John James Toohey v. Hero Plaza Ltd.

LDNT60/1999

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

Application No.: LDNT No. 60 of 1999

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REASONS FOR DECISION

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1. The applicant is the tenant and the respondent the landlord of the subject premises known as Flat C including the terrace on the adjacent thereto on ground floor of 15 Tung Shan Terrace, Hong Kong. The existing tenancy was a renewed tenancy for a term of two years commencing from 1 May 1996 expiring on 30 April 1998. In December 1999, the respondent served a Form CR101 onto the applicant terminating the tenancy on 30 June 1999. The applicant responded by the service of a Form CR102 onto the respondent in February 2000.

2. The applicant applied for a new tenancy under Part IV of the Landlord and Tenant (Consolidation) Ordinance, Cap. 7. There was at first a dispute between the parties as to the validity of the applicant's Form CR102. However, at the beginning of the hearing, the parties resolved the dispute. Both consented that the applicant should be entitled a new tenancy commencing from 1 July 1999. The only outstanding issue was the level of the prevailing market rent on 30 June 1999.

3. The subject premises is one of the two ground floor units of 15 Tung Shan Terrace, a 4-storey residential building situated on an elevated position above Stubbs Road. The subject premises has an open view towards Happy Valley and Causeway Bay. The subject building was completed in 1994. It was common ground that the building had been renovated in 1999. The expert surveyor for the applicant, Mr. Simon Lynch, reported in his report prepared in December 1999 (Exhibit A1) that the work was almost completed at the time of his inspection prior to preparing the report. On the other hand, Mr. Rock Tsang, the expert surveyor called by the respondent, admitted that he had only inspected the premises on 1 June 2000.

4. The experts for both parties accepted that the saleable area of the subject premises was 76.7 sq.m. and the area of the terrace was 68.3 sq.m. They also both acknowledged the existence of some dampness marks, mainly on the walls near the skirting boards in various rooms. In addition, Mr. Lynch reported in Exhibit A1 the following defects:

- the water pipes in the kichen had furred and water was brown in colour;

- the hot water pressure was low, and the tenant complained of poor electricity supply which could be noticed by the flickering fuse lights;

- the water heater in the bathroom had furred pipes and emitted a loud high pitched noise when the water was turned on;

- dampness had been found on the ceiling of the bathroom and the remedial work was poorly patched.

5. Both experts used the same direct comparison method of valuation. Mr. Lynch analysed all the six comparables supplied to him by the Rating and Valuation Department. A summary of his analysis was shown in Appendix 4 of Exhibit A1. He considered and made suitable adjustments to all the comparables for various factors. In conclusion, he decided that the most comparable premises were those in 23 Tung Shan Terrace since they were low-rise apartments in the immediate vicinity of the subject premises with similar views and facilities. However, he discarded his Comparable 2 (23 Tung Shan Terrace, 3/F., Flat H) as that was a tenancy of one year term and the rent may be above prevailing level due to the short term of the tenancy.

6. In addition to the Tung Shan Terrace comparables, Mr. Lynch also proposed that his Comparable 3, 7A Shiu Fai Terrace, being a superior property in a low rise building with a similar location, could give a good indication of the upper range of values for the subject. In the final analysis, Mr. Lynch adopted a unit rental value of $230 per sq.m. as to be reasonable. Applying this to the saleable area of the flat and the terrace, with the latter assuming an equivalent value of about one tenth of the flat proper, gave a rent of $19,000. This was Mr. Lynch's assessed prevailing market rent for the subject premises as at 1 July 1999 in Exhibit A1.

7. During the hearing, Mr. Lynch sought to amend his estimate of the adjustment for the factor of disturbance to the applicant caused by the renovation work of the building at the date of valuation. He suggested that the period of the new tenancy for the subject premises that was affected by the renovation should be 6 months with a result that an allowance of about 6% should be given to the applicant. This change he computed to be equivalent to about $500. Adding this sum and his estimated rental of $2,000 for a car parking space to his previously estimated rent of $19,000 gave a figure of $21,500. Mr. Lynch submitted this to be his up-dated valuation for the subject premises.

8. Mr. Tsang produced a valuation report titled Proof of Evidence dated June 2000 (Exhibit R1). Altogether ten letting comparables had been obtained from the Rating and Valuation Department and their particulars were compiled as Appendix 6 of Exhibit R1. Although five of these comparables were lettings in Tung Shan Terrance, Mr. Tsang decided that "having regard to the location, size, and the proposed lease term of the subject property, it is considered that Comparable No. 1 is the best comparable". As a result of this, he only analysed that comparable (23 Tung Shan Terrace, 2/F., Flat A) and made adjustments in respect of various factors (view -10%, accessibility -5%, building age +5%, time 0%, internal conditions/ provision of appliance -5%). Applying the total adjustment of -15% to the comparable's unit rate of $310.38 per sq.m. gave a rate of $263.82 per sq. m. The value of the subject premises was assessed at $25,600 per month after assuming the value of the terrace to be one sixth of the value of the flat proper and adopting the value of car parking space of $2,300.

9. During the hearing, the Respondent agreed to reduce Mr. Tsang's original valuation to $24,700 to reflect the disturbance factor.

10. The Tribunal does not accept Mr. Tsang's methodology. Firstly, it is generally not a good approach to carry out any valuation by direct comparison method using a single comparable. Next, Mr. Tsang's conclusion that his Comparable No.1 is the best comparable is not supported by the reasons he cited. Of the five Tung Shan Terrace comparables, four are in the same building of 23 Tung Shan Terrace and the fifth is a flat in 3 Tung Shan Terrace. They are all located within a very short distance of the subject building. All these comparables, with the exception of 23 Tung Shan Terrace, 3/F, Flat F are of two years term in duration. Finally, the size of the subject premises is somewhat in between that of all his Comparable No. 1 & 7 and the other comparables. Therefore, the Tribunal cannot understand Mr. Tsang's rationale of adopting only one comparable, i.e. Comparable No. 1, as to be the best comparable, at the expense of all the other four comparables at Tung Shan Terrace.

11. The Tribunal considers it appropriate to consider the other Tung Shan Terrace comparables, in addition to Mr. Tsang's Comparable No. 1. It is agreed that high-rise apartments in Shiu Fai Terrace and Kennedy Road are not that appropriate. In addition, the comparable at 3 Tung Shan Terrace is a larger unit let at a monthly rent of $36,000, much higher than that of the other comparables at Tung Shan Terrace. Also, neither expert has commented and made suggested adjustments to this comparable, thus providing very little information about this property to the Tribunal. In the circumstances, the Tribunal has analysed the other Tung Shan Terrace comparables, as follows:

12. In adopting the adjustments for various factors, the Tribunal has taken into account, where appropriate, the percentages proposed by the two experts. On the whole, most of the figures are much similar to those adopted by Mr. Lynch. The Tribunal holds different view as to the quantum of view and level adjustments. For the view adjustments, the Tribunal adopts -7.5%, a figure in between Mr. Lynch's and Mr. Tsang's percentages, while for the level adjustment, the Tribunal allows a higher percentage adjustments than those suggested by Mr. Lynch.

13. The adjusted unit rates of these four 23 Tung Shan Terrace comparables range between $205.18 per sq.m. and $261.51 per sq.m. The Tribunal decides to give equal weight to all these comparables which has an average rate of $244.45 per sq.m. Applying this to the equivalent area of the subject premises of 85.24 sq.m. (saleable area of the flat plus the equivalent area of the terrace, assuming that the value of the terrace is one eighth of that of the flat proper) gives a rent of $20,837. To this, the Tribunal allows the estimated rental value of a car parking space of $2,300 as adopted by Mr. Tsang. This adds up to $23,137, rounded to $23,000. This is the determined prevailing market rent of the subject premises commencing from 1 July 1999.

Orders

1. New Tenancy for 2 years from 1 July, 1999;

2. New rent $23,000 per month (exclusive of rates and management charges); leave to respondent to pay applicant over-payment of rent (if any) within 1 month;

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

4. Other terms of new tenancy same as in current tenancy agreement.