Colin Williams v. Coleus Development Ltd.

LDNT463/2000

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

Application No.: LDNT No. 463 of 2000

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JUDGMENT

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Background

1. The Applicant is the tenant and the Respondent the landlord of the subject premises known as House C2, Ville de Jardin, 33-35 Sui Wo Road, Fotan, Shatin, New Territories ("the subject premises"). The subject premises is held under a tenancy for a term of 2 years commencing from 1 May 1999 and expiring on 30 April 2001 at a monthly rent of $30,000 inclusive of Government rent but exclusive of rates and management fee.

2. The parties mutually agreed the granting of a new tenancy for a term of two years commencing from 1 May 2001 on the same terms as in the previous tenancy agreement, with the exception of the rent and the deposit. The parties could not agree on the amount of the prevailing market rent (PMR) under the new tenancy. The Applicant estimated the PMR, on the basis of exclusive of rates and management fee to be $20,430 per month while the Respondent estimated it to be $27,615 per month on the same basis.

3. The subject premises is a terrace house in an estate known as Ville de Jardin, which was completed in about 1988. According to the estate's brochure (Exhibit A5) produced by the Applicant and the information shown in the Schedule of Reported Rents (Exhibit A1) provided by the Rating and Valuation Department, the subject premise is a 4-storey house. There is a car park and an entrance lobby on the ground floor. On the first floor, there is a living and dining room and a kitchen. On the second floor, there is a master bedroom and another bedroom whilst on the third floor, a third bedroom and a family room. The house has a saleable floor area of about 161.8 sq. m. plus bay window area of about 3.0 sq. m. The other ancillary facilities include a side roof of 19.8 sq. m., a top roof of 4.0 sq. m., a garden of 19.8 sq., a flower bed area of 9.5 sq. m. and a car park.

Applicant's case

4. In Exhibit A1, the Applicant set out in a spreadsheet summarising the rents provided by the Rating and Valuation Department. He based on the saleable areas and the areas of all the ancillary accommodation provided in the Schedule of Reported Rents. He summed up all these areas in his analysis of the rents. He plotted his estimated rents for the subject premises from the comparables against the respective commencement dates of the comparables. Based on these estimates, he further plotted what he termed to be the upper limit, mean and the lower limit of the rental trends, which were all on a falling trend. He projected these trends further to the renewal date of 1 May 2001 for the subject premises. He found that this indicated a rent of just under $22,000. Since the rents plotted in his charts were all on exclusive basis, the Applicant therefore submitted that "whilst it is appreciated that the rents may not drop any further we believe that the rents at best are static and as house C11 is virtually identical except for fittings and décor, the rent for C2 should not be more than $26,000 inclusive and probably less taking this and the décor into account."

5. During the hearing, the Applicant gave evidence that of all the compatibles shown in the Rating and Valuation Department's Schedule of Rents, Comparable 1, House C11 in Ville de Jardin, was the best comparable since it was in the same estate, having a similar size and layout and most importantly of all, sharing the same drawback of not enjoying such good view as the Type A or Type B Houses (i.e. Comparable 2, 3 and 4 in the Schedule of Rent. Indeed, House C11 was enjoying a better view than the subject premises as it was overlooking the swimming pool of the estate while the view from the subject premise was blocked by a high-rise development nearby.

The Respondent's case

6. The Respondent did not call the evidence of any valuation surveyor or produce any valuation report in support of the Respondent's valuation.

7. The Respondent submitted that the Applicant's calculation as shown in Exhibit A1 was misleading for the following reasons:

1) There were too few figures for comparison.

2) The Applicant's adjustments to the rental figures were based on areas only and have ignored other factors such as ease of access, location, view, etc.

3) It was inappropriate to standardize the figures to conclude a general trend.

8. Although the Respondent also admitted that House C11 in the same estate was also the best comparable, the Respondent submitted that it has a better view or orientation because it faced east whilst the subject premises, House C2 faced north. The Respondent further submitted that there was no evidence that House C11 had been vacant for some months before it was leased out from 1 November 2000. The Respondent also suggested that since there was a break clause under the existing tenancy for the subject premises, the Applicant could have opted to move to House C11 if House C11 and the subject premises were really equal.

9. The Respondent submitted that whether House C11 had been vacant for some months prior to its leasing out was irrelevant. The Tribunal was asked to assess the Prevailing Market Rent for the new tenancy of the subject premises. The Respondent also brush aside the Applicant's claim that House C11 had been redecorated prior to the leasing as it was unsupported by documentary evidence. The Respondent claimed that it would be reasonable to presume that the subject premises was of good tenantable condition.

10. Finally, the Respondent recommended that although House C11 was a good comparable, it would be reasonable to treat the Rateable Value of the subject premises as another comparable. Therefore, the Respondent submitted that it would be reasonable to take the average of the exclusive rent of House C11 (i.e. $20,430) and the monthly equivalent of Rateable Value of House C2 (i.e. $28,800) as to be the basis of estimating the PMR for the subject premises. The Respondent calculated this to be $24,615. On top of this, the Respondent submitted that an extra sum of $3,000 had to be added to reflect the benefit of enjoying a break clause in the tenancy agreement for the new tenancy. Therefore, on this basis, the Respondent estimated the PMR for the subject premises to be $27,615.

11. During the hearing, I reminded the Respondent that he was using the 1999/2000 Rateable Value of the subject premises in his calculation and that there might be a new Rateable Value for the quarter commencing from 1 April 2001. Mr. Wong for the Respondent failed to gather the necessary information from the Rating & Valuation Department before the end of the hearing. He submitted that the Respondent would send to the Tribunal a copy of the latest rates demand note. This was received by the Tribunal and it shows that the Rateable Value of the subject premises for the year 2000/2001 is 363,600 (equivalent to an assessed monthly rental for rates purpose of $30,250). Therefore, using this new Rateable Value and adopting the same methodology as submitted by the Respondent in the hearing, I find that the average of the sum of the exclusive rent for House C11 and the new Rateable Value for the subject premises is $25,340. Similarly, adding the extra $3,000 as suggested by the Respondent to reflect the benefits of a tenant's break clause gives a figure of $28,340. This is $725 higher than the Respondent's estimated figure provided to the Tribunal in the hearing.

Determination of the PMR by the Tribunal

12. I agree with the parties that the relevant comparables are from the recent lettings of similar houses in the same estate. In particular, since the subject premises and the comparable House C11 are both of the same House Type and are not enjoying such good view as the other Type A or Type B houses in the same estate, I agree with the parties that the best comparable for this valuation is House C11.

13. I find that the analysis carried out by the Applicant in his Exhibit is of no value because he had made a basic, faulty assumption that the main accommodation of a house has the same unit rental value of its ancillary accommodation, such as side roof, bay window or garden area. On the contrary, the main accommodation generally worth at least several times that of any such ancillary accommodation. In addition, as rightly pointed out by the Respondent, the comparables in the estate are far too few in number for the Applicant to conclude that they fall within different bands of values or that the values are generally on the downward trend..

14. The Respondent submitted that the Rateable Value of the subject premises should be treated as another good comparable for the subject premises, in addition to the common best comparable of House C11. In this regard, I should like to quote from my judgment in an earlier case of Forysyth v Banbury Investments Ltd. [2000] 3 HKLRD (L-Part 2) 838 in which I decided,

" There is a similarity in the definition of the prevailing market rent and the q rateable value. However, since the rateable was an estimate of a notional rent assessed by the Commissioner of Rating & Valuation for the purpose of collecting rates, it should not replace the direct rental market evidence in any exercise of assessing the prevailing market rent under the Landlord and Tenant (Consolidation) Ordinance."

"In the present application, although the parties had before them only one actual rental transaction, it nevertheless should be analysed and relied upon in the assessment of the prevailing market rent for the Premise. I accept that for valuation by direct comparison method, this is not the ideal situation."

15. That case is similar to the present application. In both cases, the Tribunal was faced with the difficulty of relying on one single comparable and whether or not the Rateable Value of the subject premises should be treated as a good comparable. In the present application, I decide to adhere to the principle I set down in my above quoted decision.

16. In addition, I also disagree with the Respondent's submission that because of the existence of a tenant's break clause, the PMR should be reduced by $3,000. In my opinion, the said break clause is common in premises similar to the subject premises and the comparables. Therefore, no specific adjustment is warranted.

17. In the circumstances, I determine that the PMR of the subject premises should be based on the best comparable of House C11 in the same estate. This is not very desirable but given the limits of evidence adduced by the parties, there is nothing better the Tribunal could do. Neither the Applicant nor the Respondent call expert witness and present valuation that should have included a thorough analysis and adjustment of other compatibles, including the other comparables, apart from House C11, shown in Exhibit A1. In addition, there was also no evidence adduced before me to suggest that any adjustment to House C11 is needed.

18. In the circumstances, I follow their opinion and make no adjustment to the comparable House C11 at all. Therefore, after adjusting for the payment of rarities and management fee, the PMR of the subject premises under the new tenancy commencing from 1 May 2001, on the basis of exclusive of rates and management fee was estimated to be $20,430 per month. This I round off to $20,500. By consent, the deposit shall be two months rent, or $41,000. Otherwise, the other terms of the new tenancy remain the same as in the former tenancy agreement. These include the permission to sub-let the car parking space by the Applicant, and the break clause exercisable by the Applicant.

Orders

1. By consent, new Tenancy for two years commencing from 1 May 2001;

2. New rent at $20,500 per month (exclusive of rates and management fees); leave to the Respondent to pay the Applicant over-payment of rent, if any, within 1 month from today;

3. Deposit to be adjusted pro rata in accordance with the new rent; leave to the Respondent to pay the Applicant the adjustment within 1 month from today;

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

5. No order as to costs.