CHRISTOPHER JAMES FRAPE v. CHEER WIN DEVELOPMENT LTD.

LDNT 205/2002

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

NEW TENANCY APPLICATION NO. 205 OF 2002

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J U D G M E N T

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1. This is an application from Mr. Christopher James Frape (the Applicant) for the granting of a new tenancy in respect of Apt. No. A on 2nd Floor & Car Parking Space No. 16 on Ground Floor, Mirror Marina, No 47 Conduit Road, Hong Kong (hereinafter referred to as "the subject premises"), under Part IV of the Landlord and Tenant (Consolidation) Ordinance. Mr. Frape is the tenant of the subject premises and Cheer Win Development Ltd (the Respondent), the landlord. The application was lodged on 4th October 2002.

2. In the hearing on 2nd December 2002, Mr. Frape successfully convinced the court and obtained its approval for postponement of the hearing to January 2003 to facilitate the filing of the expert report by end of December 2002. The expert witness for Mr. Frape is Mr. Albert So. The Respondent represented by Mr. Lai Yu Chung, had not engaged any expert witness.

Terms in Agreement

3. Despite the expiry date of the previous tenancy agreement being 31st August 2002, the two parties agreed in court that the new tenancy is to commence on 1st November 2002. The two parties also agreed that the term of tenancy be set for two years certain with no Break Clause for earlier termination by either parties. Rental deposit should also be set at the same rate, i.e. at an amount equivalent to two months rental. Any excess due to the change in the rental sum would be refunded to the tenant.

Term in Dispute

4. The rent payable is the only outstanding issue that needs the adjudication of the Tribunal. The Applicant considered that the market rent for similar properties had gone down substantially in the past months and therefore the rent payable for the subject premises should be revised downwards as and when the tenancy is renewed. In his opinion, the appropriate rent payable should be in the region of $23,800 per month exclusive of rates and management fees, i.e. a reduction of $4,200 from the amount he paid under the expired tenancy. The Respondent considered that the suggested amount of reduction is inordinate, though he accepted that the rent ought to be revised downwards. He based his argument on the fact that Comparable 4 after adjustment for management fees following the method adopted by the Applicant's expert witness, the rent payable becomes approximately $27,000 per month exclusive of rates and management fees. Nevertheless, the two parties did not oppose that assessment of the market rent in relation to the subject premises be confined to rental comparables provided by the Rating and Valuation Department.

Expert Witness's View

5. Mr. So analysed the six comparables provided by the Rating and Valuation Department, identified their comparative advantages and disadvantages in relation to the subject premises, and made adjustment to the rent passing to reflect the comparative advantages and disadvantages identified. Finally, he came to the conclusion that Comparables 2 and 4 are not suitable comparables. His conclusion is drawn from the findings that the rent of Comparable 2 after adjustment being appropriately made, remains on the high side, whereas the lack of lift service reduces the degree of Comparable 4's suitability for comparison to the subject premises.

6. He firstly, adjusted the rent of the six comparables on account of the difference in their time of tenancy creation based on the Class E rental indices obtained from the Rating and Valuation Department (the original of the rental indices record was not produced in open court but the Respondent explicitly advised the Tribunal that this was not objected to). Secondly, he adjusted the rent on account of the differing location of the comparables and subject premises. He considered the nearness to Central is an advantage and adjustment is therefore, made on that basis. Thirdly, he adjusted for differing accessibility. He considered buildings directly abut on a main road is advantageous, whereas buildings with no direct frontage with a main road are less advantageous. Fourthly, he adjusted for differing view/orientation. Those with unobstructed view or sea view are considered advantageous than those without. He also adjusted for differing floor level, age/condition, and with or without the provision of domestic appliances. Finally, he deducted by 8% from the rent of those comparables which rent is inclusive of management fees.

Tribunal's Analysis and Valuation

Adjustment for Time

7. The adjustments made do not appear to be inconsistent with the general trend of rental market. By the way, the Respondent did not oppose the calculations made regardless of the fact that no rental indices were provided by Mr. So during the hearing. I have no objection to adopt Mr. So's adjustments in whole.

Adjustment for Location

8. I have grave doubt concerning the validity of Mr. So's argument in this regard. Nearness to Central is an advantage but should not be the sole determinant as to whether the location of a particular property is more favourable than the other. If nearness to Central is the sole determinant, then the properties at Sheung Wan bothering Central would be regarded as much better located than those at Mid-Level. The tranquility and tidiness of the neighbourhood in which the property is located, and its nearby land use are all other factors that should be taken into account. On this premise, the adjustments for Comparables 2, 3 and 5 are obviously inordinate. The nearness of Comparables 2, 3 and 5 to Central in relation to others is only a marginal benefit in terms of driving time and walking distance. Whilst they are all within more or less the same kind of neighbourhood as the others (including the subject premises), the only advantage of Comparables 2, 3 and 5 is that they are located very close to the Central Escalator (i.e. the escalator connecting the Mid-Level to Central). Such advantage does not deserve the paying by the tenant an extra sum 2 to 3% more than those without such advantage given the fact that most Mid-Level residents do not tend to use the escalator as a means to Central.

Adjustment for Accessibility

9. Mr. So appears to define accessibility to the convenience to residents, of getting out of the buildings to the nearby public roads or vice versa. He is not referring to the accessibility to and from major residential and business areas. He considered that buildings abutting on a main road is more convenient than those which do not, but as far as I can observe, such convenience is restricted to residents entering or leaving the buildings on foot but not to residents using cars as the access connecting the main roads and the buildings concerned is short. On this premise, I have no in principle disagreement with Mr. So, but would consider that the amount of deduction suggested be more appropriately halved in view of the limitation of such benefit to residents.

Adjustment for Floor Level

10. I have no objection to the adjustments made by Mr. So.

Adjustment for Age/Conditions

11. I have reservation for adjustments for building age. The building age does not matter so much if the building is well up-kept and renovated. Only if the building is in lack of proper maintenance and not renovated in good time, deterioration in the building quality will be commensurate with the building age. In fact, all buildings including the building of the subject premises were either built in the early or mid sixties. The eldest one was only five years older than the building of the subject premises. With constant maintenance and timely renovation, the oldest building could be in much more presentable condition than any of the other buildings not with proper maintenance and renovation. When crossed-examined in open court, Mr. So advised that all properties including the building of the subject premises are all in similar condition with the exception of Comparable 4 which has been renovated not long time ago. In this regard, the Respondent held a slight different view. He said that the building of the subject premises is in more or less the same condition as Comparable 4. In other words, it is better than other comparables. I am inclined to accept Mr. So's view after viewing the photographs produced but dismiss the need to make adjustment due to building age.

Adjustment for View/Orientation

12. Based on the photographs produced and the map in the valuation report, it is apparent that Comparables 2, 3 and 5 which are on elevated site have unobstructed and more open view than the subject premises, but there is doubt that Comparables 1, 4 and 6 do enjoy the same. Though Mr. So advised that the buildings in front are low rise development, Comparables 1, 4 and 6 are all on lower floor level with buildings in front and not afar. I accept Mr. So's adjustments for Comparables 2, 3 and 5 but consider Comparables 1, 4 and 6 seemingly only slightly better than the subject premises.

Adjustment for Domestic Appliances

13. I reject the Respondent's classification that provision of only A/C units and heaters should suffice to be regarded as "with domestic appliances". If only A/C units and heaters are provided, even for simplicity, it should state on the rental records "with some domestic appliances". Otherwise, it should be apprehended that the full range of basic household appliances is provided to the tenant. Notwithstanding this, I consider that Mr. So's adjustments are excessive. Having regards to the likely capital sum for purchasing these appliances and their life span (in other words, their monthly equivalent), I would suggest that 3.5% is reasonable.

Adjustment for Management Fees

14. I accept Mr. So's evidence and adjustments made, which are in line with the normal charge on footage basis.

Following on from the above, the appropriate adjustments are appended below: -

Conclusion

15. I disagree with the Respondent that Comparable 4 is the only suitable comparable for valuation. I disagree with him, too, that in arriving at the rent of the subject premises, the only adjustment that should be made to Comparable 4 is in the aspect of management fees since Comparable 4 is not in all other aspects similar to the subject premises.

16. I disagree with Mr. So that due to the lack of lift service, Comparable 4 be excluded. I disagree that Comparable 4 be excluded because Mr. So's valuation methodology is to eliminate or minimize the differences between the comparables and subject premises by way of making adjustment to the rent paid for the different comparables due to their differences in tenancy terms and/or physical factors. It should be consistent in his valuation approach albeit the adjustments made being subjective in nature. If we exclude Comparable 4 because of no lift service being provided, this principle applies in the case of no unobstructed view etc. In my view, the lack of lift service for a property on 4th floor is a significant element that may discourage a tenant from leasing the property. Therefore, I would allow a substantial downward adjustment of 10%. Following on from this, the adjusted unit rent for Comparable 4 is $156.11 per sq.m. per month.

17. I agree that the rent no matter adjusted or not, of Comparable 2 is on the high side. It falls outside the normal distribution formed by the adjusted rents of the other five comparables. The cause of a higher rental being paid for Comparable 2 could be multi-folded, such as the lack of market information, personal or special preference, or super class of internal decoration being provided. The average of the rent of the other five comparables is $148.95 per sq.m. per month. Applying this unit rate to the saleable area of 176.2 sq.m. gives a total monthly rent of $26,244.99, say $26,200 exclusive of rates and management fees.

Orders

Accordingly, I order that: -

(1) The Applicant shall be granted a new tenancy for a term of two years commencing on 1st November 2002;

(2) The new rent shall be at $26,200 per month, exclusive of rates and management fees;

(3) The rental deposit shall be maintained at the same rate, i.e. equivalent to the sum of two months rental;

(4) The Respondent shall refund the excess in the amount of deposit paid within one month from the date hereof;

(5) Save as aforesaid, other terms in the previous tenancy shall remain in full force under the new tenancy; and

(6) No order as to costs.