LAM KIN CHING AND ANOTHER v. THE DIRECTOR OF LANDS

LDLR 1 /2018

[2019] HKLdT 64

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LANDS RESUMPTION APPLICATION NO 1 OF 2018

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J U D G M E N T

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Introduction and Background

1.  This is an application by the Applicants for determination of the amount of compensation payable by the Respondent for land resumed under the Lands Resumption Ordinance, Cap 124 (“the LRO”). 

2.  Since 8 April 2006, the Applicants (who are married couple) had been the owners of “All that 1 equal undivided 163th parts or shares of and in ALL THOSE pieces or parcels of ground respectively registered in the Land Registry as SECTION F OF NEW KOWLOON INLAND LOT NO 328, SECTION A OF NEW KOWLOON INLAND LOT NO 328 AND SECTION A OF NEW KOWLOON INLAND LOT NO 2000 And of and in the messuages, erections and buildings thereon known as GROUND FLOOR, TUNG CHAU BUILDING, NO 278 TUNG CHAU STREET, KOWLOON” (hereinafter referred to as “the Subject Property”)

3.  The Subject Property was compulsorily resumed under the LRO by Gazette Notice No 2040 dated 10 February 2015 by the Urban Renewal Authority (“URA”).  It reverted to the Government at midnight of 6 June 2015 (“the date of resumption”). Hence, the latter should be the date of valuation.

4.  The Subject Property comprised a shop unit on the ground floor of a tenement building known as Tung Chau Building which was situated at 270-286 Tung Chau Street and 1-5 Kweilin Street. The building, which was built in 1964, comprised 9 storeys and were served by 4 common staircases but without any lift. According to the occupation permit of the building, its ground floor had “11 shops for non-domestic use” while the upper floors were for “19 tenements each floor for domestic use.”

5.  Developments in the vicinity comprised a mixture of medium to high rise tenement buildings along Tung Chau Street and Hai Tan Street which run parallel to each other, near their respective junctions with Kweilin Street and Yen Chow Street in the Sham Shui Po district.  It is not disputed that developments in the immediate vicinity of the Subject Property were dominated by out-moded low-rise commercial/ residential buildings with ground floor shops devoted mainly to car repairing workshops, engineering workshops and retailing of engineering or electrical accessories. Nevertheless, Tung Chau Street had only such kind of composite developments with shops on one side; the other side of Tung Chau Street is devoted to the Tung Chau Street Park as well as a defunct temporary market.

6.  As at the date of resumption, new developments like Harbour Park at Nos 204-214 Tung Chau Street[1] or Park One at Nos 198 Tung Chau Street[2] in the vicinity have not been developed. Many buildings to the southeast of Kweilin Street were however resumed by URA as well in 2011 and had been demolished. The appearance of the defunct temporary market and the surrounding environs render the vicinity unattractive for shopping and retail activities[3].

7.  Despite the above, accessibility of the Subject Property was good, with public transport such as franchised buses, public light buses and taxis readily available.  The MTR Sham Shui Po Station is within 10 minutes’ walk from the Subject Property.

8.  One of the 2 Applicants, Mr Lam Kin Ching (hereinafter referred to as “Mr Lam”), has provided his affirmation dated 15 May 2018. The Respondent has no dispute on the contents of Mr Lam’s affirmation and his evidence is admitted without cross-examination. For instance, it is noted that the Applicants were approached with an offer in 2011 for prospective redevelopment for a consideration of $24,930,000. It was however subject to a proviso that the purchaser would acquire up to 90% of the interest in Tung Chau Building by 30 October 2011. This intended sale fell through anyway and as at the date of resumption, the Subject Property was subject to a tenancy for 1 month from 1 April 2015 to 30 April 2015 at $43,000 per month inclusive of rates and Government rent (“the Subject Tenancy”).

9.  According to Mr Lam’s affirmation, the Applicants initially would like to claim, in addition to the market value of the Subject Property, the loss of opportunity in acquiring an alternative accommodation for investment. At the beginning of the trial on 14 October 2019, however, Mr Kenneth C L Chan (hereinafter referred to as “Mr Chan”), the leading counsel for the Applicants, conceded that the Applicants would no longer pursue such loss of opportunity[4].

10.  Therefore, the only issue before the Tribunal is the market value of the Subject Property under section 10(2)(a) of the LRO:

“the value of the land resumed and any buildings erected thereon at the date of resumption.”

11.  Furthermore, section 12(d) of the LRO provides that:

“subject to the provisions of section 11 and to the provisions of paragraphs (aa), (b) and (c) of this section, the value of the land resumed shall be taken to be the amount which the land if sold by a willing seller in the open market might be expected to realize.”

The Valuation Experts

12.  Mr Yu Kam Hung (“Mr Yu”) acting for the Applicants and Mr James Ng (“Mr Ng”) for the Respondent gave their expert valuation opinion in the following reports:-

	Mr Yu	Mr Ng
Valuation Report	27 April 2017	28 August 2018
Joint Statement	21    December 2018
Valuation as at 6 June 2015 (ie the date of resumption)	HK$50,400,000	HK$30,736,000

13.  After the hearing during which certain concessions were made by the parties on both sides, Mr Yu and Mr Ng have revised and submitted their final calculations on valuation, Mr Yu’s on 17 October 2019 and Mr Ng’s on 21 October:

	Mr Yu	Mr Ng
Revised Valuation	$45,900,000	$29,868,000

14.  Particularly during the hearing and in his closing submission, Mr Chan raised issue on the credibility of Mr Ng:

“(1)  First, as he disclosed for the 1^st time before the present proceedings, he had already been appointed as the valuation surveyor in the land resumption scheme for the whole land and area (of TUNG CHAU BUILDING, NO 278 TUNG CHAU STREET, KOWLOON) back in mid-2015);

(2)  He had carried out valuation assessment(s) for the properties (not just the subject Property);

(3)  He had advised and carried out the “prior” assessment for the Respondent’s compensation offer (of HK$30,815,000.00) (using at least 3 to 4 comparable(s) that had not been used now);

(4)  The Applicants submit there is clear “conflict of interest” on the part of the Respondent’s expert, given he was the one who prepared the previous compensation offer (of HK$30,815,000.00), and certainly, he must have the self-interest and/or tendency to defend for this prior valuation “figure”. To say the least, he had the tendency to justify the previous valuation advice and assessment given to the Respondent, and hence he certainly had his own purpose to serve.

(5) ...

(6) ...

(7)  Second, having read and considered his expert report, one would have the 1^st impression that he was the professional surveyor (who was not involved in the land resumption scheme or the compensation assessment exercise, etc) and he had now been appointed (pursuant to the Tribunal’s expert directions) to have carried out an “impartial, independent, and reasonable” assessment; ...”

15.  Indeed, similar accusation was made against the experts in Tang Ping Choi & Another v The Secretary for Transport [2004] 2 HKLRD 284:

“10. ... Mr Mumford's objection to Mr Cheng's evidence and to any evidence based upon it was that in the first place Mr Cheng, and therefore Mr Hong as well, were not independent of the respondent since they were employees of Chesterton Petty, who were engaged as the respondent's consultants for the purposes of the resumption of land for West Rail. In the second place it was said that because they had indulged in what was private detective work they had demonstrated that they were not impartial. Complaint was further made that not only had they told lies to Mr Wong in suggesting that they were persons engaged in the trade of growing Barbados lilies but that they had even offered him an inducement.”

16.  The Court of Appeal remarked at para 14 that:

“There is no doubt that Mr Cheng was employed by Chesterton Petty. The question then arises as to whether a consultant, or for that matter an employee of a consultant, which has acted as a consultant should not be permitted to be an expert witness in an action to which the entity to whom the consultant had given advice as a consultant is a party. I see no basis for any such suggestion. If there were to be such an exclusion, experts would be put in an impossible situation. They would be hampered as to what they could do in any situation where litigation might ensue. Looking at it from the other way, they could not give advice to anybody who was considering engaging their services in litigation. Even more seriously, once engaged as an expert for litigation they could not give the engaging party any advice.”

17.  The Court of Appeal held, inter alia, that a consultant, or an employee of a consultant, engaged by a party was not thereby prevented from being called as an expert witness in subsequent court proceedings. There was no absolute bar to such evidence on the footing that the witness was a consultant or an employee of a consultant who had been retained by one of the parties. Rather, an expert’s overriding duty was to the court and to give evidence within his own ambit of expertise. Such evidence should not be biased, nor should it be influenced by the outcome of the litigation. The application for leave to appeal to the Court of Final Appeal was refused in Tang Ping Choi & Another v The Secretary for Transport, CACV 81/2003 (unreported, 2 November 2005).

18.  Also, in applications for a compulsory sale order under Section 3(1) of the Land (Compulsory Sale for Redevelopment) Ordinance, Cap. 545, it is quite usual for the applicants’ experts, after filing their 1^st report pursuant to Part 1 of the Ordinance (which has to be prepared not earlier than 3 months before the date on which the application under section 3(1) of the Ordinance is made), to revise their valuations after the respective valuation dates when the updated index of the Rating and Valuation is available and/or better comparaables closer to the valuation dates are found. Thus, the choice of the comparables might be different and the valuation result might be different; but it cannot be suggested they have any conflict of interest if the valuation result is approximately the same. I therefore consider Mr Chan’s challenge on Mr Ng’s credibility is misconceived. 

19.  I proceed to consider the evidence of the 2 experts.

Valuation Evidence

20.  Mr Yu’s comparable nos 1, 2, 3, 4, 5 & 6 are as follows:

	Saleable Area (in sq m)
	A1	A2	A3	A4	A5	A6
	Unit E, G/F, Fu On Mansion, 178-192 Tung Chau Street	Unit B, G/F, Cheung Lee Building, 339-341 Tai Nan Street	Unit A, G/F, Tai Cheong Mansion, 139-143 Yee Kuk Street	Unit B, G/F, Cheung Lee Building, 274 Tai Nan Street	Units 2 & 3, G/F, Fuk Lung Building, 191-199 Fuk Wa Street	G/F, Sun Yee Mansion, 182 Fuk Wing Street
G/F	48.06	71.26	26.64	56.16	108.23	163.5
Yard	14.05	7.94	NA	15.75	30.43	23.25
Cockloft	NA	21.89	18.14	NA	NA	NA

21.  On the other hand, Mr Ng’s comparable nos 1, 2, 3, 4 & 5 are as follows:

	Saleable Area (in sq m)
	R1	R2	R3	R4	R5
	G/F, 294 Tung Chau Street	G/F, 186C & 186D Hai Tan Street	G/F, 166 Yee Kuk Street	Unit E, G/F, Fu On Building, 178-192 Tung Chau Street	G/F, 188 Hai Tan Street
G/F	51.13	105.87	72.46	48.06	106.17
Yard	25.9	5.65	7.69	14.05	6.51
Cockloft	20.03	NA	NA	NA	NA

22.  From the above, it is noted that the 2 experts have only one common comparable, ie A1 and R4.

23.  Notwithstanding the above, they have the following agreements:

(a)  the saleable area of the Subject Property was 152.78 sq m.

(b)  for cockloft, the proportion of the cockloft effective area is taken to be ¼ of that of the Ground Floor saleable area,

(c)  the saleable area under the staircases with headroom less than 2 metre is taken to be ½ of the Ground Floor saleable area,

(d)  the adjustment for time is based on the Retail Price Index of the Rating and Valuation Department,

(e)  the adjustment rate for frontage is taken at 4% per metre, and

(f)  no adjustment for age is adopted for comparables which are less than 25 years’ difference in building age with the Subject Property, and

(g)  adjustments by multiplication are adopted.

24.  Thus, the respective adjustments or valuations of the two experts are shown below:

Comparable A1/R4

25.  Comparable A1/R4 is the only common comparable adopted by the 2 experts. In effect, it is the best comparable in terms of location and the date of transaction closest to the Subject Property.

26.  However, the 2 experts arrive at different effective areas. Mr Ng adopts the unit value of the rear yard at 1/6 of that the shop proper. On the other hand, Mr Yu adopts 1/8, referring to Linen Export Co Ltd v Director of Lands, LDLR 24/1994 (unreported, 18 October 1995). In that case, at para 6:

“The Tribunal came to the conclusion that, as at 3rd. of October, 1992, the front end section to Wang Cheung Street near to its junction with Pau Chung Street should attract a value of $4,300 per sq.ft. (equivalent to about $46,300 per sq.m.), and the rear dead end of that street $3,750 per sq.ft. (equivalent to about $40,000 per sq.m.), with the middle section of Wang Cheung Street $4,000 per sq.ft. (equivalent to about $43,000 per sq.m.) for covered building area and 1/8 rate for open yard area.”

27.  Whilst this Linen Export case involved part of a major resumption of more than one hundred properties for the Hong Kong Housing Society's Urban Improvement Scheme in the early 90s, in a more recent resumption scheme  where the Tribunal had to determine the market value of a shop also at Tung Chau Street, ie Chan Kai Yuen & Another v Director of Lands, LDLR 1-3/2012 (unreported, 19 November 2018) and in two prior cases of the same resumption scheme, ie Cheermark Investment Limited v Director of Lands, LDLR 2/2013 (unreported, 3 November 2015) and Happy Enough Limited v Director of Lands, LDLR 5/2012 (unreported, 17 March 2016), the Tribunal adopted 1/6 rate for the open yard area. I see no reason not to apply 1/6 value for the open yard.

28.  On the other hand, I prefer no adjustment for location as the Subject Property appeared to be in similar characters with this comparable and they lie also on the same street.

29.  As regards the size adjustment, Mr Ng has adopted a downward adjustment of 2.5% for every 10 sq m. Mr Yu, on the other hand, has adopted a 2-tier adjustment mechanism: 2% for every 10 sq m smaller for the first 50 sq m difference, and then 1% for every 10 sq m smaller for the remaining difference, referring to Snowland Limited v Director of Lands, LDLR 2/2014 (unreported, 11 November 2016) where the property concerned was very small. At para 64 of the judgment, the Tribunal stated as follows:

“It is agreed by the parties that the saleable area of the Property is 29.16 sq m. For the comparables, Mr Chan suggests that 2% for every 5 sq m for the first 50 sq m, ie 1% for every 2.5 sq m whereas Mr Lai suggests 1% for every 2 sq m difference; this means Mr Lai considers more sensitive adjustment is required when the shop area is small. Taking into consideration the Property is situated at a very busy and popular district of Mong Kok, we prefer Mr Lai’s approach though we would retain Mr Chan’s application of 1% for 10 sq m after the first 50 sq m.”

30.  In the present case, the Subject Property is much larger (ie 152.78 sq m) and therefore direct comparison with Snowland Limited is not appropriate. On the other hand, this comparable A1/R4 is about just 50 sq m or 1/3rd the size of the Subject Property. I would adopt 2.5% for every 10 sq m for the first 100 sq m difference and then 1% for 10 sq m after the first 100 sq m. Thus the size adjustment on this comparable is -100/10 x 2.5% + -2.38/10 x 1% = -25.2%.

Comparable A2/A4

31.  In para 3.3.4.1 of the Joint Statement, Mr Ng’s comments are as follows:

“Mr Yu’s comparable no 2 and 4 are situated at Tai Nan Street, which are located 4 streets to the north of Tung Chau Street where the subject property is situated. They are located on the northern side of Lai Chi Kok Road which is a major distributor road separating the comparables and the subject property into two distinct areas. Retail potential at the relevant section of Tai Nan Street is difference from that of the subject property, and Mr Ng therefore considers that these are not suitable comparables and should be rejected.”

32.  I agree with the above. Particularly, during the inspection on 14 October 2019, I noted that these comparables are situated close to the Pei Ho Street Municipal Services Building[5] in which a wet market is situated. This latter would attract higher pedestrian flow rendering a variety of trade potential more possible nearby. For instance, comparable A2 is occupied by a naprapathic and massage parlour (國灸推拿按摩館) and comparable A4 is occupied by an Indonesian grocery store. In comparison, the vicinity in which the Subject Property is situated is more quiet and lacks pedestrian flow. I consider the location adjustments of 10% or 15% proposed by Mr Yu grossly inadequate. In Tin Kung Investment Limited v Secretary for Transport, LDRW 16/2001 (unreported, 29 June 2004), the Tribunal remarked at para 3(1) as follows:

“... Putting before anyone these statistics, there must be the concern whether the Comparables selected for valuation are indeed suitable for comparison. Making adjustment to compensate for the difference between two properties is not a perfect and effective valuation tool. What the experts have built in the valuation formula are largely subjective views (and such formula may be manipulated to arrive at an intended result). The subjective views tend to cause error, the risk of which goes in proportion to the quantum of adjustment made. Its application therefore is with limitation. It is suitable for use only if the two properties are in great similar but in minor place different. In the case where a large number of factors and amount of adjustment as the above are applied in the valuation, the risk of getting the valuation wrong is high. If this fundamental principle of application is not observed, the price of a commercial property in a central business area can be absurdly taken to find out the value of a piece of farmland in the green belt zone through adjustments.”

33.  Adjustments for location are largely subjective. As there are other comparables closer in proximity to the Subject Property, these 2 comparables A2 & A4 are rejected.

Comparable A3

34.  In para 3.3.4.2 of the Joint Statement, Mr Ng’s comments are as follows:

“Mr Yu’s comparable 3 is located at a commercial/residential development at the junction of Yee Kuk Street and Nam Cheong Street. However, this shop comparable faces onto Nam Cheong Street, which is a major thoroughfare in the district. Retail potential and visibility of shops along Nam Cheong Street is different from that of the subject shop. Moreover, the effective saleable area of this shop is only about 31.17 sq m ... and is considered too small in comparison to the subject property which has a saleable area of 152.78 sq m. Mr Ng therefore considers this not a suitable comparable which should be rejected.”

35.  Again, I agree with Mr Ng’s comment.

Comparable A5/A6

36.  Comparables A5 & A6 are situated on the western side of Yen Chow Street, some 9 to 10 streets to the north, including two major distributors, Cheung Sha Wan Road and Lai Chi Kok Road。 Opposite comparable A5 is also a relatively new 35-storey commercial/residential development, Vista, which was built in 2008. Although these 2 comparables are situated also at a quiet neighbourhood, there are more variety of trades in the vicinity than the subject. Incidentally, these 2 comparables are occupied as restaurants which, apart from the one at 288-290 Tung Chau Street (琦興餐廳)[6], are not found along Tung Chau Street. As this is a wholly different neighbourhood far away from the subject, I agree with Mr Ng that these 2 comparables should be disregarded as well.

Comparable R1

37.  Comparable R1 is situated very close to the Subject Property and should be regarded as the best comparable save that the transaction took place more than 1 year earlier than the date of resumption. To a certain extent, this defect can be remedied by applying the index of the Rating and Valuation Department.

38.  Also this comparable has a return frontage onto Yen Chow Street which is a major thoroughfare in the district. But as agreed by Mr Yu, pedestrian flow along this section of Yen Chow Street is limited, I consider a -10% adjustment is adequate instead of Mr Ng’s -15%.

39.  On the other hand, Mr Yu suggested that this is not a suitable comparable because it was subject to a building order dated 26 July 2013 stating there was structure on and over the yard at the rear and therefore no financier/bank would provide lending or mortgage loan. In response, Mr Ng contended that it is not uncommon for old properties to have building order(s) against them. I agree with Mr Ng when I note that the Subject Property was also encumbered with a similar building order dated 22 November 2013 which was extant as at the date of resumption; I disagree with Mr Yu’s proposition that such properties encumbered with building order cannot obtain finance, bearing in mind the loan/price ratio of commercial properties is usually low. As at the date of inspection, however, the unauthorised structure was still in place and occupied by a tenant trading as a decoration engineering company. I agree with Mr Ng during his cross-examination by Mr Chan that the presence of the unauthorised structure would have attracted a discount which I consider to be about 10%.

Comparable R2

40.  Comparable R2 comprises 2 retail shops which are separated by 2 common staircases and leased to 2 different tenants, one occupying Unit 186C and the another occupying 186D. I agree with Mr Yu that this comparable is actually a sale of 2 individual units each of which is about half the size of the Subject Property. This feature is however not a necessary defect as Mr Yu himself adopts Comparable A5 which comprises 2 retail units as well.

41.  Indeed, in Chan Shiu Chong & Another v Director of Lands, LDLR 1-3/2012 (unreported, 19 November 2018), two of the comparables adopted for determining the market value of G/F, 248 Tung Chau Street (ie one block away from the Subject Property) were also in this section of Hai Tan Street, being at 190 Hai Tan Street and 196-202A Hai Tan Street. I agree with Mr Ng that this comparable R2 is close to the Subject Property in terms of location and neighbourhood and should be adopted.

Comparable R3

42.  Comparable R3 is situated along a busier part of Yee Kuk Street with restaurants and laundry shops. However, it is only 2 streets to the north of the Subject Property and the retail potential and character of the relevant section of Yee Kuk Street is similar to that of the Subject Property.

43.  Mr Yu commented however that it is a very elongated shop with a frontage to depth ratio about 1:5.9 and is significantly smaller than the Subject Property. With respect, by reference to the table of comparables in para 24 above, this comparable is larger than comparable A3, A4 as well as the common comparable A1/R4 adopted by Mr Yu.

44.  Again, in Chan Shiu Chong & Another v Director of Lands, supra, a comparable at this section of Yee Kuk Street was adopted for determining the market value of G/F, 248 Tung Chau Street. Then -8% location adjustment was adopted and I consider the same is applicable in the present case.

Comparable R5

45.  Again, comparable 5 is situated at a similar location to comparable R2 and should have been adopted as a good comparable. Mr Yu’s first comment is that the transaction took place some 3 months after the date of resumption. However, in Hong Kong, comparables occurring both before and after the date of valuation are usually relevant unless some event took place after the valuation date so that comparables after this event do not reflect the market conditions as at the valuation date.[7]

46.  Another remark by Mr Yu is that this transaction in September 2015 was subsequently cancelled in November 2015. I note that this same property was sold in February 2017 at $23,000,000 ie $2,000,000 or 9.5% higher. Contemporaneously, by reference to the Rating and Valuation index, there had been a decrease from 573.6 to 551.3 or a drop in 4% in price. I agree with Mr Yu that this comparable is not reliable and should be disregarded.

47.  Thus, as a result of the above analysis, four of the 5 comparables proposed by Mr Ng are accepted whereas all the comparables (save the common comparable) proposed by Mr Yu are rejected.

Cockloft and Headroom Adjustment

48.  Apart from the comparables, the main difference between the two experts is whether the Subject Property comprised a spacious cockloft as large as the ground floor. Mr Yu initially adopted an upward adjustment of 2% for every one metre higher in headroom below the cockloft and another rate for the cockloft proper. On the other hand, Mr Ng found no cockloft as shown on the General Building Plan for the Subject Property and therefore adopted an upward adjustment of 3% for every single metre higher in clear headroom (ie without the cockloft).

49.  At the beginning of the trial, however, Mr Chan accepted that the cockloft was an unauthorised structure. In this regard, as pointed out by Hon Cheung J (as he then was) in Leung Man Cheung and Others v Secretary for Planning and Lands and Another, HCAL 274, 375-382, 390-394, 396, 900-904, 906, 907, and 909-915 of 2000 (unreported, dated 18 July 2002) at §67, “(i)t has been established by a series of land resumption cases that unauthorized structures do not attract compensation ...”. Insofar as the market reality approach was adopted for instance in Cheer Capital Limited v Unibase Investment Limited & Other, LDCS 5000 & 6000/2013 (unreported, dated 12 June 2015) or Gainfield Investment Limited & Others v Legend Time Limited & Others, LDCS 16000/2014 (unreported, dated 17 October 2016), the latter should be distinguished because the market value under the LRO is qualified subject to the provision of section 11 and Section 12(c)[8].

50.  Section 11 of LRO provides that:

“(1) When any property is resumed, the Lands Tribunal in determining the compensation to be paid and in estimating the value of the land resumed and of any buildings thereon, may —

(a) take into consideration the nature and existing condition of the property, and the probable duration of the buildings in their existing state, and the state of repair thereof; and

(b) ...

(2) The Lands Tribunal may also receive evidence to prove—

(a) that the rental of the buildings or premises was enhanced by reason of the same being used as a brothel, or as a gaming house, or for any illegal purpose; or

(b) ...

(c) ...

(3) If the Lands Tribunal is satisfied by such evidence, then the compensation—

(a) shall, in the first case, so far as it is based on rental, be based on the rental which would have been obtainable if the building or premises had not been occupied as a brothel, or as a gaming house, or for an illegal purpose; and

(b) ...

(c) ...”

51.  Also, section 12(c) of the LRO states as follows:

“no compensation shall be given in respect of any expectancy or probability of the grant or renewal or continuance, by the Government or by any person, of any licence, permission, lease or permit whatsoever: ...”

52.  In spite of the above, I accept that even without the properly constructed cockloft, be it authorized or unauthorized, willing buyers in the market will derive additional benefit out of the headroom space, of 5.08m in this case, and hence are prepared to offer an extra bid for the subject premises when making comparison with other properties without such benefit of the unusual headroom.

53.  After the concession by Mr Chan, therefore, Mr Yu revised his opinion on the basis of an upward adjustment of 10% for every single metre higher in headroom. In contrast, in Chan Kai Yuen & Another v Director of Lands, LDLR 8/1999 (unreported, 1 September 2000), the Tribunal, then facing with a similar cockloft of 5.1m, adopted an enhancement of 5% to the adjusted unit rate in assessing the G/F area with the extra 2.1m of headroom; this is equivalent to some 2.4% per metre.

54.  In spite of the above, in Mr Chan’s closing submission dated 25 October 2019, Mr Chan tries to distinguish Chan Kai Yuen by the following:

“(1) Such was decided back in 2000. The market environment was totally different;

(2) Nowadays, on-street shops would focus on food & beverage use (in busier areas), whereas hardware store(s) or hair salon(s), etc (in relatively more quiet area);

(3) But it is common sense that both type(s) of usage would need “more space” and would need and prefer “higher headroom”;

(4) Headroom of 17-feet[9] may not be exceptionally high, but it would be sufficiently high to affect the potential buyers and/or end-users’ consideration(s) (for their particular preferred usage(s) of the higher headroom); which would (sic) higher demand from these properties (with headroom below eg 15-feet[10] only);

(5) To say the least, in simple words, in present days, higher headroom should be more valuable than what it used to be (given property prices are higher and more valuable than what they used to be);

(6) Just 3% is not sufficient to reflect such higher value (or the increased value) of the higher headroom in the present case;

(7) In his testimonies, the Applicant’s expert confirmed that it’s his professional opinion (based on experience) that 10% per meter is a proper and reasonable adjustment.”

55.  Regrettably, neither Mr Yu nor Mr Chan can provide any evidence to show how “the market environment was totally different” when the adjustment is expressed as a percentage instead of an absolute value. In this regard, I consider that Mr Yu’s revised figure of 10% per meter excessive and I adopt 4% for every single metre higher in headroom.

56.  Having stated the above, there is still a minor difference in opinion between the 2 experts: Mr Yu adopts “floor-to-floor headroom dimensions” whereas Mr Ng adopts the “clear headroom” measurement. On the one hand, I note they fail to agree the headroom measurement on the other’s basis. On the other hand, I consider the differences in measurement should be minimal[11]. More importantly, I adopt most of the comparables of Mr Ng and reject all but the common comparable of Mr Yu; therefore, the adjustments of Mr Ng is adopted as the adjustments for headroom to be applied would be consistent.

Frontage Adjustment

57.  Mr Ng has adopted a “Clear Frontage” basis for comparison purpose since the thickness of walls can hardly be utilised as a frontage. On the other hand, Mr Yu adopted a “Full Frontage” basis for comparison on the ground that the surface of the walls can still be utilised as an advertising place, referring to Tai Ping Restaurant Limited v Director of Lands, LDLR 1/2013 (unreported, dated 8 December 2014) in which the Tribunal preferred the adjustment for full frontage to the adjustment for clear frontage.

58.  At para 38 of the judgment, the Tribunal commented that:

“38. I consider columns on the frontage of a shop are valuable, but the weight of such columns in an assessment is generally less than that of clear frontage. Subject to the availability of information, different weights should be attached to columns on the frontage and clear frontage respectively in an assessment. Nevertheless, in the absence of detailed assessment, there is no material difference between these two approaches if each could be applied consistently in the valuation.”

59.  Although I note no particular advertisement on the columns of the Subject Property as well as the comparables adopted by Mr Ng, the latter and Mr Yu have no agreement on the length of the various frontages. As such “in the absence of detailed assessment, there is no material difference between these two approaches” and as I have adopted most of the comparables proposed by Mr Ng, his adjustments for frontage are also adopted.

Proportion of Open Yard Area Adopted for Effective Area Calculations

Size Adjustments

60.  In para 30 above, I have adopted 2.5% for every 10 sq m for the first 100 sq m difference and then 1% for 10 sq m after the first 100 sq m. I consider the same can be applied to the other comparables.

61.  Bearing in mind the above, I analyse the comparables adopted as follows:

62.  In spite of the above, I would place double weight on the common comparable. As result, the weighted average would become $218,895 per sq m.

63.  Initially, Mr Ng intended to adopt a term and reversion calculation to take into account that the Subject Property was still occupied by its former tenant at the date of resumption. However, when the Subject Tenancy was created on 1 April 2015, the resumption had already been gazetted with the date of resumption fixed on 6 June 2015[12]. There was also a remark at the end of the Subject Tenancy stating that the tenancy would be terminated upon the compulsory resumption by Government for public purpose:

“如此物業在租約期間因公共目的而被政府強行收地， 此租約立即終止 ...”

64.  In, for instance, Javid v Aqil [1991] 1 All ER 243, [1991] 1 WLR 1007, the English Court of Appeal held that where a former tenant was allowed to remain in possession and thereafter paid periodic payments of rent merely as an interim measure, it was to be inferred in the absence of any other material factors that the parties intended to create a tenancy at will pending the outcome rather than a periodic tenancy, since the parties could not sensibly be taken to have agreed that there shall be a periodic tenancy:

“Acceptance by the landlord of rent due after the expiration of a notice may be evidence upon which the court will infer the creation of a new tenancy. However, in each case the question is, quo animo the rent is received, and what is the real intention of the parties.” (following the line in Doe d Cheny v Batten (1775) 1 Cowp 243 at 245, [1775–1802] All ER Rep 594 at 595)

65.  Therefore, in the absence of evidence to the contrary, upon the expiry of the Subject Tenancy, the former tenant holding over until the date of resumption implied a tenancy at will only.

66.  Even if I am wrong, and a monthly tenancy had been created, the term effect on value would be minimal and can be disregarded. This is notwithstanding that the rent at $43,000 per month was agreed pending resumption which should be disregarded, following for instance, Lam Kit v Director of Lands, LDLR 15/1994 (unreported, 5 May 1995) at para 11.

67.  In light of the above, Market Value for the Subject Property 

= 152.78 sq m x $218,895 per sq m

 = $33,442,717

Say $33,443,000

Conclusion

68.  I determine the value of the Subject Property for the purpose of section 10(2)(a) of the LRO should be in the sum of $33,443,000.

Orders

69.  Accordingly, I order that the Respondent do pay the Applicants compensation for the resumption of the Subject Property in the sum of $33,443,000.

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

71.  Last but not least, the Tribunal thanks all Counsel for their helpful assistance.

[1] Harbour Park was completed for occupation in December 2017.

[2] Park One was completed for occupation in December 2018.

[3] https://hk.on.cc/hk/bkn/cnt/news/20150723/bkn-20150723195419544-0723_00822_001.html

[4] This head of claim is actually a claim for future rent after the resumption date. It would in any event be denied as the market value of the Subject Property in itself comprised any value that there may be in the opportunity to obtain a rental income. See Ryde International PLC v London Regional Transport [2004] EWCA Civ 232, [2004] RVR 60 and more recently Yazdiha & Another v London Borough of Brent, [2018] UKUT 0074 (LC), ACQ/26/2017.

[5] According to the evidence of Mr Ng, which was not challenged, the Pei Ho Street Municipal Services Building was open to public since 1995.

[6] According to the business registration of this restaurant, it only commenced business on 1 November 2018.

[7] See also Gordon N Cruden & Another, Land Compensation & Valuation Law in Hong Kong, 4^th Ed, 2017, para 23.39-23.43.

[8] See section 12(d) of the LRO and Cheung Lin v Director of Lands, LDLR 1 of 2015 (unreported, 24 October 2016) at §§38-46.

[9] 17-feet is equivalent to 5.18 m.

[10] 15-feet is equivalent to 4.57 m.

[11] For the Subject Property, Mr Yu’s measurement is 5.18 m while Mr Ng’s measurement is 5.08 m, ie a difference of 0.1m or less than 2%.

[12] See para 3 above.