U D G M E N T

___________________

(A) Background

1. The tenant Applicant Mr. David Robert Ferrier made an application in this Tribunal for the granting of a new tenancy commencing on 12th February, 2001 for a term of 2 years. The 2 landlord Respondents, Mr. Yu Yui-chiu (R1) and Mr. Loong Pak-kit, Anthony (R2) were represented by Mr. Loong in the proceeding. The Respondents' stand was that they have no objection to the granting of the 2-year tenancy to be commenced on 12th February, 2001 with all other terms in the previous tenancy remained in force save and except that the new monthly rent should be HK$91,000. The only issue before me was thus the ascertainment of the amount of the prevailing market rent (PMR) of this rather luxurious subject premises as at 12th February, 2001 exclusive of rates and management fee.

2. Each party produced a surveyor expert to give evidence in court and both had summarized their findings and valuation basis in their respective reports (i.e. Exhibits A1 and R1). The conclusion reached by Mr. Brown the expert for the Applicant was that the PMR for the suite premises should be HK$72,000. On the other hand, the PMR arrived at by Mr. Young, the Respondents' expert was HK$91,000.

3. It could be seen that the methods adopted by the two experts were very similar. Both used the direct comparison method and all those comparables used by the Applicant's expert appeared in the Respondents' expert report as well. However, they had reached quite different conclusions because of the different comparables selection methods and different valuation adjustments they adopted. I shall refer to such differences and rule on the proper approaches to be used.

(B) Issues on Valuation:

4. The issues which caused the valuation differences in the two reports are (a) comparables selection, (b) valuation of the rooftop / terrace of the comparables, (c) level of the suite premises and (d) adjustment made in relation to the sewage treatment room.

(a) Comparables selection method:

5. Mr. Young obtained 6 comparable lettings from the Rating and Valuation Department and 4 out of them were within the same development containing the subject premises. However, in the end, Mr. Young only based his conclusion on comparables 3 and 5 both of which were new lettings. As such, Mr. Young said they could better reflect the market situation. On the other hand, Mr. Brown used the same comparables in the same development and attached equal weight to them apart from making those adjustments which I shall go into later. Mr. Brown did not share the view that renewal letting would be less useful in reflecting on the market trend.

6. On the sampling issue, I first find that Comparables 1 and 4 used by Mr. Young could hardly be described as comparables. They were flats in high rise buildings and the atmospheres there would be very different from that of the subject premises. As such, I agreed that they should be properly disregarded.

7. However, I disagree with Mr. Young on his disregarding the two renewal lettings in the same development (i.e. comparables 2 and 6). Altogether, there were only 6 units in the development. To disregard the two renewal letting simply because they were such is not justified. I agreed with Mr. Brown in that given making the proper adjustments on the various aspects of them, these two comparables should also be considered as they could provide a boarder sampling basis for this valuation exercise.

(b) Valuation affected by the terrace and rooftop:

8. Mr. Brown adopted a factor of 1/5 to convert the areas of the terrace and rooftop into saleable areas of the comparables. He maintained that this factor was justified as opposed to the 1/8 used for the lawn because in his view the rooftop and terrace possess the additional convenience, privacy and exclusive enjoyment derived from the direct access facility.

9. Mr. Young on the other hand used 1/8 as the conversion factor for the rooftop, terrace and lawn indiscriminately. According to Mr. Young's evidence in court, the use of 1/5 or 20% as conversion rate for the rooftop or the terrace was too high a factor.

10. I agree that a 20% conversion factor is too high for ancillary areas like rooftop and terrace. I also agree that 1/8 or 12.5% should be a conversion factor sufficient for the purpose of reflecting the enjoyment by the tenant of the areas concerned. I also hold that Mr. Brown's alternative method of deducting $6,000 for the lack of terrace factor in arriving at the valuation of $72,000 monthly rental for the subject premises amounted to double counting for this factor. It is because the 1/8 factor used by Mr. Young in converting those terrace areas had already reflected the value of these areas in the comparables.

(c) Level

11. Mr. Brown gave a 6% upward adjustment for the 3 top floor duplexes to reflect their more convenient accessibility, lighting and ventilation. While conceding accessibility for those units was an advantage, Mr. Young consider the summer sun heat on the rooftop as well as the noise emanated from Tai Tam Road would cause those units to suffer. Eventually, Mr. Young opined that the advantages and disadvantages of those units cancelled out one another and hence no adjustment should be made.

12. In my judgment, given the lay out of the development and its geographic location, difference caused by the level of a unit on its views, lighting and ventilation should be minimal and hence no adjustment should be made. However, I am not convinced that the advantage of better accessibility of the upper floor units can be completely extinguished by the roof heat and noise factors. Therefore, I come to the conclusion that a 3% upward adjustment should be made in respect of the top floor units.

(d) Environment

13. There is no dispute that the living room and the dinning room of the subject premises were situated right above a sewage treatment room processing the sewage discharge for the whole development. There is also a clause (Clause 10) in the previous tenancy providing for the tenant's right to serve a 14-day notice to quit if the landlord could not eliminate such nuisance (including but not limited to noise and air pollution) caused by the sewage plant in 30 days.

14. Mr. Brown purported to give evidence on facts saying that he had learned from the Applicant that the sewage treatment room would from time to time discharge unpleasant odour and would generate noise during night time. However, Mr. Brown admitted that he had not experienced these problems personally when he went there during day time. Mr. Brown made a downward adjustment of 10% for this factor.

15. Mr. Young cast doubts on what Mr. Brown learned from the Applicant. Mr. Young also gave evidence on facts saying that while he was there during day time, he could not hear or smell any thing unpleasant at all. Any way, Mr. Young accepted that knowledge of the presence of a sewage treatment room under one's flat especially a flat of the quality concerned in this case would pose psychological discomfort on the sitting tenant. Therefore, he was prepared to give a discount of 2% for this factor.

16. Firstly, I am not convinced that the presence of clause 10 in the tenancy necessarily suggest that the sewage treatment room has had problem before. Secondly, I have borne in mind that both Mr. Brown and Mr. Young had not experienced the Applicant's complaint personally. On the other hand, the Applicant did not give evidence thus rendering Mr. Brown's evidence on this point to be purely of hearsay nature. Although the Tribunal has power to admit such evidence, the weight to be attached to such evidence must be closely scrutinized. Bearing in mind that the Applicant was prepared to take up a two year lease at the increased monthly rental of $84,000 after he had lived there for 2 and a half year(the Applicant's position can be seen in the Form 22 in this case), I do not accept that the sewage treatment room would cause nuisance in the manner as described by Mr. Brown. However, this finding dose not change the fact that workmen would have to gain access via Applicant's lawn in order to effect maintenance over the sewage treatment room. Also, the psychological factor conceded by Mr. Young should not be under estimated. In the end, I found a downward adjustment of 4% is appropriate in the circumstances.

(C) The Calculation

17. I have adopted mainly Mr. Young's calculation on page 26 of exhibit R1 but disregarded the two comparables from high rise buildings. On time adjustment, I adopted 2.5% and 4.5% respectively for the C2 to C5 and C6 groups. I then make adjustments in the aforesaid manner and arrive at an effective average unit rate of $372.39. I used 1/8 as the conversion factor to convert the 56 m2 lawn area into effective area for the subject premises. The final figure I arrived at is $85,125.6 or say $85,100. For my calculation and adjustment, the parties may refer to the appendix of this judgment.

(D) The Order

18. As a result of the above findings and calculations, I now order :-

1. New tenancy for 2 years from 12 day of February 2001;

2. New rent at $85,100 per month (exclusive of rates and management fee); leave to pay arrears (if any) within one month;

3. Deposit to be increased pro rata in accordance with the new rent; leave to pay increase within one month;

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

5. No order as to costs.

Appendix

Adjustments

Effective Unit rate =372.39