IN THE LANDS TRIBUNAL OF HONG KONG

LDNT97/2001 (REVIEW)

BETWEEN

JUDGMENT

1. Background

           The Applicant is the tenant and the Respondent is the landlord of the subject premises described as Flat A, 23^rd Floor and Car Parking Space No. 51 on Lowest Ground Floor, Park Mansions, 27-29 MacDonnell Road, Hong Kong (“the Premises”).  The Applicant on 17^th March 2001 applied to the Lands Tribunal for the granting of a new tenancy.  The Respondent did not oppose the application.  At the hearing on 16^th May 2001, the parties consented that the new tenancy would be for 2 years commencing from 1^st April 2001.  The outstanding issue was in the amount of prevailing market rent.

2. On 16^th May 2001, the parties were not represented by lawyers and did not call for the evidence of any expert witness.  The parties agreed that of all the 6 comparables shown in the Rating & Valuation Department’s schedule of comparable rents dated 3^rd May 2001, the best comparable was Flat A on 22/F and cps 36 (i.e Comparable 3 in Ms. Sat’s valuation report).  After hearing the evidence and the submission by the parties, the Tribunal made a downward adjustment of 2.5% to reflect the generally inferior decorative condition of a flat subject to lease renewal (the Premises) as against the condition of a newly leased flat (Comparable 3) prior to the leasing, in terms of painting and other touching up works.  On that basis, the Tribunal estimated the prevailing market rent (PMR) under the new tenancy for the Premises to be $41,300 per month.

3. Thus, the Tribunal granted the following orders on 16^th May 2001:

1.       By consent, new tenancy for 2 years commencing from 1^st April 2001;

2.       New rent at $41,300 per month (exclusive of rates and management fee); leave to the Respondent to pay the Applicant over-payment of rent (if any) within 1 month;

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

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

5.       No order as to costs.

4. The Respondent applied on 15^th June 2001 for a review of the above Orders and to re-consider the prevailing market rent.  It was fixed for hearing on 28^th June 2001 during which the parties were both represented by lawyers.  After hearing submission by the parties, the following orders were made:

1.  Leave to the Respondent to file to the Tribunal and to serve to the Applicant valuation report within 14 days from today;

2.  Leave to the Applicant to file to the Tribunal and to serve to the other side a written reply, if any, within 14 days thereafter;

3.  Adjourned to a date to be fixed by the Assistant Registrar; half day is required;

4.  Costs of today occasioned by the Respondent’s application to adjourn today’s hearing is reserved.

5. At the adjourned hearing on 31^st August 2001, the Respondent called the evidence of an expert witness, Ms. Sat Wai Ling, Chartered Surveyor.  She produced a  valuation report which was in pages 19 to 47 of Exhibit R1.  She added that in addition to the 6 rental comparables shown in the Rating & Valuation Department’s rental schedule and previously known to both parties, she had found on 30^th August 2001 an additional rental comparable from the Rating & Valuation Department.   As a result, she added that additional comparable as Comparable 7 in a revised Appendix 6 of her valuation report, which was numbered as page 46A of Exhibit A1.           Ms. Sat show the analysis of all seven comparables in the said revised Appendix 6.  The after adjusted unit rates of the comparables (per sq. m.) are as follows:-

                            Comparable 1 -           $296.9

                            Comparable 2 -           $266.3

                            Comparable 3 -           $263.4

                            Comparable 4 -           $279.9

                            Comparable 5 -           $249.7

                            Comparable 6 -           $291.0

                            Comparable 7 -           $322.0       

6. In the final analysis, Ms. Sat opined that “Comparables 1, 2 and 3 are more relevant comparables since they are at the high zone of the building with relatively open view and their lease commencement dates are quite close to the material date of valuation.  A weighing factor of 2 has been applied to the each of these comparables.  For Comparables 5 and 6 which are at low floors, they are unlikely to afford any sea view so that zero weighing has been applied to these two comparables.  On the other hand, a weighing factor of 1 is allowed for Comparable 4 having considered that the total adjustment is only 5% on this comparable.”  Ms. Sat calculated that the weighed average of all the comparables was $286.3 per sq. m.  Applying this to the saleable area of the Premises of 160.1 sq. m. gave a figure of $45,800.  This, Ms. Sat concluded, should be the PMR of the Premises under the new tenancy.

7. The Respondent submitted that the valuation by Ms. Sat should be relied upon by the Tribunal.

8. Mr. Cheung Hon Ping, the spouse of the Applicant gave evidence that in 1999, the Premises was in a much inferior condition.  After the signing of the tenancy agreement by the parties in 1999, the Applicant carried out improvements to the Premises, including the installation of cabinets, lighting appliances, replacement of carpets and curtains and re-painting of the Premises.  He also stated that according to his knowledge, the monthly rents of car parking spaces in the subject development ranged from $1,500 to $2,250.  He was of the view that a monthly rent of $2,000 for leasing a car park would be reasonable. 

9. The Applicant submitted that the valuation of Ms. Sat was unreliable as she had not considered all the factors affecting the rent for the Premises, including the state of condition of the Premises and the comparables.  In addition, although Ms. Sat described in her valuation report that the Premises was in a generally good condition, she omitted to consider the fact that the Premises had been improved into the present condition by the Applicant since the commencement of the tenancy in 1999.  Besides, the Applicant criticised that Ms. Sat’s valuation was inflexible and too mechanical.  The adjustments for levels and chattels/appliances were, in particular, arbitrary.  The Applicant submitted that the valuation should be based solely on Comparable 3  (Flat A on 22/F) as this had been agreed by the parties, and had been accepted by the Tribunal as to be the best comparable in the original hearing.  On the other hand, all the other comparables had many differences when compared with the Premises, thus requiring arbitrary adjustments.  At the end, the Applicant did not propose any alternative valuation but suggested that the determination by the Tribunal in the original hearing should be adhered to.

10. Choice of the best comparables by the Tribunal

           It was noted that in the original hearing, the Tribunal accepted Comparable 3 as the best comparable as that had been agreed by the parties.  Since the Respondent in the review suggested to consider all the 7 comparables shown in Ms. Sat’s valuation report, the Tribunal decides to re-consider the matter.  After considering the evidence and the submission in the review hearing, the Tribunal agrees with Ms. Sat that all the comparables should be considered.  Firstly, it is always true that the more number of comparables in any valuation, the better.  This will avoid the situation that any valuation is based on a single or a limited number of comparables.  Since the property market is far from perfect, any restriction in the number of suitable comparables is definitely undesirable as far as valuation of any premises is concerned.  Secondly, according to the evidence of Ms. Sat, the differences between the comparables, with the exception of Comparables 5 and 6, and the  Premises are not much.  Thirdly, in the review and unlike the situation in the original hearing, the Tribunal had the opportunity of hearing the evidence of Ms. Sat, an experienced surveyor who had inspected the Premises and the surroundings and had made adjustments according to her knowledge and experience.

11. Next, the Tribunal agrees with Ms. Sat that the lower floor comparables, Comparables 5 and 6 (Flat B on 3/F and Flat B on 1/F respectively) should be discarded because they are both situated on very low floors and as such, are much different from the Premises.  In addition, the Tribunal decides that Comparable 4 (Flat B on 7/F) should also be discarded since it was also located on a low floor, relative to the Premises.  Apart from that, the Tribunal decides that the rents of all the remaining 4 comparables analysed and adjusted by Ms. Sat should be adopted in arriving at the appropriate unit rate for the Premises.  The Tribunal however differs from Ms. Sat and decides that each should be given the same weight since the weighing system suggested by Ms. Sat is too subjective.

12. As to the criticisms of Ms. Sat’s valuation by the Applicant, the Tribunal finds that they are unjustified.  It is well known that valuation is not an exact science.  So, it invariably requires the subjective judgment of the valuer who undertakes the valuation exercise.  In the present case, the Tribunal on the whole finds that Ms. Sat’s adjustments, based on her experience, are quite in line with what most valuers would do in practice.  This will be discussed further below.

13. Adjustments of the comparables

           The Tribunal agrees with the factors of adjustments considered relevant and adopted by Ms. Sat in her valuation report.  These were the factors of time, view, floor level and chattels/domestic appliances, where appropriate.  The Tribunal also finds Ms. Sat to be an experienced surveyor who had shown considerable knowledge and expertise in her valuation report and evidence.  In the absence of any alternative evidence from other experts, the Tribunal decides to accept the quantum of adjustments adopted by Ms. Sat, with the exception of the value for a car parking space for Comparable 1 and 4.

14. For the value of a car parking space, the Tribunal notes that both Ms. Sat and Mr. Cheung for the Applicant did not produce any actual evidence of car parking space.  Therefore, the Tribunal decides to adopt a figure of $2,000 per month, somewhat in between the figures suggested by both parties.

15. In addition, the Tribunal considers that it would be appropriate that a downward adjustment of 2.5% be made to each of the comparables having regard to the fact that they all newly leased flats, as against the Premises which is a flat subject to renewal.  It is generally acknowledged that for a newly leased flat, the landlord would almost invariably repaint the flat and carried out some touching up works.  The Tribunal considers that it would be reasonable to make the same assumptions for the said 4 Comparables

16. Estimation of the PMR by the Tribunal

           On the basis as set out above, the comparables are analysed and adjusted as follows:

17. Thus, having regard to the evidence of the after-adjusted rents of the five comparables, the Tribunal determines that the prevailing market rent of the subject premises, on the basis of exclusive of rates and exclusive of management fee, shall be calculated by applying to the saleable area of 160.1 sq. m. the unit rate of $279.2 per sq. m.  This gives a figure of $44,700 as to be the PMR per month for the Premises.

18. Costs

           The Respondent submitted that if the PMR determined by the Tribunal upon review was greater than $41,300, the figure of PMR previously originally determined, the Applicant should bear the costs occasioned by the Respondent for this review.  The reason given was that the party who lost the case should be asked to bear the costs.

19. On the other hand, the Applicant submitted that if the PMR determined by the Tribunal upon review was less than $41,300, the Respondent should bear the costs.  Otherwise, there should be no order as to costs.  The Applicant argued that the Applicant was required to apply to the Tribunal in March 2001 because the Applicant considered that the rent asked by the Respondent for the renewed tenancy was unreasonable.  However, in the original hearing, the Applicant already had the opportunity to employ the services of lawyers and surveyors.  It was their decision to handle the case in person.  So, if upon review, the Tribunal after hearing new evidence and submission decides to revise the PMR to a figure less than $41,300, the Respondent should be responsible for bearing the costs of the Applicant occasioned by the review. 

20. The original hearing was the hearing of the application for a new tenancy made by the Applicant pursuant to the Landlord and Tenant (Consolidation) Ordinance (‘the Ordinance”).  Under section 119R of the Ordinance, it was provided that “In any proceedings under this Part, the Tribunal shall not make any order as to costs against a party unless that party has conducted his case in a frivolous or vexatious manner”.  In this present case, there was no suggestion by either party that any party has conducted the case in a frivolous or vexatious manner.  As to this review, it was made pursuant to section 11A of the Lands Tribunal Ordinance ( Cap. 7).   In section 12 of the Lands Tribunal Ordinance, it was provided that “ (1) Subject to the provisions of the Ordinance giving the Tribunal jurisdiction in any matter, the Tribunal may award costs to and against any party to any proceedings and may order that those costs by taxed….”

21. The Tribunal notes that in the original hearing, it was agreed by the parties that the best comparable was Comparable 3.  In this review, the Tribunal determines the rent only after considering all the 7 comparables used and analysed by the Respondent’s expert surveyor.  Should the parties in the original hearing decided to give evidence and submission that the Tribunal should take into consideration all these 7 comparables in the present application by the Applicant for a new tenancy, the Tribunal would have no alternative but to consider the parties’ valuation based on these 7 comparables.  Therefore,  it would not be fair to award costs of this review solely on the basis of comparing the finally determined PMR of the Premises upon review with the originally determined PMR.  For the above reasons, the Tribunal decides that there be no order as to costs occasioned by the review application by the Respondent of the Tribunal’s decisions given on 16^th May 2001, including the hearings on 28^th June 2001 and 31^st August 2001.

22. Accordingly, the Tribunal makes the following Orders for this review application:

                 Orders

1.The Order no. 2 of the Orders dated 16^th May 2001 be replaced by the following:

“New rent at $44,700 per month (exclusive of rates and management fee), leave to the Applicant to pay the Respondent the arrears of rent, if any, within one month;

2.The Order no. 3 of the Orders dated 16^th May 2001 be replaced by the following:

“Deposit to be increased pro rata in accordance with the new rent; leave to the Applicant to pay the Respondent the adjustment within one month;

3.    Other than the above variations, all the other Orders dated 16^th May 2001 remain unchanged.

4.    No order as to costs for this review application including the hearings on 28^th June 2001 and 31^st August 2001.”