General Oriental Investments (HK) Ltd. v. Santosh Trustee Holding Corporation

LDNT353/2000

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

Application No.: LDNT No. 353 of 2000

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JUDGMENT

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Background

1. The applicant is the tenant and the respondent the landlord of the subject premises known as Flat 9B, 2nd Floor, Borrett Mansions, 8-9 Bowen Road, Hong Kong. The existing tenancy was for a term commencing from 1 December 1998 and expiring on 30 November 2000 at a rent of $60,000 per month, inclusive of rates and management fee.

2. Both parties agreed that a new tenancy should be granted by the Tribunal for a term of two years commencing from 1 December 2000 at the rent to be determined by the Tribunal and otherwise subject to the same terms as before, save for the appropriate adjustment for the deposit sum. The issue before this Tribunal was the level of the prevailing market rent ("PMR") as at 30 November 2000.

3. The applicant was represented by Mr. Tobias Josef BROWN, who also gave evidence in person. The respondent was represented by Mrs. Siu Ling Mary LEE, its manager. The respondent also called the evidence of Ms. SAT Wei Ling, Chartered Surveyor who gave evidence regarding the prevailing market rent of the subject premises. The applicant asked for the PMR to be in the sum of $60,000 per month on the basis of exclusive of rates and management fee whilst the respondent submitted that the rent should be based on that of Ms. Sat, whose revised valuation of the PMR was $78,500 per month, on the basis of inclusive of rates and management fee. On the same basis as the expired tenancy and that of Ms. Sat for the respondent, the applicant's estimated PMR equates to $65,762 per month.

4. The subject premises is a residential flat on the second floor of a 23-storey building known as Borrett Mansion situated on the southern side of Bowen Road, at its junction with Borrett Road and near the Hong Kong Park in the Mid-Levels district of Hong Kong Island, Hong Kong. The building comprises two contagious high-rise residential blocks erected over a two-storey car parking podium.

Evidence by the applicant

5. The applicant stated that after he was told the proposed increase by the respondent, he thought that the increase was too high. He noticed that some units, including his flat, in the subject building, was very close to Borrett road. The internal condition of the flats varied as well. He then talked to some other tenants and learned that the proposed level of increase for his flat was indeed far too high because just recently, some other flats were renewed with no or nominal increase in rents.

6. The applicant produced a photo album ("Exhibit A-1") showing the interior of the various rooms of the subject premises, the view from its various rooms and the surroundings. He claimed that after reading Ms. Sat's valuation report, he talked to the tenant of Flat 9A and found that Flat 9A had been renovated. Besides, that flat did not suffer from the noise generated by the vehicles using Borrett Road.

7. The applicant concluded that Ms. Sat's report (Exhibit R-1) was highly biased. The applicant said that he therefore took the trouble of knocking the doors of the flats in the subject building with the view of trying to find out the market rental evidence. He knew that the respondent and its associates altogether owned over 30 flats in the building. However, he was not given the rental information of all those units. He recalled that when he signed the tenancy agreement for the subject premises, he were told that the tenancy details had to be treated as confidential. He therefore had no knowledge of whether the respondent was hiding the relevant rental information and did not disclose that information to the Tribunal. His doubt was confirmed when he gathered at least two other very recent lettings which were not shown in Ms. Sat's report. One of these lettings was Flat 8A on 1/F which, according to the tenant, had been renewed at a rent of $60000 per month, from 7 December 2000, barely 6 days away from the commencement date of the proposed new tenancy for the subject premises. The second letting was in respect of Flat 8A on 2/F. He was told by some neighbours that the tenant had received an offer of $65,000 on exclusive basis although the tenant of that flat was unwilling to talk to him.

8. The applicant complained that his flat, being a low floor unit of Flat 9B, suffered the most from the noise caused by the vehicles turning to or away from Borrett Road. He produced to the Tribunal some photographs (Exhibit A-1) showing the proximity of the vehicles using the stretch of Borrett Road next to the subject building. He also produced copies of letters (Exhibits A-2) between him and the estate agent, Heritage Realty Co., at the time of signing the previous tenancy in November 1998. The letters show that the landlord had agreed to install double glazing to his master bed room. The work had been done by the landlord.

9. In the final analysis, the applicant submitted that the most relevant comparable was the letting of Flat 8A on 1st Floor with a commencement date only 6 days away from the relevant valuation date. As all the flats in the building had the same area, the Applicant therefore asked that the PMR of the subject premises be determined at the same rate as that for Flat 8A on 1st Floor, or $60,000 per month, on exclusive basis. Adding to this sum the monthly rates of $2,962 and the monthly management fee of $2,800, the PMR became $65,762 per month, on inclusive basis.

Evidence by the respondent

10. Mrs. Siu Ling Mary LEE, a manager of the respondent gave evidence that the respondent had counter offered a rent of $72,000 per month, on inclusive of rates and management fee basis, to the applicant prior to the hearing. She said that the respondent wished to maintain good relationship with all the tenants, including the applicant. Over the last 8 years when she had been working for the respondent, she noticed that about half of the tenants had been living in the building for a number of years. Neither the applicant nor the other tenants had complained, either verbally or in writing, about the noise problems caused by the vehicles using Borrett Road. While the school coaches going to the Canadian International School at Borrett Road might generate a higher noise level, these would only happen twice a day during the school hours in the weekdays. She denied instructing the installation of double glazing for the applicant's master bed room. She added that if noise were such a problem, the tenant of Flat 9B on 1st Floor would not have lived there for so long. Also, that tenant would not have renewed the tenancy at a rent of $77,000 from 12 September 2000.

11. She stated that she had shown all her rental cards containing the rental information of some 30 flats owned by the respondent and its associates to Ms. Sat. She did not know how and why Ms. Sat choose the comparables. She denied trying to hide any rental information of these flats from the Tribunal although she admitted that it was the company's policy to treat all the rental information as confidential. This was also the concerns of the tenants some of whom indeed required that the respondent did not disclose the details of the tenancies including the names of the tenants to any third party.

12. Mrs. Lee confirmed that with the exception of Flat 9B on 14/F (Comparable 7 in Ms. Wat's valuation report), all the comparable lettings used by Ms. Wat and the applicant were owned by the respondent and its associates. She admitted the correctness of the the details of the recent letting of Flat 8A on 1/F as found by the applicant. As for Flat 8A on 2/F., she advised that both the respondent and the tenant had recently verbally agreed on the terms of the renewal as stated by the applicant. The respondent was in the course of preparing the tenancy agreement for execution. Towards the end of the hearing, Mrs. Lee confirmed that an additional comparable, Flat 8B on 3rd floor was also renewed at a rent of $66,000 for a term of 2 years commencing from 15 December 2000. An extract of the tenancy details was produced as Exhibit R-3.

13. Mrs. Lee gave evidence that Flats 9B were in demand because these flats enjoyed both sea view and greenery view. On the other hand, Flats 8A, the flats at the other end of the building, were close to the adjacent building. The tenants of those flats could also see the TV satellite dish of the building in front. This was quite unsightly and warranted a downward adjustment of rent.

Evidence by Ms. Sat, the expert surveyor called by the respondent

14. A total of 11 comparables were identified and analysed in Ms. Sat's Report. After the lunch break, Ms. Sat produced a revised Appendix 5 (Exhibit R-2) in which she added one more comparable, Flat 8A on 1/F. She also added an additional item of adjustment for noise and made consequential amendments to her analysis.

15. Since the subject premises is a second floor flat, the Tribunal considers it best to use the rental evidence from the low floor flats of first to third floors, particularly when there is sufficient evidence of rents such as in the present case. This obviates the need to make quite substantial adjustments for differences in floor levels alone. Therefore, only the details of the rents of the first to third floor's comparable flats are adopted for detailed analysis, as shown below (Table 1- summary of comparables):

16. From the above Table 1, the Tribunal notes that apart from Flat 8A of 2/F., the comparable lettings have commencement dates ranging from 1.7.2000 to 15.12.2000, which is about a few days to 5 months from the relevant valuation date for the subject new tenancy.

17. The Tribunal has considered the adjustments made by Ms. Sat in respect of her comparables as detailed in Exhibit R-2. The Tribunal found most of the adjustments to be reasonable. A summary of the adjustments, including where appropriate, the substituted adjustments made by the Tribunal, is set out below:

Table 2 - Summary of adjustments of comparables

18. The above comparables 1 to 4 have been analyzed by Ms. Sat while the remaing 2 comparables were not shown is Ms Sat's report.

19. The Applicant has not prepared detailed analysis of the comparables. Based on the parties' evidence, the Tribunal decides to amend the adjustments in respect of the factors view/privacy and noise for some comparable, as shown in the Table 2 above.

20. Since the subject premises and the comparable flats in the same building have identical areas, the Tribunal considers it to be unnecessary to break down the rents of the comparables on unit area basis. Instead, the actual rents are adjusted to reflect the differences between the comparable premises and the subject premises for the purpose of determination of the PMR for the latter. These adjusted rents are shown in the right most column of the Table 2 overleaf. They range from $61,500 for Comparable 4 to $75,845 for Comparable 1. In particular, the Tribunal finds that the adjusted rent for Comparable 1 appears to be quite out of line with the remaining five comparables, which fetch an average adjusted rent of about $65,658. The difference is about 15%. From the evidence given by the Applicant, the low floor flats of Block 9B are the worst flats in terms of its location, being exposed to the noise caused by traffic using Borrett Road. Therefore, according to the evidence of the Applicant, the rents for Comparable 1 should in fact be lower than the average of the rents for flats elsewhere in the same development. This contrasts with the results of the above analysis. Therefore, I decide to discard this comparable when adopting the appropriate rent for the assessment of the PMR for the subject premises.

21. After discarding Comparable 1, the average of the adjusted rents of the remaining 5 Comparables is $65,658. To this should be added the current Government rates and management fee of the subject premises, in the sums of $2,962 and $2,800 respectively. This gives a figure of $71,420 to which I round to $71,400. This I estimate to be the PMR of the subject premises at the relevant valuation date. Accordingly, I make the following orders:

Orders

1. New Tenancy for 2 years from 1st day of December 2000;

2. New rent at $71,400 per month (inclusive of rates and management charges); leave to the applicant to pay the respondent the arrears of rent (if any) within 1 month;

3. Deposit to be increased pro rata in accordance with the new rent; leave to the applicant to pay the respondent the adjustment within 1 month;

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

5. No order as to costs.