FAIRBO INVESTMENT LTD v. CHOW WEI CHI JOSEPH, APPOINTED BY ORDER TO REPRESENT THE ESTATE OF CHOW KIU KAM JING, DECEASED

LDCS 24000/2014

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE MAIN APPLICATION

NO. LDCS 24000 OF 2014

________________________

________________________

__________________

JUDGMENT

__________________

1.  This is an application for compulsory sale of all the undivided shares of and in Sections HH and GG of New Kowloon Inland Lot No 3586 (hereinafter referred to as “the 1^st Lot” and “the 2^nd Lot”

respectively, and “the Lots” collectively) for the purposes of redevelopment pursuant to section 3(1) of the Land (Compulsory Sale for Redevelopment) Ordinance, Cap 545 (“the Ordinance”).

2.  Erected on the Lots is a pair of 4-storey buildings connected by a common staircase (“the Buildings”) known as Nos 5 and 6 of Yiu Tung Street, Kowloon being situated in the middle of a parade of similar 4-storey buildings. According to a set of building plans of reference no 2/4275/52 approved by the Building Authority on 21 June 1952, there are 2 domestic units planned on each floor from Ground Floor to Third Floor of the Buildings.

3.  The Buildings were completed on 19 January 1953 with “Domestic Permit” issued on 3 February 1953 whereby permission was granted to occupy and use the Buildings for domestic purposes. The Buildings are now over 64 years old.

History of the Proceedings

4.  When the application was first taken out on 15 December 2014 (“the Application”), it also included the undivided shares of and in Section JJ and II of New Kowloon Inland Lot No 3586 which are erected thereon with another pair of 4-storey buildings known as Nos 3 and 4 of Yiu Tung Street, Kowloon. There were then 2 respondents. Subsequently and by an assignment dated 2 December 2015, the applicant acquired the remaining undivided share held by the original 1^st respondent in Section JJ of New Kowloon Inland Lot No 3586, ie 2/F, No 3 Yiu Tung Street and has become the sole owner of all the undivided shares in Section JJ and II of New Kowloon Inland Lot No 3586.

5.  By a Notice of Withdrawal dated 23 December 2015, the present proceedings against the 1^st respondent was discontinued. By an Order dated 9 December 2016, the Application was re-re-amended so that only the order for sale of the Lots is made the subject of the present proceedings.

6.  Each unit in the Lots comprises 1/4^th equal and undivided share of and in the corresponding lot. The applicant owned 100% equal and undivided shares in the 1^st Lot and 75% in the 2^nd Lot. The only minority owner was Chow Kiu Kam Jing, deceased (“the late Mrs Chow”), who was the registered owner of 1^st Floor, No 6 Yiu Tung Street, Kowloon (“the Respondent’s Unit”), holding 1/4^th equal and undivided share in the 2^nd Lot. The average percentage of the undivided shares in the Lots owned by the applicant is 87.5%.

7.  After various failed attempts to serve the Application documents on the late Mrs Chow, it came to the knowledge of the applicant that she had passed away in Taipei on 28 September 2002. Subsequently, the applicant was able to contact one of her four children, namely the eldest son of the late Mrs Chow, Chow Wei-chi Joseph (“Mr Chow”), who was and still residing in Taiwan. Mr Chow agreed to act for the estate of the late Mrs Chow for the purpose of the present proceedings.

8.  Then by an Order of the Tribunal dated 7 April 2016, Mr Chow was appointed to represent the estate of the late Mrs Chow. On 26 April 2016, it was ordered, inter alia, that the proceedings be conducted as against Mr Chow as the representative of the estate of the late Mrs Chow. The Notice of Application was re-amended accordingly on 27 April 2016. Pursuant to the said Order dated 26 April 2016, all relevant court orders together with the Re-amended Notice of Application were served on Mr Chow personally in Taiwan on 19 May 2016.

9.  By a Notice of Opposition dated 19 May 2016, Mr Chow, now the respondent, notified the Tribunal that he did not oppose the Application. Whilst leave was granted to the respondent to file evidence in the present proceedings, he did not do so.

10.  Pursuant to the leave of the Tribunal, the latest version of the Re-re-amended Notice of Application dated 13 December 2016 has been served on Mr Chow personally in Taiwan on 5 January 2017. In the circumstances, the Application is unopposed.

The Applicant’sEntitlement to Make the Application

11.  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.

12.  Section 3(2)(b) further provides that an application under subsection (1) may cover 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 lotson 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).

13.  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 a lot belonging to a class of lots specified in the notice.

14.  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) a lot with each of the units on the lot representing more than 10% of all the undivided shares in the lot;

(b) a lot with each of the building erected on the lot issued with an occupation permit at least 50 years before the relevant date (ie the date of the application under the Ordinance)”.

15.  The occupation permit for the Buildings was issued on 3 February 1953 (ie nearly 62 years before the date of the Application).  The Notice is applicable and the threshold percentage should be 80%.

16.  When the applicant commenced the present proceedings on 15 December 2014, it owned 87.5% of the undivided shares in the Lots, ie it owned on average more than 80.0% of the undivided shares in the Lots.  I agree therefore that the applicant was entitled to make the Application under section 3(2)(b) of the Ordinance.

Section 4(2)(a) - Whether redevelopment of the Lots is justified due to the “age” and/or “state or repair” of Pak Cheung House

17.  Under section 4(1)(b) of the Ordinance, the Tribunal is to be satisfied that an order of sale should be made pursuant to the Application.  Section 4(2) of the Ordinance provides that there are basically 2 considerations, namely:

(i) whether the redevelopment is justified due to age or state of repair of the existing development on the Lots; and

(ii) whether the applicant has taken reasonable steps to acquire all the undivided shares in the Lots where owners’ whereabouts are known.

18.  The applicant has to satisfy this Tribunal that the above statutory requirements are met; otherwise, an order for compulsory sale would not be granted.

19.  For the age and state of repair requirements, the applicant has adduced the expert evidence of Mr Wong Chi Ming (“Mr CM Wong”), aRegisteredStructural Engineer and Authorised Person, and Mr Benson Wong Sai Ning (“Mr B Wong”), a RegisteredBuilding Surveyor and Authorised Person.  These two experts had appeared on many occasions before the Tribunal in similar proceedings. Their expertise is not disputed.

20.  Mr CM Wong had conducted a structural assessment of both pairs of buildings at Nos 3-6 Yiu Tung Street and the Structural Assessment Report was filed on 14 September 2016.  Mr B Wong had also conducted a condition survey of both pairs of buildings at Nos 3-4 and 5-6 Yiu Tung Street respectively and the Condition Survey Report was filed on 14 September 2016.

21.  On 11 January 2017, they had revised the relevant part of their reports showing the individual analysis of Nos 5 & 6 Yiu Tung Street. They were both called to give evidence on 19 January 2017.

22.  For instance, Mr CM Wong identified the following defects in the Buildings:

(a) Cracks, water stains and spalling at 33 locations were observed during visual inspection of 5 units and common areas of the Buildings;

(b) 100% of the steel reinforcement bars samples are suffering from mild to moderate corrosion;

(c) carbonation has reached the concrete surrounding the steel reinforcement bars in 100% of the test samples of slabs, beams and columns rendering the steel reinforcement bars susceptible to corrosion as it has destroyed the passive alkaline layer of protection provided by the concrete cover;

(d) 17% of the core samples have chloride content exceeding 0.40%, ie the corrosion risk for these samples is classified as ‘moderate’ or ‘high’;

(e) All samples are found to pose a ‘moderate’ or ‘high’ risk of corrosion to the steel reinforcement bars;

(f) the average cement content is about 216kg/m³, which is lower than the current standard of 290kg/m³.

23.  Based on his findings, Mr CM Wong concluded that the structural elements of the Buildings are in a poor condition and irreparable problems such as high carbonation depth and high chloride content which might cause the condition of the Buildings to further deteriorate quickly in the near future.   He opined that the structural elements had passed their design working life of 50 years and were inferior to the current standard.   The corrosion of the reinforcement bars had entered the propagation phase and extensive maintenance and repair works are required in the near future.   He said that the design and construction of the structural frames had become obsolete over time and the structure failed the current safety standard.   He recommended that hammer tapping works be carried out to all the structural members and all revealed cracks and spalling should be patch repaired.

24.  Mr CM Wong estimated the cost of repair to the Buildings in its current state is $139,587 but this estimated repair cost did not include the repair of problems such as low concrete strength, severe carbonation and high chloride content because they are both technically and financially impractical and would cause extensive disturbance during the works.

25.  Mr B Wong, in his Condition Survey Report of 14 September 2016, stated, inter alia, that:

(a) by reason of age, the design and construction of the structural frames of the Buildings have become inferior to current requirements over time;

(b) the Buildings are in a very poor state of repair due to general wear and tear;

(c) infrared thermographic survey carried out on the external rendering revealed 46 hollow spots the presence of which is potentially dangerous to public safety in the event that loosened rendering falling off from the external wall;

(d) asbestos materials as identified by the asbestos consultant should be removed according to the procedure specified in the Air Pollution Control Ordinance;

(e) the original waterproofing membrane to the roofs of the Buildings are defective and approaching the end of its useful life as evidenced by water seepages through the roof slabs and staining of paintwork all over;

(f) the external walls of the staircase housings and chimneys flue on roof are noted with cracked rendering and staining of paintwork all over;

(g) the door to the staircase housing has badly rusted;

(h) the manhole cover to the remaining water tank was concealed with concrete;

(i) the staircase is unsatisfactory means of fire escape for the upper floors due to worn floor surfaces and broken stair nosings, plastering and paintwork of the walls are perished and worn, scratches and stains of paintwork found on the ceilings and stair soffits, doors to flat entrances are not fire resistant; handrails are only provided to the wall side of some storeys;

(j) the conditions of the internal doors, finishes, bathroom and kitchen fittings are poor; the most common defects in the flats are missing or defective bathroom and kitchen doors; cracks and spalled finishes to the internal floors, walls and ceilings;

(k) sanitary fitments in the bathrooms as well as cooking facilities in the kitchens generally are broken or otherwise defective requiring replacement;

(l) internal electrical installations and wirings have been found removed or in poor condition in the 4 domestic units inspected;

(m) lockable cabinets have not been provided to house the individual fresh water supply stop valves and meters in order to protect them from vandalism and comply with the relevant water supply regulations; and

(n) flushing water supplies to the flats and shops are suspended due to both flushing tanks having been removed or abandoned.

26.  Mr B Wong in his Supplemental Report dated 11 January 2017 estimated that the total costs of immediate repair works to restore the Buildings to tenantable standard came to $5,564,308 which was about 51.5% of the cost of constructing new similar buildings.  

27.  I accept the unchallenged evidence of the applicant in these respects.  I am satisfied that, based on the evidence of Mr CM Wong and Mr B Wong, redevelopment of the Lots is justified due to the poor state of repair of the Buildings and disproportionate costs to repair and maintain.  I am also satisfied that redevelopment of the Lots is justified due to the age of the Buildings.  The 64-year old Buildings are in a poor condition and in fact have come to the end of their life. Their design has become obsolete over time in many aspects both physically and functionally and failed to conform to modern standards and requirements in many material respects.

EUV as at 22 September 2014

The Valuation Evidence

28.  Pursuant to section 3 of the Ordinance, the Application was supported by a valuation report dated 11 December 2014 (“Application Report”) prepared by Mr Charles C K Chan (“Mr C Chan”) of Savills Valuation and Professional Services Limited, containing assessments of the market value (usually termed by the profession as “EUV”) of all units at Nos 3-6 Yiu Tung Street as at 22 September 2014. The Application Report was prepared not earlier than 3 months before the date of the Application, i.e. 15 December 2014 and is therefore in compliance with section 3(1) of the Ordinance, setting out the assessed EUV of, inter alia, each unit on the Lots.

29.  By reference to Part 1 of Schedule 1 of the Ordinance, the EUV has to be assessed (a) on a vacant possession basis; (b) assessed as if the Lots could not be made the subject of an application for an order for sale; and (c) not taking into account the redevelopment potential of the property or the Lots.

30.  Notwithstanding that the Application is unopposed, it has been held in Main Light Limited v Time Richie Investment Limited,

LDCS 3000 of 2013 (unreported, dated 31 October 2014) that the Tribunal is under a duty to review the EUV proposed by the applicant. At §12, the Tribunal said:

“12. It is true that there is no EUV dispute to be resolved. However, that does not mean the EUV proposed by the applicant will be automatically accepted by the tribunal. The tribunal has jurisdiction to consider what evidence it will accept for disposal of an issue, particularly when the EUV is of the nature of expert opinion the worth of which lies in the logics and reasoning of the expert’s analyses and his application of a theory or his professional knowledge. Further, under section 4(2)(b) of the Ordinance, the tribunal shall not make an order for sale unless the tribunal is satisfied that the majority owner had taken reasonable steps to acquire all the undivided shares in the lot. In the subject case, since the applicant relied on, inter alia, the EUV to prove the reasonableness of its offers to the respondent, we consider that the tribunal do have a duty to review the EUV, particularly if there are apparent inconsistencies or problems with valuation principles. If there is any flaw in the assessment which ultimately affect the reasonableness of the applicant’s offers, this tribunal is entitled to come to a conclusion that the statutory requirement not satisfied.”

31.  In the Application Report, Mr C Chan explained the method of valuation and the process of his assessment to arrive at, inter alia, the EUV of each unit of the Buildings.

32.  In his valuation of the EUV of the domestic units of the buildings at Nos 3-6 Yiu Tung Street, Mr C Chan adopted the following methodology:

(a) He selected 2/F, No 3 Yiu Tung Street[1] (“the Reference Domestic Unit”), which was situated on the middle floor of the domestic portion as the reference unit for the purpose of valuing its unit price; 

(b) The unit price of the Reference Domestic Unit was first assessed by making reference to market comparables.  He took into account 9 comparable transactions all in different buildings of similar ages nearby in the Sham Shui Po district.  After making what he regarded as the necessary adjustments (for time, location and environment, size, building age, floor level, top floor effect, view, lighting and ventilation, noise effect, physical condition and building management, etc) for all these comparable transactions, he took the average of the adjusted unit rates of the comparables, save for one which has the lowest adjusted unit rate, to arrive at the unit price of the Reference Domestic Unit at $56,100/sq m;

(c) He further considered the floor difference, size, view, lighting & ventilation, internal conditions, noise, and discount on sub-division of the Reference Domestic Unit and the remaining domestic units within the premises at Nos 3-6 Yiu Tung Street and made adjustments to arrive at the EUV of all the domestic units;

(d) He converted the saleable area of the Flat Roofs on the 1/F of the premises by using a conversion factor of 1:6.

33.  In assessing the EUV of all the ground floor units, Mr C Chan noted that notwithstanding the designated domestic use, all units on Ground Floor of the Buildings as well as other units on ground floor along this section of the street were occupied as shops. He had consulted Mr B Wong that conversion of the ground floor units to shops would likely be approved by the Building Authority upon submission of necessary plans for alteration and additions of building works. In the circumstances, Mr C Chan assessed the ground floor units in accordance with their prevailing use as shops subject to a discount of 6% to reflect the cost required for converting the various ground floor units. Mr C Chan adopted the following methodology:

(a) He selected G/F, No 3 Yiu Tung Street as the Reference Shop Unit[2].  He then took into account 7 comparable transactions in 7 different buildings nearby. After making what he regarded as the necessary adjustments (for time, location, size, building age, frontage, layout and headroom etc) for all these comparable transactions, he took the average of the adjusted unit rates of the comparables (save for the ones with the highest and the lowest adjusted unit rate) to come to the unit price of the Reference Shop Unit at $143,000/sq m before the 6% discount;

(b) He then used the unit rate of the Reference Shop Unit to assess the other ground floor units.

34.  Mr C Chan updated the Application Report by a supplemental report dated 14 September 2016 (“Supplemental Report”) in which he revised the EUV of all the units in the Building after taking into account the updated property index prepared by the Rating and Valuation Department.

35.  In the Supplemental Report, Mr C Chan repeated the exercise he did in the Application Report with the new information and set out his revised assessments of the EUV of each unit as at 22 September 2014.  For instance, Mr C Chan revised the unit price of the Reference Domestic Unit to $56,600/sq m.  Mr C Chan however included an extra shop transaction at No G/F, 186C & 186D, Hai Tan Street which occurred in August 2014 and revised the unit price of the Reference Shop Unit to $148,000/sq m.

36.  In the Supplemental Report, Mr C Chan also explained that at the time when the Application Report was prepared, a discount of 6% was allowed which were designed for domestic use according to the original building plans of reference no 2/4275/52 into shop use.

37.  However, in Cheer Capital Limited v Unibase Investment Limited & Others, LDCS 5000 & 6000/2013 (unreported, dated 12 June 2015) (hereinafter referred to as “Cheer Capital”), notwithstanding an occupation permit issued in 1955 allowing the premises in question to be occupied and used for domestic purposes, units in the premises had been occupied for retail purposes for a long time. The Tribunal observed that while plans for alterations and additions of building works (commonly known as the A&A plans in the profession) had been approved by the Building Authority for conversion of some of those units to retail use in the 50s or in 1965, owners or occupiers of other units on the same floor did not care to submit similar A&A plans before conversion of their units to retail use. Despite the absence of A&A submissions, although the Building Authority had issued Building Orders requiring the owners of the various premises to carry out extensive repair works, no complaint whatsoever had been received regarding the manifest change of use. The Tribunal accepted therefore the evidence of the valuation expert in that case that approval for alterations and additions of building works was irrelevant on the basis of non-domestic use if structural alteration to the premises was not required. “Market realities should dictate”: see §51 of the judgment.

38.  In light of the above, Mr C Chan had revised his valuation of the units on ground floor of the Buildings with no discount allowed.

39.  The same issue has been considered by the Tribunal in a number of recent cases. Apart from Cheer Capital, they include Many Gain Investment Limited v Chan Fai Ho and Another, LDCS 28000/2012 (unreported, dated 18 June 2014), Worldman Development Limited v The Personal Representatives of Chan Chau Ling, deceased, LDCS 8000/2013 (unreported, dated 21 July 2014), Ultra Alpha Limited and Another v The Personal Representatives of Chan Ping Chiu, deceased, LDCS 3000/2013 (unreported, dated 17 October 2014) and more recently Pacific China Development Limited and Another v The Personal Representatives of Chu Tak Hing, deceased and Another, LDCS 10000/2014 (unreported, dated 5 February 2016). In all these cases, the Tribunal had accepted the assessment of the EUV of ground floor units on the basis of shop use despite its non-conforming use when compared with that provided in the occupation permits. I accept the submission of Ms Gekko Lan (“Ms Lan”), counsel for the applicant, that there is no reason why the same approach should be departed from in this case. I also accept that it is not appropriate to apply any discount on conversion from domestic to retail purpose in the present case.

40.  Furthermore, having reviewed Mr C Chan’s valuation as at 22 September 2014, I accept his revised EUV assessments as follows:

Premises	Existing Use Value as at 22 September 2014
Yiu Tung Street	G/F	1/F	2/F	3/F
No 5	$11,340,000	$4,550,000	$4,460,000	$3,770,000
No 6	$11,340,000	$4,550,000	$4,460,000	$3,770,000

Sub-total for Shop Units:	$22,680,000
Sub-total for Domestic Units:	$25,560,000
Total:	$48,240,000

41.  Thus, the EUV of the Respondent’s Unit, assessed at $4,550,000, represents 9.43% of the total EUV of all units in the Buildings.

Section 4(2)(b) – Whether Applicant has taken reasonable steps

42.  The applicant is also under an obligation to take reasonable steps to negotiate on terms that are fair and reasonable for the purchase of the interest of the respondent owning minority interests in the Lots under section 4(2)(b) of the Ordinance.

43.  Mr Justice Ribeiro P J on behalf of the Court of Final Appeal in Capital Well Limited v Bond Star Development Limited[2005] 4 HKLRD 363, at 372B:

“33. In making that assessment 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. It is obviously necessary to recognize that there will often be differences of opinion on that matter. If duly satisfied that the rejected offer was fair and reasonable, the Tribunal may make the order, leaving the value and level of compensation to be determined by the public auction. The auction results may prove that the minority’s assessment was commercially wise. Or they may show that the majority’s offer exceeded what was realised at the auction.

......

43.  We are of course not suggesting that it is necessary for the offer to “beat” the valuation as if it were a payment into court. 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....”

44.  The applicant has made 2 offers to the late Mrs Chow (before realising that she had passed away) and subsequently one to the respondent as follows:

Offer	Date	Amount
1st	31 October 2014	$8,203,000
2nd	14 November 2014	$8,593,000
3rd	8 June 2016	$8,593,000

45.  The Tribunal should determine whether the prices offered by the applicants are fair and reasonable in light of the independent professional valuation opinion available to the applicant at the time of the offers. By reference to the witness statements of Ms Lui Wing Yan (“Ms Lui”), the Senior Property Development Manager of Henderson Land Development Co Ltd which is the holding company of the applicant, the latter determined the respective offer prices in reliance on the independent professional valuation opinion of Savills Valuation and Professional Services Limited. More particularly a premium of 5% and 10% were added to the assessments for the 1^st and 2^nd offers respectively which was based on the redevelopment value (“RDV”) of the combined site Nos 3-6 Yiu Tung Street. The applicant submits that these offers were well over and above the market value of the Respondent’s Unit (ie its EUV). This evidence is undisputed.

46.  In respect of the 3^rd offer, it was sent to the respondent’s address in Taiwan as stated in his Notice of Opposition dated 19 May 2016, which has been used as his correspondence address all along. I am however informed that although the respondent, being one of the 4 children of the late Mrs Chow, was ordered to represent the estate of his mother in the present proceedings, no grant of administration of the estate has been issued. Thus, the applicant was and still is unable to negotiate for the purpose of acquiring the undivided shares held by the estate of the late Mrs Chow. None of the 3 offers were ever accepted.

47.  On the other hand, as stated in §4 above, I note the applicant was successful in acquiring the interest in the 2/F, No 3 Yiu Tung Street after the Application.

48.  Under such circumstances, I am satisfied that the offers made by the applicant fall within the range of what may broadly be regarded as fair and reasonable and the applicant has taken reasonable steps to acquire all the undivided shares of the Lots including the Respondent’s Unit.

RDV of the Lots & Reserve Price for Auction

49.  In his report dated 9 January 2017, Mr C Chan has prepared an assessment of the RDV of the Lots at HK$92,400,000 as at 3 January 2017. The overall accommodation value is $51,800/m² based on a proposed development scheme comprising a total Gross Floor Area of 1,783.25 m².

50.  In assessing the RDV of the Lots, Mr C Chan has adopted both the direct comparison approach and the residual method.

51.  For direct comparison purpose, Mr C Chan has considered two land sale transaction in the vicinity, namely the sale of the site at (1) No 64C Fuk Wah Street and Nos 165-167 Nam Cheong Street and (2) Nos 214-216 Yee Kuk Street.

52.  The first comparable comprises a corner location at the junction of Fuk Wah Street and Nam Cheong Street. It is currently a cleared site of about 162.9 sq m. Whereas for the second comparable, it is erected thereon with a 8-storey residential/commercial composite building which appears to be ripe for redevelopment. It occupies a larger site area of 200.7 sq m.

53.  These two sites are of relatively small size similar to the Lots which have a net developable site area of 211.35 sq m. After adjustments for time and location etc proposed by Mr C Chan, the assessed accommodation value is around HK$51,800/m².

54.  The residual method of valuation is done by deducting development costs (including construction cost, professional fees, finance costs etc) and developer’s profit from the estimated gross development value of the completed optimum development. After testing different scenarios, Mr C Chan opined that the optimum development on the Lots comprised a 24-storey commercial/residential building with retail shops on Ground Floor, clubhouse and plant room on 1^st Floor and residential units on 2^nd to 23^rd Floor.

55.  In assessing the value of the shops and the domestic units in the proposed development scheme, Mr C Chan took into account 7 comparable retail transactions as well as transactions in 5 new residential comparables in Sham Shui Po district all with small-sized flats similar to the proposed development. After making the necessary adjustments, the assessed accommodation value is around HK$49,348/m².

56.  Based on the accommodation values assessed by the two methods, Mr C Chan adopted HK$51,800/m² and assessed the RDV of the Lots as at 3 January 2017 at HK$92,400,000.

57.  I have reviewed Mr C Chan’s valuations.  I am satisfied with his valuations, including the valuation assumptions he has adopted, the values and the costs parameters in the residual valuation he has used in his valuation.

58.  Based on Mr C Chan’s valuation, I decide that the reserve price for the auction of the Lots should be HK$92,400,000.

Trustees

59.  The applicant proposes to appoint Mr Anthony Chow and Ms Anna Chow who are consultants of Messrs Guantao & Chow as the sale trustees.  Based on the information on their letter dated 19 December 2016, the proposed trustees also intend to appoint Messrs Michael Cheuk, Wong & Kee to act as the solicitors of the trustees/vendors in the sale of the Lots for handling the sale and discharging the duties imposed on the trustees under the Ordinance.  I am satisfied that Mr Anthony Chow and Ms Anna Chow are proper persons to be appointed.  Their proposed remuneration at the rate of $5,500 per hour (exclusive of disbursements and fees payable to consultants) as mentioned in the letter dated 19 December 2016 is also reasonable and hereby allowed.

Particulars and Conditions of Sale of the Lots

60.  Ms Lan has submitted a set of draft particulars and conditions of sale by public auction for my consideration.  While I understand these are the usual terms used for compulsory sale, I approve the draft particulars and conditions of sale accordingly.

Conclusion and Orders

61.  By reason of the aforesaid, I am satisfied that the redevelopment of the Lots is justified due to the age and state of repair of the Buildings; and the applicant has taken reasonable steps to acquire the undivided shares of the Lots.  This Tribunal is also satisfied that the value of the single minority owner’s unit as assessed in the Application is not less than fair and reasonable, and not less than fair and reasonable when compared with the value of the applicant’s property as assessed in the Application. This Tribunal now makes the following orders:

(i) All the undivided shares in the Lots, the subject of the Application, be sold by way of public auction for the purposes of redevelopment of the Lots under the Ordinance;

(ii) Mr Anthony Chow and Ms Anna Chow nominated by the applicant be appointed trustees (“the Trustees”) to discharge the duties imposed on trustees under the Ordinance in relation to the Lots; and the Trustees be authorized to charge such remuneration for their services in accordance with the terms set out in the letter of Messrs Guantao & Chow dated 19 December 2016;

(iii) For the purposes of the sale of the Lots by public auction,

(a) The sale of the Lots be on the particulars and conditions of sale which are the same or substantially the same as the set of draft particulars and conditions of sale submitted to the tribunal (Document Bundle B/239.10-239.35), initialed and approved by me;

(b) The reserve price of the Lots be set at HK$92,400,000;

(c) Subject to further extensions that the Tribunal may subsequently allow upon the application of the purchaser of the Lots or its successor in title, the redevelopment of the Lots be completed and made fit for occupation within a period of six (6) years after the date on which the purchaser of the Lots becomes the owner of the Lots;

(d) There be liberty to the applicant, the respondent and the Trustees to apply for further directions.

Costs

62.  The applicant does not ask for costs.  I make a costs order nisi that there be no order as to costs between the parties, such order be made absolute after 14 days if no application is made to vary the said costs order.

[1] At the hearing on 19 January 2017, Mr C Chan explained that if the Reference  Domestic Unit is changed to 2/F, No 3 Yiu Tung Street, the result would be the same.

[2] Again, at the hearing on 19 January 2017, Mr C Chan explained that if the Reference Shop Unit is changed to G/F, No 5 Yiu Tung Street, the result would be the same.