TOP PRINCE LTD v. TSANG SUI CHUN (曾瑞珍), the intended Administratrix of the Estate of CHOW YIN WAH (周燕華), deceased

LDCS 33000/2020

[2022] HKLdT 1

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE MAIN APPLICATION NO 33000 OF 2020

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BETWEEN

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J U D G M E N T

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1.  This is an application for a compulsory sale order under the Land (Compulsory Sale for Redevelopment) Ordinance, Cap 545 (“the Ordinance”) (hereinafter referred to as “the Application”) to sell all the undivided shares of New Kowloon Inland Lot No 4965 (“the Lot”) standing thereon are two 5-storey residential buildings over a single level of retail shops, collectively known as Cheng Fung Mansion (“the Building”) being situated at Nos 31-41 Fei Fung Street, Wong Tai Sin, Kowloon.

2.  The Building was completed on 10 August 1971. By reference to a set of building plans of reference no 2/4476/69 approved by the Building Authority on 4 December 1969, there are six retail shops on ground floor and 2 domestic units on each floor of Block A and 4 domestic units on each floor of Block B from the First Floor to Fifth Floor of the Building. Each residential block is served by only one common staircase.

3.  By reference to a Deed of Mutual Covenant vide memorial UB831659 dated 17 September 1971 as registered in the Land Registry, the units in the Building are each allotted the following equal and undivided share of the Lot:

Floor	Block A		Block B
	Shop/ Unit 1	Shop/ Unit 2	Shop/ Unit 3	Shop/ Unit 4	Shop/ Unit 5	Shop/ Unit 6
G/F and Cockloft	4/90	4/90	4/90	4/90	4/90	4/90
1/F and Flat Roof	2/90	2/90	2/90	2/90	2/90	2/90
2/F	2/90	2/90	2/90	2/90	2/90	2/90
3/F	2/90	2/90	2/90	2/90	2/90	2/90
4/F	2/90	2/90	2/90	2/90	2/90	2/90
5/F and Roof	3/90	3/90	3/90	3/90	3/90	3/90

4.  As at the date of the Notice of Application, ie 5 November 2020, the applicant owned all the equal and undivided share of the Lot except the following:

(a) Flat 3, 2/F, Block B of the Building which was owned by Madam Chow Yin Wah, the 1^st respondent (“R1”);

(b) Flat 5, 2/F, Block B and Flat 5, 3/F, Block B of the Building which was owned by the 2^nd respondent (“R2”)

(c) Flat 6, 3/F, Block B of the Building which was owned by the 3^rd and 4^th respondents (“R3 & R4”) as tenants-in-common.

5.  Thus, as at the date of the Notice of Application, the applicant owned 82 equal and undivided shares out of a total of 90, ie 91.11%.

6.  Subsequently, the applicant had successfully acquired the interest of the 2^nd, 3^rd and 4^th respondents and discontinued the Application against them on 3 August 2021 and 1 March 2021 respectively.

7.  Whereas R1 is the only remaining respondent, she was mentally incapacitated and her daughter, Madam Tsang Sui Chun, consented to act as her guardian ad litem on 27 May 2021. Since then, Madam Tsang has been legally represented by Messrs Chan & Chan, Solicitors. Yet, Madam Tsang has not filed any Notice of Opposition.

8.  Unfortunately, Madam Chow passed away on 11 October 2021 and Madam Tsang is making arrangement to represent the estate of Madam Chow.

9.  On the date of trial on 9 December 2021, the Tribunal was informed that Madam Tsang has come to a settlement with the applicant on 6 December 2021 by the Deed of which Madam Tsang agreed to sell and the applicant agreed to purchase the interest of R1 subject to the obtaining of the grant of the Letters of Administration of the estate of R1.

Whether the Applicant is entitled to make the Application

10.  Section 3(1) of the Ordinance requires an applicant to have not less than 90% of the undivided shares in a lot before he can make an application.

11.  The applicant, owning not less than 90% of the undivided shares of each of the Lot at the time of the Application, was entitled to file the Application under section 3(1) of the Ordinance.

The Evidence

12.  The applicant has filed the following documents in support of the Application:

(a) a witness statement of Mr Li Ming Yeung, representative of the applicant dated 20 September 2021;

(b) a Building Condition Survey Report by Mr Benson Wong Sai Ning (“Mr B Wong”) of Benson Wong & Associates Limited dated 20 September 2021;

(c) a Structural Survey Report by Mr So Kin Shing (“Mr So”) of K S So & Associates Ltd dated 20 September 2021;

(d) the following reports by Mr Charles CK Chan (“Mr C Chan”) of Savills Valuation and Professional Services Limited (“Savills”);

(i) an Application Report dated 27 October 2020 pursuant to Part 1 of Schedule 1 to the Ordinance on the market value (which is usually termed by the valuation profession as the Existing Use Value or just “EUV”) of each unit of the Building;

(ii) a Supplemental Report dated 17 September 2021 on the revised EUV as at 3 September 2020; and

(iii) a valuation report on the redevelopment value (“RDV”) dated 15 November 2021 of the Lot for the purpose of setting the reserve price of the public auction, if an order for sale of the Lot be granted, according to clause 2 of Schedule 2 to the Ordinance.

13.  Neither R1 nor Madam Tsang had filed any evidence in rebuttal. The latter was represented by Mr Matthew Choi at the trial.

Whether Redevelopment of the Lot is Justified

14.  In accordance with Section 4(2) of the Ordinance, the Tribunal shall not make an order for sale unless it is satisfied that redevelopment of the Lot due to the “age or state of repair” of the Building is justified.

15.  For the age and state of repair requirements, the applicant has adduced the expert evidence of Mr B Wong, the building surveyor and Mr So, a registered structural engineer.

16.  Mr So had conducted a structural assessment of the Building and prepared a report dated 20 September 2021. His opinion is as follows:

(a) The design and construction of the structural frames of the Building were done under the old standards pertaining to the LCC By-laws 1952 which were less stringent than the current standards.

(b) By visual inspection, cracks and spalling were observed both in Block A and Block B of the Building. Tests such as cover-meter surveys, carbonation depth tests, coring and compression tests, cement content tests, chloride content tests as well as reinforced corrosion surveys were carried out.

(c) Both Block A and Block B have structural frames that have deteriorated extensively reaching the propagation phase. The deterioration will continue steadily due to extensive carbonation of the concrete. Regular or frequent maintenance and repair works are required in the near future to keep the Building in safe condition.

17.  Mr B Wong, in his Condition Survey Report dated 20 September 2021, stated, inter alia, that:

(a) The Building is over 50 years old and is considered to have already reached the end of its design working life.

(b) Fire services installation is obsolete.

(c) The fire escape arrangements are unsatisfactory as emergency lighting is not provided to the required staircase of the Building.

(d) The fire resisting construction is outdated, especially that the existing concrete cover and floor slab thickness does not match the current requirements.

(e) The Building has no equipotential bonding provided for exposed metal fixtures in private areas thereby endangering the safety of the occupants and breaching the Electrical Code.

(f) The Building has no lightning protection system installed on the roof.

18.  Mr B Wong was of the view that most of the above functional obsolescence cannot be rectified unless the Building is demolished and redeveloped. Before then, the occupiers will have to remain in occupation of the Building which is aged, sub-standard or even unsafe by current standards.

19.  Besides, Mr B Wong was of the view that the Building is in a poor state of repair. He assessed the total cost of repair works at $10,748,124 which amounts to 31% of the construction cost of a new similar superstructure. He considered the repair cost disproportionately high and the Building has reached a state which is beyond reasonable economic repair. He recommended the owners to redevelop rather than repair the Building, particularly the Building does not possess any historical value or architectural merit.

20.  Neither R1 nor Madam Tsang had provided any evidence to the contrary. Both Mr B Wong and Mr So were not cross-examined. Thus, I accept the applicant’s evidence in whole. I am satisfied that based on the evidence of Mr So and Mr B Wong, redevelopment of the Lot is justified due to the age and the state of repair of the Building.

EUV as at 3 September 2020

21.  The Application was accompanied by a valuation report dated 27 October 2020, the Application Report, prepared by Mr C Chan, containing assessments of the EUV of all units in the Building on the Lot as at 3 September 2020. The Application Report was prepared not earlier than 3 months before the date of the Application, ie 5 November 2020 and is therefore, in my view, in compliance with section 3 of the Ordinance.

22.  In the Application Report, Mr C Chan explained the method of valuation and the process of his assessment to arrive at the EUV of each unit of the Building.

23.  In assessing the EUV of the ground floor units, Mr C Chan adopted the following methodology:

(i) He selected Shop No 3 on Ground Floor of Block B as the Reference Shop Unit. He then took into account 6 comparable shop transactions nearby, including four at Tsui Fung Street, one at Ming Fung Street and another one at Fei Fung Street, ie the same street as the subject.

(ii) After making what he regarded as the necessary adjustments (for time, location, age, size, frontage, layout and headroom) for all these comparable transactions, he took the average of the adjusted unit rates of the comparables to arrive at the unit price of the Reference Shop Unit. Mr C Chan then made adjustments to arrive at the EUV of the other shop units.

24.  In his valuation of the EUV of the domestic units on the upper floors of the Building, Mr C Chan adopted the following methodology:

(i) He selected Flat 3 on 3/F of Block B as the reference unit (“the Reference Domestic Unit”) for the purpose of valuing its unit price.

(ii) The unit price of the Reference Domestic Unit was first assessed by making reference to market comparables. He took into account 6 comparable transactions in 6 different buildings in the vicinity. After making what he regarded as the necessary adjustments (for time, location & environment, size, age, floor level, view, lighting & ventilation, noise and physical condition & building management, nuisance) for all these comparable transactions, he took the average of the adjusted unit rates of the comparables.

(iii) He further considered the floor level, top floor effect, size, view, lighting & ventilation and internal conditions of the Reference Domestic Unit and the remaining domestic units within the Building and made adjustments to arrive at the EUV of all the domestic units on the upper floors of the Building.

25.  Mr C Chan updated the Application Report by a Supplemental Report dated 17 September 2021 in which he revised the EUV of all the units in the Building after taking into account the inspection of more units in the Building, six additional retail comparables, two additional domestic comparables and the updated property index prepared by the Rating and Valuation Department. In this report, Mr C Chan repeated the exercise he did in the Application Report.

26.  The EUV of all units in the Building assessed by Mr C Chan, as at the relevant date of valuation of 3 September 2020, are reproduced below:

Floor	Block A		Block B
	Shop/ Unit 1	Shop/ Unit 2	Shop/ Unit 3	Shop/ Unit 4	Shop/ Unit 5	Shop/ Unit 6
G/F and Cockloft	$11,510,000	$11,180,000	$11,750,000	$11,720,000	$11,770,000	$11,750,000
1/F and Flat Roof	$3,690,000	$3,760,000	$4,380,000	$3,980,000	$4,010,000	$3,880,000
2/F	$3,420,000	$3,250,000	$3,950,000	$3,560,000	$3,730,000	$3,320,000
3/F	$3,450,000	$3,180,000	$3,880,000	$3,390,000	$3,770,000	$3,250,000
4/F	$3,290,000	$3,120,000	$3,800,000	$3,420,000	$3,580,000	$3,280,000
5/F and Roof	$3,390,000	$3,170,000	$4,020,000	$3,500,000	$3,800,000	$3,420,000

27.  I am satisfied that the value of the respondent unit as assessed by Mr C Chan is not less than fair and reasonable; and not less than fair and reasonable when compared with the value of the applicant’s properties:

(i) R1’s unit - assessed at $3,950,000 (representing 2.2276% of the total EUV of all units at $177,320,000); and

(ii) the total EUV of all units - assessed at 177,320,000.

Section 4(2)(b) – Whether Applicant has taken reasonable steps

28.  The applicant is under an obligation to take reasonable steps to negotiate on terms that are fair and reasonable for the purchase of the interests of the respondents under section 4(2)(b) of the Ordinance.

29.  As stated in §6 above, the applicant has successfully acquired the units or interests of R2, R3 and R4 and has discontinued the proceedings against them. Also as stated in §9 above, Madam Tsang has come to a settlement with the applicant on 6 December 2021 by the Deed of which Madam Tsang agreed to sell and the applicant agreed to purchase the interest of R1 subject to the obtaining of the grant of the Letters of Administration of the estate of R1.

30.  In light of the above, I am satisfied that the applicant has taken reasonable steps to acquire all the undivided shares in the Lot.

RDV of the Lot

31.  Mr C Chan resorted to the residual valuation method in determining the RDV. This can be done by deducting development cost (including construction costs, professional fees, finance costs etc) and developer’s profit from the estimated gross development value (“GDV”) of the completed optimum development.

32.  I have considered Mr C Chan’s valuation of the RDV of the Lot which has a developable site area of the Lot at 362.32 sq m.

33.  Mr C Chan opined that the optimal development on the Lot would be a 24-storey commercial/residential composite building with retail shops on G/F, club house on 1/F, surmounted by residential units from 2/F to 23/F. Details of the hypothetical development and residual valuation were set out in Appendix II of the RDV Report (Bundle D/89). Details of retail and domestic comparables with adjustments were set out in Appendix IV (Bundle D/93) and Appendix VI (Bundle D/97) respectively. Mr C Chan also adopted the Development Cost Pro-forma promulgated by the Hong Kong Institute of Surveyors to facilitate consideration of construction costs in land value assessments in Appendix III (Bundle D/91). The valuation arrived at by Mr C Chan was $257,000,000, representing an overall accommodation value of $84,067/sq m.

34.  I have gone through Mr C Chan’s valuations. In the absence of evidence to the contrary, I am satisfied with his valuation, including the valuation assumptions he has adopted, the values and the costs parameters he has used in his valuation.

35.  Based on Mr C Chan’s valuation, I decide that the reserve price for the auction of the Lot should be $257,000,000.

Other Incidental Matters

36.  The applicant proposed to appoint Mr Ma Ho Fai and Ms Hung Suet Shan Catherine, being partners of Messrs Woo Kwan Lee & Lo, Solicitors, Notaries, Agents for Trademarks & Patents, as the sale trustees. Based on the information on their background and experience as set out in their letter dated 5 November 2021, I am satisfied that they are proper persons to be appointed as trustees to discharge the duties imposed on trustees under the Ordinance. The remuneration package proposed in the said letter appears reasonable.

37.  The applicant has prepared a set of draft Particulars and Conditions of Sale of the Lot[1]. Subject to any amendment that may become necessary as a result of my ruling on the arrangement of auction above, the particulars and conditions of sale of the Lot by public auction submitted by the applicant is also reasonable.

Order

38.  This Tribunal make the following orders:

(1) This Tribunal is satisfied that the redevelopment of the Lot is justified due to the “age” or “state of repair” of the Building and that the applicant has taken reasonable steps to acquire all the undivided shares in the Lot;

(2) All the undivided shares in the Lot, the subject of the Application herein, be sold by way of a public auction for the purposes of the redevelopment of the Lot under s.4(1)(b) of the Land (Compulsory Sale for Redevelopment) Ordinance (“the Ordinance”);

(3) Mr Ma Ho Fai and Ms Hung Suet Shan Catherine, being partners of Messrs Woo Kwan Lee & Lo, Solicitors, Notaries, Agents for Trademarks & Patents, nominated by the applicant, be appointed trustees (“the Trustees”) to discharge the duties imposed on trustees under the Ordinance in relation to sale of the Lot and the Trustees be authorized to charge such remuneration for their services in accordance with the terms set out in the letter of Messrs Woo Kwan Lee & Lo, Solicitors, Notaries, Agents for Trademarks & Patents dated 5 November 2021.

(4) For the purpose of the sale of the Lot by public auction under section 5(1)(a) of the Ordinance:

(i) The sale of the Lot be on the particulars and conditions of sale substantially the same as those in the draft Particulars and Conditions of Sale to be initialed and approved by the Tribunal.

(ii) The reserve price be set at $257,000,000.

(iii) Subject to further extensions that the Tribunal may subsequently allow upon the application of the purchaser of the Lot or its successor in title, the redevelopment of the Lot and the Building shall be completed and made fit for occupation within a period of 6 years after the date on which the purchaser of the Lot shall become the owner of the Lot.

(iv) Liberty to the applicant, the 1^st respondent and the Trustees to apply to the Tribunal for further direction(s) under the Ordinance.

Costs

39.  In accordance with the compensation approach as determined by the Court of Appeal in Good Faith Properties Ltd and Others v Cibean Development Co Ltd [2014] 5 HKLRD 534, the 1^st respondent is entitled to costs notwithstanding the outcome of the Application.

40.  Accordingly, I order that the applicant do pay the 1^st respondent’s costs in these proceedings on the High Court scale with certificate for counsel, including any costs reserved, to be taxed if not agreed.