Marina Boniface Leung-Thompson v. Rapid Growth Ltd.

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

Lands Tribunal Application No. LDNT 721 of 1998

___________________

Reasons for Decision

___________________

Background :

1. The applicant is the tenant and the respondent the landlord of the subject premises known as Flat D, Ground Floor and one uncovered car parking space of Park Villa, No. 37 Island Road, Deep Water Bay, Hong Kong. The existing tenancy was for a term of two years commencing from 15 August, 1996 at a monthly rent of $43,500 exclusive of rates and management charges. The applicant applied for a new tenancy under Part IV of the Landlord and Tenant (Consolidation) Ordinance, Cap. 7. Both parties agreed that the new tenancy shall be for a term of two years commencing from 15 February, 1999 but they could not agree on the level of the prevailing market rent at the relevant date.

2. The subject development, Park Villa, comprises four contiguous, 3-storey, split-level blocks. The flats in the middle blocks, Flats B and C are built elevated above the flats in the end blocks, Flats A and D. There are two entrances providing access to Flats A and B, and Flats C and D respectively. The subject premises is the ground floor flat of the Flats D block.

3. The upper floor flats have the benefit of a sea view as they overlook the building immediately in front. However, the view from the subject premises is blocked by a single two-storey house in front.

4. Open car parking spaces are provided along the private driveway in front of the blocks. The subject premises also includes the provision of an uncovered car parking space. Completed in 1979, the subject development provides no recreational facilities.

Saleable Area of the Subject

5. In the report prepared by the Applicant, it was quoted that the property, according to the information provided by the Rating and Valuation Department, had an approximate saleable are of 126.4 m² (1,360 sq. ft.). On the other hand, Mr. Simon Lynch, the expert surveyor called by the Respondent , calculated that the property had a saleable floor area of about 154.6 m² (1,664 sq. ft.). However, there was no discrepancy in the floor plans and the detailed schedule of accommodation in the Applicant's and Mr. Lynch's reports. As both parties used the other flats in the same development as the comparables and both agreed that all the flats had identical areas and similar layouts, the Tribunal decides that there is no need for the Tribunal to determine the saleable floor area of the subject premises.

The Applicant estimated the Prevailing market Rent to be $30,000

7. The Applicant, who was a national director of a reputable estate agency company and had more that 15 years of experience in the marketing and leasing of retail properties, prepared and submitted her valuation report for the subject premises.

8. The Applicant has applied to and obtained from the Rating and Valuation Department a schedule of 6 comparable rentals. She carried out research on these comparables and provided detailed comments on the comparables. She suggested that 3 of the 6 comparables should be disregarded for reasons of short duration of lease term and large differences in sizes. She then concertrated on the analysis of the remaining 3 comparables. These were her Comparable (1), Flat D on 2/F of the same development, Comparable (2), a flat in Belleview Place, 92 Repulse Bay Road and Comparable (3), a flat in Unicorn Gardens, 11 Shouson Hill Road East. She then attempted to list out the factors upon which adjustments should be made if the comparables were to be compared with the subject. The factors included the differences in view, condition, floor level, provision of an open or covered car parking and facilities. However, in her report, the Applicant did not indicate the actual amount or percentage adjustment she considered to be appropriate.

9. In addition, the Applicant commented on the asking rental of the units in the subject development as advertised in the newspaper, South China Morning Post on 4 November, 1998. In the final conclusion of the report, the applicant claimed that her research supported a rental value of $30,000 per month.

10. The Applicant gave evidence that the view of every room in the subject premises would be blocked by the buildings nearby. The subject premises, unlike other comparable flats in the same development, was totally unfurnished at the time of leasing, and did not have any domestic appliance provided by the Respondent. In replying to a question raised by the Counsel for the Respondent, the Applicant informed the Tribunal that she had spent about $30,000 in the provision of domestic appliances (6 air-conditioners at about $3,000 each, a fridge at about $6,000 and a washer at about $6,000). Also, the subject premises, according to the Applicant, was not well maintained in that dampness problems arose in certain areas.

11. Upon cross examination by the Respondent's Counsel, the Applicant admitted that she, despite of her experience in the real estate field, was not a valuer and her final valuation of $30,000 per month was based on her qualitative adjustments of the comparables.

12. The Applicant also agreed that the best comparable or comparables, for the valuation of the subject premises, should be based on the flats in the same development. In this regard, she was of the opinion that of all the comparables quoted in the report prepared by Mr. Lynch, Comparable (1), Flat C on Ground Floor, was the best comparable as the latter was another Ground Floor flat and had a commencement date closest to the relevant valuation date for the subject. She reckoned that a total downward adjustment of 11.3% (i.e. -0.3% for level difference, -5% for view difference and -6% for domestic appliance difference) was warranted. Applying this to the net rental of Comparable (1), $33,939, gave a figure of about $30,000.

13. In the Applicant's final submission, she suggested that she had tried to look at the valuation of the subject premises as a third party, and not just as a tenant. She also stated that it would not be necessary for her to be a qualified person before she could submit a report to the Tribunal. The Applicant at the end of the hearing maintained her opinion that the prevailing market rent for the subject at the relevant date should be $30,000 per month.

The Respondent's expert estimated the Prevailing Market Rent at $33,000

14. Mr. Lynch in his submitted valuation report opined that the prevailing market rent for the subject at the relevant date should be $34,000 per month. However, during the hearing, Mr. Lynch agreed to reduce his estimate of the rent to $33,000 per month.

15. Mr. Lynch gave evidence that in his opinion, the subject premises was in a good state of internal condition except that there were certain localised areas of dampness, mainly around the air-conditioners' casings.

16. A total of 5 comparable rentals in the same development were analysed. Mr. Lynch submitted that the Comparables (1) and (2) were the best comparables as they were closest in time to the relevant date. He also considered that the following adjustments were appropriate:

17. Timing - No time adjustment was required in accordance with the Jones Lang Whotten Rental Index which show that there was only nominal movement between October, 1998, and January, 1999.

18. Floor level - An adjustment of 0.5% per floor was adopted and that even though there was no lift facility, no additional adjustment was required because the subject development was only 3 storeys in height.

19. View - Depending on the degree of obstruction of view, he allowed -5% and -9% for his Comparable (1) and Comparable (2) respectively.

20. Domestic appliances - He allowed -2% for the absence of air-conditioners in the subject premises, when compared with Comparables (1) and (2).

21. Mr. Lynch also gave evidence that as it appeared that the dampness was caused by the air-conditioners which was in the first place installed by the Applicant, no further allowance should be given to this factor.

22. After applying the above adjustments to his Comparables (1) and (2), Mr. Lynch calculated that the adjusted rental based on Comparable (1) was $31,563 while that for Comparable (2) was $33,800. He then determined that the prevailing market rent for the subject should be about $33,000. He also sought to cross-check this figure with the historical rent and the JLW Rental Index.

Summary of Analysis and Adjustments of Comparables by the parties

23. Both parties agreed that the valuation of the subject premises should be based on the comparable rentals of other flats in the same development. Originally, the Applicant in her report has analysed comparable rentals of other flats in the southern district of Hong Kong Island. However, the Applicant agreed, during the hearing, to restrict the comparables to other flats in the same development.

24. There were only little differences in the valuation advocated by both parties and the differences were in the choice of the best comparable or comparables, and in the adjustments, mainly in the allowance for the presence of domestic appliances. The figures proposed by the parties are set out below:

Comparable (1) Flat C on G/F of Park Villa

25. Renting at $41,000 per month, 1 year lease from 10 February, 1999 August, 1998

26. Identical in saleable area to the subject

27. Rent inclusive of management fee of $3,600 per month, and rates of $2,104 per month

28. The lease provides for 2 weeks' rent free period

29. Adjusted net rent + $33,939 per month, exclusive of management fee and rates and reflecting rent free period

Adjustments for -

Comparable (2) Flat C on 2/F of Park Villa

Renting at $44,500 per month, 1 year lease from 10 February, 1999 August, 1998

Identical in saleable area to the subject

Rent inclusive of management fee of $3,600 per month, and rates of $2,374 per month

Adjusted net rent + $38,526 per month, exclusive of management fee and rates

Adjustments for -

Valuation

30. Having considered the evidence provided by both parties, the Tribunal have decided to agree with the Respondent's expert that both Comparables (1) and (2) are the best comparables for the subject premises. Also, the Tribunal have decided that it would be appropriate to give equal weight to these two best comparables.

31. Also, the Tribunal considered that the adjustments advocated by Mr. Lynch, the only expert witness in the hearing, to be more reliable than that proposed by the Applicant. Although the Applicant had many years of experience as an estate agent, she was not a qualified valuation surveyor. Also, Mr. Lynch was an independent expert witness and had accumulated much experience in the valuation of similar properties. Therefore, the Tribunal agreed with the Counsel for the Respondent that Mr. Lynch's adjustments to time, level, view and domestic appliances should be relied upon in the determination of the prevailing market rent for the subject.

32. In summary, applying a downward adjustment of 7% to the net rent of $33,939 for Comparable (1) gives an adjusted rental value of $31,563. Likewise, applying a downward adjustment of 12% to the net rent of $38,526 for Comparable (2) gives a similar adjusted rental value of $33,902. These two best comparables justify a rental value of $32,700 for the subject premises.

33. Finally, the Tribunal determines that it is appropriate to adjust for disturbance to the premises due to the repairs which may last for 2 weeks. Allowing for half of the period of repairs, a factor of 51/52 should therefore be applied to the rental value of $32,700. This gives a figure of $32,071 which is rounded to $32,000.

Term of the new tenancy

34. The Applicant asked for a term of 2 years on the ground that the previous tenancy was for a term of 2 years.

35. On the other hand, the Counsel for Respondent advanced several reasons for the adoption of a 1-year term for the new tenancy for the subject premises:

36. Having considered all the circumstances concerning this new tenancy, the Tribunal determines that it would be appropriate to grant to term of 1 year for the new tenancy for the subject premises.

Orders: