CHASE MANHATTAN ASIA LTD. v. THE REPULSE BAY CO. LTD.

Headnote

Landlord and tenant - interim statutory continuance of current tenancy - after application by tenant to Tribunal for new tenancy it served 1 month's notice to quit on landlord and later withdrew its application for a new tenancy - interim rent agreed at $108,000 per month -duration of interim continuance disputed - whether only continued down to expiration of Section 119B(2) 1 month's notice to quit or until later expiration of Section 119N 3 months period - if notice to quit defective because of short service whether acceptance of keys terminated tenancy by surrender before Section 119N 3 months period expired -

Held:

1. Tenant's Section 119B one month's notice to quit or alternatively surrender or forfeiture, may terminate interim continuance of a current tenancy before expiration of Section 119N three months period;

2. Purported notice to quit ineffective because it was served 1 day short of one month;

3. On facts acceptance of keys did not establish surrender;

4. Tenancy continued under Section 119N for period of 3 months beginning from date of withdrawal on 3rd June 1996;

5. Applicant shall pay interim rent at the agreed rate of $108,000 per month from 22nd March 1996 to 2nd September 1996.

IN THE LANDS TRIBUNAL OF HONG KONG

L.T.Application No.870 of 1996

______________________

_______________________

_______________

J U D G M E N T

_______________

1. The Respondent's summons, filed on 10th June 1996, originally sought an order for the determination of interim rent and the duration thereof, pursuant to Section 119N of the Landlord and Tenant (Consolidation) Ordinance, Cap.7. At the hearing the parties agreed to interim rent at the rate of $108,000 per month from 22nd March 1996. The only remaining disputed issue was for how long the interim rent was payable from 22nd March 1996.

2. The Applicant tenant had on 21st March 1996 applied to the Tribunal for a new tenancy for Flat B, Nicholson, 17th Floor, Tower IV, The Repulse Bay, No. 109 Repulse Bay Road, Hong Kong. The Applicant had occupied the suit premises under a current tenancy for 2 years from 22nd March 1994 at a rent of $88,000 per month. The Respondent's duly served Form CR101 had terminated the current tenancy on its contractual expiry date, namely 21st March 1996.

3. Mr. Cook for the Respondent, submitted that interim rent at the agreed rate of $108,000 per month, was payable for the period from 22nd March 1996 to 2nd September 1996. The latter date was calculated by applying the statutory 3 months period, under Section 119N, from 3rd June 1996 being the date on which the Applicant filed its Notice of Withdrawal.

4. The complicated provisions of Section 119N, are primarily concerned, with the period of interim continuance. During that period interim rent - too often but not by the present parties wrongly called mesne profits - is payable. The relevant part of Section 119N provides:

"119N. (1) Subject to sections 119B(2),119I and 119M(2), in any case where -

(a) a notice to terminate a tenancy has been given under section 119...;and

(b) an application to the Tribunal has been made under section 117(1); and

(c) apart from this section, the effect of the notice ... would be to terminate the tenancy before the expiration of the period of 3 months beginning with the date on which the application is finally disposed of,

the effect of the notice ... shall be to terminate the tenancy at the expiration of the said period of 3 months and not at any other time."

5. The present application clearly satisfies the provisions of Section 119N(1)(a),(b)and (c). Under the latter provision, the Respondent's Form CR101, terminated the current tenancy as at 21st March 1996. Statutory interim continuance therefore commenced on 22nd March 1996. The Section 119N formula, determining when interim continuance ends, first requires a finding as to when the application for a new tenancy was "finally disposed of", which term is defined in Section 119N(2).

6. Some aspects of this definition have perhaps given rise to different judicial approaches. These problems do not arise in this case, because Sub-section (2) expressly provides that where an application is withdrawn, it is "finally disposed of" as at the date of withdrawal. It is undisputed that a period of 3 months, beginning on the withdrawal date of 3rd June 1996, expires on 2nd September 1996. Mr.Cook argued that interim rent at the agreed $108,000 per month, was therefore payable from 22nd March 1996 to 2nd September 1996.

7. Although 3 months may be a relatively long period, it is reasonable that where parties contractual tenancy rights and obligations are interfered with by statute, they should both be given adequate statutory protection. Depending on the statutory outcome, a landlord where a tenant vacates after a period of statutory continuance, should expect to have sufficent notice to be able to let the premises to another tenant without undue rental voids. Conversely, a tenant forced to vacate, should have a reasonable time, to find alternative accomodation.

8. Three months would appear, in normal circumstances, to provide both parties, with reasonable time. I record that where a tenant, pursuant to Section 119M(2), rejects the grant of a new tenancy, he can by taking advantage of its maximum twofold time limits, also achieve a like period of 3 months. Curiously, so far as any period of notice is concerned, where a new tenancy is rejected, the time given to a landlord, depends entirely on the periods the tenant may select under Section 119M(2).

9. Mr. Cook recognised that Section 119N, imposing the otherwise apparently mandatory period of 3 months, is expressly subject to Section 119B(2). The latter Sub-section provides that a tenancy continued by Section 117, may be brought to an end by not less than 1 month's notice in writing, given by the tenant to the landlord. The notice may be given either before or after the contractual teancy is statutorily continued by Section 117.

10. However, both Sections 117(2) and 119B(2) require the tenant to have been in occupation under the contractual tenancy, for at least 1 month before notice may be given. These restrictions prevent parties from otherwise effectively contracting out of Part IV security of tenure provisions, by exploiting such a prior notice. The obligation of a landlord to give at least 6 months notice under Part IV, contrasts with the right of a tenant, where he wishes to vacate, to give only 1 month's notice. Where to the contrary, a tenant wishes to remain and requests a new tenancy he also, of course, must give not less than 6 or more than 7 months notice - Section 119A(2)

11. In my paper "The State of Hong Kong Tenancy Law" published in "Law Lectures for Practitioners 1993", 211, 225, I described one purpose of a tenant's monthly notice, in these terms:

"This species of notice protects a tenant not seeking a new tenancy from being obliged to remain in possession, during the statutory continuance of a tenancy, triggered off by a landlord unilaterally serving Form CR101. A tenant by serving a Section 117(2) notice, can escape being locked into the continued tenancy, with the likely consequence, if the process is not interrupted, of having to pay back-dated increased new rent."

12. A strongly contested issue in this case, was whether a tenant may give 1 month's notice under Section 119B(2), effective to terminate a statutorily continued tenancy, before the expiration of the 3 months period prescribed by Section 119N. Mr. Cook's submission was that the tenant's right to interrupt the statutory machinery, by giving 1 month's notice, was in terms limited to a tenancy continuing under Section 117. He submitted that a Section 119B month's notice could be given for any period after the service of a Form CR101 only down to the date of an application to the Tribunal for a new tenancy.

13. Mr. Cook submitted that once an application for a new tenancy was made, Section 119B rights ceased and the provisions of Section 119N applied. Under the latter, the mandatory 3 months applied. In this case the 3 months period, it was submitted, ran from the notice of withdrawal of 3rd June 1996 and expired on 2nd September 1966. Mr. Yuen for the Applicant submitted that Section 119N was expressly subject to Section 119B and so the 3 months period could be interrupted, by 1 month's notice from the tenant.

14. Both parties accept that Section 119N is expressly subject to Section 119B. Mr. Cook's submission would require the Tribunal to hold that only part of Section 119N is subject to Section 119B. In other words, only where a party has not gone further than taking either of the steps referred to in Section 119N(1)(a), may a tenant issue a Section 119B notice. If the tenant proceeds further and applies for a new tenancy, as referred to in Section 119N(1)(b), the right to serve a Section 119B ceases.

15. In view of the fact that Section 119N is expressly subject to Section 119B, the Tribunal would require a very clear indication that the right to serve a Section 119B notice was so restricted. All the indications are to the contrary. Sections 117 and 119B certainly do not expressly divide the concept of statutory continuance, into two different temporal periods. Still less, do they provide for different legal consequences, to attach to each.

16. I also take into account that the express qualified application of Section 119N, does not relate to the whole of Section 119B but only to Sub-section 2. The Sub-section is solely concerned with the right of a tenant to give 1 month's notice to terminate a Section 117 continued tenancy. This tends to reinforce the adverse conclusion to the Respondent's submission which I would, in any event, have reached from a consideration of the other relevant sections. I therefore hold that a Section 119B notice may be given by a tenant, including where application has been made for a new tenancy, to terminate a continued tenancy, before the expiration of the 3 months period referred to in Section 119N.

17. Mr. Yuen submitted that 1 month's notice, in exercise of the tenant's Section 119B rights, was on 22nd May 1996, served on the Respondent. If that were so, the fact that the application for a new tenancy was not withdrawn until 2nd June 1996, would be irrelevant. This is because if a tenant terminates a continued tenancy by proper notice, it is not strictly necessary to take any further steps in relation to the undisposed of new tenancy application. Although it may be desirable, as commonly occurs in practice, formally to withdraw. Leave to withdraw is not required and it may also remove any doubt whether there is to be any costs dispute under Rule 27(2) Lands Tribunal Rules, Cap. 17.

18. Mr. Cook's alternative submission, was that the purported Section 119B notice, was for less than the statutory minimum of 1 month. It was agreed that the notice was served on 22nd May 1996 and expressed to expire on 21st June 1996. In the case of landlord and tenant notices, the corresponding date rule generally applies - Law Chee-sing v. Lau Kwong-kin [1992-1993] CPR 164. If 1 month's notice were served on 22nd May 1996 it would, under the Rule, expire on 22nd June 1996.

19. I reject Mr. Yuen's submission that if the notice was served 1 day less than one month, that would merely be a technicality. All authority is to the contrary. This is certainly not a case where the de minimis rule may be applied. Mr. Yuen also referred to Ng Wai Lin v. Ng Sau Ching DCCJ No.12110 of 1992 in support of the validity of his notice. However, that judgment was not concerned with the period required to expire, to constitute 1 month's notice. It was concerned with the very different question whether a statutory notice had to expire on the same day, as the periodic day of the the prior periodic tenancy.

20. On the undisputed factual evidence, I hold that the notice served on the Respondent on 22nd May 1996, failed to give a minumum of 1 month's notice as required by Section 119B(2). Accordingly, the purported notice did not terminate the Section 117 continued tenancy.

21. Mr. Yuen finally alternatively submitted, that the continued tenancy was terminated by surrender on 12th June 1996. On that date he alleged the suit premise were physically vacated and the Respondent accepted the return of their keys. It was undisputed that on that date keys to the suit premises were variously returned by the Applicant to the Respondent. This included one set of keys delivered by courier to the Respondent's Manager's Office. The common evidence of the parties respective witnesses, was that the purpose expressed on that day, for handing over the keys, was to enable potential new tenants to view and for renovations to commence.

22. I accept that Section 117(2) provides that the statutory continuance of a Part IV tenancy, shall not prevent it coming to an end, not only by a tenant's notice to quit, but also by surrender and forfeiture. The preservation of these common law rights and remedies for Part IV, may be contrasted with the exclusive statutory grounds of termination, provided for in Parts I and II of the Ordinance.

23. Although Section 119N is not expressly subject to Section 117(2), I hold that the 3 months period in Section 119N may also be interrupted by a landlord exercising his Section 117(2) common law surrender or forfeiture rights. This practice, in relation to the more common exercise of a landlord's forfeiture rights, in separate proceedings commenced during the course of a Section 117(1) new tenancy application, has long been well established.

24. The more important question in this case is whether, on the facts, there has been a surrender. Mr. Yuen submitted that the surrender occurred on 12th June 1996 evidenced by the Applicant's return of the keys being accepted by the Respondent without qualification. I was also referred to the judgment of Yang, D.J., as he then was, in Tang Mei Lin v. Tsui Lin [1967} DCLR 33.

25. Mr. Cook disputed that the keys were accepted without any qualification and reminded the Tribunal that even the Applicant's witness agreed that they were returned to enable potential new tenants to view the suit premises and to facilitate renovation. Further, the Applicant was continuing to use the car park of the suit premises while its occupant had also left furniture in the premises after 12th June 1996.

26. A surrender of a tenancy is commonly effected by the parties entering into a deed of surrender or a similar agreement in writing. However, a surrender may in certain circumstances also arise by operation of law, without any deed or written agreement. The latter species of surrender, occurs where there is an oral agreement by the landlord and tenant to terminate the tenancy, acted upon by the tenant giving up possession and the landlord taking possession. However, the giving and taking of possession must be unequivocal.

27. The crucial surrender issue, on the present facts, is whether the giving up of possession by the Applicant and the acceptance of the keys by the Respondent, was unequivocal. Tang Mei Lin v. Tsui Lin (supra) is an example of where, although the notice of termination was ineffectual, the circumstances of the subsequent acceptance by the landlord of the returned keys, constituted surrender. Each case depends on its own facts. In some cases the acceptance of keys will be an unequivocal act. In other cases, it will merely be equivocal.

28. Mr. Cook in support of his submission that the acceptance of the keys was not an unequivocal act, cited 2 Woodfall's Law of Landlord and Tenant [1994], paragraphs 17.021 and 17.022. The former paragraph lists six examples of equivocal acts and five examples of unequivocal acts. The latter paragraph more helpfully sets out the position, where the return of keys is accepted:

"The acceptance of keys by the landlord is not necessarily evidence of a surrender; it depends on why the key was accepted. If it is accepted merely for the purpose of attempting to relet in the interest of the tenant, or to secure the premises against intruders,or to carry out repairs, there is no surrender."

29. Where a key is accepted expressly "without prejudice" the landlord's act is clearly unequivocal but that did not occur in this case. However, I have had the advantage of hearing evidence from material witnesses called by each party, relating to the circumstances surrounding the return of the keys. It is undisputed that express reasons for the return of the keys were to enable potential new tenants to view and for renovations to be commenced.

30. I am satisfied that it was in the interest of the Applicant for the vacant suit premises to be relet earlier rather than later. The immediate opportunity to view and renovate would clearly promote that interest. On these findings, I hold that the Respondent's act of accepting the return of the keys, was at least equivocal. Accordingly, the Applicant has failed to establish a surrender by operation of law. I am reinforced in this holding, by the fact that during this same period both parties were represented by solicitors, when the twin issues of interim rent and its duration were being disputed.

31. Although the Section 119N period of 3 months interim continuance may, as a matter of law, be terminated unilaterally by a tenant's notice or by mutual surrender, neither of those two alternatives have occurred. Under the interim continuance provisions of Section 119N, the tenancy therefore continues for the period therein provided, namely from the date of withdrawal on 3rd June 1996 down to 2nd September 1996.

32. Curiously, while Section 119N deals with the duration of any interim continuance, it does not provide for the determination of rent for the interim period. This omission may be compared with Section 119M(4), which in considerable detail, provides for the determination of the quantum of interim rent, where an applicant rejects the grant of a new tenancy. Where on a withdrawal quantum is disputed the Tribunal, for jurisdiction, has to fall back on Rule 27(3) of its own Lands Tribunal Rules, Cap.17 and also infer that the power to order payment of rent, also includes the power to determine its amount. The better Legislative approach would have been to include an express power of determination in Section 119N.

33. Fortunately, in this present case, the parties have now agreed on the amount of the interim rent at the rate of $108,000 per month. I am also obliged to Mr. Cook and Mr. Yuen for their written submissions and their helpful oral arguments. I record that they agreed that, under the Tribunal's limited Section 119R discretion, this was not a proper case for costs. I therefore now order:

1. Interim rent at the agreed rate of $108,000 per month shall be paid by the Applicant to the Respondent monthly in advance from 22nd March 1996 to 2nd Septembner 1996; leave to pay any unpaid prior interim rent within 14 days;

2. No order as to costs.

(Judge Cruden)

Presiding Officer Lands Tribunal