THOMPSON LEUNG, Marina Boniface v. RAPID GROW LTD.

LDNT 40 of 2001

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

New Tenancy Application No. 40 of 2001

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J U D G M E N T

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1. The Applicant is the tenant of the premises known as Flat D on the Ground Floor of Park Villa, No. 37 Island Road, Hong Kong ("the Premises"). The Respondent is the landlord of the Premises. The Applicant's application is for a new tenancy of two years under Part IV of the Landlord and Tenant (Consolidation) Ordinance, Cap. 7. The Respondent does not object to the grant of a new tenancy to the Applicant but for one year only as the Respondent has the intention to redevelop the Premises. Both parties have agreed that the new tenancy shall take effect as from 7th February 2001, but they cannot agree on the amount of the new rent.

2. The issues that I have to decide are therefore as follows : -

(i) The duration of the new tenancy; and

(ii) The prevailing market rent of the Premises as at 7th February 2001.

Duration of the new tenancy

3. The Applicant first occupied the Premises in June 1994. The first lease was for two years from 15th June 1994 to 14th June 1996. When the first lease expired, the Applicant applied to the Lands Tribunal for a new tenancy. The Respondent opposed the application on the ground that they intended to rebuild the building of which the Premises formed part ("the Building"). The parties, however, settled the case out of court and the lease was renewed for 2 years from 15th August 1996 to 14th August 1998.

4. When the second lease expired, the Applicant again applied for a new tenancy for two years. The Respondent did not object to the grant of a new tenancy to the Applicant but requested it to be for one year on the ground that they wished to redevelop the Building. The Lands Tribunal acceded to the Respondent's request and granted a new tenancy for one year from 15th February 1999 to 14th February 2000.

5. After the third lease expired, there was still no redevelopment of the Building and the Respondent allowed the Applicant to continue her stay in the Premises. The Respondent only served Form CR101 on the Applicant on 26th July 2000 terminating the tenancy on 6th February 2001. In effect, the third lease lasted for about two years.

6. In the present application, the Respondent again advanced the same ground of redevelopment to request the new tenancy to be for one year. The Respondent's case is that when they acquired the Building in 1993, they had the intention to redevelop the Building in a favourable market. However, as the market dropped dramatically after 1997 and remained quiet, they spent more time to study more schemes and alternatives. They decided to proceed with the redevelopment in February 2001. The new drawings and proposal for the redevelopment will be finalized before the end of 2001 and thereafter the Respondent will proceed with the redevelopment plan.

7. There is, however, no evidence produced by the Respondent to support their intention to rebuild. There is no draft drawings or draft proposal for the redevelopment. There is also no correspondence or minutes of meetings to show the proposal is being processed. If the Respondent has decided to go ahead with the redevelopment in February 2001 and the new drawings and proposal will be finalized before the end of 2001, I would expect that there should be some evidence like draft drawings or correspondence to show that the process has started.

8. On the contrary, the Applicant has produced evidence such as the brochure for sale by public tender (exhibit "A9") and newspaper cutting (exhibit "A10") to show that the Respondent had the intention to sell the Building in May 1999 and April 2001 respectively. The Respondent did not dispute that they had put up the Building for sale on these two occasions, but alleged that they were only testing the market. This is contradictory to their case that they had decided to proceed with the redevelopment in February 2001. If they had made the decision in February 2001, I do not see any reason why they still had to test the market in April 2001. The testing of the market only confirms that the Respondent had not yet decided to proceed with the redevelopment.

9. The Respondent did not answer the point raised by the Applicant concerning Clause 5(12) of the Tenancy Agreement, which permits the Respondent to give 6 month's notice to the Applicant to determine the lease for rebuilding. By this Clause, it is clear that if the Respondent has any serious intention to rebuild, they will not be prejudiced by a lease of two years because they can always rely on this Clause to terminate the lease by 6 months' notice, which is about the same period of time they would require to take to terminate the lease by Form CR101.

10. I agree with the Applicant that if the new tenancy is just for one year from 7th February 2001, the Applicant would have only 5 more months to live in the Premises and she might have to come back to the Lands Tribunal to make another application very soon. This will not be in the interest of any party.

11. In the circumstances, I am not satisfied that the Respondent has any real intention to redevelop the Building. Even if there is such an intention, the Respondent can always rely on Clause 5(12) to terminate the lease by 6 months' notice, and there will not be any prejudice to the Respondent by the granting of a two years' lease. It is also reasonable in the circumstance to grant a two years' lease, otherwise the Applicant has to file another application very soon. I am therefore prepared to grant a new tenancy for a term of two years from 7th February 2001.

Assessing the new rent

12. The Applicant and the Respondent have called their experts to give evidence and produced their expert reports, i.e. exhibits "A3" and "R1" respectively. In exhibit "A3", the Applicant's expert referred to 7 comparables and their particulars are as follows :-

13. On the other hand, the Respondent's expert referred to 10 comparables in exhibit "R1" as follows:-

14. As stated in their respective reports, the Applicant's expert assessed the new rent at HK$25,500 p.m.; whereas the Respondent's expert assessed it at HK$34,000.

15. The rents of some of these comparables are inclusive of management fees but without the amounts stated. The two experts could not agree on the estimation of the management fees. In order to avoid this uncertainty, I will not rely on any comparables requiring estimation of the management fees.

16. The Applicant's expert suggested that the rental of Hong Kong Island South rose 7 % during the first Quarter of 2001 based on the reference in "Vigers Property Market Review". This reference was not produced as evidence and the Respondent's expert challenged its accuracy. The Respondent's expert alleged that the JLLS rental index showed only 1 % increase between January and April. I do not find these general indexes helpful because they may not be based on comparables that are similar to the Premises. In order to avoid any uncertain adjustment for time, I will only rely on those comparables with lease commencing within one month before or after 7th February 2001. I do not think that there would be any significant change of rental within this period of time and hence no adjustment for time is required for these comparables.

17. The comparables that do not require estimation of management fees and adjustment for time as aforesaid are comparables 3 and 5 in exhibits "A3" (hereinafter referred to as "A3" and "A5") and comparables 2, 5, 8, 9 and 10 in exhibit "R1" (hereinafter referred to as "R2", "R5", "R8", "R9" and "R10"). I will therefore rely on these 7 comparables to make the assessment.

18. On the adjustment for location, I do not accept the opinion of the Respondent's expert that Island Road is more prestigious than Shouson Hill district. I think they are both prestigious with no significant difference from each other. I also do not accept the opinion of the Applicant's expert that Shouson Hill district is more accessable because it is closer to the Aberdeen Tunnel. Most of the people living in Island Road and Shouson Hill district will be driving their own private cars for transportation. A few minutes' difference in terms of driving to the Aberdeen Tunnel would not have any significant effect on rental. I will not therefore make any adjustment for location.

19. As to floor level, I accept that higher floors will have better light penetration and air ventilation, and enjoy higher degree of privacy. However, when there is no lift available, tenants in higher floors will have to walk up more staircases. On the balance, I think a 0.5% upward adjustment is more appropriate.

20. On the internal condition of the Premises, I accept the Applicant's evidence that the Premises has various defects mentioned by her, especially the problem of water seepage. On the evidence before me, I do not find that the water seepage was caused by poor installation of the air-conditioners. It is clear to me that the water seepage was caused by structural defects. I do not accept that the Applicant should be responsible for the repairs of these defects. It should be the responsibility of the Respondent to repair these defects. I also accept the opinion of the Applicant's expert that a downward adjustment of 5% should be made to the comparables.

21. I accept the opinion of the Applicant's expert that there should be an upward adjustment of 5% in respect of the view of the Premises and a downward adjustment of 10% in view of the construction site in front of the Premises. I fully accept the evidence of the Applicant and her expert that the construction site has caused and will continue to cause for a considerable period of time nuisance to the people living in the Premises.

22. I therefore make adjustments to the 7 comparables as follows : -

23. The average adjusted unit rate of the 7 comparables is HK$212.67 per sq.m. The rental of the Premises is therefore in the sum of HK$26,881.49 or a round figure of HK$26,900.00.

24. By reason of the matters aforesaid, I assess the prevailing market rent of the Premises as HK$26,900 per month.

Orders

25. I therefore make the following orders : -

(i) I grant a new tenancy to the Applicant for a term of two years from 7th February 2001 to 6th February 2003;

(ii) The new rent is at HK$26,900 per month exclusive of rates and management fees;

(iii) The rental deposit is to be adjusted in accordance with the new rent; if there is any surplus in the rental deposit, the Respondent has to return the balance to the Applicant within 14 days;

(iv) Save as aforesaid, the terms of the new tenancy are the same as the previous tenancy agreement; and

(v) No order as to costs.