COURAGE INVESTMENTS LTD AND ANOTHER v. GO SIN LI alias WU SHEN LI AND OTHERS

LDCS 17000/2020

[2021] HKLdT 78

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE MAIN APPLICATION NO 17000 OF 2020

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BETWEEN

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J U D G M E N T

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1.  This is an application for a compulsory sale order under the Land (Compulsory Sale for Redevelopment) Ordinance, Cap 545 (“the Ordinance”) (hereinafter referred to as “the Application”) to sell all the undivided shares of the following lots (“the Lots”) which are located at No 155 Third Street and Nos 8, 8A, 10 & 10A Water Street, Sai Ying Pun, Hong Kong:

- Remaining Portion of Section A of Inland Lot No 816 (“1^st Lot”);

- Subsection 2 of Section A of Inland Lot No 816 (“2^nd Lot”);

- Section A of Subsection 1 of Section A of Inland Lot No 816 (“3^rd Lot”); and

- Remaining Portion of Subsection 1 of Section A of Inland Lot No 816 (“4^th Lot”)

2.  Standing thereon is a 6-storey building (“the Building”) with 4 shops on ground floor (“G/F”) each having a cockloft except for the shop at 10A Water Street. There are 4 residential units on each upper floor and the roof is otherwise identified as 5/F. The Building is served by two common staircases which are interconnected at the rear.

3.  There are however 4 Deeds of Covenants (“DMCs”), respectively governing:

- No 8 Water Street and the 1^st Lot;

- No 8A Water Street and the 2^nd Lot;

- Nos 10 & 10A Water Street and the 3^rd Lot; and

- No 155 Third Street and the 4^th Lot.

4.  The distribution of the undivided shares as allotted by the DMCs and registered in the Land Registry is set out in the table below:

Floor	1st Lot	2nd Lot	3rd Lot		4th Lot
	No 8 Water Street	No 8A Water Street	No 10 Water Street	No 10A Water Street	No 155 Third Street
G/F (including cockloft (“C/L”), if any	1/6	1/6	1/12	1/12	1/6
1/F	1/6	1/6	1/6	-	1/6
2/F	1/6	1/6	1/6	-	1/6
3/F	1/6	1/6	1/6	-	1/6
4/F	1/6	Flat No 1: 1/3 of 1/6 Flat No 2: 1/3 of 1/6 Flat No 3: 1/3 of 1/6	1/6	-	1/6
5/F	1/6	1/6	2/12	-	1/6

5.  The roofs (ie 5/F), though allotted with undivided shares, are specifically designated in the DMCs for common use under the DMCs:

“In pursuance of such agreement and in consideration of the premises and of the respective grants herein contained the Second Owner, the Third Owners, the Fourth Owners and the Fifth Owner do and each of them doth hereby grant unto the First Owner full right and privilege to hold and enjoy to the exclusion of the Second Owner, the Third Owners, the Fourth Owners and the Fifth Owner ALL THAT the GROUND FLOOR of the said Building together with the right in common with the Second Owner, the Third Owners, the Fourth Owners and the Fifth Owner and all others having the like right to use for the purpose of access to and egress from the said Ground Floor of the said Building the entrance hall staircases and landings in the said Building and such of the passages therein as are not included in any of the other floors of the said Building and to use the roof of the said Building for lawful and usual purposes.”[1]

6.  Since the filing of the Application on 29 June 2020, the 1^st applicant had purchased from the 2^nd respondents the 1/6 undivided share allotted to 3/F, No 10 Water Street on 22 March 2021. By an order of the Tribunal dated 26 March 2021, the 2^nd respondents had withdrawn the Notice of Opposition and the proceedings against the 2^nd respondents were discontinued.

7.  The three remaining respondents are:

(1) The 1^st respondent (“R1”) being the registered owner of the undivided shares allotted to 2 shops: G/F, 10A Water Street and G/F, 155 Third Street, owning 1/12 undivided share of the 3^rd Lot and 1/6 undivided share of the 4^th Lot respectively.

(2) The 3^rd respondent (“R3”) being the registered owner of ½ of the 1/6 undivided shares allotted to 3/F, 155 Third Street, ie owning 1/12 undivided share of the 4^th Lot.

(3) The 4^th respondent (“R4”) claiming to be in adverse possession of R1’s 2 shops and by a letter dated 8 July 2021 stating that he is not opposing the Application.

8.  By an order of the Tribunal dated 16 November 2020, the applicants had published notices in a Chinese language newspaper and an English language newspaper calling upon R1 and R3 and all persons claiming to be minority owners to establish their claims before the Lands Tribunal within 1 month from the publication of the notices. After expiration of 1 month from the publication of the notices, all persons claiming to be minority owners of the Lots shall be bound by the proceedings herein as if they had been served with a copy of the said Notice of Application in accordance with section 3(3)(a) of the Ordinance.

9.  Whereas the newspaper notices were published on 24 November 2020, none of the outstanding respondents filed any Notice of Opposition.

10.  At trial, Mr Mok Yeuk Chi (“Mr Mok”) acted on behalf of the applicants while the outstanding respondents were all absent.

The Evidence

11.  The applicants have filed the following documents in support of the Application:

(a) a witness statement and supplemental witness statement of Mr Kwo Man Hang (“Mr Kwo”), representative of the applicants, dated 7 May 2021 and 23 September 2021 respectively;

(b) a Building Condition Survey Report by Mr Benson Wong (“Mr Wong”) dated 2 May 2021;

(c) a Structural Survey Report by Mr So Kin Shing (“Mr So”) dated 5 May 2021;

(d) the following reports by Mr Charles Chan (“Mr Chan”) of Savills Valuation and Professional Services Ltd (“Savills”);

(i) an Application Report pursuant to Part 1 of Schedule 1 to the Ordinance dated 26 May 2020;

(ii) a Supplemental EUV Report dated 5 May 2021 on the revised EUV as at 25 May 2020 and the RDV;

(iii) Updated RDV Valuation Report dated 8 September 2021.

Whether the Applicant is entitled to make the Application

12.  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.

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.  Insofar as the occupation permit for the Building was issued on 5 April 1956, ie not less than 50 years before the date of the Application, the Notice is applicable and the threshold percentage should be 80%.

16.  The applicants, owning obviously an average of more than 80% of the Lots at the commencement of the Application, were entitled to file the Application under section 3(2)(b) of the Ordinance which may cover two 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 lots on 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).

EUV as at 25 May 2020

Assessment of EUV of G/F Units

17.  Pursuant to Part 1 of Schedule 1 to the Ordinance, a valuation report, prepared not earlier than 3 months before the date on which the application under section 3(1) of the Ordinance is made, is required in setting out the assessed market value of each property on the lot—

(a) on a vacant possession basis;

(b) assessed as if the lot 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 lot.

This was what had been done by Mr Chan in his Application Report dated 26 May 2020.

18.  Incidentally, there was a similar compulsory sale application by the related parties, being LDCS 18000/2020 which was heard on 27-30 September 2021, ie about one week prior to the trial of the present case. This compulsory sale application, LDCS 18000/2020, was in respect of lots situated at Nos 145-149 Third Street, Hong Kong which are quite close to the Lots. On the one hand, in this LDCS 18000/2020, the relevant date for assessing the EUV was the same as the present case, ie as at 25 May 2020, and so was the relevant date of the RDV. On the second hand, Mr Chan was also one of the valuation experts. I consider it prudent to rely on the evidence produced in LDCS 18000/2020 as well as the analysis that was adjudicated in the judgment.

19.  For instance, Mr Chan, in the Application Report, adopted the same set of comparables as in LDCS 18000/2020. In the latter, the Tribunal accepted mostly the adjustments proposed by Mr Chan (except for the location adjustment for the comparable at G/F, 348 Queen’s Road West). In the present case, the location of the Reference Shop Unit, being G/F, 8A Water Street, is superior in that it is situated near the corner of Water Street and Third Street. Thus, I accept Mr Chan’s assessment of the EUV as follows:[2]

Unit	EUV
G/F (including Cockloft), 8 Water Street	$19,170,000
G/F & Cockloft, 8A Water Street	$17,060,000
G/F, 10 Water Street	$6,880,000
G/F, 10A Water Street*	$9,280,000
G/F, 155 Third Street*	$14,870,000
Total:	$67,260,000

* Units owned by R1 and being claimed adverse possession by R4.

Assessment of EUV of Upper Floor Domestic Units

20.  As regards the assessment of the EUV of the upper floor domestic units of the Building, Mr Chan relied on two sets of comparables, one being those that were adopted in LDCS 18000/2020 with 3/F, 8 Water Street as the reference unit whereas the other on a different set of comparables with Flat 1, 4/F of 8A Water Street as the reference unit. Mr Chan arrived at a unit rate of $124,000 per sq m[3] and $139,000 per sq m [4]respectively.

21.  Mr Chan’s assessment of the EUV of the various domestic units as at 25 May 2020 is reproduced as follows:[5]

Floor	Flat	EUV
1/F	8 Water Street	$8,290,000
1/F	8A Water Street	$8,430,000
1/F	10 Water Street	$9,600,000
1/F	155 Third Street	$6,010,000
2/F	8 Water Street	$8,130,000
2/F	8A Water Street	$7,780,000
2/F	10 Water Street	$9,700,000
2/F	155 Third Street	$6,070,000
3/F	8 Water Street	$7,510,000
3/F	8A Water Street	$6,940,000
3/F	10 Water Street	$8,410,000
3/F	155 Third Street	$5,780,000*
4/F	8 Water Street	$6,330,000
4/F	Flat 1, 8A Water Street	$2,180,000
4/F	Flat 2, 8A Water Street	$2,440,000
4/F	Flat 3, 8A Water Street	$1,850,000
4/F	10 Water Street	$7,110,000
4/F	155 Third Street	$5,330,000
5/F (Roof)	8 Water Street	-
5/F (Roof)	8A Water Street	-
5/F (Roof)	10 Water Street	-
5/F (Roof)	155 Third Street	-
	Total:	$117,890,000

* Half share of interest owned by R3

Conclusion on EUV

22.  I am satisfied that the value of the minority owners’ properties as assessed in the Application is—

(a) not less than fair and reasonable; and

(b) not less than fair and reasonable when compared with the value of the majority owner’s property as assessed in the Application.

23.  The total EUV of the Building is therefore

$67,260,000 (G/F units) + $117,890,000 (Upper floors units) = $185,150,000.

Whether Redevelopment of the Lot is Justified on “Age” or “State of Repair”

24.  Section 4(2)(a) of the Ordinance stipulates that the Tribunal shall not make an order for sale unless it is satisfied that redevelopment of the Lots due to the “age or state of repair” of the Building is justified.

Experts’ Evidence

25.  On this issue, the applicants adduced the Condition Survey Report dated 2 May 2021 by Mr Wong, the Building Surveyor and the Structural Assessment Report dated 5 May 2021 by Mr So, the Structural Engineer.

26.  In the Structural Survey Report, Mr So concluded as follows:[6]

(1) The Building was designed in accordance with the less stringent London County Council (LCC) By-Laws 1952. There are 8 structural design and construction aspects where the Building does not comply with the current structural engineering design requirements specified in the New Concrete Codes, especially the requirement on robustness. Also the concrete covers for the beams and slabs do not comply with the requirements specified in the Code of Practice for Fire Safety in Buildings 2011.

(2) Cracks and spalling are found in some 146 structural elements throughout the Building.

(3) The cover-meter survey results revealed that 1 out of 5 (or 20%) beam samples, and 2 out of 5 (or 40%) slab samples do not have sufficient concrete covers to protect the embedded steel reinforcement bars against corrosion or fire.

(4) The carbonation depth test results revealed that the alkaline environment which gives protection to the embedded steel reinforcement bars in the reinforced concrete structural elements in the beams and slabs has been very extensively destroyed.

(5) The compression test results revealed that there are deficiencies in the concrete strength in 1 out of 5 (or 20%) tested beam samples, and1 out of 5 (or 20%) tested slab samples. The structural capability of these structural elements may not be sufficient to resist their intended loads or forces.

(6) The chloride content test results have revealed that the chloride content of the following structural elements exceeds the 0.35% limit:

(i) 1 out of 5 (or 20%) tested column samples; and

(ii) 2 out of 5 (or 40%) tested beam samples; and

(iii) 3 out of 5 (or 60%) tested slab samples.

There is, therefore, increased risk of corrosion of the embedded steel bars as revealed in the corrosion surveys carried out on these structural elements. The durability of the concrete of these column, beams and slabs of the Building might have been impaired.

(7) All steel reinforcement bars exposed from corrosion survey locations exhibit rust of various magnitudes, showing that the high carbonation depths in the concrete have caused the corrosion of the embedded steel reinforcement bars.

27.  Mr So recommended that hammer tapping works be carried out to the internal surface of all structural elements of the Building and any defects such as spalling and cracks discovered together with the spalling and cracks already identified to be repaired.

28.  In the Condition Survey Report, Mr Wong concluded that[7]:

“6.1 The Age

6.1.1 The Building which is more than 65 years old and with regard to its physical life, is the oldest building in its immediate neighbourhood.

6.1.2 The Building is aged structurally as with regard to the durability provisions the Building’s structure is considered to have passed the end of its design life.

6.1.3 The Building is aged physically as showed by 3 signs of physical obsolescence as compared with other modern buildings:

a. A plain looking block with monotonous elevations.

b. The external walls are simply rendered and painted. These low-cost external building finishes were only acceptable in the post war era but have been out-classed by buildings nowadays.

c. An overall untidy appearance from piecemeal replacements of the old windows with aluminum units of different types and colours.

6.1.4 The Building is aged functionally as it has been suffering from many obsolescence aspects which have safety and hygiene implications as compared with current standards for buildings nowadays:

a. The design and construction of the structural frames had only complied with the less stringent structural requirements applicable more than 65 years ago thereby adversely affecting the structural performance of the Building.

b. The fire services installation is sub-standard due to the following shortfalls:

(i) No automatic sprinkler system;

(ii) No manual fire alarm system; and

(iii) No fire hydrant/hose reel system.

c. The fire escape arrangements in the Building are unsatisfactory with the following deficiencies:

(i) No emergency lighting is provided to the required staircases.

(ii) The required staircases as measured are less than the minimum width of 1,050mm; and.

(iv) No handrails are provided on both sides of stairs inside the required staircases.

d. The fire resisting construction of the required staircases is outdated as follows:

(i) The flat entrance doors facing the staircase are not fire resisting doors as currently required.

(ii) The existing electrical installations and wirings installed in Main Staircase are exposed and not enclosed with fire resisting enclosures thereby posing fire hazards for fire escape;

e. The Building has no barrier free access facilities as follows:

(i) An accessible lift; and

(ii) An accessible ramp.

…

h. The Building has no equipotential bonding provided for exposed metal fixtures in both common and private areas thereby endangering the safety of occupants and breaching the Electrical Code.

i. The Building has no lightning protection system installed on the roof to protect its occupants and building parts from lightning strikes.

…

It is my view that most of these aspects of functional obsolescence … cannot be rectified unless the Building is demolished and redeveloped…

6.2 The State of Repair

6.2.1 Based on my condition survey finding and Mr K S So’s structural assessment results, I am of the view that the Building is in a poor state of repair.

6.2.2 According to the structural assessment of Mr K S So, the Building is suffering from structural defects requiring hammer tapping and repairs of concrete spalling/ cracking defects in the structural members. However, structural defects will continue to appear and proliferate, notwithstanding the proposed repairs. Furthermore, extensive carbonation of concrete and corrosion of the reinforcement bars with loss of sectional areas and the corrosion will continue to deteriorate but there is no practicable repair method.

…

6.2.4 The defects and deficiencies found in the Building are of the nature and magnitude that cannot be easily rectified by simple and piecemeal repairs. The following defects and/or deficiencies if not repaired in time, will be liable to become dangerous and imposed threats to safety:

a. The defective rendering on external walls;

b. The presence of asbestos materials;

c. The defective waterproofing on various roofs; and

d. The lack of equipotential bonding for exposed metal fixtures inside flats.

6.2.5 Substantial repairs at the cost of $14,143,532 are required to be carried out in order to restore the Building to a fair state of repair.

6.2.6 The Repair Cost of $14,143,532 is about 58% of the Construction Cost of $24,566,000 for constructing a new similar superstructure. The repair cost is disproportionately high indicating that the deterioration of the Building’s superstructure is very serious and has reached a state which is beyond reasonable economic repair.

6.2.7 In addition to the “Repair Cost” and “Construction Cost” comparison, the conclusion on whether the existing state of repair of the Building is justified for redevelopment, building owners should also take into account of the following:

a. The implementation of the repair works and discharge of other repair obligations will be disturbing and onerous for the existing occupiers and building owners.

b. The future mandatory and voluntary repairs concerning safety and hygiene improvements introduced after the Building was constructed will make the continued occupation of the Building uneconomical and even unsafe, to both occupants and third parties.

c. The Building will not be up to the standard of a new building due to its inherent limitations. Even if the Building is repaired, the quality of accommodation will still be below market expectation.

29.  In the end, Mr Wong recommended the owners to redevelop rather than repair the Building, particularly bearing in mind the Building does not possess any historical value or architectural merit, and is merely a building of the past that can be replaced.

30.  In the absence of evidence to the contrary, I am satisfied that redevelopment of the Building is justified due to the age and state of repair.

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

31.  The applicants are under an obligation to take reasonable steps to negotiate on terms that are fair and reasonable for the purchase of the interests of the respondents under section 4(2)(b) of the Ordinance.

32.  As mentioned in the witness statement of Mr Kwo dated 7 May 2021, the applicants had, based on the assessments by Savills and through its solicitors Messrs Vincent TK Cheung, Yap & Co, made the offers dated 10 June 2020 to R1 and R3 for acquiring their interests. There was no response from either R1or R3.

33.  On the other hand, I note that the 1^st applicant had successfully acquired R2’s interest on 22 March 2021 after commencement of the Application. See §6 above.

34.  On the evidence available, I am satisfied that the applicants have taken reasonable steps to acquire all the undivided shares in the Lots including negotiating for the purchase of the share owned by the respondents on terms that are fair and reasonable.

Disputes on the estimation of the RDV of the Lots

Hypothetical Development Model

35.  Like LDCS 18000/2020, Mr Chan resorted to the residual valuation method in determining the RDV. This can be done by deducting development cost (including construction costs, professional fees, finance costs etc) and developer’s profit from the estimated gross development value (“GDV”) of the completed optimum development.

36.  Based on an agreed developable site area of the Lots at 279.50 sq m (which is relatively small), Mr Chan assumed there can be built a hypothetical 26-storey residential/commercial composite development with entrance lobby, retail shops and access to plant room on lower ground floor & G/F, communal garden and plant room on 1/F, clubhouse on 2/F which is surmounted from 3/F to 25/F by residential flats (with 3 units per floor).[8]

GDV for G/F

37.  Mr Chan adopted a reference new retail unit on G/F of the hypothetical development fronting Water Street having a saleable area of 42.8 sq m with a frontage of 11.0 metres and a headroom of 5 metres.

38.  Mr Chan adopted only 4 comparables instead of 5 in LDCS 18000/2020. While in the latter, seven comparables were considered, I prefer to follow the same:

Comp Ref:	Address	Age	Date of PASP/ASP	Consideration	Saleable Area (m2)	Frontage (m)	Headroom (m)	Depth (m)	Effective Area (m2)	Effective Unit Price (/m2)
Ref Unit	Hypothetical Shop	New			42.8	11.0	5.0	3.9	85.5
C1	Lower Ground Floor, 52 Second Street	1970	5 Jul 21	$24,520,000	48.8 + Yard: 2.0	4.4	3.4	11.5	49.1	$499,389
C2	Shop C, G/F, Fook Moon Building, 56-72 Third Street	1981	2 Jun 21	$27,500,000	50.1	5.1	5.8	10.4	50.1	$548,902
C3	Unit A1, G/F, Hoi Sing Building, Block 1, 141-149 Second Street	1991	17 Apr 21	$17,400,000	60.9	4.1	3.8	14.7	60.9	$285,714
C4	Unit 7, G/F, Goodwill Garden, 83 Third Street	1995	18 Mar 21	$14,000,000	26.6 + Yard: 19.4	4.2	5.2	7.6	29.8	$469,799
C5	Unit C, G/F, Wealth Building, 63 High Street	1978	24 Feb 21	$18,000,000	39.4	3.5	3.3	13.1	39.4	$456,853
C6	G/F, 27 High Street	1958	18 Dec 20	$18,500,000	39.8 + Yard: 21.5	6.0	3.2	5.4	43.4	$426,267
C7	Shop D, G/F, 47 First Street	1964	5 Sep 20	$11,100,000	28.8 + C/L: 2.8	3.3	3.5	9.7	29.3	$378,840

39.  Mr Chan then relied on the following adjustments[9]:

		Mr Chan
Time		On the basis of the Private Retail Price Index of the RVD
Location:	Comparable C1: Comparable C2: Comparable C3: Comparable C4: Comparable C5: Comparable C6: Comparable C7:	-25.0%
		-20.0%
		5.0%
		-20.0%
		-
		-
		-
Age		1% for 5 years’ difference
Size		1% for every 5 sq m difference
Frontage		2.0% for every 1 m difference
Business Condition		-
Layout		0 to 15%
Headroom		5% for every 1 m difference
Total Adjustment		By Multiplication

Choice of G/F Comparables and Location Adjustment

40.  Despite this is named as a lower ground floor unit, Comparable C1 is situated on ground floor on Second Street close to its junction with Centre Street in proximity to both the Centre Street Market and the Sai Ying Pun Market. This is among the busiest part of the region. It is currently occupied by a small supermarket. I agree with Mr Chan’s proposed adjustment of -25%.

41.  Comparable C2 is situated at the busiest section of Third Street, again in close proximity to the Sai Ying Pun Market. It is occupied by a popular butcher’s chain, 錢大媽 (Aunt Qian). I agree with Mr Chan’s proposed adjustment of -20%.

42.  Comparable C3 is situated at the relatively quiet section of Second Street, one block down the slanting street from the Building. It appears to be previously occupied as a restaurant. I am agreeable to a 0% adjustment for location.

43.  Comparable C4 is situated at a relatively far away section of Third Street east of the subject but close to the Sai Ying Pun Market. It is currently occupied as a florist. This comparable is also situated obliquely opposite comparable C2 across the street. I agree with Mr Chan’s proposed adjustment of -20%.

44.  Comparable C5 was adopted by Mr Chan in LDCS 18000/2020 but not in the present case. It is currently occupied by a real estate agent next to a restaurant. I am prepared to adopt an adjustment of -15% for location.

45.  Comparable C6 is situated at a quieter section of High Street. It is currently occupied as a restaurant. Mr Chan did not adopt this as a comparable even in LDCS 18000/2020 because it was dated in relative to the others. I am prepared to adopt an adjustment of -10% for location.

46.  Comparable C7 is also another comparable not adopted by Mr Chan in LDCS 18000/2020 because it was dated. I am agreeable to a 0% adjustment for location.

Business Condition

47.  In LDCS 18000/2020, the Tribunal agreed that there would be a +5% adjustment on the premise that the business environment would improve upon development of the Lots. I follow the same.

Layout

48.  Having regard to the relatively wide frontage of the hypothetical shop proposed by Mr Chan, I agree to his layout adjustments for the four comparables he adopted in the present case.

49.  Whereas I have no evidence before me on the adjustments for layout in respect of the other comparables, I assume no adjustment be made.

50.  Hence, subject to the above, my assessment of the GDV of the reference new retail unit is as follows:[10]

Comp	Unit Rate (/m2)	Adjustments									Adjusted Unit Rate (/m2)
		Time	Location	Age	Size	Frontage	Layout	Headroom	Business Condition	Total
C1	$499,389	-2.7%	-25.0%	10.2%	1.3%	13.2%	5.0%	8.0%	5.0%	9.8%	$548,329
C2	$548,902	0.8%	-20.0%	8.0%	1.5%	11.8%	5.0%	-4.0%	5.0%	4.6%	$574,151
C3	$285,714	4.2%	0.0%	6.0%	3.6%	13.8%	15.0%	6.0%	5.0%	66.7%	$476,285
C4	$469,799	3.3%	-20.0%	5.2%	-2.6%	13.6%	0.0%	-1.0%	5.0%	0.0%	$469,799
C5	$456,853	3.6%	-15.0%	8.6%	-0.7%	15.0%	0.0%	8.5%	5.0%	24.4%	$568,325
C6	$426,267	5.5%	-10.0%	12.6%	0.1%	-5.5%	0.0%	8.0%	5.0%	14.7%	$488,928
C7	$378,840	10.5%	0.0%	11.4%	-2.7%	0.9%	0.0%	7.5%	5.0%	36.4%	$516,738
										Average:	$520,365
										Say	$520,000

51.  From the analysis above, I arrive at a unit rate of $520,000 per sq m as opposed to Mr Chan’s $509,000 per sq m (ie an increase of 2%).

52.  Then I follow Mr Chan’s further adjustments and assessment of the other shop units on G/F of the hypothetical development:

Shop	Saleable Area (m2)	Frontage	Ref Unit Rate (/m2)	Adjustments			Adjusted Unit Rate (/m2)
				Location	Layout	Total
A	42.8	Third Street	$520,000	-5%	0.0%	-5%	$494,000
B	42.8	Water Street	$520,000	0.0%	0.0%	0.0%	$520,000
C	42.8	Water Street	$520,000	0.0%	0.0%	0.0%	$520,000
						Average:	$511,333
						Say	$511,300

GDV for Upper Floors

53.  In assessing the GDV for the upper-floor residential units, like in LDCS 18000/2020, Mr Chan relied on recent sales in three developments, namely One Artlane, Two Artlane and 15 Western Street (save for those marked with *):[11]

One Artlane at No 8 Chung Ching Street (Date of Completion: 2019)

Unit	Date of PASP	Consideration	Saleable Area (m2)	View	Headroom (m)	Unit Rate (/m2)
Flat F, 31/F	10 Aug 21	$10,458,540	28.0	Open Building	3.17	$373,519
Flat K, 31/F	26 Jul 21	$10,528,380	26.6	Open Building	3.17	$395,804
Flat F, 23/F	10 Jun 21	$9,707,760	28.0	Open Building	3.17	$346,706
Flat F, 10/F	6 Jun 21	$9,022,940	28.0	Open Building	3.17	$322,248
					Average:	$359,569

Two Artlane at No 1 Chung Ching Street (Date of Completion: 2021)

Unit	Date of PASP	Consideration	Saleable Area (m2)	View	Headroom (m)	Unit Rate (/m2)
Flat L, 26/F	4 Sep 21	$8,266,560	25.0	Building	3.5	$330,662
Flat L, 25/F	1 Sep 21	$8,211,840	25.0	Building	3.5	$328,474
Flat J, 30/F	31 Aug 21	$7,771,200	22.6	Building	3.5	$343,858
Flat L, 23/F	31 Aug 21	$8,100,480	25.0	Open Building	3.5	$324,019
Flat G, 30/F	30 Aug 21	$9,787,200	26.7	Open Building	3.5	$366,562
Flat L, 21/F	30 Aug 21	$7,962,240	25.0	Building	3.5	$318,490
Flat F, 31/F	28 Aug 21	$9,578,880	26.2	Open Building	3.5	$365,606
Flat L, 17/F	28 Aug 21	$7,769,280	25.0	Open Building	3.5	$310,771
Flat L, 30/F	26 Aug 21	$8,487,360	25.0	Open Building	3.5	$339,494
Flat L, 22/F	25 Aug 21	$8,017,920	25.0	Open Building	3.5	$320,717
Flat J, 31/F	21 Aug 21	$7,779,400	22.6	Building	3.5	$344,221
Flat D, 31/F	21 Aug 21	$8,033,280	23.2	Building	3.5	$346,262
Flat J, 29/F	21 Aug 21	$7,574,400	22.6	Building	3.5	$335,150
Flat L, 28/F	20 Aug 21	$8,376,000	25.0	Open Building	3.5	$335,040
Flat C, 31/F	16 Aug 21	$8,184,960	23.5	Building	3.5	$348,296
Flat B, 31/F	15 Aug 21	$8,304,960	23.6	Open Building	3.5	$351,905
Flat G, 15/F	14 Aug 21	$8,221,440	26.7	Open Building	3.5	$307,919
Flat B, 30/F	9 Aug 21	$8,142,720	23.6	Open Building	3.5	$345,031
Flat E, 31/F	8 Aug 21	$8,081,280	23.4	Building	3.5	$345,354
Flat L, 29/F	30 Jul 21	$8,432,640	25.0	Open Building	3.5	$337,306
Flat J, 25/F	12 Jul 21	$7,304,640	22.6	Building	3.5	$323,214
Flat C, 30/F	11 Jul 21	$8,025,600	23.5	Building	3.5	$341,515
Flat F, 21/F	11 Jul 21	$8,431,680	26.2	Open Building	3.5	$321,820
Flat L, 7/F	11 Jul 21	$7,404,010	25.0	Building	3.5	$296,160
Flat E, 30/F	8 Jul 21	$8,004,440	23.4	Building	3.5	$342,070
Flat F, 26/F	4 Jul 21	$8,660,160	26.2	Open Building	3.5	$330,540
Flat L, 9/F*	29 Jun 21	$7,438,080	25.0	Building	3.5	$297,523
Flat B, 29/F*	16 Jun 21	$8,055,850	23.6	Open Building	3.5	$341,350
Flat G, 16/F*	7 Jun 21	$8,399,040	26.7	Open Building	3.5	$314,571
					Average:	$332,893

15 Western Street (Date of Completion: 2021)

Unit	Date of PASP	Consideration	Saleable Area (m2)	View	Headroom (m)	Unit Rate (/m2)
Flat B, 10/F	5 Sep 21	$9,999,000	31.6	Building	3.15	$316,424
Flat B, 23/F	29 Aug 21	$10,653,000	31.6	Open Building	3.15	$337,120
Flat A, 22/F	21 Aug 21	$10,159,000	28.6	Open Building	3.15	$355,210
Flat A, 12/F	13 Aug 21	$9,424,000	28.6	Open Building	3.15	$329,510
Flat B, 22/F	11 Aug 21	$10,496,000	31.6	Open Building	3.15	$332,152
Flat A, 6/F	7 Aug 21	$8,638,000	28.6	Open Building	3.15	$302,028
Flat C, 5/F*	6 Aug 21	$6,361,000	19.8	Open Building	3.15	$321,263
Flat A, 15/F	25 Jul 21	$9,471,000	28.6	Open Building	3.15	$331,154
Flat C, 6/F*	24 Aug 21	$6,403,000	19.8	Open Building	3.15	$323,384
Flat A, 7/F	13 Jun 21	$8,698,000	28.6	Open Building	3.15	$304,126
Flat A, 9/F	9 Jun 21	$9,075,000	28.6	Open Building	3.15	$317,308
Flat B, 25/F	6 Jun 21	$10,973,000	31.6	Open Building	3.15	$347,247
Flat C, 10/F*	5 Jun 21	$6,577,000	19.8	Open Building	3.15	$332,172
					Average:	$327,723

* These transactions were not adopted by Mr Chan in LDCS 18000/2020 as he considered the sizes of these units too small.

54.  Mr Chan assumed a reference unit on 14/F having a saleable area of 24.03 sq m (which is slightly smaller than 25.01 sq m that he adopted in LDCS 18000/2020). Subject to the same comments made by the Tribunal in LDCS 18000/2020, I adopt Mr Chan’s assessment based on the comparables as follows:[12]

One Artlane at No 8 Chung Ching Street (Date of Completion: 2019)

Unit	Unit Rate (/m2)	Adjustments									Adjusted Unit Rate (/m2)
		Time	Location	Size	View	Floor	Scale & Facilities	Age	Headroom	Total
Flat F, 31/F	$373,519	0.0%	-5%	0.8%	-3%	-13.0%	0.0%	2%	0.5%	-17.2%	$309,274
Flat K, 31/F	$395,804	0.0%	-5%	0.5%	-3%	-13.0%	0.0%	2%	0.5%	-17.4%	$326,934
Flat F, 23/F	$346,706	0.6%	-5%	0.8%	-3%	-6.0%	0.0%	2%	0.5%	-10.0%	$312,035
Flat F, 10/F	$322,248	0.6%	-5%	0.8%	-3%	5.0%	0.0%	2%	0.5%	0.6%	$324,181
									Average:		$318,106

Two Artlane at No 1 Chung Ching Street (Date of Completion: 2021)

Unit	Unit Rate (/m2)	Adjustments									Adjusted Unit Rate (/m2)
		Time	Location	Size	View	Floor	Scale & Facilities	Age	Headroom	Total
Flat L, 26/F	$330,662	0.0%	-5%	0.2%	0.0%	-8.0%	0.0%	0.0%	-0.8%	-13.1%	$287,345
Flat L, 25/F	$328,474	0.0%	-5%	0.2%	0.0%	-7.0%	0.0%	0.0%	-0.8%	-12.2%	$288,400
Flat J, 30/F	$343,858	0.0%	-5%	-0.3%	0.0%	-12.0%	0.0%	0.0%	-0.8%	-17.3%	$284,371
Flat L, 23/F	$324,019	0.0%	-5%	0.2%	-3.0%	-6.0%	0.0%	0.0%	-0.8%	-13.9%	$278,980
Flat G, 30/F	$366,562	0.0%	-5%	0.5%	-3.0%	-12.0%	0.0%	0.0%	-0.8%	-19.2%	$296,182
Flat L, 21/F	$318,490	0.0%	-5%	0.2%	0.0%	-4.0%	0.0%	0.0%	-0.8%	-9.3%	$288,870
Flat F, 31/F	$365,606	0.0%	-5%	0.4%	-3.0%	-13.0%	0.0%	0.0%	-0.8%	-20.2%	$291,754
Flat L, 17/F	$310,771	0.0%	-5%	0.2%	-3.0%	0.0%	0.0%	0.0%	-0.8%	-8.4%	$284,666
Flat L, 30/F	$339,494	0.0%	-5%	0.2%	-3.0%	-12.0%	0.0%	0.0%	-0.8%	-19.4%	$273,632
Flat L, 22/F	$320,717	0.0%	-5%	0.2%	-3.0%	-5.0%	0.0%	0.0%	-0.8%	-13.0%	$279,024
Flat J, 31/F	$344,221	0.0%	-5%	-0.3%	0.0%	-13.0%	0.0%	0.0%	-0.8%	-18.3%	$281,229
Flat D, 31/F	$346,262	0.0%	-5%	-0.2%	0.0%	-13.0%	0.0%	0.0%	-0.8%	-18.2%	$283,242
Flat J, 29/F	$335,150	0.0%	-5%	-0.3%	0.0%	-11.0%	0.0%	0.0%	-0.8%	-16.4%	$280,185
Flat L, 28/F	$335,040	0.0%	-5%	0.2%	-3.0%	-10.0%	0.0%	0.0%	-0.8%	-17.6%	$276,073
Flat C, 31/F	$348,296	0.0%	-5%	-0.1%	0.0%	-13.0%	0.0%	0.0%	-0.8%	-18.1%	$285,254
Flat B, 31/F	$351,905	0.0%	-5%	-0.1%	-3.0%	-13.0%	0.0%	0.0%	-0.8%	-20.6%	$279,413
Flat G, 15/F	$307,919	0.0%	-5%	0.5%	-3.0%	2.0%	0.0%	0.0%	-0.8%	-6.3%	$288,520
Flat B, 30/F	$345,031	0.0%	-5%	-0.1%	-3.0%	-12.0%	0.0%	0.0%	-0.8%	-19.6%	$277,405
Flat E, 31/F	$345,354	0.0%	-5%	-0.1%	0.0%	-13.0%	0.0%	0.0%	-0.8%	-18.1%	$282,845
Flat L, 29/F	$337,306	0.0%	-5%	0.2%	-3.0%	-11.0%	0.0%	0.0%	-0.8%	-18.5%	$274,904
Flat J, 25/F	$323,214	0.0%	-5%	-0.3%	0.0%	-7.0%	0.0%	0.0%	-0.8%	-12.6%	$282,489
Flat C, 30/F	$341,515	0.0%	-5%	-0.1%	0.0%	-12.0%	0.0%	0.0%	-0.8%	-17.2%	$282,774
Flat F, 21/F	$321,820	0.0%	-5%	0.4%	-3.0%	-4.0%	0.0%	0.0%	-0.8%	-11.9%	$283,523
Flat L, 7/F	$296,160	0.0%	-5%	0.2%	0.0%	8.0%	0.0%	0.0%	-0.8%	2.0%	$302,083
Flat E, 30/F	$342,070	0.0%	-5%	-0.1%	0.0%	-12.0%	0.0%	0.0%	-0.8%	-17.2%	$283,234
Flat F, 26/F	$330,540	0.0%	-5%	0.4%	-3.0%	-8.0%	0.0%	0.0%	-0.8%	-15.6%	$278,976
Flat L, 9/F	$297,523	0.6%	-5%	0.2%	0.0%	6.0%	0.0%	0.0%	-0.8%	0.7%	$299,606
Flat B, 29/F	$341,350	0.6%	-5%	-0.1%	-3.0%	-11.0%	0.0%	0.0%	-0.8%	-18.2%	$279,224
Flat G, 16/F	$314,571	0.6%	-5%	0.5%	-3.0%	1.0%	0.0%	0.0%	-0.8%	-6.7%	$293,495
									Average:		$284,403

15 Western Street (Date of Completion: 2021)

Unit	Unit Rate (/m2)	Adjustments								Adjusted Unit Rate (/m2)
		Time	Location	Size	View	Floor	Age	Headroom	Total
Flat B, 10/F	$316,424	0.0%	0.0%	1.5%	0.0%	5.0%	0.0%	0.6%	-6.9%	$313,859
Flat B, 23/F	$337,120	0.0%	0.0%	1.5%	-3.0%	-6.0%	0.0%	0.6%	-6.5%	$332,121
Flat A, 22/F	$355,210	0.0%	0.0%	0.9%	-3.0%	-5.0%	0.0%	0.6%	1.4%	$334,123
Flat A, 12/F	$329,510	0.0%	0.0%	0.9%	-3.0%	3.0%	0.0%	0.6%	-5.9%	$312,555
Flat B, 22/F	$332,152	0.0%	0.0%	1.5%	-3.0%	-5.0%	0.0%	0.6%	7.3%	$324,076
Flat A, 6/F	$302,028	0.0%	0.0%	0.9%	-3.0%	9.0%	0.0%	0.6%	6.5%	$342,145
Flat C, 5/F*	$321,263	0.0%	0.0%	-0.8%	-3.0%	10.0%	0.0%	0.6%	0.4%	$332,479
Flat A, 15/F	$331,154	0.0%	0.0%	0.9%	-3.0%	2.0%	0.0%	0.6%	5.5%	$341,170
Flat C, 6/F*	$323,384	0.0%	0.0%	-0.8%	-3.0%	9.0%	0.0%	0.6%	7.0%	$325,415
Flat A, 7/F	$304,126	0.6%	0.0%	0.9%	-3.0%	8.0%	0.0%	0.6%	5.0%	$333,173
Flat A, 9/F	$317,308	0.6%	0.0%	0.9%	-3.0%	6.0%	0.0%	0.6%	-7.3%	$321,898
Flat B, 25/F	$347,247	0.6%	0.0%	1.5%	-3.0%	-7.0%	0.0%	0.6%	2.3%	$339,812
Flat C, 10/F*	$332,172	0.6%	0.0%	-0.8%	-3.0%	5.0%	0.0%	0.6%	-6.9%	$313,859
									Average:	$329,402

* These transactions were not adopted by Mr Chan in LDCS 18000/2020 as he considered the sizes of these units too small.

55.  Again, as stated in LDCS 18000/2020, Mr Chan stated that he found the agency fee offered by the developer of 15 Western Street is up to 8% of the sale price, which is much higher than common market practice. Portion of the agency fee may be rebated to the purchasers from the property agent, which would not be mentioned in the Price List nor the Register of Transactions. Having arrived at the above figures, I consider prudent to adopt a unit rate of $320,000 per sq m as the unit rate for reference unit on 14/F. Then I follow Mr Chan’s further analysis of the unit rate of the other residential floors for the hypothetical development:

Average Unit Rate of the proposed development

Floors	Saleable Area (m2)	Reference Unit Rate (/m2)	Adjustments				Adjusted Unit Rate (/m2)	No of Units per floor	Proportion
			Floor	Special	View	Total
3/F-21/F	24.03	$320,000	-2.0%	0.0%	0.0%	-2.0%	$313,600	2	55.07%
22/F-24/F	24.03	$320,000	9.0%	0.0%	3.0%	12.3%	$359,360	2	8.70%
3/F--22/F	24.03	$320,000	-1.0%	0.0%	0.0%	-1.0%	$316,800	1	28.99%
23/F-24/F	24.03	$320,000	10.0%	0.0%	3.0%	13.3%	$362,560	1	2.90%
25/F	24.03	$320,000	11.0%	15.0%	3.0%	31.5%	$420,800	3	4.35%
					Average:		$324,623		100.00%
					Say		$324,600

Developer’s Profit

56.  Mr Chan considered developer’s profit of 15% reasonable having regard to previous compulsory sale applications. In LDCS 18000/2020 which concerned a hypothetical development of similar scale and in similar locality as the subject, the Tribunal determined the developer’s profit at 12.5%. I am prepared to follow suit.

Interest Rate

57.  In Fancy Million Limited & Another v Year Glory Limited & Others, LDCS 15000/2018 (unreported, 23 November 2021), the Tribunal applied an interest rate of 3.5% to test the result in determining the reserved price for the order for sale. And so in LDCS 18000/2020.

58.  I am prepared to do the same.

Finding on RDV

59.  Subject to what I have said above, I follow Mr Chan’s residual valuation model as contained in his Updated RDV report dated 16 September 2021[13] which is reproduced at Appendix I to this judgment. I arrive at a land value of the Lots at $363,000,000 (ie an accommodation value of $140,106/m²) on the basis of an interest rate of 4%.

60.  Should the interest rate of 3.5% be adopted, I arrive at a land value of the Lots at $368,000,000 (ie the accommodation value $142,036/m²).

61.  I determine the reserve price of the Lots at $368,000,000 (which is equivalent to $142,036/m²).

Other Incidental Matters

62.  The applicants proposed to appoint Mr Anthony Chow and Ms Anna Chow, both being consultants of Messrs Guantao & Chow, Solicitors & Notaries, as the sale trustees. Based on the information on their background and experience as set out in their letter dated 20 August 2021[14], we are satisfied that they are proper persons to be appointed as trustees to discharge the duties imposed on trustees under the Ordinance. The remuneration package proposed in the said letter appears reasonable.

63.  The applicants have prepared a set of draft Particulars and Conditions of Sale of the Lots[15]. Subject to any amendment that may become necessary as a result of our ruling on the arrangement of auction above, the particulars and conditions of sale of the Lots by public auction submitted by the applicant are also reasonable.

Order

64.  This Tribunal make the following orders:

(1) This Tribunal is satisfied that the redevelopment of the Lots is justified due to the “age” or “state of repair” of the Building and that the applicants have taken reasonable steps to acquire all the undivided shares in the Lots including those of the 1^st & 3^rd respondents;

(2) All the undivided shares in the Lots, the subject of the Application herein, be sold by way of a public auction for the purposes of the redevelopment of the Lots under s.4(1)(b) of the Land (Compulsory Sale for Redevelopment) Ordinance (“the Ordinance”);

(3) Mr Anthony Chow and Ms Anna Chow of Messrs Guantao & Chow, Solicitors & Notaries, nominated by the applicants, be appointed trustees (“the Trustees”) to discharge the duties imposed on trustees under the Ordinance in relation to sale of 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, Solicitors & Notaries dated 20 August 2021.

(4) For the purpose of the sale of the Lots by public auction under section 5(1)(a) of the Ordinance:

(i) The sale of the Lots be on the particulars and conditions of sale substantially the same as those in the draft Particulars and Conditions of Sale to be initialed and approved by the Tribunal.

(ii) The reserve price be set at $368,000,000.

(iii) 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 and the Building shall be completed and made fit for occupation within a period of 6 years after the date on which the purchaser of the Lots shall become the owner of the Lots.

(iv) The applicants do publish notices once in a Chinese language newspaper (and in the Chinese language) and one in an English newspaper (and in the English language) circulating generally in Hong Kong within 7 days from the date of the sealed judgment to be made herein by the Tribunal informing the 1st respondent and all persons claiming to the owners of the Lots: -

(a) that the Tribunal has made Orders for sale of the Lots;

(b) that the Lots be sold together in one public auction; and

(c) where and the time during which copies of the Orders for sale to be made herein be obtained.

(v) Liberty to the applicants, the 1^st, 3^rd and 4^th respondents and the Trustees to apply to the Tribunal for further direction(s) under the Ordinance.

Costs

65.  There be no order as to costs

							Appendix 1
Residual Valuation
Gross Development Value
G/F Retail	128.50	m2	x	$511,300	/ m2	$65,702,050
Residential Flat	1,658.15	m2	x	$324,600	/ m2	$538,235,490
Flat Roof on 3/F	40.00	m2	x	$47,465	/ m2	$1,898,600
Top Roof	60.00	m2	x	$52,500	/ m2	$3,150,000
						$608,986,140
Less Marketing Costs			@	3%		0.97
						$590,716,556
Present Value in	2.5	years	@	4%		0.9066
							$535,543,630
Development Costs
Demolition Cost	1,100.00	m2	x	$2,200	/ m2	$2,420,000
Professional Fee			@	6%		1.06
Developer's Profit			@	12.5%		1.125
						$2,885,850
Present Value in	0.25	year	@	4%		0.9902
							$2,857,569
Construction Costs						$110,289,538
Professional Fee			@	6%		1.06
Developer's Profit			@	12.5%		1.125
						$131,520,274
Present Value in	1.5	years	@	4%		0.9429
							$124,010,466
							$408,675,595
Developer's Profit			@	12.5%		÷	1.125
							$363,267,196
						say	$363,000,000
				Accommodation Value			$140,106	/ m2