WISING HOLDINGS LTD v. CHAN MICHAEL

LDPD 400 OF 2008

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

Application No. LDPD 400 of 2008

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J U D G M E N T

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Background

1. The premises at Flat A, 8/F, Tower 7 and Car Park 177, Bel-Air, Island South, Hong Kong (“the Property”) were let to the Respondent by the former owner of the Property under a tenancy agreement dated 15 January 2006 for a term of 2 years from 1 February 2006 to 31 January 2008 at a monthly rent of $36,000, inclusive of management fee, Government rates and rent.  By an agreement for sale and purchase, the Applicant purchased the Property from the former owner.  The Assignment of the Property was completed on 30 January 2008.

2. The Applicant applied on 2 February 2008 for possession of the Property and payment of outstanding rent/mesne profits for the period from 1 February 2008 and costs.  The Respondent filed the Notice of Opposition on 11 February 2008.  During the hearing on 23 April 2008, the Applicant called for the evidence of 2 witnesses: Ms. Chan Yee Wah, the sole director and shareholder of the Applicant and Ms. Tsui Wai Ha, the estate agent who represented the Applicant in purchasing the Property whilst the Respondent gave evidence himself.  Before the hearing was adjourned, the parties consented that the Applicant could take back vacant possession of the Property on 4 May 2008 and that the assessment of the mesne profits to be adjourned to a date to be fixed by the Registrar.  There was also direction from the Tribunal regarding the filing and exchange of witness statements and / or expert reports.

Issues

3. The factual and valuation issues before the Tribunal were: (i) the factual issue of whether there was prior agreement between the parties on the terms of occupation of the Property by the Respondent after 31 January 2008, the expiry date of the fixed term tenancy entered into between the Applicant’s predecessor in title and the Respondent, and if there was prior agreement, the terms of such an agreement; (ii) the valuation issue of the assessment of the mesne profits of the Property for the period from 1 February 2008 to 3 May 2008.

Any prior agreement between the parties and the terms of such an agreement

4. Ms. Chan Yee Wah filed a witness statement and gave evidence on 23 April 2008.  She was the sole director and shareholder of the Applicant.  She purchased the Property in the name of the Applicant for the residence of her family.  As it was let to the Respondent, she had not the opportunity to view the Property prior to her signing the Sale and Purchase Agreement at the end of 2007.  She confirmed that her estate agent Ms. Tsui Wai Ha had called her at the end of December 2007 informing her that the Respondent had requested for an extension of tenancy which was due to expire on 31 December 2008.  She told Ms. Tsui that before she could give a definitive reply, she needed an internal inspection of the Property first in order to determine, with the advise of her Fung Shui Master, whether the Property would be suitable to her as her new residence.  Eventually, she called the Respondent and made an appointment to view the Property with her Fung Shui Master.  During the telephone conversation, she told the Respondent that she would only make the decision after viewing the Property.

5. Ms. Chan said that after viewing the Property with her Fung Shui Master on 6 January 2008, she decided to move in the Property for the residence of her family.  However, notwithstanding this decision, she decided to offer to the Respondent an extension of tenancy for 2 more months (i.e. from 1 February 2008 to 31 March 2008) at the revised rent of $50,000 per month, which was below what Ms. Tsui estimated to be the then prevailing market rent of $55,000.  However, Ms. Chan said that she then learnt on 13 January 2008 from Ms. Tsui that the Respondent had refused to accept the above said offer for extension of tenancy but would insist to pay the old rent of $36,000 per month for 2 more months.  This was totally unacceptable to her.  Since the Respondent wanted to talk directly to her, Ms. Chan said that she then called to reiterate the previous offer.  She also told the Respondent that if he could not accept the suggested new rental of $50,000 for the said extension of Tenancy, she would take back possession of the Property upon the expiry of the contractual tenancy on 31 January 2008.  The telephone conversation ended without any oral agreement reached between the parties.

6. Ms. Chan denied ever giving any instruction to any one (including Ms. Tsui) that the Applicant would agree to an extension of tenancy on the basis of the old rent.  Ms. Chan said that she even did not know the existence of Ms. Chung (the secretary of the former Owner, according to the evidence of the Respondent).  Ms. Chan said that as there was no agreement, she then instructed her estate agent and lawyer to take steps to take back possession of the Property, including instituting this Application.

7. Ms. Tsui gave evidence on 23 April 2008, basically agreeing with what Ms. Chan stated in her witness statement and what Ms. Chan said in oral testimony.

8. The Respondent gave evidence himself and did not call any other witness.  He stated that after he was aware of the sale of the Property by the former owner to the Applicant, he informed the Applicant through a Ms. Chung, the secretary of the former owner that he did not wish to leave the Property before the Chinese New Year.  He asked for an extension of the tenancy for a short period of time at the previous rent of $36,000 per month.  He said that Ms. Chung informed him that the proposed extension was agreed by the Applicant.  For this reason, he had a telephone conversation with Ms. Chan Yee Wah of the Applicant and conceded that she could come to view the Property with a Fung Shui Master on 6 January 2008, prior to the expiry of the contractual tenancy of the Property and prior to the completion of assignment of the Property to the Applicant.  The Applicant alleged that unfortunately, the Applicant changed the stance later and did not abide by the prior oral agreement reached between the parties.  As the expiration date of the contractual tenancy (i.e. 31 January 2008) was too close to the Chinese New Year, he could not arrange removal of his household from the Property and gave back vacant possession of the Property to the Applicant. 

9. There was conflicting oral evidence from the Applicant’s witnesses and the Respondent.  The Respondent submitted that the Tribunal should accept his version that the Applicant had earlier agreed an extension of tenancy at the old rent of $36,000 per month before revoking the oral agreement after the viewing by Ms. Chan on 6 January 2008.  The only reason the Respondent gave was that if the Applicant had not agreed such an extension, he would not have granted Ms. Chan and her Fung Shui Master the opportunity of viewing the interior of the Property prior to the completion of assignment of the Property.  However, I find this to be not necessarily true as very often, a sitting tenant of a property would grant permission to the purchaser or even intending purchasers to view the interior of that property.  As there was conflicting evidence from the parties, I find that, in applying the usual rule, since it was the Respondent who alleged that there was an oral agreement, he bore the burden of proof.  In the present case, on the balance of probabilities, I find in favour of the Applicant that it was more likely than not that there was no such oral agreement.  Therefore, I find that the Respondent failed to discharge the burden of proof. 

Assessment of the mesne profits by the Applicant

10. During the adjourned hearing on 20 May 2008, the Applicant called for the evidence of a valuation surveyor, Mr. Wayne W. K. Lee, who opined that the market rent of the Property as at 1 February 2008, on the basis of a lease term of 1 to 2 years, was in the sum of $56,800 per month, inclusive of rates, Government rents and management fee.  Mr. Lee produced his valuation report, which was marked as Pages 57 to 75 of the trial Bundle.  In the examination in chief, he was asked to explain his valuation in more details.  In particular, he confirmed that he had made searches of the rental transactions around the relevant date but the rental information was scarce as very few people chose to register the tenancies in the Land Registry.  He was satisfied that the 6 transactions he identified and reported in his valuation report were all that were available from the Land Registry records.  Despite of the limited number of transactions, he however confirmed that this was sufficient for the valuation exercise he undertook.

11. In replying to the cross examination by the Respondent, Mr. Lee confirmed that his valuation was based on a 1 to 2 years term, but not on a 2 to 3 years term.  Other than this question, the Respondent did not raise challenge to Mr. Lee on any part of his valuation.

12. Based on the agreed period during which the Respondent should pay the Applicant the mesne profit (i.e. between 1 February 2008 and 3 May 2008) and the monthly rent of the Property of $56,800 as assessed by Mr. Lee,  the Applicant’s assessed mesne profits is therefore equal to $56,800 x 3.096, or $175,853.

Assessment of mesne profits by the Respondent

13. On the other hand, the Respondent has not produced any valuation report of his own, or from any valuation expert setting out the valuation with the comparables.  He only relied on his primary ground that there had been prior oral agreement of a rent of $36,000 per month between the Applicant and himself regarding the period in question (i.e. between 1 February 2008 and 3 May 2008).  That is of course another issue of this case, which has already been dealt with in an earlier part of this Judgment.

14. During the hearing, the Respondent produced a copy of a letter (marked as Exhibit R1) he obtained from Island South Property Management Limited, the estate manager of the estate of Bel-Air, of which the Property forms part.  There was no challenge from the Applicant on the existence of this letter.  In the letter, the Applicant informed the estate manager that as the tenancy agreement of the Property had expired on 31 January 2008, the Applicant requested the estate manager to “disable all the access cards of the tenants and cancel all the club house memberships of the tenants related to the property.”  The Respondent alleged that as a result of this, he and his family members were denied proper and normal use of the estate’s common facilities and services, including (i) the use of car parking space (even though the car park no. 177 forms part of the Property under demise), (ii) the use of the estate’s shuttle bus as well as the club facilities such as gymnasium and swimming pool.  For this reason, he submitted that the mesne profits he should pay to the Applicant for the period in question should be computed as follows: -

	Monthly rent (as agreed by the parties beforehand)				$36,000
Less-	(i)	Rent of 1 car parking space valued by him at		$3,000
	(ii)	(a)	Loss in the use of the estate’s shuttle bus by him and his family and	$12,000
		(b)	Loss in the use of club facilities, the total value of which was estimated by the Respondent to be about
	Total deduction				$15,000
	Net monthly rent payable by the Respondent				$21,000
	Agreed period of occupation - 3 months 3 days				x  3.096
	Total Mesne profit for the period in question (between 1 Feb 2008 and 3 May 2008)				$65,016

15. As to the loss of use of club facilities, he did not elaborate in details his computation.  He only said that apart from the loss of use of car parking space, he estimated that his total loss in value was in the region of between $8,000 and $16,000 for which he took an average figure of $12,000.  Hence, he calculated that the net monthly rent payable by him should be $36,000 less $3,000 (car park) and less $12,000 (for the other losses), or $21,000. 

16. However, the Respondent did give an estimate of the extra cost he and his family members incurred in taking the shuttle bus after they were denied access to such service by the estate manager, as follows: $17 per trip x 2 times a day x 5 persons in his household x 30 days which is equal to $5,100 per month.  Therefore, the Respondent put a value of $12,000 (for all losses other than car park) less $5,100 (for shuttle bus service), or $6,900 as the value for the loss of use of club facilities.

Tribunal’s determination of the mesne profits

17. I accept Mr. Lee’s expertise and experience in the valuation field.  As there is no challenge to his valuation, I find Mr. Lee’s estimate of the market rent of the Property at $56,800 per month to be a fair valuation of the mesne profits of the Property for the period in question.  However, I find from Mr. Lee’s definition of the market rent of the Property that this includes the rent of one car parking space.  Also, in the absence of evidence to the contrary, Mr. Lee’s estimated rent should have been made on the basis that the tenant/occupant could use the estate’s common facilities and services, i.e., including the use of the estate’s shuttle bus, the gymnasium and the swimming pool. 

18. The Applicant did not ask Mr. Lee to value the rent of the parking space, which formed part of the Property under demise in the previous contractual tenancy.  The Applicant has not adduced any other evidence on the value of a car parking space in the estate of Bel-Air.  Without any evidence to the contrary, I accept the estimate of $3,000 per month given by the Respondent as a fair and reasonable figure.  I further find that as Mr. Lee’s valuation of the mesne profits of the Property included the value of one car parking space but that the Respondent did not have the use of the car parking space (forming part of the demised Property in the past) during the period of occupation in question, the estimated rent of $3,000 per month for one car parking space should be deducted from the assessed mesne profits of the Property.

19. In addition, I accept that as the Respondent and his family were denied the use of the estate’s common facilities and services, that amount of money equals to the value of such services should be deducted from the mesne profits assessed by Mr. Lee.  According to the Respondent, the total value of such services was estimated to be about $12,000.  On the other hand, the Applicant did not suggest any alternative figure for the value of the estate’s common facilities and services that were denied to the Respondent during the period of occupation but were otherwise available to any bona fide tenant.  In the absence of any other evidence, I decide that it would be reasonable to allow a lump-sum deduction that is equal to say one tenth of the value of the monthly market rent.

20. In the circumstances, I estimate the mesne profits per month, after the allowable deductions to be: -

	Mr. Lee’s estimated mesne profits per month		$56,800
Less-	Value of rent for one car parking space	$3,000
	Value for the estate’s facilities & services, say	$5,680	$8,680
	Mesne profit per month payable by the Respondent		$48,120
	Period of occupation (1 February 2008 to 3 May 2008)		x 3.096
	Total mesne profits payable by the Respondent		$148,979

Costs of the proceedings

21. The Applicant sought costs from the Respondent at District Court scale with Certificate for Counsel.  The Applicant submitted that both before and after the expiration of the original contractual tenancy on 31 January 2008, there was no consensus between the parties regarding any extension of tenancy or renewal.  Therefore, The Applicant had no alternative but to institute the present proceedings.

22. The Applicant submitted that the Respondent should pay the mesne profits for the period of occupation on the basis of the market rent of the Property as at the relevant date.  However, the Respondent has not paid any mesne profits to the Applicant for the entire period.  As such, the Applicant submitted that there appeared to be no reason that the usual rules as to costs should not apply.

23. The Respondent submitted that he should not be required to pay the Applicant’s costs.  The Application took out the present Application after the Applicant failed to comply with the oral agreement reached between the Respondent and the Applicant.  The Respondent was compelled to oppose the application because (1) the Applicant reneged on the oral agreement and (2) there was insufficient time for the Respondent to move out after the Respondent was aware of “the subsequent change in mind” of the Applicant. 

24. In summary, the Respondent said that the consequence (including the legal costs) of the Applicant that arose because of “the subsequent change in mind” of the Applicant should not be borne by him.   During the hearing on 30 May 2008, the Respondent also asked for leniency as he had personal problems after his moving out from the Property.

25. As I have decided earlier in favour of the Applicant, there is no reason that the costs of the Applicant should not be borne by the Respondent on the usual rule that costs follow the event.  The Respondent’s personal problem, financial or otherwise, is not a ground that I should accept in coming to decide on the costs order.  I therefore give a costs order nisi that the costs of the Applicant be borne by the Respondent with liberty to apply within 14 days.

Orders

26. I therefore make the followings orders: -

(1)  The Respondent do pay the Applicant mesne profits for the occupation of the suit Property for the period from 1 February 2008 to 3 May 2008 in the total sum of $148,979, and in the event that the Respondent has paid into Court any interim rent/mesne profits, the Respondent do only pay the difference between the above sum of $148,979 and any such interim rent/mesne profits;

(2)  Costs order nisi: the Respondent do pay the Applicant costs of this Application at District Court Scale on the party and party basis, with Certificate for Counsel;

(3)  If there is no application made within 14 days from today, the costs order will become absolute.