MANY GAIN INVESTMENT LTD v. ALL LUCKY DEVELOPMENT LTD

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE APPLICATION NO. 28000 OF 2012

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J U D G M E N T

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Background

1.  This is an application for compulsory sale of all the undivided shares in Kowloon Inland Lot No. 10005 and Kowloon Inland Lot No. 9987 (hereinafter collectively referred to as “the Lots”), with a building erected thereon known as Nos. 16-16A Ka Shin Street and Nos. 18-18A Ka Shin Street, Tai Kok Tsui, Kowloon (“the Building”), for the purposes of redevelopment pursuant to Section 3(1) of the Land (Compulsory Sale for Redevelopment) Ordinance, Cap. 545 (“the Ordinance”).

2.  The Building consists of a pair of 6-storey commercial/residential buildings with four units on each floor, being served by a single common staircase. This is indeed one of the parades of similar tenement buildings located at 8-8A, 10-10A, 12-12A, 14-14A, 20-20A, 22-22A, 24-24A, 26-26A, 28-28A, 30-30A Ka Shin Street (which together with the Lots are collectively referred to as “the Composite Site”). On 29 May 2014, this Tribunal handed down its decision clarifying, inter alia, that the “subject of application” made under the Ordinance should be confined to the Lots on their own only.

3.  According to an occupation permit issued on 21 August 1958 for the parade of 6-storey tenement buildings standing on Nos. 8-8A, 10-10A, 12-12A, 14-14A, 16-16A and 18-18A Ka Shin Street, the Building comprises 2 shops in the front on Ground Floor, 2 domestic units in the rear on Ground Floor and four units for domestic use on each upper floor.  Whereas the front units, as they are called, are facing Ka Shin Street, the rear units are in fact facing Fuk Chak Street which is of comparable width to Ka Shin Street.  The 24 units are each assigned one equal and undivided share of the corresponding lot by their respective Deeds of Covenant.

THE APPLICATION

4.  The applicant commenced the present proceedings on 11 April 2012 (“the Application”).  At that time, it owned 9 undivided 12^th parts or shares (ie 75.00%) of Kowloon Inland Lot No. 9987 and 11 undivided 12^th parts or shares (ie 91.667%) of Kowloon Inland Lot No. 10005.  This is equivalent to 83.333% of the undivided shares in the Lots on average.  The remaining interests were held by the following respondents:

(i) 1^st Respondent – 2^nd Floor (Front Portion), 16 Ka Shin Street;

(ii) 2^nd Respondents – 3^rd Floor (Front Portion), 18 Ka Shin Street;

(iii) 3^rd Respondent – 4^th Floor (Front Portion), 18 Ka Shin Street; and

(iv) 4^th Respondent – Ground Floor (Rear Portion), 18A Ka Shin Street.

The applicant contends that it was entitled to make the Application by virtue of the Land (Compulsory Sale for Redevelopment (Specification of Lower Percentage) Notice under section 3(5) of the Ordinance (“the Notice”).

5.  Since then, the applicant has acquired the interests of the 1^st respondent, the 2^nd respondents and the 3^rd respondent and has discontinued the Application against them.  As at the commencement of the trial, only the 4^th respondent remained.  Thus the average percentage of undivided shares now owned by the applicant is 95.833%.

6.  According to the Notice of Opposition filed on 7 May 2012, the 4^th respondent opposed the Application as it found the compensation offered by the applicant too low.  There had been certain negotiations going on but no binding agreement had been reached one way or the other.  Notwithstanding its opposition, the 4^th respondent filed no evidence and has all along informed the Tribunal and the applicant that it would not send any representative to appear at any of the hearings.

7.  In view of this, Ms Nancy Ngai, counsel for the applicant, just called the witnesses to prove the applicant’s case.   The applicant contends that all the requirements of the Ordinance have been satisfied and asks for an order for sale in terms of the draft order submitted. 

Section 3 of the Ordinance – Ownership of the Applicant

8.  Section 3(1) of the Ordinance requires the applicant to have not less than 90% of the undivided shares in a lot before it can make an application.

9.  Section 3(2) of the Ordinance also states that an application under subsection (1) may cover-

(a) 2 or more lots where the majority owner owns not less than the percentage specified in subsection (1) of the undivided shares in each lot; or

(b) 2 or more lots-

(i) on which one building is connected to another building by a staircase intended for common use by the occupiers of the buildings; and

(ii) where the average of-

(A) the percentage of the undivided shares owned by the majority owner in the lot or 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).

10.  Section 3(5) of the Ordinance states that the Chief Executive in Council may, by notice in the Gazette, specify a percentage lower than the percentage mentioned in subsection (1) in respect of a lot belonging to a class of lots specified in the notice.

11.  Pursuant to Section 3(5) of the Ordinance, the Notice was gazetted on 22 January 2010 and tabled at the Legislative Council meeting on 27 January 2010.   It came into operation on 1 April 2010.   Section 3 of the Notice lowered the threshold for compulsory sale, insofar as it is applicable, from 90% to 80%.   Section 4(1)(b) of the Notice specified one of the classes for the purposes of Section 3 as “a lot with each of the building erected on the lot issued with an occupation permit at least 50 years before the relevant date (which is the date of the Application)”.   The occupation permit in respect of the Building was issued on 21 August 1958, which is more than 50 years as at the date of Application.   The Building is therefore covered by the Notice and the applicable percentage is 80%.

12.  When the applicant commenced the present proceedings on 11 April 2012, it owned on average 83.333% of the undivided shares in the Lots which share a common staircase.  The applicant was therefore entitled to make the Application under section 3(2)(b) of the Ordinance.

Determination of the existing use values (“EUV”) of all units in the Building

13.  The Application was accompanied by a valuation report dated 5 April 2012 (“Application Report”) prepared by Mr James Ng Yiu Wah of James Ng Surveyors Limited (“Mr Ng”), the applicant’s valuation expert witness, containing the assessments of the values of all units (which are conveniently termed as the existing use values, the “EUV” of all units) in the Building on the Lots as at 9 February 2012. The Application Report was prepared not earlier than 3 months before the date of the Application, i.e. 11 April 2012 and is therefore, in my view, in compliance with section 3 of the Ordinance.

14.  Under section 4(1)(a)(i), if there is a dispute between the parties on the EUV of the units in the Building on the Lots, the Tribunal has to determine the values.

15.  Section 4(1)(a)(ii) further provides that, in the case of any minority owner of the Lots who cannot be found, the majority owner of the Lots is required to satisfy the Tribunal that the value of the minority owner’s property 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.”  Although the 4^th respondent is not a missing owner, the Tribunal is prepared to do the same for its unit.

16.  In the Application Report of 5 April 2012, Mr Ng explained the method of valuation and the process of his assessment to arrive at the EUV of each unit of the Building.

17.  In his valuation of the EUV of the domestic units on the upper floors of the Building, Mr Ng adopted the following methodology :

(i) He selected 3/F (Rear Portion), No. 16A Ka Shin Street, ie the unit facing Fuk Chak Street (“the Reference Domestic Unit”), which was situated on the middle floor of the domestic portion as the reference unit for the purpose of valuing its unit price.

(ii) The unit price of the Reference Domestic Unit was first assessed by making reference to market comparables.  He took into account 9 comparable transactions in different buildings scattering in the same Tai Kok Tsui district.  After making what he regarded as the necessary adjustments (for time, location, age floor, quantum and view, lighting & ventilation) for all these comparable transactions, he took the average of the adjusted unit rates of the comparables to arrive at the unit price of the Reference Domestic Unit.

(iii) He further considered the floor difference, quantum, view, lighting & ventilation, noise effect and internal conditions of the Reference Domestic Unit and the remaining domestic units within the Building and made adjustments to arrive at the EUV of all the domestic units.

18.  In assessing the EUV of the ground floor units, Mr Ng adopted the following methodology:

(i) He selected Ground Floor (Front Portion), No. 16 Ka Shin Street as the Reference Shop Unit.  He then took into account 15 comparable shop transactions in 10 different buildings nearby.  After making what he regarded as the necessary adjustments (for time, location, quantum, frontage/layout, return frontage, headroom, building age/condition) for all these comparable transactions, he took the average of the adjusted unit rates of the comparables to come to the unit price of the Reference Shop Unit.

(ii) He further considered the location, quantum and “occupation permit user” among the Reference Shop Unit and the remaining retail units within the Building and made adjustments to arrive at the EUV of all the ground floor units.

19.  Mr Ng updated the Application Report by another report dated 25 July 2013 (“Supplemental Report”) in which he revised the EUV of all the units in the Building after taking into account the inspection of more units in the Building and the updated property index prepared by the Rating and Valuation Department.  In this report, whereas Mr Ng repeated the exercise he did in the Application Report but for the upper floor domestic units, Mr Ng took into account 2 additional comparable transactions occurring after 9 February 2012; for the ground floor units, Mr Ng included 6 more up-to-date transactions and discarded 10 older ones, taking into account 11 comparable transactions in 7 different buildings nearby[1].

20.  I note however that Mr Ng had assessed the rear units on ground floor ie the two units facing Fuk Chak Street (including the 4^th respondent unit) on the basis of shop uses despite he had made a discount of 5% for its non-conforming use when compared with that provided in the occupation permit.  Indeed a similar situation arose in the case of Eversound Investments Ltd v Wong Hiu Man & others, LDCS10000/2012 (unreported, dated 15 August 2013) when the applicant initially put forward two different scenarios, one assuming the permitted domestic uses as shown in the occupation permit and another assuming the existing non-domestic uses.  Then when the applicant was invited to confirm which of the two scenarios should be adopted for determining the EUV of the ground floor units concerned, the applicant submitted that the change in use would render the title of the units defective and it would be for the party who contended that any change in use is legal or proper on the basis that the risk of any enforcement action was theoretical to justify it.  See §§19-22 of the judgment of Eversound Investments, supra.

21.  Of particular interest in Eversound Investmentsis that the applicant owned all the ground floor units of non-conforming use while the respondent was absent and unrepresented.  The assumption in assessing the EUV based on the permitted domestic use instead of the non-conforming non-domestic use would serve to the advantage of the remaining minority owners’ interest. In the Application, however, such unit of non-conforming use is owned by the 4^th respondent.  Here the applicant, relying on Mr Ng evidence, contends that the rear units on ground floor ie the two units facing Fuk Chak Street can be legally converted into shop uses relatively easily subject to the submission of necessary plans for alterations and additions building works (commonly known as the A & A plans in the industry) to the Buildings Department. Mr Benson Wong (“Mr B Wong”), an Authorised Person and a qualified building surveyor, who is another expert appearing on behalf of the applicant, confirms that the process would only take a few months subject to a cost of $700,000-$800,000. Mr B Wong also gave evidence that according to the prevailing “Buildings Department’s Enforcement Policy Against Unauthorised Building Works”[2], such unauthorised change in use will be accorded very low priority for enforcement action, if any, by the Building Authority.  In this regard, Ms Ngai draws the attention of the Tribunal to a demolition and re-instatement order issued by the Building Authoritydated 19 December 2007 pursuant to section 24 of the Buildings Ordinance, Cap 123 against unauthorised building structures in the front and rear yard of 4^th respondent’s unit. This order was registered against the 4^th respondent’s unit[3]. Despite that, nothing was mentioned in this order about the change in use which had occurred for a very long time.

22.  Ms Ngai further submits that the term of EUV has never been used in the Ordinance.  Pursuant to Part 1 of Schedule 1 to the Ordinance, an applicant is only required under section 3(1) to file a valuation report 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.” (Emphasis added)

23.  Ms Ngai refers to Dragon House Investment Limited & Another v Secretary for Transport and Housing (2005) 8 HKCFAR 668 where Lord Millett NPJ held at 676C that in the assessment of compensation for the resumption of land under ss.10 and 12 of the Lands Resumption Ordinance, Cap 124:-

“Section 12(d) represents the open market value of the subject land, but it is expressly made subject to s.12(c).

12. Paragraph 17 of the Yin Shuen judgment sets out the principles of English law which govern the assessment of compensation for the compulsory acquisition of land when based on its open market value. Paragraph 17(3) states the general rule that the subject land must be valued not only by reference to its present use but also by reference to any potential use to which it may lawfully be put. Paragraph 17(4) explains that, where land is subject to restrictions which affect its value, the claimant is not entitled to be paid the unrestricted value of the land. While, however, the existence of the restrictions must be taken into account, so too must the possibility of obtaining a discharge or modification of the restrictions. In such a case the costs as well as the risks and delays involved in obtaining any necessary consents must also be taken into account.

13. Accordingly the compensation payable on the resumption of land held under a Government lease which restricts its use, if based on the open market value of the land, would take account of the value of the land subject to the restrictions together with the prospects and cost (including the payment of any premium) of obtaining a modification of the terms of the lease. The greater the likelihood of obtaining a modification to allow a more beneficial use, the greater the open market value of the land.

14. Section 12(d), however, is subject to s.12(c). It is self-evident, therefore, that resumed land is not to be valued under s.12(d) at its open market value but at a value which takes no account of “any expectancy or probability of the grant…by the Government…of any licence, permission…or permit whatsoever.” In the Yin Shuen judgment we held that where the resumed land is held under a Government lease no account may be taken of any element in the open market value which reflects the prospect of a modification of the terms of the lease. It does not matter whether the prospects of obtaining a modification are remote or a near certainty; unless the claimant has a legal right to the modification the land must be valued without regard to the prospects or cost of obtaining it.” (Emphasis and underline added)

24.  Ms Ngai submits that similar to s12(d) of the Lands Resumption Ordinance, the value of property to be assessed under Part 1 of Schedule 1 to the Ordinance is the “market value” of the property concerned.  However, the assessment of the “market value” under the Ordinance is not subject to any qualification save for those 3 requirements set out in Part 1 of Schedule 1.

25.  Therefore, Ms Ngai submits, unlike the “open market value” to be determined under the Lands Resumption Ordinance, there is no requirement under the Ordinance to ignore the value reflecting the prospect of obtaining the approval of A & A plans under section 14 of the Buildings Ordinance and/or the prospect of effecting a change in use by way of service of a notice on the Building Authority pursuant to section 25 of the Buildings Ordinance in the assessment of the “market value” under Part 1 of Schedule 1 to the Ordinance.  There is also no requirement under the Ordinance to ignore the value reflecting the hope or expectation that the current illegal or non-conforming use will continue to be tolerated[4].

26.  Thus, it is submitted by Ms Ngai that the correct basis for the assessment of the “market value” under Part 1 of Schedule 1 is equivalent to the general rule for the assessment of “open market value” set out by Lord Millett NPJ in Dragon House, supra, at 676B to G and the basis for assessment of the EUV of the 4^th respondent unit and that of ground floor of 16A Ka Shin Street adopted by Mr Ng is in line with the principles set out by the Court of Final Appeal in Dragon House, supra. Mr Ng, for the same reason, had included the area of the common yards, but not the unauthorised structures, having been occupied in conjunction with the ground floor units in his assessment of the “market value” of the ground floor units.

27.  In the absence of evidence to the contrary, I am prepared to accept the applicant’s submission as regards the assessment of EUV on the basis adopted by Mr Ng. In Inland Revenue Commissioner v Clay [1914] 3 KB 466, a decision of the English Court of Appeal referred to in the discussion on “market value” by Cruden, Land Compensation and Valuation Law in Hong Kong, 3^rd Edition (2009) at pages 100-101, the expectation of the market was also allowed to be taken into account:

“…. The local conditions and requirements, the advantages and situation of the property for any particular purpose, and …. In order to arrive at the amount which the land might be ‘expected to realise’ all these matters ought to be taken into consideration.”

28.  Therefore, the EUV of all units in the Building assessed by Mr Ng, including the 4^th respondent’s unit, as at the relevant date of valuation of 9 February 2012, are reproduced below:

	Ka Shin Street
Floor	No. 16	No. 16A	No. 18	No. 18A
Ground Floor	$7,430,000	$8,960,000	$7,730,000	$8,880,000
1st Floor	$2,690,000	$2,400,000	$2,730,000	$2,200,000
2nd Floor	$2,770,000	$2,350,000	$2,810,000	$2,150,000
3rd Floor	$2,580,000	$2,310,000	$2,620,000	$2, 110,000
4th Floor	$2,530,000	$2,260,000	$2,560,000	$2,170,000
5th Floor	$2,250,000	$1,920,000	$2,560,000	$1,840,000
Total	$80,810,000

29.  I am satisfied, insofar as it is necessary, that the value of the 4^th respondent unit as assessed by Mr Ng is not less than fair and reasonable; and not less than fair and reasonable when compared with the value of the applicant’s properties:

(i) 4^th respondent unit - assessed at $8,880,000 (representing 10.989% of the total EUV of all units); and

(ii) the total EUV of all units - assessed at $80,810,000.

Section 4(2) of the Ordinance - Justification and Reasonable Steps

30.  Under Section 4(1)(b) of the Ordinance the second determination is whether an order of sale should be made.  Section 4(2) of the Ordinance provides  that there are basically 2 considerations, namely :-

(i) whether the redevelopment is justified due to age or state of repair of the Building; and

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

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

32.  For the age and state of repair requirements, I have taken into consideration the expert evidence of Mr B Wong, an Authorised Person and the building surveyor and Mr Wong Chi Ming (“Mr CM Wong”), the structural engineer adduced by the applicant. 

33.  Mr CM Wong conducted a structural assessment and prepared a report dated 25 July 2013.   He identified the following defects in the Building:

(a) 91% of the steel reinforcement bars are suffering from mild to moderate corrosion;

(b) 93% of core samples of the structural element have either ‘considerable’ or numerous voids;

(c) carbonation has reached the concrete surrounding the steel reinforcement bars in all but one of the test samples;

(d) 50% of the core samples has chloride content exceeding 0.40%;

(e) 57% of the samples are found to pose a ‘moderate’ risk of corrosion to the steel reinforcement bars, whilst 43% of the bars are at ‘high’ risk;

(f) the average cement content is about 261kg/m³, which is lower than the current standard of 290kg/m³.

34.  Based on his findings, Mr CM Wong concluded that the structural elements of the Building were in a poor condition.   He opined that the structural elements had passed their design working life of 50 years and were inferior to the current standard.   The corrosion of the reinforcement bars had entered the propagation phase and extensive maintenance and repair works are required in the near future.   He said that the design and construction of the structural frames had become obsolete over time and the structure failed the current safety standard.   He recommended that hammer tapping works be carried out to all the structural members and all revealed cracks and spalling should be patch repaired.

35.  Mr CM Wong estimated the cost of repair to the Building in its current state is $238,940 but this estimated repair cost did not include the repair of problems such as carbonation and chloride content because they were both technically and financially impractical and would cause extensive disturbance during the works.

36.  Mr B Wong, in his condition survey report dated 24 July 2013, stated that:

(a) the Building is in a very poor state of repair due to general wear and tear;

(b) infrared thermographic survey carried out on the external rendering revealed 96 hidden hollow spots scattered throughout the external walls on all elevations posing threats to public safety;

(c) the building envelope is not external seepage resistant with extensive damp penetrations through the external walls and  roofs;

(d) the staircases is unsatisfactory means of fire escape for the upper floors;

(e) the most common defects noted inside the flats are unauthorized building works of enclosed front balconies and enclosed kitchen balconies, which also have implications in structural safety;

(f) the other commonly found defects relating to the flats are unauthorized building works concerning first safety deficiencies and these include internal flat sub-divisions, door opening to staircase, protected lobby encroachments, flat entrance gates swinging out onto fire escape routes and flat entrance doors are non-conforming fire resisting types;

(g) the conditions of the internal doors, finishes, bathroom and kitchen fittings are poor; the most common defects in the flats are missing or defective internal doors to bedrooms, bathrooms and kitchens, cracked, spalling, stained or otherwise defective finishes to the internal floors, walls and ceilings;

(h) sanitary fitments in the bathrooms and cooking facilities in the kitchen generally are broken or otherwise defective requiring replacement;

(i) the old mild steel windows in the flats are corroded and not watertight;

(j) the electrical installations inside 13out of 16 flats inspected have been haphazardly altered and are in poor condition and required complete replacement for safety reason;

(k) the equipotential bonding connections are not provided for the metal parts inside all the 16 flats;

(l) the electrical installations in the 2 shops inspected, ie No. 16A & No. 18 are each in poor and fair requiring complete replacement and general maintenance respectively;

(m) the flushing water supply system for the flats and shops has been abandoned from use and new pre-fabricated type fibre glass tanks are needed for replacement; and

(n) closed circuit television survey carried out to the underground drainage revealed plastic drainpipes which are not permitted for underground installation; 25 metres long of defective underground drainpipes, 3 broken manholes and manhole covers required to be repaired.

37.  Mr B Wong estimated that the total costs of immediate repair works to restore the Building to tenantable standard came to $8,838,660 which was about 43% of the cost of constructing a new similar building.   He concluded that the Building has deteriorated to a state which is beyond reasonable economic repair.   As more rapid deterioration would occur in the future, the necessary maintenance and repairs would inevitably be more frequent and extensive making the continued occupation of the Building not practical and economical.   He recommended the owners to redevelop rather than repair given that the Building does not possess any historical value or architectural merit. 

38.  There is no contrary evidence and I accept the expert evidence of Mr B Wong and Mr CM Wong.   Having considered the evidence, I am satisfied that redevelopment of the Building is justified due to its age and state of repair.

Reasonable Steps to Acquire All the Undivided Shares in the LotS

39.  The applicant is under an obligation to negotiate on terms that are fair and reasonable in a situation when the whereabouts of a minority owner are known.

40.  The only minority owner remaining is the 4^th respondent. According to the applicant’s witness Lui Wing-Yan, a manager of the applicant, the applicant had made the following offers to the 4^th respondent for the purchase of its unit, all based on the valuation of Mr Ng:

Date of offer	Amount	Assessed Value reflecting the 4th respondent’s share of the redevelopment value (“RDV”) of the Composite Site	Assessed Value reflecting the 4th respondent’s share of RDV of the Lots on their own only
9 March 2012	$14,391,000	$14,390,200	-
26 March 2012	$14,429,000	$14,428,521	-
7 August 2013	$19,049,000	$19,048,883	$15,351,258
25 October 2013	$19,970,000	$19,969,793	$15,789.865
14 May 2014	$19,162,000	$19,161,659	$14,802,998

41.  None of the above offers were accepted though I note from the offer letters in evidence that the applicant had disclosed the basis of the offer and the expert’s valuation for the reference of the 4^th respondent.

42.  In considering the reasonableness of the applicant’s offers, I bear in mind the following guidance from the remarks made by Mr Justice Ribeiro PJ in Capital Well Ltd v Bond Star Development Ltd (2005) 8 HKCFAR 578 at §33:

“… the Tribunal is not conducting a valuation exercise. It does not need to adjudicate upon any disputes about the correct valuation principles to be applied. It does not itself arrive at any conclusion as to what figure represents the correct valuation. It merely needs to be satisfied that, on the evidence available, the offer falls within the range of what may broadly be regarded as fair and reasonable compensation for the interest in question.”

43.  I appreciate that the applicant was guided by expert opinion in making its offers.   There is nothing to suggest that the assessments are other than proper and professional.

44.  In addition, the applicant has acquired the interests of the 1^st respondent, the 2^nd respondents and the 3^rd respondent and has discontinued the Application against them.  The fact that all these respondents have accepted the applicant’s offers to acquire their interests is telltale of the reasonableness of the steps taken by the applicant.

45.  In the circumstances of this particular case, I am satisfied that the applicant has taken reasonable steps to acquire all the undivided shares in the Lots including the 4^th respondent’s unit. 

Reserve Price for the Auction

46.  Mr Ng has prepared another supplemental report dated 13 May 2014 (“the Further Supplemental Report”) for the purpose of assessing the RDV of the Lots. As I have stated in the introductory part of this judgment[5], this Tribunal has handed down its decision on 29 May 2014; it has clarified that the reserve price for sale of the Lots should be the RDV of the Lots without regard to the other adjoining lots within the Composite Site.  The net site area of the Lots on their own as determined by Mr Ng is 275.92 sq m.

47.  The applicant submits that the reserve price for the auction of the Lots should be fixed at $135,000,000 according to the Further Supplemental Report.

48.  I have considered Mr Ng’s valuation of the RDV of the Lots. The valuation is arrived at by means of a residual valuation conducted by deducting development costs (including construction costs, professional fees, finance costs etc) and developer’s profit from the estimated gross development value of an optimal completed development.

49.  Mr Ng was of the view that the optimal development on the Lots would be a block of 26-storey composite building comprising retail use on ground floor and cockloft, podium garden and clubhouse on first floor, and domestic uses on the floors above.  Details of the hypothetical development and residual valuation were set out in Appendix XI of the Further Supplemental Report (Bundle F2/115).  Details of the comparables with adjustments were set out in Appendix IV (for retail/shop comparable at Bundle F2/97) and Appendix VII (for the domestic comparables at Bundle F2/103-107).  The valuation arrived at was $135,000,000, representing an overall accommodation value of $48,087/sq m.

50.  I note Mr Ng had considered four land sale transactions since February 2012, two in the Tai Kok Tsui district and two in the Mong Kok district, with accommodation values ranging from $49,486/sq m to $54,022/sq m[6].  Whereas Mr Ng considered the result of his residual valuation was “in line” with these transactions, Mr Ng explains that the two comparables in the Tai Kok Tsui district have much larger site areas and therefore have the benefit of more flexibility in the design for development[7] and those in the Mong Kok district are considered to be in better location. I agree with Mr Ng.

51.  I have gone through Mr Ng’s valuations.  In the absence of evidence to the contrary, I am satisfied with his valuation, including the valuation assumptions he has adopted, the values and the costs parameters he has used in his valuation.

52.  Based on Mr Ng’s valuation, I decide that the reserve price for the auction of the Lots should be HK$135,000,000.

TRUSTEES

53.  The applicant proposes to appoint Mr Anthony Chow and Ms Anna Chow who are partner and consultant respectively of Messrs Peter C Wong, Chow & Chow & Co as the sale trustees.  Based on the information on their letter dated 19 May 2014, the proposed trustees also intend to have independent legal advice on the matter and in this connection, they propose to retain Messrs Michael Cheuk, Wong & Kee. I am satisfied that Mr Anthony Chow and Ms Anna Chow are proper persons to be appointed.  Their proposed remunerations on the basis of time charge (exclusive of disbursements) as mentioned in the letter dated 19 May 2014 are also reasonable and will be allowed.

PARTICULARS AND CONDITIONS OF SALE OF THE LOTS

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

CONCLUSION AND ORDERS

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

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

(ii) Mr Anthony Chow and Ms Anna Chow of Messrs Peter C Wong, Chow & Chow & Co nominated by the applicant be appointed trustees (“the Trustees”) to discharge the duties imposed on trustees under the Ordinance in relation to the Lots; and the Trustees and their intended independent legal advisor, Messrs Michael Cheuk, Wong & Kee  be authorized to charge such remuneration for their service in accordance with the terms set out in the letter from Messrs Peter C Wong, Chow & Chow & Co dated 19 May 2014;

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

(a) The sale of the Lots be on particulars and conditions of sale the same or substantially the same as the set of draft particulars and conditions of sale submitted to the tribunal (Document Bundle F2/29-54) initialled and approved by me;

(b) The reserve price of the Lots be set at HK$135,000,000;

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

(iv) There be liberty to the applicant, the 4^th respondent and the Trustees to apply for further directions.

Costs

56.  Since neither the applicant or the 4^th respondent ask for costs, I make a costs order nisi that there be no order as to costs between the parties, such order be made absolute after 14 days if no application is made to vary the said costs order.