AHN, EUNSUN v. WO KWOK WAI AND ANOTHER

LDPD 152/2024

[2024] HKLdT 25

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

APPLICATION NO. LDPD 152 OF 2024

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BETWEEN

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J U D G M E N T

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Background

1.  This is a complaint by the applicant, as landlord, against the breach of the user clause in the tenancy agreement (“the Tenancy Agreement”) by the respondents, as tenants of Flat D on 9^th Floor, Block A, Comfort Gardens, No 60 King’s Road, Hong Kong (“the Premises”).

2.  By a tenancy agreement dated 24 August 2023, the applicant let the Premises to the respondents for a period from 1 September 2023 to 31 August 2026. The monthly rent payable by the respondents as reserved in the Tenancy Agreement is $30,000 inclusive of management fee, government rent and rates.

3.  Notwithstanding this, there is a break clause in the Tenancy Agreement which provides that either party to the Tenancy Agreement shall be entitled to terminate this agreement earlier than as therein provided by serving not less than 2 months written notice or by paying 2 months’ rent in lieu to the other party provided that the said written notice shall not be served before the expiration of the 24^th month of the term of the Tenancy Agreement.

4.  Paragraph 1 in Schedule II to the Tenancy Agreement specifies that “The Tenant shall not use or permit to be used the Premises or any part thereof for any purpose other than for residential purpose only.”

5.  On 1 February 2024, the applicant applied to the Tribunal for recovery of possession of the Premises on the ground that the respondent has breached the above clause. More particularly, the applicant alleged that the respondents had on 24 August 2023 entered into a lease agreement with somebody for the use of the Premises for “personal occupancy”. The applicant even stated that she had received complaints from parents of students living at the Premises that the respondents had made use of the Premises to run a business for accommodating multiple students from China.

6.  The applicant also stated in the Notice of Application that her attempt to address this matter to the respondents was met with resistance. As a result, on 16 January 2024, the applicant drafted a “Termination by notice” to the respondents intending to determine the Tenancy Agreement on 31 January 2024.

7.  In support of her allegation, the applicant had attached two“托管合約”(either of which is hereinafter referred to as a “child caring agreements”) whereby the 2^nd respondent agreed to accommodate each of the two children at the Premises for a period between 1 September 2023 to 31 July 2024 at a rent of $9,500 per month. Clause 7 of the child caring agreements provides for accommodation of a room with a bed space, a desk and chair, two meals per day during school days from Monday to Friday or otherwise three meals per day, cleaning and laundry services. The applicant had also attached a photo showing there were two bunker beds inside the Premises.

8.  On 15 February 2024, the 2^nd respondent filed a Notice of Opposition rebutting the allegation by the applicant. However, save for the bare denial, the 2^nd respondent did not address the details of the allegation. On the other hand, she diverted the attention to a water leakage problem of the Premises (“the Water Leakage Problem”) resulting in water seepage to the unit one floor below the Premises.

The Evidence

9.  The applicant, who appeared in person on 29 February 2024, submitted that during the course of attending the Premises to the Water Leakage Problem on 13 January 2024, she saw a teenager inside the Premises, supposedly attending a private tuition by the 2^nd respondent. Then she managed to learn from parents of children being taken care of by the respondents that the Premises had been converted into business use. The applicant immediately told the respondents to rectify but the 2^nd respondent rejected the allegation and refused to communicate.

10.  The 2^nd respondent responded that she had been teaching English online[1]. But in the beginning of September 2023, Hong Kong was affected by a typhoon whereby her students could not attend schools.[2] As a result, their mothers, who were from the Mainland, requested the respondents to allow their child to stay at the Premises until they could find alternative accommodation in Ho Man Tin. Eventually, they found alternative accommodation and moved out by October 2023.

11.  Then an inspection to the Premises was arranged on 1 March 2024 when both parties attended.

12.  The Premises extend to a saleable area of more than 90 sq m (or more exactly 1,003 sq ft) with three bedrooms including a master suite. Despite the relatively large size, the Premises contain too few furniture to accommodate a family with two children while the 2^nd respondent admitted later that the Premises were not her family’s main residence; her family resides in Kam Tin, New Territories. She only rented the Premises for the reason that it is situated close to the schools that her 2 children attend. There were no beds in the master suite save for the bunker beds as shown in the photo as mentioned in paragraph 7 above. Nevertheless, there was no sign of non-residential use inside the Premises.

13.  When the hearing resumed on 4 March 2024, the applicant submitted WhatsApp exchanges between her with a real estate agent, Ms Rita Wong, from Midland Realty. It appears that Ms Rita Wong had copied WhatsApp messages between a girl and a teenager called Andy Mok (莫家興) (hereinafter referred to as “Andy”) in the evening of 2 March 2024:

Girl:	8:48	你還住 Kit 那嗎？
Andy:	8:48	嗯
Girl:	8:48	她昨天晚上把東西都搬走了我听說
Andy:	8:49	修水管 要打洞
Girl:	8:49	不是 我媽跟我說是房東赶他走
Andy:	8:49	666
Girl:	8:49	所以說什麼
Andy:	8:50	寫劇本吧 沒事
Girl:	8:53	現在几个人住啊
Andy:	8:54	6
Girl:	8:55	6个這麼多 加上Kit 還是
Andy:	8:55	嗯呢 學生
Girl:	8:56	將七
Andy:	8:56	學生6個啊
Girl:	8:56	6個學生這麼多
Andy:	8:56	是的勒 全是培僑的
Girl:	8:56	哇塞
Girl:	9:52	老弟 Kit 是不是只有星期四和五才住康福園啊
Andy:	9:55	她天天住 宿舍原封不動
Girl:	9:55	現在9D住了6个人， 夠房間嗎？不是只有3个房間嗎？
Andy:	9:55	夠呀
Girl:	9:55	那Kit 的兒子是跟你們一間房嗎？
Andy:	9:55	沒有
Girl:	9:55	康福園A座9D那邊真的住得舒服嗎？看你都住了大半年

14.  The above messages tend to suggest that, despite the 2^nd respondent’s denial, there are altogether 6 students including Andy still living at the Premises.

15.  The applicant called two witnesses, Ms Wang Xili and Ms Chen Yuehua, both being the ones who signed the child caring agreements with the 2^nd respondent as stated in paragraph 7 above. They confirmed, as defended by the 2^nd respondent, that their children had been relocated to another domestic unit, being Flat C, 13/F, Tak Wai Mansion Phase 1, Nos 18-20A Man Fuk Road, Ho Man Tin, Kowloon (“Ho Man Tin unit”), since the end of October 2023. While this evidence may support what the 2^nd respondent suggested as stated in paragraph 10 above, this latter domestic unit is subject to an order for vacant possession granted by the Lands Tribunal in LDPD 1576/2023 in which the 2^nd respondent in the present case was also the respondent.

16.  Ms Wang confirmed also that it was she who introduced Andy to live at the Premises. Ms Chen also alleged that she knew there are 6 students still living at the Premises because she knew one of the mothers of the students.

17.  The two mothers also alleged that the 2^nd respondent advertised her child caring business on “小紅書”, a popular internet platform for the Mainland residents, sometimes referred to as “Chinese Instagram”.

18.  According to these two mothers, one of them has commenced action in the Small Claims Tribunal against the 2^nd respondent in relation to the return of deposits paid under the child care agreement and the other had monetary dispute with the 2^nd respondent.

19.  The 2^nd respondent has chosen not to cross-examine these witnesses on the above matters save to state that the Ho Man Tin unit was rented by her.

Residential Use

20.  The Tenancy Agreement does not define what residential use is. There is no legal authority to explain what “residential purpose” means either. In such event, I should adopt the usual and accepted meaning of the said words which intend the Premises for living accommodation as opposed to business occupation with perhaps the exception of a home office maintained within a dwelling: Thorn v Madden (1925) Ch 847 and Tendler v Sproule (1947) 1 All ER 193.

21.  On the other hand, Section 115 of the Landlord and Tenant (Consolidation) Ordinance, Cap 7 (“the Ordinance”), provides that:

“domestic tenancy means a tenancy of premises let as a dwelling; …”

22.  Section 115A of the Ordinance further provides as follows:

“(1) Notwithstanding the purpose for which premises were let, in determining the nature of a tenancy for the purposes of this Part the following provisions shall apply ―

(a) in any agreement in writing between a landlord and tenant, a term that the premises shall be used for a specified purpose shall be prima facie evidence that the premises are being used for such purpose;

(b) notwithstanding any evidence as to whether premises were originally let as a dwelling or not let as a dwelling, premises which are being used primarily for another purpose shall be deemed to have been let for such other purpose; but where such primary user is user as a dwelling and in breach of any term in the agreement with the landlord, the onus is on the tenant to establish that such user has been agreed to by the landlord, expressly or by implication, or acquiesced in by him;

(c) subject to paragraph (d), where there exists insufficient evidence as to whether premises were let as a dwelling or not let as a dwelling, the nature of the tenancy shall be determined by the primary user of the premises;

(d) …

(e) the use of premises as a boarding or lodging house is a use other than as a dwelling.” (underline added)

23.  In May King Development Company Limited & Another v Young Ching Huo Limited [1981] HKLR 280, the plaintiff companies, the developers of Kent Court on Boundary Street, Kowloon, sought an injunction against the defendant company to restrain the breach of the Government lease in relation to the use of four flats in Kent Court. The Government lease, as modified, restricts the use of the buildings erected thereon to “private residential purposes”. There include also in the Deed of Mutual Covenant for Kent Court a user restriction to “ private residential purposes only and the owners thereof shall not use or cause or permit the said building or any part thereof to be used as an inn, hotel, boarding house, apartment house, lodging house or for religious purposes ......"

24.  Then there appeared advertisements in newspapers that some of the flats in Kent Court acquired by the defendant company were available for weekly/monthly lettings. The plaintiff companies found the following in relation to the flats:

(a) they are divided into five rooms, four with a bathroom and lavatory, en suite, and one with the exclusive use of a bathroom across the corridor;

(b) in one of the rooms of a flat there is a desk, and in the room are stored cleaning materials and equipment, sheets, blankets and pillows;

(c) apart from the corridor which gives access to the rooms, there is no other common area;

(d) there is no kitchen, nor are there any other cooking facilities - cooking in the rooms is not allowed;

(e) each room (except one) is furnished with a double bed and bedside tables - there are no cupboards, chests of drawers or other tables, but the larger rooms have dressing tables;

(f) each room has its own direct telephone line;

(g) charges for occupancy are on a weekly or monthly basis payable in advance in the first instance, and a deposit of $1,000 has to be paid in either case - two days' notice of leaving is required to be given;

(h) each occupant is given the key to his own room and a key to the front door of the flat;

(i) bedlinen etc. soap and drinking water is provided - the rooms are cleaned daily and sheets changed about twice a week, for which service the management charges 10% of the appropriate rate;

(j) the management staff of five look after the flat, register occupants and collect payments from them, and clean and make up the rooms;

(k) the staff work in shifts from 10 a.m. to 7 p.m. and do not reside on the premises;

(l) there are no "house rules", the only requirement being that occupants should not create any form of disturbance;

(m) a visitor who stays over night with an occupant has to be registered.

25.  However, the Court found the plaintiffs have not discharged the onus of establishing that the occupants of the four flats in Kent Court were lodgers or licensees. Because of that, there has been no breach of the covenant in the Deed of Mutual Covenant. More importantly, the Court ruled that there was no breach of the modified Crown lease as the covenant does not say that the premises shall only be used as private residences in the occupation of single households. It could not be said that a flat whose rooms were let out to individual tenants was not being used for "private residential purposes".

26.  However, in Park Kit Investment Limited v Cheung Wan Ping, HCA 5349/1998 (unreported, dated 23 November 1998), the Plaintiff let premises in Tuen Mun to the two partners of a partnership known as “Park Hong Ling Home for Aged” for a term of 3 years by a tenancy agreement in writing which expired on 31st October 1996 but the tenant held on as a monthly tenant. The tenancy agreement stipulated that the premises should only be used for residential purposes. While the premises were used at all times as a residential care home for elderly persons, the Court of First Instance accepted therefore the premises were being used as a boarding house as well as a lodging house and as such, the use is other than as a dwelling within the meaning of section 115A of the Ordinance.

27.  Then in Aberdeen Shopping Plaza Limited v The Incorporated Owners of Aberdeen Ka Ning Mansion, HCA 9319/2000 (unreported, 13 May 2003), the Deed of Mutual Covenant concerned also had a prohibition against use of “boarding house”. Then the meanings of “lodging” and “boarding” were also discussed. The judge remarked at §35 that a youth hostel, a rehabilitation centre, a boys' or girls' home or even a sheltered home would be similarly prohibited.

28.  On the basis of the evidence of the two child caring agreements as well as those of the two witnesses called by the applicant, I agree that the respondents had breached the user restriction under the Tenancy Agreement by making use of the Premises for business purposes as opposed to residential purpose. And while the two witnesses were also parties to the child caring agreements, I believe there were more parents attracted to sign similar child caring agreements and therefore, on the balance of probabilities, I believe in their evidence there are other children staying if not living at the Premises because of similar child caring agreements.

Section 58(1) of the Conveyancing and Property Ordinance

29.  However, whenever forfeiture of a tenancy for breach of covenant by a tenant is sought by a landlord, it must be preceded by the service of a notice under section 58(1) of the Conveyancing and Property Ordinance, Cap 219 (“the CPO”), which provides as follows:

“A right of re-entry or forfeiture under any proviso or stipulation in a lease for a breach of any covenant or condition in the lease shall not be enforceable, by action or otherwise, unless and until the lessor serves on the lessee a notice—

(a) specifying the particular breach complained of; and

(b) if the breach is capable of remedy, requiring the lessee to remedy the breach; and

(c) specifying the compensation, if any, which the lessor requires in respect of the breach,

and the lessee fails, within a reasonable time thereafter, to remedy the breach, if it is capable of remedy, and to make reasonable compensation in money, to the satisfaction of the lessor, for the breach.” (“section 58 notice”)

30.  The only jurisprudence which affords assistance relates to the interpretation of the clause in section 146(1) of the Law of Property Act 1925 of England and Wales (“the 1925 Act”) that "if the breach is capable of remedy…". Section 146(1) of the 1925 Act contains exactly the same wordings as section 58(1) of the Conveyancing and Property Ordinance and I see no difficulty in borrowing from it.

31.  The section must be given a common sense interpretation, and that the purpose of the section is that the tenant should have full notice of what the tenant is required to do: Mannai Investments Limited v Eagle Star Assurance Company Limited [1997] AC 749. Nevertheless, a notice under section 58(1) must specify "the particular breach complained of" and, if it is capable of remedy, require the tenant "to remedy the breach".

32.  By reference to the WhatsApp message sent by the applicant to the 2^nd respondent dated 16 January 2024, however, the applicant only said:

“I am notifying u now you should vacate my house is a month from today. I saw you run the business in my house which is not allowed.”

33.  With regret, this notice did not, as suggested by the applicant, allow the respondents to remedy the breach. I am not hesitant to say that this message failed to satisfy the requirement of a section 58 notice.

34.  Obviously in the present case, even if “residential purpose” is breached, the breach is remediable for example when the tenant ceases the business operation, if any and refrains from continuing it. In Akici v LR Butlin Ltd [2005] EWCA Civ 1296, [2006] 1 WLR 201, the English Court of Appeal had provided good example at §§64-65 of the judgment:

“64. …, it seems to me that the proper approach to the question of whether or not a breach is capable of remedy should be practical rather than technical. In a sense, it could be said that any breach of covenant is, strictly speaking, incapable of remedy. ... Equally, it might be said that where a covenant to use premises only for residential purpose is breached by use as a doctor's consulting room, there is an irremediable breach, because even stopping the use will not, as it were, result in the premises having been unused as a doctor's consulting room during the period of breach. Such arguments, as I see it, are unrealistically technical.

65. In principle, I would have thought that the great majority of breaches of covenant should be capable of remedy, in the same way as repairing or most user covenant breaches. Even where stopping, or putting right, the breach may leave the lessors out of pocket for some reason, it does not seem to me that there is any problem in concluding that the breach is remediable. That is because section 146(1) entitles the lessors to "compensation in money for the breach", and, indeed, appears to distinguish between remedying the breach and paying such compensation.”

35.  Thus in light of the above, I consider the breach of residential purpose indulged by the 2^nd respondent is capable of remedy. Since the applicant’s message sent on 16 January 2024 failed to provide the same, it was not a valid notice and the applicant had failed to satisfy the requirement under section 58 of the CPO.

Relief from Forfeiture

36.  On the other hand, even if the notice can satisfy the requirement under section 58 of the CPO, I am prepared to exercise my discretion to allow a relief from forfeiture when this is the first time that the 2^nd respondent is in breach of the user clause in the Tenancy Agreement which may, in some respect, difficult to appreciate. Section 58(2) of the CPO, like its counterpart in the 1925 Act, provides the court with such a discretion on granting a relief from forfeiture:

“Where a lessor is proceeding, by action or otherwise, to enforce such a right of re-entry or forfeiture, the lessee may, in the lessor’s action, if any, or in any action brought by himself, apply to the court for relief; and the court may grant or refuse relief, as the court, having regard to the proceedings and conduct of the parties under the foregoing provisions of this section, and to all the other circumstances, thinks fit; and in case of relief may grant it on such terms, if any, as to costs, expenses, damages, compensation, penalty, or otherwise, including the granting of an injunction to restrain any like breach in the future, as the court, in the circumstances of each case, thinks fit.”

37.  Thus there are two principal purposes of section 58 in relation to forfeiture in leases. The first is to enable a lessee in breach of covenant to have the opportunity to remedy the breach, where that is possible, and thereby to avoid the forfeiture altogether, provided the lessors are fully reimbursed with regard to damages and costs. The second principal purpose of the section, which only arises where the lessee fails to remedy the breach or where the breach is incapable of remedy, is to enable the court to accord the lessee relief from forfeiture where the lessors enforce the forfeiture.

38.  Then in Magnic Ltd v Mahmood Ul-Hassan [2015] EWCA Civ 224, the English Court of Appeal set out the principled approach at §50 of the judgment:

“The starting point for the exercise of our discretion has to be to remind ourselves that the purpose of the reservation of a right of re-entry in the event of unpaid rent or a breach of covenant is to provide the landlord with some security for the performance of the tenant's covenants. The risk of forfeiture is not intended to operate as an additional penalty for breach. It is an ultimate sanction designed to protect the landlord's reversion from continuing breaches of covenant which remain unremedied and to secure performance of the covenants: see Shiloh Spinners Ltd v Harding [1973] AC 691 at p 723, [1973] 1 All ER 90, [1973] 2 WLR 28. There may, of course, be breaches which are so serious and irremediable as to justify the refusal of relief: for example, an unlawful sub-letting. But in most cases relief will be granted on the breach being remedied and on terms as to costs.”

39.  Further, the English Court of Appeal in Akici, supra, commented at §84 that, where the breach is causing no serious continuing commercial harm to the lessors, the court should not be too strict in assessing whether the remedy has been quick enough. On the other hand, the court should not be too indulgent to a lessee, especially one who is not honest with his lessors. The statutory formula uses "reasonable", a word which raises two points of relevance. First, it does not, at least in most cases, require remedial action to be completed as fast as possible. Secondly, what is reasonable must be a question of fact, which depends on all the facts and circumstances of the particular case.

40.  I accept the applicant’s evidence that there may perhaps be students staying or living at the Premises but this is neither here or there. In Patel & Another v K & J Restaurants Ltd & Another [2010] EWCA Civ 1211, the English Court of Appeal stated at §89 that the fact that the remedy had not yet been secured would not have been fatal to the application for relief.

41.  However, I find paragraph 41 of Magnic, supra, as follows:

“If . . . [t]he defendants' conduct in this case amounted to a conscious disregard of the terms for relief which the court had imposed then it would be much more difficult to argue that the refusal of further relief was wrong in principle even though it would produce a windfall for the landlord. The balance to be struck will obviously depend on the relevant circumstances.”

The Water Leakage Problem

42.  As regards the complaint by the 2^nd respondent on the Water Leakage Problem, she had admitted that the problem should have existed prior to her signing the Tenancy Agreement.

43.  In Fortune Global Development Limited v. Shung Cheong Food Trading Limited [2002] 2 HKLRD 447, the Court of First Instance affirmed that the landlord of a premises had no duty to disclose to the prospective tenant any problem of the premises before signing a tenancy agreement. The rule of caveat emptor applies.

44.  Para [235.303] of Halsbury's Laws of Hong Kong (2nd Ed) Vol 36(1) 2023 states as follows:

“There is in general no implied warranty on the part of a landlord that the demised premises are fit for the purpose for which they are taken; and therefore, on the letting of an unfurnished dwelling house or flat there is no implied warranty on the part of the landlord that it is in a reasonably fit state for habitation, or that it may be lawfully used for the purpose for which it was let. The intending tenant is presumed to make his own enquiries as to its condition, and, in the absence of a special stipulation, he takes the house as it stands. This is so notwithstanding that the house is, to the landlord's knowledge, required for immediate occupation… The mere omission of the landlord to disclose defects is not such misrepresentation but the deliberate concealment of some defects may be conduct equivalent to a fraudulent misrepresentation.”

45.  In spite of the above, clause 9 of the Tenancy Agreement provides as follows:

“The Landlord shall keep and maintain the structural parts of the Premises including the main drains, pipes and cables in proper state of repair provided that the Landlord’s liability shall not be incurred unless and until written notice of any defect or want of repair has been given by the Tenant to the Landlord and the Landlord shall have failed to take reasonable steps to repair and remedy the same after the lapse of a reasonable time from the date of service of such notice.”

The respondents should consult their own legal advice if they consider to seek any remedy from the applicant in relation to the Water Leakage Problem.

Conclusion

46.  Since the applicant had failed to serve any valid section 58 notice on the respondent, no cause of action for forfeiture of the Tenancy Agreement has been accrued and this application must be dismissed.

Costs

47.  Costs order nisi that there be no order as to costs. Unless any of the parties applies by summons to vary it, the costs order nisi shall be made absolute upon expiry of 14 days.