Michell Allen Silk v. Steven Tai Fa Bao

LDNT466/2000

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

Application No.: LDNT No. 466 of 2000

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JUDGMENT

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Background

1. The Applicant is the tenant and the Respondent is the landlord of the subject premises known as Suite F, 7th & 8th Floors and Car Parking Space No. 12 on the 2nd Floor, No. 1 Robinson Road, Hong Kong ("the Premises"). The Premises is subject to a tenancy for a term of 2 years commencing from 1st February 1999 to 31st January 2001 at a monthly rent of $53,300 (exclusive of rates, management fees and service charges).

2. The Applicant applied on 21st December 2000 to the Lands Tribunal for the granting of a new tenancy. The Respondent did not oppose the application. The parties consented to the granting of a new tenancy for a term of 2 years commencing from 1st February 2001 on the same terms as in the previous tenancy agreement save the amount of rent for the new tenancy. The Applicant in the opening stated that he estimated the rent to be in the region of $52,000 to $54,000 per month whilst the Respondent, based on his expert witness's evidence, estimated the rent to be $68,000 per month. Therefore, the only outstanding issue is the amount of the prevailing market rent (PMR) for the new tenancy.

3. According to the valuation report prepared by Mr. Pang Shiu Kee, Chartered Surveyor called by the Respondent, the subject building, No.1 Robinson Road consists of a 25-storey high apartment block over a 3-storey high car park podium. The development was certified for completion in 1979. It shares a common driveway with its neighbouring building, described as No. 1 Robinson Road Villa Elegance. The major difference in the design of these two buildings is that for the subject building, the domestic units were designed as duplex unit with accommodation on two floors whilst for the neigbouring building, the units were designed as apartment units on single floors. The Premise is Suite F on 7th and 8th Floors of the subject building. The Premises has a saleable area of about 244 sq. m.

Applicant's case

4. The Applicant gave evidence himself. He produced a table (Exhibit A1) showing his adjustments to the comparables used by Mr. Pang, the Respondent's expert witness. The comparables were set out in the same order as in Mr. Pang's valuation report. The Applicant suggested to adjust these comparables on the basis of the differences between the Premises and the comparables on such factors as refurbishment condition, view, floor level, building age, facilities and management charges.

5. When giving evidence, the Applicant admitted that he was not an expert in the field of valuation. However, he had researched the matter and produced a number of exhibits, mainly many sets of photographs showing the interior condition of the Premises. In particular, the Applicant emphasised that the Premises had not been refurbished. He suggested to adopt a large adjustment to reflect this factor. He estimated that renovation costs to the Premises might amount to a sum of $2 million. He used a uniform adjustment of -12% in respect of the internal condition for all the comparables, with the exception of Comparable no. 7. As for Comparable no. 7 which had been refurbished before the existing tenant moved in about 2 years ago, he reckoned that an even higher adjustment of -15% was warranted. He said these percentages of adjustments were completely in line with his surveyor's opinion about 2 years ago when the Tribunal heard the evidence for the granting of a new tenancy.

6. In making the adjustments, he stated that he had in his analysis of the comparables relied, to a large extent, on the percentages of adjustments used by the experts in the previous hearing of his application for a new tenancy (i.e. the tenancy expiring on 31st January 2001) in 1999 before this Tribunal. In the course of hearing, he proposed to produce the previous reports prepared by the experts but after hearing the objection by the Respondent, the Applicant withdraw his application.

7. In the final analysis, he estimated that Comparable nos. 1 to 7, after adjustments, indicated net monthly rents of $56,025, $43,605, $51,180, $53,300, $50,800, $53,300 and $57,600 respectively. The Applicant calculated that the average of the Comparable nos. 6 and 7 was $55,450 whilst the average of all 7 comparables was $52,259.

The Respondent's case

8. Mr. Pang gave evidence and produced a valuation report (Exhibit R1). He considered that "it is more useful to consider the two lettings inside No. 1 Robinson Road" (i.e. his Comparable nos. 6 and 7).

9. The details of the tenancies of these two comparable lettings in No. 1 Robinson Road are summarised below:-

10. Mr. Pang opined that in assessing the PMR of a premises under the Ordinance, "we need to assume that it is vacant and to let, and it is in good tenantable repairing condition. The valuation is to be made on the assumption that both parties will perform their contractual repair obligation. Where one party defaults the other has the contractual right to enforce performance. Union Carbide Asia Ltd. v The Hong Kong Land Co. Ltd. [1982] refers." Mr. Pang stated that for the Premises, the defects alleged by the Applicant "are entirely repairable and could be made good at little costs. They do not involve any structural problem. The tenancy agreement has already clearly spelt out the responsibility and circumstance under which the relevant responsibility arises." Mr. Pang therefore concluded that the alleged defects should be excluded from consideration in the valuation of the rental value of the Premises.

11. Mr. Pang made adjustments in respect of view and time for Comparable no. 6 and adjustments in respect of refurbishment for Comparable no. 7. In particular, Mr. Pang argued that no adjustment for refurbishment condition should be allowed for Comparable no. 6 whilst an adjustment of -5% was warranted for Comparable no. 7. He arrived at an after adjustment rate of $277 and $280 for Comparable nos. 6 and 7 respectively. The average of these two derived adjusted rate, at about $278, was adopted by Mr. Pang to be the appropriate unit rate for the valuation of the Premises. Thus, he applied this adopted unit rate to the saleable area of the Premises and estimated the PMR of the Premises to be $68,000.

Determination of the PMR by the Tribunal

12. The Tribunal agrees with Mr. Pang that the best comparables are the comparables in the same building, that is, Comparable no. 6 & 7. This is because they are of the same duplex design as the Premises. Also, each of them and the Premises are of the same size and similar layout. And, more importantly, these comparables and the Premises are located in the same building, hence, there is no need to account for the differences that might exist between two buildings in the aspects of building age, facilities, interior and external condition, and the quality of building management.

13. Regarding Mr. Pang's opinion to exclude the alleged defects of the Premises from consideration in the valuation of the Premises, the Tribunal has the following opinion. From what the Tribunal has heard from the parties, the adjustment for the difference in the refurbishment condition of the comparables as against the un-refurbished condition of the Premises is very different from the situation where there is a clear damage or defect of the property, such as the break-down of an appliance the maintenance of which is the responsibility of a party (for example, the landlord). In the latter example, the Tribunal accepts that no adjustment should be made because the parties could well settle having regard to their rights and obligations under the tenancy agreement. However, if a property such as the subject Premises is so physically different from the comparables which, according to the evidence, had been completely or substantially refurbished prior to the leasing in very recent years, it is not possible that we could ignore the differences. The rents fetched by the comparables which are completely or substantially refurbished will certainly reflect the state of the entire comparables at the time of letting. In determining the PMR for the Premises under a new tenancy to be granted by the provisions of the Landlord & Tenant (Consolidation) Ordinance, the Tribunal disagrees that we could ignore entirely these differences in the state of the condition of the subject Premises, as against those of the comparables. In fact, in the present case, the Tribunal notes that Mr. Pang indeed acknowledged that an adjustment should be made to reflect the refurbished condition of Comparable no. 7.

14 Mr. Pang suggested that "due to the tight supply of the leasing market, the discount to allow for this factor should be no more than 5%". However, the Tribunal decides that the evidence given by Mr. Pang that the current leasing market is "a bullish market" had not been substantiated by evidence, other than by Mr. Pang's oral opinion. Therefore, the Tribunal decides that the adjustment factor for the better, refurbished condition of the comparables allowed by Mr. Pang is too low.

15 Having regard to the evidence adduced by the parties, the Tribunal decides to adopt the following adjustments for these two comparables:

16 After adjustment, the adjusted unit rate of Comparable no. 6 is calculated to be about $230 per sq. m. whilst that of Comparable no. 7 is calculated to be about $250 per sq. m. Taking the average of these two best comparables, the Tribunal decides the appropriate unit rate for the Premises to be about $240 per sq. m. Applying this to the saleable area of the Premises gives a figure of $58,560 which is rounded to $58,500.

17 Thus, I determine the PMR of the Premises, for the new tenancy commencing from 1st day February 2001, on the basis of exclusive of rates, management fees and service charges to be $58,500 per month. The deposit to be adjusted pro-rata in accordance with the newly assessed PMR. Otherwise, the other terms of the new tenancy remain the same as in the former tenancy agreement.

Costs of aborted inspection claimed by the Respondent

18 The Respondent claimed for the costs of an aborted inspection originally agreed on 16th May 2001. Mr. Pang gave evidence that on 16th May 2001 at 9:30 a.m., he went to the Premises. Unfortunately, he could not gain access into the Premises because the maid who answered the door said that he had received no message from her master regarding the appointment. She told Mr. Pang to wait while she contacted her master. Mr. Pang waited until 10:00 a.m. but still did not receive any reply from the Applicant's house maid. He then left at 10:02 a.m. because he had another appointment. He confirmed that he charged the Respondent an additional charge for his cost plus traffic expenses of $3,040. The Respondent claimed that the Applicant should bear this amount of cost.

19 The Applicant objected to paying this cost on the ground that the Respondent's surveyor left on his own accord whilst the surveyor's appointment was being confirmed.

20 Section 119R of the Landlord and Tenant (Consolidation) Ordinance provides that "In any proceedings under this Part, the Tribunal shall not make any order as to costs against a party unless that party has conducted his case in a frivolous or vexatious manner." In this case, the Tribunal decides that the Applicant might have made a sheer mistake when not informing the maid or other family member the appointment by the Respondent's surveyor. However, the Tribunal decides that this is not the same as conducting the case in a frivolous or vexatious manner. Therefore, the claim by the Respondent is not allowed.

21 Orders

1. By consent, new tenancy for two years commencing from 1st February 2001;

2. New rent at $58,500 per month (exclusive of rates, management fees and service charges); leave to the Applicant to pay to the Respondent arrears of rent, if any, within 28 days from today;

3. Deposit to be adjusted pro-rata in accordance with the new rent; leave to the Applicant to pay to the Respondent the adjustment within 28 days from today;

4. Other terms of new tenancy to be the same as in the former tenancy agreement;

5. No order as to costs.