TOP HARMONY LTD v. CHEUNG YUET SHEUNG AND OTHERS

LDCS 39000/2018

[2020] HKLdT 42

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE MAIN APPLICATION NO 39000 OF 2018

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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 Remaining Portion of Section A of New Kowloon Inland Lot No 2241, Remaining Portion of Section B of New Kowloon Inland Lot No 2241, Remaining Portion of Section C of New Kowloon Inland Lot No 2241 and Remaining Portion of New Kowloon Inland Lot No 2241 (hereinafter collectively referred to as “the Lot”). Erected thereon is a 9-storey commercial/ residential tenement buildings served by 2 common staircases with the postal address of Nos 56, 58, 60 & 62 Larch Street and Nos 6 & 8 Lime Street (“the Building”) in Tai Kok Tsui, Kowloon.

2.  The occupation permit for the Building (“OP”) was issued on 1 November 1963 with 6 shops planned on the G/F and 6 domestic units planned on each of the 1/F to 8/F but with no lift. It is not disputed that the total gross floor area of the Building is about 2,520.00 sq m.

3.  The Building was governed by one Deed of Mutual Covenant “DMC”) with each of the shops and domestic units allotted 1/54 undivided share. At the time of the Application dated 18 December 2018, the applicant owned all units of the Building which represents an average of 87.04% of the undivided shares of the Lot save for the following units owned by the respondents:

Unit	Respondent
G/F, 56 Larch Street	1st respondent (“R1”)
7/F, 56 Larch Street	2nd respondent (“R2”)
6/F, 58 Larch Street	3rd respondent (“R3”)[1]
G/F, 62 Larch Street	4th respondent (“R4”)
G/F, 6 Lime Street	5th respondent (“R5”)
8/F, 6 Lime Street	6th respondent (“R6”)
G/F, 8 Lime Street	7th & 8th respondents (“R7 & R8”)

4.  Subsequent to the Application, the applicant successfully acquired the units owned by R1, R4 and R6 and the application against them was discontinued. Hence, the applicant owns 92.59% of the undivided shares of the Lot.

5.  In the trial, Mr Mok Yeuk Chi (“Mr Mok”) instructed by Messrs Mayer Brown represented the applicant whereas the remaining live respondents are represented by Mr George Lam (“Mr Lam”) leading Mr Peter KM Chung (“Mr Chung”) or collectively referred to as Messrs Lam & Chung where appropriate, instructed by Messrs Lawrence YW Ng & Co, Solicitors.

Whether the Applicant is entitled to make the Application

6.  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.

7.  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.

8.  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 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)”. 

9.  As the OP for the Building was issued on 1 November 1963, not less than 50 years before the date of the Application, the Notice is applicable and the threshold percentage should be 80%.

10.  The applicant, owning more than 80% of the undivided shares of the Lot, was entitled to file the Application under section 3(2)(b) of the Ordinance.

The Issues in the Application

11.  Each of R2, R5, R7 & R8 (collectively referred to as “the respondents” where appropriate), while acting in person, filed Notices of Opposition alleging that the offers by the applicant for the purpose of acquiring their units were too low.

12.  More particularly, R2 stated that： 「評估尺價比同區收購價過低 ……」， R5 stated that the applicant 「應該（賠）到我可以在同一條街買到同一樣大的舖位 ……」and R7 & R8 stated: 「評估尺價和同區收購價過低 …… 同區買不入一樣尺價的舖位……」

13.  By the order of the Tribunal on 11 May 2020, the date of Further Call-Over, inter alia, the Application was set down for trial before a Member sitting alone, commencing on 24 August 2020 with 5 days reserved. Further on 23 July 2020, the date of Pre-Trial Review, nothing turned on in the presence of Mr Mok and Mr Chung and the Tribunal directed that a “without prejudice” meeting of the parties’ valuation experts be held and the parties do file a further joint statement of the said experts on the updated redevelopment value of the Lots setting out the areas on which they were, and those on which they were not, in agreement, at least 1 week before trial.

14.  On the first day of the trial, however, by the Summons filed on 18 August 2020, the respondents applied to amend their Notices of Opposition that the applicant has not taken reasonable steps because “the offers or the valuation report provided by the Applicant have never taken into account the value that the Property will very likely be acquired with premium for forming part of a larger site for future redevelopment” and the larger site referred to is the Lot plus the adjoining lots at 50-52 Larch Street and 54 Larch Street which are owned by parties related to the applicant.

15.  Mr Lam explained that he was only instructed 14 days before the trial (ie at the time of receiving the applicant’s opening submission). He considered that the pleadings need to be perfected so that all necessary issues would be properly dealt with.

16.  Mr Mok opposed stating that while the new issue was framed in relation to the reasonable offer point, the new issue was premised on the proposition that the applicant’s adjoining lots would increase the redevelopment value (“RDV”) of the Lot and the applicant had the burden to reflect that increased value in the offers and the valuation report of the majority owner.

17.  Mr Mok submitted that authorities were very clear that the 100% owned adjoining lots are not relevant to the assessment of the RDV of the subject lot and the amendment is unnecessary and bound to fail. More importantly, Mr Mok stated that this application for amendment, being made only on the first day of trial, should be refused on case management grounds.

18.  In respect of “the offers or the valuation report provided by the applicant has never taken into account the value that the Property will very likely be acquired with premium for forming part of a larger site for future redevelopment”, Mr Mok referred to First Mate Development Ltd v Gee Wing Chung [2018] 1 HKLRD 668 where the Tribunal identified the crux of the minority owner’s submissions to be “asking the Tribunal to take into consideration the redevelopment potential of the Subject Lot on a merged site basis together with 1^st and 2^nd Adjoining Lots”[2]. The Tribunal then considered Director of Lands v Yin Shuen Enterprises Ltd (2002) 6 HKCFAR 1 and Dragon House Investment Ltd v Secretary for Transport (2005) 8 HKCFAR 668 and some other English authorities which included Inland Revenue Commissioners v Clay [1914] 3 KB 466 and Raja Gajapatiraju v Revenue Divisional Officer Vizagapatam [1939] AC 302 for instance. Eventually, the Tribunal referred to Capital Well Ltd v Bond Star Development Ltd (2005) 8 HKCFAR 578, [2005] 4 HKLRD 363 where the minority owner tried to require the Tribunal, in assessing whether the majority owner has taken reasonable steps to acquire all the undivided shares in the Lot in the application under section 4(2)(b) of the Ordinance, to decide first what the correct valuation was, and only then to assess the fairness and reasonableness of the majority owner’s offer against the valuation carried out on correct principles. Mr Justice Ribeiro PJ responded by giving short shrift as follows:

“35. We do not consider that the Tribunal is required to perform any such task. … The Tribunal does not need to resolve conflicts of this nature since it does not have to decide on the value of the interest for itself.”

19.  Then the Tribunal in First Mate Development concluded that the reserve price pursuant to Schedule 2 para 2 of the Ordinance is qualified to the redevelopment potential of the Lot “on its own” and the suggestion of any marriage value by the respondent was inconsistent with such requirement under the Ordinance.

20.  Mr Mok next referred to Fully HK Investments Ltd & Other v Poon Vai Ching & Others, HCMP 591/2007 (unreported, 4 April 2007). In this case, there was an argument by the minority owner that the offer was unreasonable when it failed to take into account the value of potentiality under Clay and Raja as a premium or marriage value was allegedly generated by a set of approved plans with plot ratio 9 although the Outline Zoning Plan restricted the subject lots to plot ratio 5. Le Pichon JA (as she then was) rejected the minority owner’s argument as follows:

“18. … the Raja line of cases establishes assumptions for assessments and valuation purposes that apply in a context where there is absolutely no possibility of an actual auction. Where, as here, there is to be a public auction, the factors mentioned in the judgment of Swinfen Eady LJ quoted above would be matters that would be taken care of by the actual process of the public auction. To say that the Tribunal should seek to attribute a value to those factors so as to establish a valuation by reference to which the fairness and reasonableness of the offer is to be determined is little short of inviting the Tribunal, as it were, to second guess the outcome of the public auction. That is at odds with the principles set out in Capital Well.”

21.  However, section 10(5)(a) of the Lands Tribunal Ordinance, Cap 17 provides that “the proceedings of the Tribunal shall be conducted with as much informality as is consistent with attaining justice”, and Direction No 4 given by the President of the Lands Tribunal on 1 July 1986 states, inter alia, that presiding officers should not regard Notices as in the nature of pleadings by which parties are bound, but as an indication of the issues which are likely to be raised. Having taken into account the respondents were not legally represented when filing their Notices of Opposition, I consider the issue on whether the applicant has taken reasonable steps to acquire all the undivided shares in the Lot by reference to the acquisition prices in the neighbourhood was implicitly raised. I consider no real prejudice be occasioned to the applicant in allowing the amendment by the respondents on condition that no new evidence would be proffered on this issue. Therefore, I allowed leave be granted for the amendment as follows with costs to the applicant on party and party basis:

(1) The offers made by the applicant did not reflect the fair and reasonable market value of the Property and the applicant had not taken reasonable steps to acquire the respondents’ share on terms that are fair and reasonable;

(2) Upon the respondent’s solicitors’ enquiries in April 2020, it was revealed that the adjacent lots had been 100% acquired by the applicant in 2018 and late 2019 respectively;

(3) However, the valuation reports provided by the applicant have never taken into account the value that the Property will very likely be acquired with premium for forming part of a larger site for future development.

22.  More particularly, the another proposed amendment by the respondents in the following was not allowed:

“The Redevelopment Value of the Property should take, and the valuation reports provided by the Applicant should have taken into account the value that the Property will very likely be acquired with premium for forming part of a larger site for future redevelopment, and such Redevelopment Value should be reflected in the reserved price to be set by the Tribunal.”

23.  This proposed amendment above should be refused on the basis of the Court of Appeal’s decision in Grand Power International Limited v Chan Sing Hoi Enterprises Limited [2020] 2 HKLRD 142 at §41:

“In this particular instance, all the parties have engaged counsel early on and litigation has been conducted in a fairly rigorous manner.  As the judge has stated, this is not a classic building management dispute. The notice of application and the notice of opposition set out the respective cases of the applicant and the 1^st respondent with such details that are in no way different from a pleading.  The 1^st respondent even insisted on the applicant filing a notice of reply to plead its reliance on bona fide purchaser for value without notice, instead of merely mentioning this in the solicitors’ letter.  Even if the amended notice of opposition is not to be treated as a pleading by which the 1^st respondent is strictly bound, it can hardly be regarded as giving “fair indication” of the issues likely to be raised.”

The Evidence

24.  The applicant has filed the following documents in support of the Application:

(a) a witness statement dated 27 November 2019 from Mr Li Ming Yeung (“Mr Li”), representative of the applicant;

(b) a Building Condition Survey Report by Mr Benson Wong Sai Ning (“Mr B Wong”) dated 28 November 2019 ;

(c) a Structural Assessment Report by Mr Wong Chi Ming (“Mr CM Wong”) dated 27 November 2019;

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

(i) an Application Report dated 12 December 2018 setting out the assessed market value of each unit of the Building on the Lot as at 1 November 2018 pursuant to Part 1 of Schedule 1 to the Ordinance (which is usually termed by the valuation profession as the Existing Use Value or just “EUV”);

(ii) a Supplemental Report dated 27 November 2019 on the revised EUV as at 1 November 2018;

(iii) a RDV report dated 13 February 2020 on the RDV as at 6 February 2020;

(iv) a Rebuttal Report dated 27 March 2020 on Mr Patrick Lai (“Mr Lai”)’s EUV report filed on behalf of the respondents;

(v) a Supplemental RDV report dated 30 July 2020 on revised RDV as at even date.

25.  The respondents rely on the following reports of Mr Lai:

(i) Valuation Report dated 25 February 2020 on the EUV as at 1 November 2018 and RDV as at 6 February 2020;

(ii) a Rebuttal Report dated 25 March 2020 on Mr C Chan’s reports;

26.  Mr C Chan and Mr Lai have prepared two joint statements, one dated 24 April 2020 setting out their agreements and disagreements on EUV, followed by another one dated 14 August 2020 on RDV. Following these two joint statements, the 2 experts had prepared their revised valuations before trial.

EUV as at 1 November 2018

Assessment of EUV of G/F Units

27.  The 2 valuation experts, Mr C Chan and Mr Lai, agreed that the relevant date for the EUV is 1 November 2018 and the assessment is done by the direct comparison method, taking G/F of No 6 Lime Street as the reference unit for shops/ retail units on ground floor of the Building.

28.  Mr C Chan had adopted the following comparables in the vicinity:

Comp	Address	Date of PASP*	Consideration	Saleable Area (m2)	Ancillary Area (m2)	Frontage (m)	Headroom under M/F (m)	Full Headroom (m)
A1	G/F, 69 Larch Street	25 Sep 18	$18,500,000	47.0	-	6.8 onto Larch Street and 5.5 onto Lime Street	-	5.0
A2	Shop C, G/F & Cockloft, Tang Fat House, 1, 1A & 3 Bedford Road	11 Jun 18	$18,800,000	72.0	Yard; 10.3 C/L: 32.5	4.6	2.8	5.1
A3	G/F & Yard, Oak House, 90 Oak Street	18 May 18	$16,000,000	66.4	Yard: 11.5	4.4	-	3.5
A4	Flat C, G/F, Wing Shun Building, 53-67 Larch Street & 4 Lime Street	3 May 18	$23,500,000	99.6	-	6.1	-	4.0
A5	G/F & Mezzanine Floor, 18 Larch Street	10 Feb 18	$25,350,000	43.2	C/L: 22.2	9.3 onto Fir Street and 4.6 onto Larch Street	2.9	5.8
A6	Shop A, G/F & Yard, Mink Tack Court, 81- 85A Oak Street	20 Oct 17	$15,500,000	46.8	Yard: 24.9	4.8	-	5.0
A7	G/F, 14 Anchor Street	20 May 17	$11,980,000	31.0	-	7.9 onto Anchor Street and 2.9 onto service lane	-	5.5

* PASP stands for provisional agreement for sale and purchase. Mr Lai relied on the dates of the PASPs although, according to Mr C Chan the PASPs were not registered in Land Registry. Unless, for instance, there were differences in the prices paid between the PASPs and the corresponding assignments, I agree with Mr Lai that the dates of the PASPs should be adopted since they were the first dates on which the price paid for the comparables were agreed reflecting the then market conditions.

29.  Mr Lai, however, disagreed to adopt comparables A2 & A4 because they were in fact sale-and-leaseback transactions, suggesting that the prices paid could not meet the definition of market value; the price paid could be affected by the terms and/or rental agreed on leasing back. Mr C Chan argued, on the other hand, that the unit rates of the comparables are within the range of the others[3].  In my opinion, if Mr C Chan is correct, such comparables are redundant; otherwise, they are circular or self-serving. I agree with Mr Lai that these 2 comparables are to be discarded.

30.  Thus, the various adjustments proposed by Mr C Chan for the remaining comparables are shown below (while those proposed by Mr Lai, if different, are shown in parenthesis)[4]:

Comp	Unit Price (/m2)	Adjustments									Adjusted Unit Price (/m2)
		Time	Location	Size	Age/ Internal Condition	Frontage	Return Frontage	Layout	Headroom	Total*
A1	$393,617	0.4%	0.0% (-5.0%)	0.4% (-0.1%)	0.8% (3.0%)	-4.0%	-25.0% (-10.0%)	0.0% (-5.0%)	1.2%(-0.8%)	-26.0% (-20.1%)	$291,277 ($314,500)
A2	$241,645	1.8%	5.0%	3.5%	-1.6%	0.4%	0.0%	10.0%	0.8%	21.2%	$292,874
A3	$234,261	1.8% (2.1%)	0.0% (15.0%)	2.5% (4.1%)	-1.2% (3.0%)	0.8%	0.0%	10.0% (0.0%)	7.2% (5.2%)	22.5% (33.5%)	$286,970 ($312,738)
A4	$235,944	2.1%	0.0%	5.6%	0.4%	-2.6%	0.0%	10.0%	5.2%	22.0%	$287,852
A5	$551,087 ($519,467)	3.0%	0.0% (-5.0%)	0.3% (0.2%)	0.2% (3.0%)	-9.0% (0.4%)	-15.0%	-10.0% (-5.0%)	-2.0%	-29.4 (-19.8%)	$389,067 ($416,613)
A6	$303,922	4.6% (5.6%)	0.0% (15.0%)	0.8% (0.7%)	-5.8% (3.0%)	0.0%	0.0%	0.0%	1.2% (-0.8%)	0.5% (25.0%)	$305,442 ($379,903)
A7	$386,452	8.7% (9.3%)	0.0%	-1.2% (-3.3%)	-0.4% (3.0%)	-6.2%	-5.0%	-10.0% (0.0%)	-0.8% (-2.8%)	-14.9% (-5.7%)	$328,871 ($364,424)
										Average:	$312,000 (357,600)

* by multiplication

31.  As can be seen from the above table, there are discrepancies on the adjusted unit prices for comparables between the 2 experts. They are basically resulted from their different assumptions on the conversion factor for the ancillary areas (if any) of the comparables: Mr C Chan adopted 1/8 that of the value of the G/F for the cockloft whereas Mr Lai adopted 1/4[5]. By reference to the floor plans of the comparables, the cocklofts/ mezzanine floor, if any, of these comparables are properly constructed cocklofts readily accessible from the ground floor shop space. They provide valuable space for the purpose of storage or other uses in support of the operation of the G/F users. I consider a conversion factor of 1/4 more appropriate.

Time Adjustment

32.  As explained, I consider more appropriate to adopt the dates of the corresponding provisional agreement for sale and purchase as a basis for comparison.  In this regard, the adjustments for time as proposed by Mr Lai are adopted.

Location Adjustment

33.  The Building is situated at a location of mixed characters with a range of old industrial developments on the west and generally out-moded tenement buildings in the proximity, though some of the latter have recently been redeveloped into high-rise residential/ commercial composite buildings. Ground floor units in the immediate vicinity are predominated by a range of grocery stores, hardware shops and car repairing workshops as well as certain restaurants at the corner locations.

34.  Comparable A1 is a corner shop situated at the junction of Larch Street and Lime Street, opposite the Building. In essence, it appears to be subdivided into 2 units and occupied by 2 engineering companies. When compared with the reference unit at G/F of No 6 Lime Street, I agree with Mr Lai that a location adjustment of -5% is appropriate.

35.  Comparable A3 is likewise occupied by a workshop. It is adjoining a vacate site on the left and other engineering workshops along the street on its right. I agree with Mr Lai that it is inferior in location when compared with the reference unit but I consider a location adjustment of +10% more appropriate than his +15%.

36.  Comparable A5 is another corner shop at the junction of Larch Street and Fir Street, that is one block away from the Building on the same street. However, opposite this comparable is a relatively new commercial/ residential development with a wide variety of retail activities on ground floor. This comparable is now occupied by a popular estate agent. I agree with Mr Lai that it is superior in location when compared with the reference unit but I consider a location adjustment of -15% more appropriate than his -5%.

37.  Comparable A6 is situated on the same street as comparable A2 but on the opposite side. In fact, they are occupied by the same occupier. I consider a location adjustment of +10% also more appropriate than +15%.

38.  Comparable A7 is situated around the corner of comparable A6 but on a busier street. I agree with both experts that no adjustment for location is required.

Size Adjustment

39.  By reference to their joint statement dated 24 April 2020, Mr C Chan proposed a size adjustment based on 1% per 10 sq m difference whereas Mr Lai proposed 1% per 5 sq m difference relying on the decision of Tribunal in Century Wide Development Limited v Lai Yee Wah & Others, LDCS 11000/2016 (unreported, dated 8 November 2019)[6].

40.  As correctly pointed out by Mr C Chan, the size adjustment in Century Wide was agreed by the valuation experts there and therefore not argued before the Tribunal. Also the subject site in Century Wide was a corner site around the junctions between No 1 Ka Shin Street, No 2 Pok Man Street and Tai Kok Tsui Road, the latter being a main distributor in the area and a more busy retail street. Thus, even taking into account Century Wide, I agree with Mr C Chan that a lesser adjustment at 1% per 10 sq m difference is appropriate.

41.  Having said that, I note Mr Lai applied the same conversion factor of 1/4 to the unauthorized cockloft, which in my opinion unreasonable. Although Mr B Wong affirmed during the trial that according to his experience, the Building Authority would not consider taking enforcement action on the priority list against any unauthorised structures within a privately owned unit that would unlikely affect other residents or enjoyment of other units[7],  I consider a discount of 50% is still justified for the risk of enforcement[8]. While Mr Lai tried to distinguish the unauthorized cocklofts of that on G/F, 6 Lime Street and G/F, 8 Lime Street from other G/F units of the Building on the pretext that the former had been occupied for long time use without interference, his evidence on this issue was flimsy and more particularly hearsay. According to my observation on site, I do not agree to such distinction. More particularly, there are many Building Orders issued on the various parts of the Building but none requires the demolition of any of the unauthorized cockloft or extensions.

42.  Thus, based on the following agreed areas of No 6 Lime Street, I arrive at a converted area of 43.97 sq m:

Saleable Area:	38.7 sq m
Unauthorized Cockloft:	25.5 sq m
Covered Yard by concrete:	2.6 sq m @4/5 of G/F as proposed by Mr C Chan

43.  Thus, my adjustments for size in respect of the 5 comparables are +0.3%, +2.4%, +0.5%, +0.7% and -1.3% respectively.

Age Adjustment

44.  Mr C Chan allowed 1% for 5 years’ difference in age but Mr Lai opined that building age is not relevant in the consideration of prices paid for shop premises. Instead, Mr Lai assumed the internal conditions of the shop comparable to be fair without any inspection and allowed +3% for all comparables, ie he considered the reference unit superior in internal conditions which I do not agree. In that regard, I follow Mr C Chan’s adjustments for age.

Internal Conditions

45.  Mr Lai stated that shops in good condition would certainly command relatively higher prices since the costs required in making good the shop premises would be minimal. However, shops usually cater for different trades and any new comers would be prepared to spend a vast sum of renovation costs to fit their own uses and purposes. Internal conditions are therefore seldom important for sale and purchase of shops (especially when tenants are often required to reinstate the shop premises to bare shell upon expiry of tenancies). This is particularly the case when most of the comparables are of similar ages to the reference unit. I would not allow any adjustment for internal conditions of shops.

Frontage

46.  Both experts agree at an adjustment rate of 2% per 1m difference in frontage. However, for comparable A5, Mr C Chan considered the longer frontage on Fir Street as the main frontage whereas Mr Lai considered the frontage onto Larch Street as the primary frontage. I agree with Mr Lai because this frontage onto Larch Street is in reality adopted by the estate agent as the main entrance probably for the obvious reason that it faces onto the new development of more vigorous business activities.

Return Frontage

47.  For comparable A1 which has a frontage of 6.8m onto Larch Street and another frontage of 5.5m onto Lime Street, Mr C Chan made an allowance of -25% whereas Mr Lai only allowed -10%. I consider -20% more appropriate.

48.  And for comparable A5 which is occupied by an estate agent with main entrance fronting Larch Street, both valuation experts made an allowance of -15%. Again, I consider -20% more appropriate.

49.  As regards comparable A7 which has a minor return frontage onto a side lane, I agree with the experts’ adoption of -5%.

Layout Adjustment

50.  As for comparable A1, Mr C Chan made no allowance for layout but Mr Lai considered it has a better layout because of the double frontages. I agree with Mr C Chan that such adjustment should more appropriately be reflected in the return frontage adjustment.

51.  As for comparable A3, Mr C Chan considered its depth at least 6.3m longer than the reference unit and therefore allowed an adjustment of +10%. I agree.

52.  As for comparable A5, Mr C Chan considered its depth 4.3m shorter than the reference unit and therefore allowed an adjustment of -10%; Mr Lai made a smaller allowance of -5%. Taking into account this being a corner shop. I agree with Mr Lai that -5% is adequate.

53.  Both experts agreed that there is no layout adjustment for comparable A6. I agree.

54.  As for comparable A7, Mr C Chan considered its depth 4.4m shorter than the reference unit and therefore allowed an adjustment of -10% but Mr Lai made nil allowance. I prefer -10%.

Headroom Adjustment

55.  Mr C Chan commented that Mr Lai had allowed both substantial conversion factor for cockloft (1/4) and substantial adjustments for full headroom (4% per m difference) of the retail units. Mr C Chan explained that for a shop with cockloft, usually most parts of the shop can only enjoy a lower headroom underneath the cockloft. Applying a significant adjustment for full headroom at the same time will double count the benefit of a high headroom and a cockloft. I agree.

56.  In Chan Kai Yuen & Another v Director of Lands, LDLR 8/1999 (unreported, 1 September 2000), the Tribunal observed that the experts there analysed the unit value of the ground floor based on a normal headroom of 3 metres. Then if there be a cockloft, be it authorized or unauthorized, it would provide an extra headroom. Thus, “willing buyers in the market will derive additional benefit out of the headroom space, of 2.1m in this case, and hence are prepared to offer an extra bid for the subject premises when making comparison with other properties without such benefit of the unusual headroom.”

57.  Although both experts agree an adjustment rate of 4% per 1m difference in headroom, Mr Lai, when comparing headroom of a shop with a cockloft and a shop without cockloft, applied an additional 2% in favour of the latter. Mr Lai stated that his methodology was accepted in Wealth Plan Development Limited v Xiu Chuan Limited & Others, LDCS 21000/2018 (unreported, dated 27 December 2019), where the Tribunal agreed at §26 that “the lower headroom (of a particular shop) because of a cockloft thereof can be adjusted at -2%”. Nevertheless, the Tribunal in that case did not elaborate further. I find Mr Lai’s methodology arbitrary and not conforming with the rationale as explained in Chan Kai Yuen & Another above. I would only make reference to the headroom up to the underside of the cockloft.

58.  My assessment of the unit value of the reference unit is shown as follows:

	Unit Price (/m2)	Adjustments									Adjusted Unit Price (/m2)
		Time	Location	Size	Age/ Internal Condition	Frontage	Return Frontage	Layout	Headroom	Total*
A1	$393,617	0.4%	-5.0%	0.3%	0.8%	-4.0%	-20.0%	0.0%	-8.8%	-32.50%	$265,691
A3	$234,261	2.1%	10.0%	2.4%	-1.2%	0.8%	0.0%	10.0%	-2.8%	22.50%	$286,970
A5	$519,467	3.0%	-15.0%	0.5%	0.2%	0.4%	-20.0%	-5.0%	-0.4%	-33.00%	$369,228
A6	$303,922	5.6%	10.0%	0.7%	-5.8%	0.0%	0.0%	0.0%	-8.8%	0.50%	$305,442
A7	$386,452	9.3%	0.0%	-1.3%	-0.4%	-6.2%	-5.0%	-10.0%	-10.8%	-23.10%	$297,182
										Average:	$304,903

* by multiplication

59.  As my assessment is only about 2% smaller than that of Mr C Chan, I adopt Mr C Chan’s assessment of the EUV of the reference unit at $312,000 per sq m.

60.  Next, I determine the effective areas of other G/F units in the Building.

61.  Firstly, in respect of the G/F of 56 Larch Street, Mr Lai suggested that the external wall next to the G/F of 54 Larch Street is in fact the enclosing wall of the latter. By reference to the floor plan attached to the inspection bundle at p18, however, I do not agree.  In addition, I also agree with Mr C Chan that even if Mr Lai were correct, the wall falls within the boundary of the Lot and should be taken as the external wall of G/F, 56 Larch Street. In fact, during the joint inspection of the Building, a continuous joint between the Building and that of 54 Larch Street was observed. This points to the fact that there are two lines of walls at each side of the joint. My observation is also supported by the occupation permit for the 6-storey building erected at 54 Larch Street which was issued 12 October 1964, ie some 11 months after the occupation permit of the Building was issued. That is, the Building was completed before the building at 54 Larch Street was about to be constructed.

62.  Also, apart from the differences in opinion on the value of the unauthorized cockloft and the rear yards, the 2 experts had dispute on the value of a separated water closet (“wc”) enclosed and occupied by the occupiers of G/F, 8 Lime Street but according to the assignment plan should belong to the owner of G/F, 58 Larch Street. Mr Lai considered that the wc had been so occupied for a long time without any interference or action by the owner of G/F, 58 Larch Street. In any event, I consider such a wc having title problem and agree with Mr C Chan that it should be valued at half of its proper value.

63.  Incidentally, there exists a wall stall about 4.25m x 0.9m affixed to the external wall of the Building beside No 8 Lime Street (or more properly separated by a common staircase next to G/F, 8 Lime Street). It is undisputed that the wall stall is on Government land (ie a side lane outside the boundary of the Lot) and permitted to be there under a fixed pitch hawker licence issued under the Hawker Regulation, Cap 132AI.  According to R7 & R8, they rented the wall stall from the licence holder ever since 1990s for storage purposes. Thus, even if R7 and R8 had paid a price to acquire the ownership of the wall stall as alleged by Mr Lai in his valuation report dated 25 February 2020[9], the owner or occupiers hold title separated from the Government lease pertaining to the grant of the Lot. Thus, by reference to Part 1 of Schedule 1 to the Ordinance, the market value or more properly the EUV is to be assessed for each property on the Lot. As this wall stall is not a property on the Lot, I disregard its value, if any.

64.  Thus, I determine the effective areas of other G/F units in the Building as follows:

G/F	Saleable Area (m2) (including External Walls)	M/F / Cockloft (m2)	Separate WC at Yard (m2)	Unauthorised Cockloft (m2)	Covered Yard (by metal sheets) (m2)	Covered Yard (by Concrete) (m2)	Separated WC (m2)	Space under Staircase (m2)	Effective Area converted (m2)
56 Larch Street	84.6	54.3	0.0	16.6	0.0	0.0	0.0	0.0	100.25
58 Larch Street	41.4	24.7	0.0	4.5	0.0	9.5	0.0	0.0	55.74
60 Larch Street	42.5	24.4	0.0	18.5	0.0	4.4	0.0	0.0	54.43
62 Larch Street	36.8	0.0	0.0	28.7	0.0	0.0	0.0	0.0	40.39
6 Lime Street	38.7	0.0	0.0	25.5	0.0	2.6	0.0	0.0	43.97
8 Lime Street	47.5	0.0	3.3	32.7	8.8	0.0	1.2	3.6	53.24

65.  To proceed with the location adjustments, I agree with Mr Lai that those units fronting Lime Street are marginally better in location and a difference of 5% is appropriate. The other adjustments just follow what I have discussed above for analyzing the comparables. My assessment of the EUV of G/F units of the Building is shown below:

G/F	Effective Area (m2)	Frontage(m)	Depth (m)	Headroom under C/L (m)	Adjustments							Adjusted Unit Rate (/m2)	EUV
					Location	Size	Front-age	Layout	Return Frontage	Head-room	Total
56 Larch Street	100.25	3.9	18.3	2.7	-5.0%	-5.6%	-1.8%	-10.0%	0.0%	-0.4%	-21.1%	$246,168	$24,678,000
58 Larch Street	55.74	3.6	9.5	2.7	-5.0%	-1.2%	-2.4%	0.0%	0.0%	-0.4%	-8.8%	$284,544	$15,860,000
60 Larch Street	54.43	5.1	8.5	2.7	-5.0%	-1.0%	0.6%	0.0%	0.0%	-0.4%	-5.8%	$293,904	$15,997,000
62 Larch Street	40.39	8.2 on Lime Street; 4.5 on Larch Street	4.5	5.3	0.0%	0.4%	6.8%	10.0%	20.0%	10.0%	55.7%	$485,784	$19,621,000
6 Lime Street	43.97	4.8	8.9	2.8	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	$312,000	$13,719,000
8 Lime Street	53.24	3.8	10.8	2.8	0.0%	-0.9%	-2.0%	0.0%	0.0%	0.0%	-2.9%	$302,952	$16,129,000
												Total:	$106,004,000

66.  In the above table, I have assessed G/F, 58 Larch Street and G/F, 60 Larch Street as two individual units in accordance with their original layout. On site, however, the 2 units have been combined into one with partition walls removed. Mr Lai assessed them as one unit.

67.  Mr Lai referred to Alliance Fame Limited & Others v Mak Kam To & Others, LDCS 9000/2015 (unreported, dated 4 August 2017) where 4 basement units were assessed on the basis of 2 grouped units instead of 4 separate units. However, in that case, the two valuation experts agree that they can be assessed on the basis of two units (namely Blocks A and B as one unit and Blocks C and D as another unit) instead of four[10]. There is no such agreement between Mr C Chan and Mr Lai in the present case.

68.  As explained by the Tribunal in Supergoal Investment Limited v Five F Ming House Limited & Others, LDCS 46000/2011 (which has been reported as [2014] 1 HKLRD 286) at §94, “this does not mean that the combination of, say, two standard sized shops of equal frontage and depth (thus yielding 1/2^nd the depth to frontage ratio) would justify a higher unit price.” As regards adjustment for particularly long frontage (as a result of combination of units or otherwise), the Tribunal in Pacific Base Holdings Limited & Other v Lee Hop Biu & Other, LDCS 14000/2017 (also known as [2020] HKLdT 20), referred to Tai Ping Restaurant Ltd v Director of Lands, LDLR 1/2013 (unreported, dated 8 December 2014) and stated at §73 of the judgment that “there shall not be any adjustment for frontage unless the frontage in consideration is clearly superior or inferior to the norm that the benefits or disabilities which the frontage produces are clearly evident”. As demonstrated above, I arrive at the EUV for G/F, 58 Larch Street and G/F, 60 Larch Street of $15,860,000 and $15,997,000, the total of which at $31,857,000 is not significantly different from Mr Lai’s assessment of the combined unit at $30,015,000 (even if his proposed adjustments were adopted in full).

69.  And pursuant to Part 1 of Schedule 1 to the Ordinance, the Tribunal is required to assess the market value (or more properly the EUV) of each property on the Lot. G/F, 58 Larch Street and G/F, 60 Larch Street are 2 individual units according to the DMC. If Mr Lai considered otherwise, he should have assessed G/F, 62 Larch Street as 2 units which represent the real physical situation on site. Mr Lai’s approach is not consistent anyway.

Assessment of EUV of Upper Floor Units

70.  Mr C Chan and Mr Lai managed to agree the unit rate of the domestic reference unit, ie 4/F, 58 Larch Street at $86,300 per sq m on the basis that it was in poor condition. In addition to the G/F units, we had a joint inspection of the following units on 25 August 2020[11]:

Units	Internal Conditions
	Mr C Chan’s classification	Mr Lai’s classification
1/F, 58 Larch Street	Poor	Very Poor
1/F, 62 Larch Street	Very Poor
1/F, 6 Lime Street	Poor	Very Poor
2/F, 60 Larch Street	Fair	Poor
2/F, 62 Larch Street	Fair	Poor
4/F, 62 Larch Street	Poor
5/F, 60 Larch Street	Poor	Very Poor
5/F, 62 Larch Street	Poor	Very Poor
7/F, 56 Larch Street	Fair
7/F, 60 Larch Street	Very Poor	Unacceptable
8/F, 6 Lime Street	Unacceptable

71.  Despite the definition of the various internal condition classifications, I understand that the classifications by either of the 2 experts are only relative. Having conducted the joint inspection, I consider Mr C Chan’s classifications more consistent and should be adopted.

72.  I have accepted the various other adjustments adopted by Mr C Chan (some of which were also agreed by Mr Lai) and his assessment of EUV of the various units[12] save for the following:

(1) I agree with R2 that her unit, being at a corner location, enjoys better view and better lighting & ventilation. The same should also be true for 8/F, 56 Larch Street as well as 7/F, 62 Larch Street and 8/F, 62 Larch Street;

(2) I agree with Mr Lai that there should be adjustments for orientation as, for instance, the units at 62 Larch Street, 6 Lime Street and 8 Lime Street are west facing.

(3) In respect of the top floor units, I agree with Mr Lai that -5% is more appropriate than Mr C Chan’s -3%, taking into account the very poor conditions of the Building.

73.  My assessment of the EUV of the domestic units is shown at Appendix 1. The total is $198,820,000.

74.  That is, the EUV of the various live respondents’ units are as follows:

Respondent	Unit	EUV	Pro Rata Share of the Total ($304,824,000)
R2	7/F, 56 Larch Street	$5,906,000	1.9375%
R3	6/F 58 Larch Street	$3,861,000	1.2666%
R5	G/F, 6 Lime Street	$13,719,000	4.5006%
R7 & R8	G/F, 8 Lime Street	$16,129,000	5.2913%

Whether Redevelopment of the Lot is Justified

75.  Section 4(2) of the Ordinance provides that the Tribunal shall not make an order for sale unless it is satisfied that the "age or state of repair" of the Building is justified and that the applicant has taken "reasonable steps" to acquire all undivided shares of the Lot.

76.  In his opening submission, Mr Mok referred to the guidelines laid down in Top Sail International Limited v Cheng Kai Ming, LDCS 18000/2010 (unreported, dated 15 November 2011 (“Top Sail”) and Charmlink Limited v Lee Tong Hing & Others, LDCS 16000/2010 (unreported, dated 29 November 2011) (“Charmlink”) on the factors that the Tribunal should consider in deciding whether redevelopment is justified due to age and state of repair.

77.  In Top Sail, the Tribunal stated:

“23. ……, we are of the view that when the requirement of “the age” of the Buildings is considered, we should not restrict our consideration to just the physical age of the Buildings.…… we are of the view that the absence of a specific physical age in the Ordinance indicates that the Tribunal has discretion to determine at what stage a building should be redeveloped after considering all the relevant factors concerning the age of the building in question.

24. The physical age of a building is clearly one of the considerations…... The physical conditions of a building and the amount that would be required to maintain the building are other factors that the Tribunal should consider, as they would affect the decision on whether the life of a building should be ended or prolonged. The obsolete design of a building should also be considered as it has an important impact on whether it is too old to serve a modern society.”

78.  Such a discretion by the Tribunal was followed in Charmlink:

“30. We are of the view that the Tribunal has discretion to determine at what stage a building should be redeveloped after considering all the relevant factors concerning the age of the building in question. The relevant factors in the present case are that the Building is over 50 years old and it has passed its designed life. It is also obsolescent in design and not economical to maintain. All these factors point to the fact that the Building has come to an end of its physical as well as economical life. Thus, we find that redevelopment is justified on the ground of the age of the Building.

31. …… It is also within the Tribunal’s discretion to determine in what conditions a building should be redeveloped after considering all the relevant factors concerning the state of repair of the building in question. With the clear evidence from the two experts that the Building is in a poor state of repair and in fact untenantable without substantial repair works to be carried out over a long period of time, we have no hesitation in finding that redevelopment is justified by the state of repair of the Building.”

79.  The respondents did not challenge the principles set out in Top Sail and Charmlink are guidelines for the Tribunal in the exercise of its discretion. 

80.  The applicant adduced the expert evidence of two experts namely, Mr B Wong who is an Authorised Person and a building surveyor, and Mr CM Wong who is a structural engineer. Their expertise was also not disputed.

81.  The salient and relevant considerations are as follows:

(1) The Building is over 56 years old and has passed beyond the designed working life of 50 years for some time;

(2) The Building is suffering from physical and functional obsolescence, some having safety and hygiene implications not meeting current requirements, such as sub-standard essential fire service systems, unsatisfactory fire escape arrangements, outdated and non-conforming fire resisting construction of fire escape routes, no accessible lift and barrier free access, no proper refuse disposal system, no equipotential system and no lightening protection system etc;

(3) Mr B Wong’s opinion is that the Building is a state of disrepair which re quires very substantial repair costs estimated to be $20,583,009 amounting to about 41% of the costs of building the superstructure of a new similar building. The repair will also take 19 months to complete;

(4) Mr B Wong considered that the deterioration of the Building is very serious and the Building has reached a state beyond reasonable economic repair. He concluded that redevelopment of the Lot is justified due to the age and state of repair of the Building;

(5) On structural assessment, Mr CM Wong pointed out that the Building has exceeded its design working life of 50 years. The Building was designed under the London County Council Construction By-Laws which were far less stringent than the 2004 Code of Practice for Structural Use of Concrete and 2013 Code of Practice for Structural Use of Concrete. In view of the lack of design for ductility and robustness, the requirements for the structural safety of the Building which were fulfilled at the standards prevailing at the time of its construction cannot meet the current safety standard.

82.  The respondents have not adduced any evidence, factual or opinion, in relation to the “age” and “state of repair” of the Building. Having considered the evidence before the Tribunal as well as the joint inspection on 25 August 2020, 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

83.  The applicant is 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.

84.  The applicant has made the following offers to the respondents through its solicitors to acquire the respondents’ units or interests they own:

Date of offer	R2’s Unit	R3’s Unit	R5’s Unit	R7 & R8’s Unit
13 November 2018	$6,150,000	$4,650,000	$13,280,000	$15,810,000
2 April 2020	$7,500,000	-	$13,350,000	$17,000,000
11 August 2020	$6,400,000	-	$15,000,000	$18,300,000

*   These offers included the advice letters of Savills setting out the relevant valuation assessments and calculations of the share of the respondents’.

Sales Prior to the Application

85.  Mr Lam however referred to Exhibit R1 which is now attached to this judgment at Appendix 2. That is, sometime in early 2018, the applicant, through Centaline Property Agency, communicated to each owner of the residential units of the Building as well as of the buildings at 50-52 & 54 Larch Street of its intention to acquire their units at a uniform rate of $10,500 per sq ft (about $113,022 per sq m). For those who agreed, their units were coordinated to be transacted all at the same date, ie 10 July 2018 which was some 5 months prior to the applicant commenced the Application on 18 December 2018. For instance, residential units at 56 Larch Street, from 1/F to 8/F but except 7/F were each sold at $7,654,000.

86.  Mr Lam pointed out that, on top of those open offers (which I do not agree as can be seen in the following paragraphs, they were at most invilation to treat, ) there were some of the transactions having been added a 「裝修津貼」 (“decoration allowance”) payable to individual owners.  R2, for instance, produced a 「物業臨時買賣合約」 (“the Draft Provisional Agreement for Sale and Purchase”) with the proposed consideration of $7,654,500 for her unit at 7/F, 56 Larch Street which is unsigned by any party[13]. Also, there was a supplemental agreement (“the Supplemental Agreement”) stating the following[14]:

「1. 在買賣雙方完成該物業買賣的情況下， 買方同意支付港幣 1,458,000 (HK$1,458,000)[15]予賣方作為裝修津貼 （以下簡稱“該津貼”）。

2． 於買賣雙方未完成該物業買賣時， 買方需將該津貼全額交予賣方代表律師託管， 於成交日， 完成成交時發放予賣方。

3． 如該物業的買賣合約因任何原因撤銷或終止， 或賣方違反買賣合約任何條款， 或未能完成該物業之買賣， 則本補充合約即自動無效， 買方沒有責任支付該津貼或任何其它費用予賣方。

4． 買賣雙方同意就此宗交易及其一切條款保守秘密， ……

5. 為免生疑， 不論在任何情況下， 如買賣雙方未能完成該物業的買賣， 則此補充合約作廢， 買方亦沒有責任支付該津貼予賣方， 賣方亦不能向買方就此補充合約， 提出任何申索或賠償要求。」

87.  R2 explained in her witness statement as follows[16]:

“5. There was news about a company trying to buy out the entire building in 2017. In June 2017, The Centaline Property Agency (“Centaline”) representing a buyer offered to buy out the entire building at HK$11,000 per square foot. After discussion with my family members, we agreed to sell. My understanding is that most, if not all, the owners agreed to sell at this price. But then in about January 2018, Centaline told us that the plan was called off.

6. In about early March 2018, Centaline approached the owners of the units of the building again claiming that there was another buyer offering to buy at HK$10,000 per square foot. Many owners were a bit confused, could not tell if it was the same ultimate buyer behind trying to reduce the price or there was really a new buyer. Anyway, given the reduction of the offer price in such a short time, many owners did not agree to sell.

7. …

8. In April 2018, Centaline revised the offer price to HK$10,500 per square foot. At that time, quite a few owners of units in the building told me that they wanted to sell to avoid the trouble. According to my estimate by talking to the people in the building, Centaline had acquired up to about 70% of all units up by that time. I was also prepared to sell if the price was right.

9. In fact, in early April 2018, Ms Kwan of Centaline contacted me about buying the Flat. I told her I was prepared to sell if the price was right. After some discussions, we agreed that I sold the Flat at about HK$12,500 per square foot. The total price would be HK$9,112,500. But when Ms Kwan sent me a draft provisional sale and purchase agreement by WhatsApp, the price stated on the agreement was HK$7,654,000. There was another agreement for HK$1,458,000 for decoration compensation. I spoke with Ms Kwan and told her that that was not right, although the total amount was the same.

10. Later, Ms Kwan sent me another draft provisional sale and purchase agreement, this time the price was correctly stated as HK$9,112,500. I therefore signed my name and sent it back to Ms Kwan on about 17^th April 2018, thinking that it was a done deal[17].

11. In May 2018, to my surprise, Ms Kwan told me that the buyer did not want to buy from me. I was totally confused by the shifting positions of the buyer.

12. Then, in November 2018, I received a letter from the solicitors for the Applicant proposing to buy the Flat at HK$6,150,000, a substantially lower price than what the buyer previously offered and agreed by me. I was again totally confused as to what the proper price should be

13. …”

R2 was not cross-examined.

88.  When Mr Li was cross-examined by Mr Lam, Mr Li told that he joined Wang On Properties Limited (“the Company”), the parent company of the applicant and a listed company on Hong Kong Stock Exchange, in April 2018. He then took over the acquisition of the Lot from his colleague who left the Company in August 2018. According to his understanding, Centaline approach the Company in August 2017 enquiring if the Company would be interested in acquiring the Lot. I agree with Mr Mok in his closing submission that Centaline was an independent contractor who had been touting the Building around for business.

89.  Mr Li explained that the Lot by itself is small and might not be financially viable for redevelopment unless it is combined with the adjoining lots at 50-52 Larch Street & 54 Larch Street. As a real estate developer, the bottom line is when the lot is redeveloped, the sale proceeds from the future redevelopment should cover all costs[18]. And in view of the age of the Building and of the requirement of the Ordinance, Mr Li then confirmed that the Company should ensure that it acquired at least 80% of the interest of the Lot and those of the adjoining lots at 50-52 Larch Street & 54 Larch Street before redevelopment behoves. By 10 July 2018, for instance, the applicant had acquired more than 90% interest of the building at 50-52 Larch Street[19], 100% interest of the building at 54 Larch Street and more than 80% interest of the Building on the Lot.

90.  Mr Li explained that in early 2018, Centaline were instructed to negotiate with individual owners of the residential units at a uniform rate of $10,500 per sq ft of saleable area but if any owner demanded more, the excess would be accommodated in a supplemental agreement. Mr Li confirmed that there were only some 40% transactions that were supplemented by such supplemental agreements. These supplemental agreements, if any, in the name of paying decoration allowances, were not registered in the Land Registry[20].

91.  In respect of the draft provisional sale and purchase agreement which stated the consideration in the sum of HK$9,112,500 and signed by R2 on 17 April 2018[21], Mr Li stated it was an unilateral offer made by R2 and the applicant had never accepted. Mr Li replied that by that time, the applicant had secured more than 80% interest of the Lot and the applicant did not intend to accept such a high offer.

92.  Mr Lam then referred Mr Li to the transacted price of 8/F, 6 Lime Street at $7,000,000 which was much higher than the transacted prices of other floors at 6 Lime Street each being $3,822,000 only. Mr Li conceded this 8/F unit was owned by R6 and the transacted price was settled after negotiation as a result of a sudden adverse possession claim by an unknown person. Mr Li categorically remarked that R6 knew “how to play the game”.

93.  In their closing submission, Messrs Lam & Chung deplored that the applicant as a developer only concerned about the numbers and submitted that this is a blatant abuse of the process of the compulsory sale under the Ordinance. He referred to what Mr Justice Ribeiro PJ said on behalf of the Court of Final Appeal in Capital Well, supra at §21 that one of the objectives of the Ordinance is “to ensure that the minority owner receives fair and reasonable compensation for his interest in the lot”.

94.  However, Mr Justice Ribeiro PJ also stated at §2 at the beginning of the judgment that:

“(the Ordinance) permits a person owning at least 90% of the undivided shares in the Lot, who has failed to acquire the balance of the undivided shares despite having made appropriate efforts to do so, to apply to the Lands Tribunal for a compulsory order requiring sale of the lot for the purposes of redevelopment.”

Thus the offers, if any, prior to the Application are not so relevant in determining whether the applicant has taken 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.

95.  This was affirmed by the ruling in Good Faith Properties Limited & Others v Cibean Development Company Limited, LDCS 42000/2011 (unreported, dated 31 May 2013) when the Tribunal stated at §44 that:

“We found no ambiguity or absurdity in the wordings of Section 4(2)(b) on a purposive interpretation of the Ordinance. On the contrary, if the contention of the respondent is accepted, i.e. only pre-Application offers were to be considered, this is inconsistent with the objective of the Ordinance and create absurdity in particular when the property market goes upwards after the Application. If only pre-Application steps were to be considered, the majority owner will have no obligation to negotiate with the minority owner or to offer terms that are fair and reasonable after an Application had been filed. Should the pre-Application steps be found to be fair and reasonable, the Tribunal is entitled to make an order for sale turning a blind eye to the fact that the majority owner had failed to take any reasonable steps after filing of the Application in view of the rising market trend. This is absurd and clearly not in the interests of the minority owners and defeat the intention of the Ordinance to protect the interests of the minority, up till the moment when the Tribunal makes an order for sale.”

Clay Factor

96.  Then Messrs Lam & Chung referred to the “value of potentiality” or Clay Factor as discussed in §20 above by which Mr Lam meant the immediate prospect of the subject lot being acquired for the purpose of future development.

97.  Messrs Lam & Chung submitted that on a plain reading of Part 2, Schedule 2 to the Ordinance, it only requires the Tribunal to take into account the redevelopment potential when setting the reserve price. This is the minimum protection to the minority owners. It does not prohibit the Tribunal to also takes into account more relevant factors, such as the Clay Factor or the value of potentiality, so long as it does not violate the “on its own” formulation. Clay Factor reflects part of the true market value of the subject property on its own (through the price which the purchaser offers to pay). It does not hinge on any redevelopment potential on a merged site basis (the developer’s plan is none of the concern of the individual owners). After the Tribunal has taken into account the RDV of the Lot on its own, it is free to add the Clay Factor on top. Just like what Hon Le Pichon JA (as she then was stated in Fully HK Investments Limited & Others v Poon Vai Ching & Other, HCMP 591/2007 (unreported, dated 4 April 2007) at §20 as follows:

“… to “decide what figure to put on top” of the plot ratio 4 to reflect the Clay factor, …”

98.  Messrs Lam & Chung submitted that there was a fallacy in the past when litigants had taken what the unit’s worth (ie the true market value of the unit) to equate with the RDV on merged site basis, and failed to give due regard to its true market value as they had mistakenly believed they were bound by Schedule 2 to the Ordinance in not allowing to do so.  Messrs Lam & Chung emphasized that the respondents here are not seeking any valuation to be done on a merged site basis, as it will be against Schedule 2 to the Ordinance. The respondents agree and adopt the reasoning of Supergoal Investment, supra at §47(c). The price which the developer was willing to pay (true market value of the unit) and the RDV on merged sited basis are two different matters. They do not have any particular correlation. Sometimes what the developer was willing to pay to acquire is higher than the RDV on merged sited basis, sometimes it will be lower.

99.  Messrs Lam & Chung submitted that the HK$7,654,500 which the developer was willing to pay for R2’s unit was made at the initial stage when the developer had offered to acquire the old properties. The RDV on merged sited basis is an estimate of the end result which reflects what the new development would be worth at completion. Therefore, they are two different things. Messrs Lam & Chung then cited what Cozens-hardy MR said in Clay:

“… To say that a small farm in the middle of a wealthy landowner’s estate is to be valued without reference to the fact that he will probably be willing to pay a large price, but solely with reference to its ordinary agricultural value, seems to me absurd. …”

100.  Messrs Lam & Chung further cited the following by Swinfen Eday LJ in Clay at §475:

“… It scarcely needed evidence to inform us - it is common knowledge - that when the fact becomes known that one probable buyer desires to obtain any property, that raises the general price or value of the thing in the market. Not only is the probable buyer a competitor in the market, but other persons, such as property brokers, compete in the market for what they know another person wants, with a view to a resale to him at an enhanced price, so as to realize a profit. A vendor desiring to realize any land would ordinarily give full publicity to all facts within his knowledge likely to enhance the price. The local conditions and requirements, the advantages of the situation of the property for any particular purpose, and the names of the persons who are probable buyers, would ordinarily be matters of local knowledge to the property brokers and agents and speculators. In order to arrive at the amount which land might be "expected to realise," all these matters ought to be taken into consideration. "Expected" refers to the expectations of properly qualified persons who have taken pains to inform themselves of all the particulars ascertainable about the property, and its capabilities, the demand for it, and the likely buyers. The price actually realized by a sale is not necessarily the price which it might have been expected to realize, but if the valuer be competent, and has taken proper pains in the matter, there ought to be little difference between the two figures. The fact that No. 83 had a potential value, by reason of its proximity to the nurses' home, and the very rapid increase of the work of that institution, pointing to a necessary extension at an early date, ought properly to be taken into consideration in arriving at the value it might be expected to realize. …” (emphasis added)

101.  Messrs Lam & Chung also referred to Capital Well at §10 that there are four phrases in an application under the Ordinance:

(1) the application;

(2) the Tribunal’s determination;

(3) the sale; and

(4) apportionment and application of the proceeds of sale.

Messrs Lam & Chung argued that the restriction “on its own” under Schedule 2 only applies to fixing the reserve price. It does not specifically have the restriction of “on its own” at the stage of section 4(2)(b).

102.  In any event, Mr Lam submitted that the Clay Factor should be reflected in the RDV in fixing the reserve price and so if the RDV is not significantly higher than the EUV, it might well indicate the redevelopment is not justified or the minority owners’ interest might not be protected.

103.  With respect, however, I consider Messrs Lam & Chung’s argument having fallen into the trap on the merged site basis. In Clay itself, adopting the language of Scrutton J in the lower court: “He” (the referee) “was right in this, not because of the sale for 1000l., but because of the reasonable expectation that a willing seller could get 1000l. or more from the nurses' home” which owned the neighbouring house and needed further accommodation near, No 83 was so adjacent and offered such suitable accommodation that it would be advantageous to them to pay at least 1000l., probably more, for it.” But according to para 2(a) of Schedule 2 to the Ordinance, the Lot shall be sold subject to a reserve price which takes into account the redevelopment potential of the Lot on its own, ie not on the merged site basis as accepted by Messrs Lam & Chung. To the extent that the reserve price is reasonably fixed taking into account the redevelopment potential of the Lot on its own, the pro rata share of the respective owners is reasonably expected to exclude the Clay Factor. In First Mate Development Limited, supra, such Clay Factor was similarly dismissed in fixing the reserve price.

104.  For instance, in the meeting of the Bill Committee of the Provisional Legislative Council on Land (Compulsory Sale for Redevelopment) Bill (“the Bill”) on 28 February 1998, the Bill Committee considered the suggestion by the Law Society that the reserve price should take into account the redevelopment potential of the lot “on its own” fair “as it would be difficult to assess the reserve price if other factors such as the potential of adjacent sites acquired by the majority owners were taken into account. Moreover, even if the majority owners owned a number of adjacent lots, they might not be the successful purchaser of the lot at the auction.”[22]

Home Purchase Allowance

105.  Mr Lam then drew an analogy to the compensation policy of Government’s compulsory resumption where “Home Purchase Allowance is payable to owner-occupiers of domestic properties affected by resumption to enable them to purchase a replacement flat of approximately seven years old and of similar size in the locality of the resumed flat.”[23] Mr Lam then suggested that that is the reason why R5 and R7 & R8 complained that they could not buy any similar premises with the money the developer offered to give them.

106.  In Data Key Limited v Director of Lands [2018] 2 HKLRD 158, Hon Au J (as he then was) observed at §31 that the Government’s policy on resumption “is one that upon resuming a tenanted or vacant commercial property under the LRO, the Government will offer the owner a compensation package which consists of what the Government regards as the open market value of the property and a solatium ...  The Policy is not that the owner is entitled to and will be paid a solatium whether or not the offer is accepted.” At §47 of the judgment, it was termed “an added advantage … to attract the offerees to accept the offer and hence to “facilitate clearance and to help finance their move from the property resumed””. Further, at §48, the learned judge remarked as follows:

“… the owners do not have any statutory right to be paid a solatium (whatever that value may be). All they are entitled to as a matter of rights, is they have a right to be paid the open market value of the properties resumed and a right to have that value assessed by the Lands Tribunal. Hence, they are not worse off (and therefore not punished) if they decide not to accept the Director’s offer (which includes the solatium and the open market value of the properties) as they would still be able to get the open market value as assessed by the Lands Tribunal as they are entitled to. No more no less.”

107.  By the same analogy, the series of transactions at HK$7,654,500 or HK$10,500 per sq ft could not be taken as representing the market value of the affected units as they came at a uniform rate of HK$10,500 per sq ft in defiance of differences in sizes, floor levels, view, orientation etc; more or less, the communication from the applicant via Centaline to the respective owners at  HK$10,500 per sq ft included a solatium (whatever that value may be) sent in the course of contractual negotiations with the clear intention of eliciting further comment from the recipient, if any; it was not an offer as suggested by Mr Lam but at best an invitation to treat.  On the other hand, the Draft Provisional Agreement for Sale and Purchase with or without the decoration allowance as the case may be made by the respective owners was the offer by the respective owners pending acceptance by the applicant if appropriate. The applicant was not bound to accept any of the offers as Messrs Lam & Chung submitted at §69 of their closing submission.

108.  In Leung Man Cheung & Others v Secretary for Planning and Lands & Another, HCAL 274, 376-382, 390-394, 396,

“Although, on the facts, No.4 may have received a much lower offer because of the exclusion of HPA, I have come to the view, after some initial hesitation, that the Applicants are precluded from contending that the Corporation had negotiated on terms that are unfair and unreasonable. First, the payment of HPA is based on a Government policy which had been approved by the Legislative Council. The exclusion of payment of HPA to single ownership buildings seems to be based on rational grounds because of the redevelopment potential that is available to the owner of the building. Until such a policy is changed, the Corporation really has to abide by the policy. Second, as shown in cases such as Chan Mok Yee and Cheung Fung Jan trading under the name of Ocean Paper Products Factory v The Attorney General, HCA6881/1980, and Chan Sik Cheung v The Director of Lands [1995] 3 HKC 199, an ex gratia payment is a voluntary payment of a gratuitous nature and is not justiciable. … The owners of No.4 had never indicated that they were prepared to accept the HPA on the basis that the existing use value is higher than the redevelopment value. Had they so indicated, and if the Corporation had nonetheless refused to grant them the HPA, then there may be some ground for saying that the Corporation had not negotiated on terms that are fair and reasonable. This is not the situation here.” (emphasis added)

109.  In any event, in the meeting of the Bill Committee of the Provisional Legislative Council on Land (Compulsory Sale for Redevelopment) Bill on 24 February 1998, it was decided that:

“The Lands Tribunal was not expected to make reference to the terms offered by LDC[24]. It would be up to the majority owners to convince the Lands Tribunal that fair and reasonable terms had been offered.”[25]

No Loss Basis

110.  Messrs Lam & Chung submitted that the series of transactions at HK$7,654,500 or HK$10,500 per sq ft are not individual transaction with “ransom power” as stated in Capital Well at §27 of the Court of Appeal judgment[26] or like the $7 million paid for 8/F, 6 Lime Street. Messrs Lam & Chung referred to Kwok Lee Sau Sang v Director of Lands & Survey [1977] HKLTLR 105 as discussed in Oriental Generation Limited & Others v Luk Yung & Others, LDCS 4000/2013 (unreported, dated 29 February 2016) and submitted that the HK$7,654,500 or HK$10,500 per sq ft should have been taken into account on the “no loss” basis. They submitted that “whether the Applicant can have all 3 sites to develop together as they expected, or in any unfortunate event they can only develop each individual sites on its own, the HK$10,500 per sq ft is the no loss amount they were willing to pay.

111.  With respect, this argument is defeated by the Draft Provisional Agreement for Sale and Purchase for instance signed by R2 itself. Under clause 13 of the Draft Provisional Agreement for Sale and Purchase, the sale or purchase was conditional upon the applicant successfully acquiring 80% interest of the Lot as well as the adjoining lots at 50-52 Larch Street & 54 Larch Street so as to satisfy the threshold under the Ordinance: [27]

「買賣雙方確認買方之最終目的是收購 (1) 50-52 Larch Street (“相關物業1”), (2) 54 Larch Street (“相關物業2”) 及 (3) 56-62 Larch Street and 6-8 Lime Street (“相關物業3”) 作重建用途， 賣方同意， 倘若買方未能在2018年 月 日(“該限期”)或之前與 “相關物業1”、 “相關物業2”及 “相關物業3”之不少於80%業權份數之所有業權人全部簽署《物業臨時買賣合約》，或買方代表律師在交易前認為“相關物業1” 或 “相關物業2” 或 “相關物業3” 其中任何部份之業權或契約不妥善， 或因其他任何原因未能與 “相關物業1”、 “相關物業2” 及 “相關物業3” 之所有業權人於成交日或之前完成交易， 則買方有權選擇放棄購入或獨立購入該物業。 ......」

112.  That explains why many acquisitions of the units in the Building were coordinated to be executed all at the same time on 10 July 2018. Thus, this HK$10,500 per sq ft comprised “a premium value as the last bit in the jigsaw to assemble the development site” equivalent to the “ransom power”. As held by the English Upper Tribunal (Lands Chamber) in Michael v Salford City Council [2016] UKUT 370 (LC), this premium value “ignores the effect that this would have an impact on the viability of the reference land under the residual method. I am not satisfied that the claimant has shown that a 10% addition is warranted.”

113.  I agree with Mr Mok in his closing submission that the insistence of the respondents on receiving the average rate of $10,500 per sq ft would have the effect of deterring majority owners to be more generous in making early offer. That would run against the legislative intent of the Ordinance to encourage negotiation and settlement among the majority owner and the minority owners.

RDV v EUV

114.  Mr Lam also referred to the evidence of the RDV very close to the EUV. Mr Lam submitted that when the RDV is not significantly higher than the EUV, it means that the Building has not reached the end of its economic lifespan. Although Mr Lam was alerted by me during trial that in Fineway Properties Limited v Sin Ho Yuen Victor, CACV 95/2009 (reported as [2010] 4 HKLRD 1), the Court of Appeal stated obiter at §§34-37 that this might not be the correct test, Mr Lam remarked that such test echoes the respondents’ concern. The developer can implement its plan to redevelop the building with an estimated 15% profit (which were agreed by both Mr C Chan and Mr Lai in their residual valuation), but it is “at the expense of the minority owners” in compelling to accept a compensation similar to the EUV. Mr Lam suggested the minority owners are virtually getting nothing for compensation other than the original existing value of the flat. With respect, I cannot agree with Mr Lam’s observation bearing in mind the EUV, if properly assessed, is the market value of the units in the Building subject to the qualification as per Part 1 in Schedule 1, ie “not taking into account the redevelopment potential of the property or the lot.”

115.  I see nothing wrong with this qualification by statute because if there were no such Ordinance, the probability of realizing the redevelopment potential, if any, would be remote as the prospective developer has to acquire 100% interest in the Lot. In the move for the Second Reading of the Bill on 21 January 1998, the Secretary for Planning, Environment and Lands stated as follows:[28]

“The purpose of the Bill is to provide a solution to some problems which are often encountered in the course of land assembly for private property redevelopment; thereby quickening the pace of redevelopment and improving the environment in derelict urban areas. At present, many properties which urgently require redevelopment cannot proceed because of various reasons. First, title problems, such as where the owner who has died intestate or the owner's identity is untraceable, are common to these derelict buildings and such problems will hold up the redevelopment process. Moreover, individual owners may refuse to sell their properties for personal reasons or demand unreasonably high prices for their properties. Under such circumstances, redevelopment projects often have to be abandoned halfway. …”

116.  By virtue of the common law principle, the Pointe Gourde principle which obtains its modern nomenclature from the Privy Council decision in Pointe Gourde Quarrying and Transport Co Ltd v Sub-Intendent of Crown Lands [1947] AC 565, any increase in value which is entirely due to the scheme underlying the acquisition should be disregarded. The individual owners do not enjoy this development potential if the Ordinance has not come into place.

117.  The 15% profit or whatever amount enters the residual valuation:

Residual land value (economic rent) =

(Value of completed development) – (development costs + developer’s profit)

because this is the compensation to the prospective developer in undertaking the redevelopment. There are always risks associated with any investment particularly when the capital to be incurred is rather substantial, eg a real estate development. A developer undertaking such development will seek to make a reasonable profit out of his investment. The targeted level of profit depends on the nature of investment undertaken and the associated risk, such as market competition, market uncertainties and contingencies that may pop up before completion, and the general optimism in relation to venture undertaken[29]. This is not “at the expense of the minority owners” when the latter are reasonably compensated.

118.  More importantly, the Court of Final Appeal in Capital Well has emphasized at §33 that:

“In making that assessment (whether an offer is reasonable) 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.”

119.  The Court of Final Appeal stated further at §36 of the judgment that:

“What the Tribunal must do is to consider whether, in the circumstances of each case, the offer falls within a band of what represents a fair and reasonable assessment of the value of the minority owner’s interest reflecting a proportionate share of the redevelopment value of the whole site.”

120.  In any event, the two experts had not prepared any valuation evidence that the RDV as at 1 November 2018 was not much higher than the EUV. This was an important consideration by me in rejecting the last-minute proposed amendment of the Notice of Opposition as stated at §22 above. Mr Li, during cross-examination by Mr Lam, was asked to compare the EUV as at 1 November 2018 with the RDV as at July 2020. It was not fair.

121.  On the other hand, by comparing the offers by the applicant for instance on 13 November 2018 with the EUV assessed by me at §74 above, I note the following:

Respondents’ Units	Offers as at 13 November 2018	Offers as at 11 August 2020	EUV as at 1 November 2018
R2’s Unit	$6,150,000	$6,400,000	$5,906,000
R3’s Unit	$4,650,000	-	$3,861,000
R5’s Unit	$13,280,000	$15,000,000	$13,719,000
R7 & R8’s Unit	$15,810,000	$18,300,000	$16,129,000

122.  That is, the offers at 13 November 2018 for the domestic units were higher than their respective EUV and the offers for the shop units were lower than their respective EUV by as much as 2%. However, as highlighted by Mr Justice Ribeiro PJ in Capital Well, supra, at §33, there is always room for differences of opinion in these areas.  In many cases, the expert opinions put forward by one side had to be calibrated in the wake of the opinions from another expert.

123.  Valuation is not an exact science; mathematical precision is neither a feature of valuation particularly for developable land owing to the imperfection of the market where even between skilled valuers the margin of opinion may be surprisingly wide. In Singer and Friedlander Limited v John D Wood & Co (1977) 243 EG 212; (1977) 2 EGLR 84, Watkins J stated:

"The valuation of land by trained, competent and careful professional men is a task which rarely, if ever, admits of precise conclusion. Often beyond certain well-founded facts so many imponderables confront the valuer that he is obliged to proceed on the basis of assumptions. Therefore, he cannot be faulted for achieving a result which does not admit of some degree of error."

Nevertheless, the learned judge went on to say that it was agreed generally in the profession that a permissible margin was 10 per cent either side of a figure which could be said to be the right figure (assessed as if arrived at when the valuation was made and not with the benefit of hindsight). In exceptional circumstances the margin could be 15 per cent or a little more either way. In Muldoon v Maps of Lilliput Limited (1993) 14 EG 100, Judge Zucker QC used a range of 15-20%[30]; this illustrates that the margin of error is not set by precedent.

124.  At this juncture, it is interesting to note that in the Bill, it originally required the majority owner to take “all” reasonable steps to acquire all the undivided shares in the lot. It was agreed in the meeting of the Bill Committee of the Provisional Legislative Council on Land (Compulsory Sale for Redevelopment) Bill on 24 February 1998 that the word “all” would be deleted.[31]

125.  Also the Tribunal in Good Faith Properties, supra, held at §61 of the judgment that:

“With a purposive interpretation of Section 4(2)(b), all reasonable steps before the making of a sale order to acquire the minority owner’s share in the Lot should be considered, be it post- or pre-Application.”

126.  As shall be seen from the reserve price found by this Tribunal at $326,830,000, the assessment of RDV by Mr C Chan is far more reasonable than that of Mr Lai.  Under such circumstances, I find it reasonable for the applicant to rely upon the advice of Mr C Chan in making the offers which are fair and reasonable, given the sums offered were within the broad range between the valuation done by Mr C Chan and the RDV value found by this Tribunal:

Respondents’ Units	Offers as at 11 August 2020	EUV as at 1 November 2018	Pro Rata Share of the Total ($304,824,000)	Pro Rata Share of RDV
R2’s Unit	$6,400,000	$5,906,000	1.9375%	$6,332,369
R3’s Unit	-	$3,861,000	1.2666%	$4,139,735
R5’s Unit	$15,000,000	$13,719,000	4.5006%	$14,709,409
R7 & R8’s Unit	$18,300,000	$16,129,000	5.2913%	$17,293,392

127.  To the extent that the Court of Appeal in Capital Well held that the Ordinance did not apply to land wholly-owned by the applicant, ie the lots at 50-52 Larch Street and 54 Larch Street, there is nothing wrong for applicant in pursuing the Application. That the finding of the RDV only slightly higher than the total EUV only confirms Mr Li’s evidence that the redevelopment of the Building alone was not viable. In any event, in the meeting of the Bill Committee of the Provisional Legislative Council on Land (Compulsory Sale for Redevelopment) Bill on 19 February 1998, it was noted that the Law Society of Hong Kong took the view that the purpose of the majority owners for selling the lot was irrelevant and should not be considered by the Tribunal[32]. As said by the Court of Final Appeal in Capital Well, this might offer an opportunity where the minority owners or a third party might be able to bid up the Lot thereby exercising “ransom power” through the public auction[33].

128.  On the evidence available, therefore, I am satisfied that the applicant has taken reasonable steps to acquire all the undivided shares in the Lot including negotiating for the purchase of such of those shares as are owned by R2, R3, R5 and R7 & R8 on terms that are fair and reasonable.

Disputes on the estimation of the RDV of the Lot

Optimum Hypothetical Development Model

129.  It is trite that in the valuation of land or other properties, where reliable comparables are available, a valuation based thereon is the best way of arriving at the correct value of the land or other properties.

130.  In the present case, Mr C Chan identified a land transaction, a site at 31 Fuk Tsun Street (with area of 409.0 sq m) sold for $410,000,000 (ie accommodation value of $111,364 sq m) according to a provisional agreement for sale and purchase[34] and agreement for sale and purchase[35] dated 9 May 2019 and 27 May 2019 respectively. The consideration was however reduced to $383,350,000 (ie accommodation value of $104,131 sq m) by a supplemental agreement dated 6 September 2019[36] and the following assignment dated 10 September 2019[37]. In the public announcement by Winfair Investment Company Limited (a listed company on Hong Kong Stock Exchanges: 0287) dated 6 September 2019, the holding company of the purchaser, explained the reduction was owing to “the recent social unrest in Hong Kong and the uncertainty of the economy.”

131.  By reference to the third schedule to the agreement for sale and purchase afore-mentioned[38], it appears that the site was sold with some foundation works done:

「上述樓宇是以現狀售予賣方。 賣方對上述樓宇之地基打樁工程現況、進度以至其可行性及有否收到任何政府之相關通知或命令不作任何保證。 買方明確聲明在簽署此臨時買賣合約以前已視察上述樓宇並已就其現況（包括其地基打樁工程停止的原因及後果）諮詢獨立法律及專業意見， 滿意並接受上述樓宇（包括其地基打樁工程停止的實際現況及原因）及明白其法律後果。……」

132.  Mr Lai provided newspaper cutting from Apple Daily on 23 August 2010 that the foundation works carried out at 31 Fuk Tsun Street had caused shuddering of the adjoining buildings[39]:

「年初馬頭圍道發生塌樓慘劇， 引起公眾關注樓宇安全問題。 大角嘴居民陳先生指出， 福全街31號地盤連月來不斷進行「撞擊式」 打樁， 工程進行時， 附近居民均感到樓宇震動， ……」

133.  And upon our joint inspection on 25 August 2020, I noted the site remained vacant with no foundation works whatsoever save the hoardings around the site. I agree with Mr Lai that the sale of this site in 2019 is not a reliable comparable taking into consideration of the foundation problem that had haunted the site for more than 10 years.

134.  As no suitable redevelopment site comparables could be adduced as evidence for this Tribunal to consider, both Mr C Chan and Mr Lai 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.

135.  Although the valuation experts previously had different opinion on the optimum hypothetical form of development on the Lot, by their Joint Statement dated 14 August 2020, Mr C Chan agreed with Mr Lai that the optimum hypothetical form of development on the Lot should comprise a 23-storey composite building with 5 shops on G/F (with exclusive access to 1/F which will comprise other shop accommodation and plant room; there will be clubhouse facilities on 2/F and residential units on each of the upper floors. The site area of the Lot is agreed at 337.24 sq m.

136.  Mr C Chan and Mr Lai have also agreed on other parameters including the saleable areas per floor and even the total gross floor area (“GFA”) for the retail and residential portions. Their agreements or disagreements are set out in the table below:[40]

		Mr C Chan	Mr Lai
Site Area		337.24 sq m
Form of Optimal Development		23-storey composite building with retail shops on G/F & retail accommodation and plant room on 1/F, clubhouse on 2/F and residential units on upper floors.
Area	G/F Shop	267.24 sq m (Saleable Area)
	1/F Shop	148.61 sq m (Saleable Area)
	Upper Floor Residential	1,865.80 sq m (Saleable Area)
	Top Roof	56.00 sq m
	Total GFA	3,035.15 sq m
Marketing Cost		3%
Demolition Cost for the Building		2,520 sq m x $2,200/sq m	2,520 sq m x $2,123/sq m
Demolition Period		0.5 year
Construction Cost		$40,886/sq m	$32,486/sq m
Construction Period		2 years
Professional Fee		6%	4.5%
Developer’s Profit		15%
Interest Rate		4.0%	3.5%
Stamp Duty		4.25%	4.25%
Legal Cost		0.1%	Nil
Land Value		$310,000,000	$417,000,000
Accommodation Value		$102,137/m2	$137,390/m2

Assessment of the Value for the hypothetical shop units on G/F

137.  In the Joint Witness Statement dated 14 August 2020, the two experts had agreed that a proposed shop having a saleable area of 53.4 sq m with frontage of 5.1m onto Lime Street and headroom of 5m would be taken as the reference unit in assessing the GDV for shops of the hypothetical development.

138.  They had identified the following transactions as comparables:[41]

Comp	Address	Date of PASP*	Consideration	Saleable Area (m2)	Ancillary Area (m2)	Frontage (m)	Headroom under M/F (m)	Full Headroom (m)
C1	G/F & Cockloft, Bedford Mansion, 36 Bedford Road	17 Apr 20	$16,000,000	67.0 WC at Yard: 5.3	Yard: 7.9 C/L: 28.3	4.2	2.9	5.6
C3	G/F & Cockloft, Bedford Mansion, 32 Bedford Road	11 Dec 18	$18,000,000	69.6 WC at Yard: 8.7	Yard: 5.6 C/L: 77.2	4.7	2.9	5.6
C4/ A1	G/F, 69 Larch Street	25 Sep 18	$18,500,000	47.0	-	6.8 onto Larch Street and 5.5 onto Lime Street	-	5.0
C5/ A2	Shop C, G/F & Cockloft, Tang Fat House, 1, 1A & 3 Bedford Road	11 Jun 18	$18,800,000	72.0	Yard; 10.3 C/L: 32.5	4.6	2.8	5.1
C6/ A3	G/F & Yard, Oak House, 90 Oak Street	18 May 18	$16,000,000	66.4	Yard: 11.5	4.4	-	3.5
C7/ A4	Flat C, G/F, Wing Shun Building, 53-67 Larch Street & 4 Lime Street	3 May 18	$23,500,000	99.6	-	6.1	-	4.0
C8/ A5	G/F & Mezzanine Floor, 18 Larch Street	10 Feb 18	$25,350,000	43.2	C/L: 22.2	9.3 onto Fir Street and 4.6 onto Larch Street	2.9	5.8
C9/ A6	Shop A, G/F & Yard, Mink Tack Court, 81- 85A Oak Street	20 Oct 17	$15,500,000	46.8	Yard: 24.9	4.8	-	5.0
C10/ A7	G/F, 14 Anchor Street	20 May 17	$11,980,000	31.0	-	7.9 onto anchor Street and 2.9 onto service lane	-	5.5

139.  From the table above, it is noted that, in addition to the comparables adopted by the 2 experts in assessing the EUV as at 1 November 2018, they agreed to introduce 2 new comparables, ie C1 and C3. However, they could not agree on the adjustment for location in respect of these 2 new comparables: Mr C Chan adopted nil while Mr Lai suggested 20%. Having conducted the joint site inspection, I agree with Mr Lai but at a lower 15%. Although these 2 comparables are situated just one block from the Building and ground floor shops in the vicinity are occupied by trades such as hardware shops and car repairs shops similar to those near the Building on Larch Street, I agree with Mr Lai that upon redevelopment of the Building at such a corner location, the environment/ retail potential would be improved.

140.  For the same reason, I agree with Mr Lai that there should be an upward location adjustment of 10% for the other comparables as well.

141.  And for the same reason, I agree with Mr Lai that the value of the proposed shop will be more sensitive to size and therefore his adjustment on the basis of 1% per 5 sq m is adopted.

142.  On the other hand, Mr C Chan was of the opinion that in assessing the G/F value as at August 2020, C9 and C10 are dated and should be disregarded. However, these are 2 of 5 comparables that have been adopted in the EUV assessment and the 2 experts have to a certain extent agreed on the percentage of the time adjustments which are not high. It may be too early to disregard these 2 comparables at this stage before analysis.

143.  Taking into account this new comparable, my assessment is therefore as follows:

	Unit Price (/m2)	Adjustments									Adjusted Unit Price (/m2)
		Time	Location	Size	Age	Frontage	Return Frontage	Layout	Headroom	Total*
C1	$198,265	-0.5%	15.0%	5.5%	10.8%	1.8%	0.0%	10.0%	8.4%	62.40%	$321,982
C3	$182,741	-11.3%	15.0%	9.0%	10.8%	0.8%	0.0%	10.0%	8.4%	48.10%	$270,639
C4/ A1	$393,617	-12.4%	5.0%	-1.3%	12.2%	-3.4%	-20.0%	0.0%	0.0%	-21.30%	$309,777
C6/ A3	$234,261	-10.9%	20.0%	3.0%	10.2%	1.4%	0.0%	10.0%	6.0%	43.50%	$336,165
C8/ A5	$519,467	-10.1%	-5.0%	-0.9%	11.6%	1.0%	-20.0%	-5.0%	8.4%	-21.40%	$408,301
C9/ A6	$303,922	-7.8%	20.0%	-0.5%	5.6%	0.6%	0.0%	0.0%	0.0%	16.90%	$355,285
C10/ A7	$386,452	-4.6%	10.0%	-4.5%	11.0%	-5.6%	-5.0%	-10.0%	-2.0%	-12.00%	$340,078
										Average:	$334,604

* By multiplication

144.  From the above analysis, the average is $334,604 per sq m including the dated comparables C9 and C10. If the latter are excluded, the average becomes $329,373 per sq m, ie a difference of less than 2%.

145.  On the other hand, the adjusted unit rate for comparable C1 is significantly large. In Tin Kung Investment Limited v Secretary for Transport, LDRW 16 of 2001, (unreported, 29 June 2004), the Lands Tribunal commented that:

‘The number of factors adopted by AW for adjustment is 11 and later reduced to 10 with some original factors taken out and substituted with others. The greatest amount of adjustment made for a single factor is 23% and the greatest in aggregate for a Comparable is 51.1%. The number of factors contained in RW's valuation reports is 9. The greatest amount of adjustment he has proposed for a single factor is 16% and the greatest amount in aggregate is 31.5%.

Putting before anyone these statistics, there must be the concern whether the Comparables selected for valuation are indeed suitable for comparison. Making adjustment to compensate for the difference between two properties is not a perfect and effective valuation tool. What the experts have built in the valuation formula are largely subjective views (and such formula may be manipulated to arrive at an intended result). The subjective views tend to cause error, the risk of which goes in proportion to the quantum of adjustment made. Its application therefore is with limitation. It is suitable for use only if the two properties are in great similar but in minor place different. In the case where a large number of factors and amount of adjustment as the above are applied in the valuation, the risk of getting the valuation wrong is high. If this fundamental principle of application is not observed, the price of a commercial property in a central business area can be absurdly taken to find out the value of a piece of farmland in the green belt zone through adjustments. The great total number of factors/amount of adjustment adopted is a sheer indication of the unsuitability of a property for use for comparison to the other. In this regard, the Respondent's counsel has rightly quoted HH Judge Cruden's view in his book entitled "Land Compensation and Valuation Law in Hong Kong".’

146.  Thus, C1 is not a reliable comparable and if it is excluded as well as C9 and C10, the average of the remaining comparables gives $336,213 per sq m.

147.  Bearing in mind of the above, I adopt the unit rate of $335,000 per sq m for the reference unit. This compares reasonably well with the unit rate of $312,000 per sq m for the EUV of G/F, 6 Lime Street.

148.  Then I follow the assessments of Mr C Chan (save for the adjustment for return frontage) below to arrive at the GDV for the G/F shops of the hypothetical development[42]:

Frontage	Reference Unit Rate (/m2)							Adjusted Unit Rate (/m2)
		Location*	Frontage	Return Frontage	Layout	Size	Total
Larch Street	$335,000	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	$335,000
Larch Street	$335,000	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	$335,000
Larch Street/ Lime Street	$335,000	0.0%	1.2%	20.0%	10.0%	0.0%	33.6%	$447,560
Larch Street	$335,000	0.0%	1.2%	0.0%	0.0%	0.0%	1.2%	$339,020
Lime Street	$335,000	0.0%	1.2%	0.0%	0.0%	0.0%	1.2%	$339,020
							Average:	$359,120

* With the improvement in environment upon redevelopment, I agree that there is no difference in location between shops on Lime Street and those on Larch Street.

Assessment of the Value for the hypothetical shop units on 1/F

149.  Both experts agreed that the unit value of 1/F would be equal to 1/2 of that for G/F. As we find that the unit rate for G/F is $359,120/sq m, the unit value of 1/F would be $179,560/sq m.

Assessment of the Value for U/F (Residential)

150.  As regards the domestic portion, the two experts agreed to adopt 8 transactions at Aquila Square Mile, 38 Fuk Chak Street as comparables. They also managed to agree the various adjustments except the adjustments for location and orientation.

151.  In respect of location, Mr C Chan considered Aquila Square Mile is superior because it lies within 5-10 minutes’ walking distance from the bus terminal underneath the nearby HSBC Centre, the MTR Olympic station and the regional shopping mall next to it. I agree.

152.  Although I agree with Mr Lai that upon redevelopment of the Building, the shopping environment will be improved, I do not consider the new residential units will be better when compared with Aquila Square Mile. Similarly, I do not agree with Mr Lai that there would be any adjustment for orientation.

153.  As regards the value of the “special unit” on the top floor, I appreciate that Mr C Chan had allowed an adjustment of 15%. I agree with him that further adjustment for the roof will result in double counting. I also with Mr C Chan that “flat buyers in this locality are more price sensitive than buyers in luxury residential areas. Hence buyers in the locality are unlikely to pay a huge premium for a “special unit”.”

154.  Thus, I accept Mr C Chan’s assessment of the residential units at an average of $263,000 per sq m[43].

Demolition and Construction Costs

155.  Both Mr C Chan and Mr Lai agreed that the prevailing demolition costs in the 1^st quarter of 2020 is $2,200 per sq m. However, Mr Lai went a step further by assuming the costs for builder’s works would decrease by about 3.5% by reference to the tender price index as suggested by Rider Levett Bucknall (“RLB”), a reputable quantity surveyors firm, that there was a decrease of 1.7% in tender prices in the first quarter of 2020. Mr C Chan rebutted however that the tender price index has a decreasing trend since the 1^st quarter of 2017 but the unit cost of demolition remains relatively constant at $2,200 per sq m over the same period. In the absence of further evidence, I accept Mr C Chan’s argument.

156.  The next difference in opinion is on the unit construction costs.  According to Mr C Chan, by reference of the brochure of Aquila Square Mile and the specification of the Building Cost Data published by RLB some of the finishes of Aquila Square Mile falls within the “very high quality’ category (for example, the provision of curtain walls). He therefore disagreed with Mr Lai that the finishes of Aquila Square Mile fall within just the “high quality” category; Mr C Chan considered more appropriate to adopt high to very high standard category for the cost of the hypothetical development.

157.  In addition, Mr C Chan referred to the Authorized Person’s Certificate of Aquila Square Mile that the unit cost is $47,645 per sq m which is much higher than Mr Lai’s adoption of $32,486 per sq m.

158.  To the extent that the 2 experts were assessing the GDV of the upper floor units by reference to transactions of Aquila Square Mile, I accept Mr C Chan’s construction cost at $40,886 per sq m.

Professional Fee

159.  Professional fee of 6% has been adopted in residual valuation in Hong Kong for a long period of time. I appreciate this should not be a constant figure but subject to change from time to time depending on market conditions.

160.  In this regard, Mr Lai considered that 6% is on the high side. Mr Lai made reference to the Authorized Person’s Certificate for Cetus Square Mile at No 18 Ka Shin Street, another new residential/commercial development in the vicinity, which states: “The construction costs of the Development is: HK$889,000,000.00”.[44] Then it was written that “The Professional fees in relation to completion of the Development as confirmed by the Vendor to me in writing is: HK$38,000,000.00” By deduction, the professional fee charged for the project was about 4.27%.

161.  Mr C Chan responded that by similar deduction, the professional fee charged for Aquila Square Mile was 5.04% but both Cetus Square Mile and Aquila Square Mile are several times larger than the hypothetical development. In his opinion, the costs and extent of works of the professionals are less prone to the change in scale when compared with the construction costs. Mr C Chan made a comparison as follows[45]:

Development	Total GFA (sq m)	Construction Cost (/sq m)		Professional Fee
		Mr C Chan	Mr Lai	Mr C Chan	Mr Lai
Subject Hypothetical Development	3,035.15	$40,886	$32,486	6.0%	4.5%
Aquila Square Mile	16,812.30	$47,645		5.04%
Cetus Square Mile	16,309.40	$54,508		4.27%

162.  Having reviewed the above, I agree with Mr C Chan that the professional fee should be maintained at 6%.

Interest Rate

163.  Another difference of opinion between the 2 experts is on interest rate, ie the cost of borrowing by developers: Mr C Chan suggested 4.0% while Mr Lai suggested 3.5%.

164.  Mr Lai particularly referred to the Announcement of Final Results for the year ended 31 March, 2020 by Winfair Investment Company Limited on 30 June 2020, that is, the purchaser of 31 Fuk Tsun Street afore-mentioned. The bank loan granted to the company was charged at 1.55% above Hong Kong Interbank Offered Rate (“HIBOR”), or 1.8% per annum below Hong Kong Dollars Best Lending Rate (“BLR”) of a commercial bank in Hong Kong (2019: 2% above HIBOR, or 1% below BLR)[46].

165.  Mr C Chan disagreed to adopt these rates because the reference made by Mr Lai was in respect of bank loans on investment properties (ie completed properties) instead of building mortgage which would involve higher risk from the perspective of the lender. In fact, note(c) of the announcement stated that the bank loans were secured by investment properties and a corporate guarantee.

166.  On the one hand, I agree with Mr C Chan. On the other hand, I note the BLR has been prevailing at 5.0%. Thus, I consider 4% should be the proper interest rate to be adopted.

167.  Finally, there is minor difference between the 2 experts on the legal costs to be adopted: Mr C Chan suggested 0.1% while Mr Lai suggested nil. Although I agree with Mr Lai that the legal cost should be minimal but I consider 0.1% more properly reflecting the real life situation.

Finding on RDV and the Reserve Price

168.  Subject to what I have stated above, particularly the GDV for the shops of the hypothetical development, I shall follow Mr C Chan’s residual valuation model as at 28 July 2020[47] on the determination of the RDV which is reproduced at Appendix 3 to this judgment. I determine the land value of the Lot at $326,830,000 (ie accommodation value of $107,682/m²).

169.  I shall adopt the estimated RDV of $326,830,000 as the Reserve Price for the auction of the Lot.

Other Incidental Matters

170.  The applicant proposed to appoint Mr Ma Ho Fai (馬豪輝) and Ms Hung Suet Shan Catherine (孔雪珊), being partner and consultant of Messrs Woo Kwan Lee & Lo, Solicitors, as the sale trustees.  Based on the information on their background and experience as set out in their letter dated 15 July 2020, I am 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.

171.  The applicant has prepared a set of draft Particulars and Conditions of Sale of the Lot[48].  Subject to any amendment that may become necessary as a result of my ruling on the arrangement of auction above, the particulars and conditions of sale of the Lot by public auction submitted by the applicant are also reasonable.

Order

172.  This Tribunal make the following orders:

(1) This Tribunal is satisfied that the redevelopment of the Lot is justified due to the “age” and “state of repair” of the Building and that the applicant has taken reasonable steps to acquire all the undivided shares in the Lot including those of the 2^nd, 3^rd, 5^th, 7^th and 8^th respondents;

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

(3) Mr Ma Ho Fai and Ms Hung Suet Shan Catherine of Messrs Woo Kwan Lee & Lo, Solicitors, nominated by the applicant, be appointed trustees (“the Trustees”) to discharge the duties imposed on trustees under the Ordinance in relation to sale of the Lot and the Trustees be authorized to charge such remuneration for their services in accordance with the terms set out in the letter of Messrs Woo Kwan Lee & Lo, Solicitors,  dated 15 July 2020.

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

(i) The sale of the Lot 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 $326,830,000.

(iii) Subject to further extensions that the Tribunal may subsequently allow upon the application of the purchaser of the Lot or its successor in title, the redevelopment of the Lot 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 Lot shall become the owner of the Lot.

(iv) Liberty to the applicant, the 2^nd, 3^rd, 5^th, 7^th and 8^th respondents and the Trustees to apply to the Tribunal for further direction(s) under the Ordinance.

Costs

173.  In accordance with the compensation approach as determined by the Court of Appeal in Good Faith Properties Ltd and Others v Cibean Development Co Ltd [2014] 5 HKLRD 534, the respondents are entitled to costs notwithstanding the outcome of the Application.

174.  Thus, save from the costs arising from the Summons filed on 18 August 2020 which are payable by the respondents to the applicant on party and party basis, I order that the applicant do pay the respondents’ costs in these proceedings on High Court scale with certificate for one counsel, including any costs reserved, to be taxed if not agreed.

175.  Last but not least, the Tribunal thanks both Counsel for their assistance.

Appendix 1

Unit	Converted Area (m2)	Adjustments								Adjusted Unit Rate (/m2)	EUV
		Floor	Top Floor	Size	View	Lighting & Ventilation	Orientation	Internal Condition	Total
1/F, 56 Larch Street	67.8	6.0%	0.0%	-2.1%	0.0%	0.0%	0.0%	0.0%	3.8%	$89,579	$6,073,000
1/F, 58 Larch Street	46.6	6.0%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	6.0%	$91,478	$4,263,000
1/F, 60 Larch Street	46.6	6.0%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	6.0%	$91,478	$4,263,000
1/F, 62 Larch Street	56.1	6.0%	0.0%	-1.0%	0.0%	3.0%	-2.0%	-3.0%	2.7%	$88,630	$4,972,000
1/F, 6 Lime  Street	33.8	6.0%	0.0%	1.3%	0.0%	0.0%	-2.0%	0.0%	5.2%	$90,788	$3,069,000
1/F, 8 Lime Street	45.5	6.0%	0.0%	0.1%	0.0%	0.0%	-2.0%	0.0%	4.0%	$89,752	$4,084,000
2/F, 56 Larch Street	66.3	4.0%	0.0%	-2.0%	0.0%	0.0%	0.0%	0.0%	1.9%	$87,940	$5,830,000
2/F, 58 Larch Street	46.6	4.0%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	4.0%	$89,752	$4,182,000
2/F, 60 Larch Street	46.6	4.0%	0.0%	0.0%	0.0%	0.0%	0.0%	3.0%	7.1%	$92,427	$4,307,000
2/F, 62 Larch Street	56.1	4.0%	0.0%	-1.0%	0.0%	3.0%	-2.0%	3.0%	7.0%	$92,341	$5,180,000
2/F, 6 Lime Street	33.8	4.0%	0.0%	1.3%	0.0%	0.0%	-2.0%	0.0%	3.2%	$89,062	$3,010,000
2/F, 8 Lime  Street	43.3	4.0%	0.0%	0.3%	0.0%	0.0%	-2.0%	0.0%	2.2%	$88,199	$3,819,000
3/F, 56 Larch Street	66.3	2.0%	0.0%	-2.0%	0.0%	0.0%	0.0%	0.0%	0.0%	$86,300	$5,722,000
3/F, 58 Larch Street	46.6	2.0%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	2.0%	$88,026	$4,102,000
3/F, 60 Larch Street	46.6	2.0%	0.0%	0.0%	0.0%	0.0%	0.0%	3.0%	5.1%	$90,701	$4,227,000
3/F, 62 Larch Street	56.1	2.0%	0.0%	-1.0%	0.0%	3.0%	-2.0%	0.0%	1.9%	$87,940	$4,933,000
3/F, 6 Lime Street	33.8	2.0%	0.0%	1.3%	0.0%	0.0%	-2.0%	3.0%	4.3%	$90,011	$3,042,000
3/F, 8 Lime Street	43.3	2.0%	0.0%	0.3%	0.0%	0.0%	-2.0%	3.0%	3.3%	$89,148	$3,860,000
4/F, 56 Larch Street	66.7	0.0%	0.0%	-2.0%	0.0%	0.0%	0.0%	0.0%	-2.0%	$84,574	$5,641,000
4/F, 58 Larch Street	46.6	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	$86,300	$4,022,000
4/F, 60 Larch Street	46.6	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	$86,300	$4,022,000
4/F, 62 Larch Street	56.1	0.0%	0.0%	-1.0%	0.0%	3.0%	-2.0%	0.0%	-0.1%	$86,214	$4,837,000
4/F, 6 Lime Street	33.8	0.0%	0.0%	1.3%	0.0%	0.0%	-2.0%	3.0%	2.3%	$88,285	$2,984,000
4/F, 8 Lime Street	43.3	0.0%	0.0%	0.3%	0.0%	0.0%	-2.0%	0.0%	-1.7%	$84,833	$3,673,000
5/F, 56 Larch Street	66.7	-2.0%	0.0%	-2.0%	0.0%	0.0%	0.0%	0.0%	-4.0%	$82,848	$5,526,000
5/F, 58 Larch Street	46.6	-2.0%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	-2.0%	$84,574	$3,941,000
5/F, 60 Larch Street	46.6	-2.0%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	-2.0%	$84,574	$3,941,000
5/F, 62 Larch Street	56.1	-2.0%	0.0%	-1.0%	0.0%	3.0%	-2.0%	0.0%	-2.1%	$84,488	$4,740,000
5/F, 6 Lime Street	33.8	-2.0%	0.0%	1.3%	0.0%	0.0%	-2.0%	0.0%	-2.7%	$83,970	$2,838,000
5/F, 8 Lime Street	43.3	-2.0%	0.0%	0.3%	0.0%	0.0%	-2.0%	-3.0%	-6.6%	$80,604	$3,490,000
6/F, 56 Larch Street	66.7	-4.0%	0.0%	-2.0%	0.0%	0.0%	0.0%	-3.0%	-8.7%	$78,792	$5,255,000
6/F, 58 Larch Street	46.6	-4.0%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	-4.0%	$82,848	$3,861,000
6/F, 60 Larch Street	46.6	-4.0%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	-4.0%	$82,848	$3,861,000
6/F, 62 Larch Street	56.1	-4.0%	0.0%	-1.0%	0.0%	3.0%	-2.0%	0.0%	-4.1%	$82,762	$4,643,000
6/F, 6 Lime Street	33.8	-4.0%	0.0%	1.3%	0.0%	0.0%	-2.0%	3.0%	-1.8%	$84,747	$2,864,000
6/F, 8 Lime Street	43.3	-4.0%	0.0%	0.3%	0.0%	0.0%	-2.0%	3.0%	-2.8%	$83,884	$3,632,000
7/F, 56 Larch Street	66.7	-6.0%	0.0%	-2.0%	3.0%	5.0%	0.0%	3.0%	2.6%	$88,544	$5,906,000
7/F, 58 Larch Street	46.6	-6.0%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	-6.0%	$81,122	$3,780,000
7/F, 60 Larch Street	46.6	-6.0%	0.0%	0.0%	0.0%	0.0%	0.0%	-3.0%	-8.8%	$78,706	$3,668,000
7/F, 62 Larch Street	56.1	-6.0%	0.0%	-1.0%	3.0%	5.0%	-2.0%	0.0%	-1.4%	$85,092	$4,774,000
7/F, 6 Lime Street	33.8	-6.0%	0.0%	1.3%	0.0%	0.0%	-2.0%	0.0%	-6.7%	$80,518	$2,722,000
7/F, 8 Lime Street	43.3	-6.0%	0.0%	0.3%	0.0%	0.0%	-2.0%	0.0%	-7.6%	$79,741	$3,453,000
8/F, 56 Larch Street	66.7	-8.0%	-5.0%	-2.0%	3.0%	5.0%	0.0%	-3.0%	-10.1%	$77,584	$5,175,000
8/F, 58 Larch Street	46.6	-8.0%	-5.0%	0.0%	0.0%	0.0%	0.0%	-3.0%	-15.2%	$73,182	$3,410,000
8/F, 60 Larch Street	46.6	-8.0%	-5.0%	0.0%	0.0%	0.0%	0.0%	0.0%	-12.6%	$75,426	$3,515,000
8/F, 62 Larch Street	56.1	-8.0%	-5.0%	-1.0%	3.0%	5.0%	-2.0%	-3.0%	-11.0%	$76,807	$4,309,000
8/F, 5 Lime Street	33.8	-8.0%	-5.0%	1.3%	0.0%	0.0%	-2.0%	-6.0%	-18.4%	$70,421	$2,380,000
8/F, 8 Lime Street	43.3	-8.0%	-5.0%	0.3%	0.0%	0.0%	-2.0%	-6.0%	-19.2%	$69,730	$3,019,000
										Total:	$198,820,000

Appendix 3

G/F	Retail		267.24	m2	x	$359,120	/m2  =	$95,971,229
1/F	Retail (with exclusive staircase on G/F)		148.61	m2	x	$179,560	/m2  =	$26,684,412
	Residential Flats		1,865.80	m2	x	$263,000	/m2  =	$490,705,400
								$613,361,040
Marketing cost		3%					x	0.97
	Present Value for	2.5	years	@	4%		x	0.9066
									$539,390,926
Less
	Demolition Cost		2,520.00	m2	x	$2,200	/m2  =	$5,544,000
	Professional Fee	@	6%				x	1.06
	Profit	@	15%				x	1.15
								$6,758,136
	Present Value for	0.25	years	@	4%		x	0.99024
									$6,692,177
	Construction Cost							$124,093,907
	Professional Fee	@	6%				x	1.06
	Profit	@	15%				x	1.15
								$151,270,473
	Present Value for	1.5	years	@	4%		x	0.94287
									$142,628,391
									$390,070,358
	Stamp Duty @		4.25%
	Legal Cost @		0.10%
	Developer's Profit on Land		15%					÷	1.1935
									$326,828,955
								Say	$326,830,000
						Accommodation Value :			$107,682