New System Ltd. v. China International Reinsurance Co. Ltd.

LDNT 313/2000

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

Lands Tribunal Application No. LDNT 313 of 2000

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Judgment

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1. By virtue of a tenancy agreement ("Tenancy Agreement") dated 25.4.1998, the Applicant became the tenant of the premises known as Flat No. 65, 16/F., Tower 11 (of Parkview Terrace) and Car Parking Space No. 82 on Car Park Entrance No. 3 (Level 4) of the garage, Hong Kong Parkview, No. 88, Tai Tam Reservoir Road, Hong Kong ("the Premises") for a period of 2 years (from 8th June, 1998 to 7th June, 2000), at a monthly rental of $77,000, which was reduced to $60,000 as from 8th Sept., 1998 because of termite problem discovered in August, 1998.

Agreement between the parties

2. At the commencement of the hearing, the following matters were agreed between the parties :-

1. The term of the new tenancy is for 2 years, namely, from 25.9.2000 to 24.9.2002.

2. The Seventh Part of the Schedule to the Tenancy Agreement is to be deleted.

Dispute on the level of prevailing market rent

3. The parties could not agree on the amount of prevailing market rent (P M R) of the Premises. Both the expert for the Applicant (Mr. James Cheung) and the expert for the Respondent (Mr. Tse Wai Leung) used the direct comparison method of valuation.

4. Both experts considered a total of 10 comparables, namely, 3 for the Applicant, and 7 for the Respondent, but there was not a single common comparable between the parties. The particulars of the comparables were set out in the experts' reports (Mr. Cheung's report as Exhibit A4, and Mr. Tse's report as R1).

Valuation by Mr. Cheung

5. The 3 comparables considered by Mr. Cheung are as follows :-

(1) Flat 61, 11/F., Tower 10

(2) Flat 67, 6/F., Tower 11

(3) Flat 59, 2/F., Tower 9

6. After making all the adjustments, he assessed the P M R of the premises as at 25.9.2000 to be $51,000 per month, exclusive of rates, management fees and service charges.

Valuation made by Mr. Tse

7. In his report dated 18.11.2000, Mr. Tse set out 7 comparables. Comparables 1, 5, 6 and 7 are located at Tower 11; Comparables 2 and 4 are located at Tower 6, whereas Comparable 3 is located at Tower 9. Comparable 7 is at Flat 65, but it is on the 9th floor, whereas Comparables 5 and 6 are at Flat 67. After making the assessment, Mr. Tse opined that the P M R of the Premises should be in the region of $73,947.60.

8. Out of the 3 comparables referred to in Mr. Cheung's report, only Comparable 2 is located at Tower 11, but it is at Flat 67 instead of Flat 65. Therefore these 3 comparables are less appropriate comparables than Comparable 1 referred to in Mr. Tse's report.

Determination of the P M R by the Tribunal

9. The Tribunal is satisfied that the best comparable for the purpose of determining the PMR of the Premises is Comparable 1 referred to in Mr. Tse's report because it is 1 floor directly above the Premises, and its saleable floor area is the same as that of the Premises, namely, 200.40 sq.m.. I therefore make use of the Comparable 1 as the basis for determining the PMR of the Premises. The 2 years lease for Comparable 1 started on 8th Sept., 2000, at a monthly rental of $74,000. Mr. Tse made no adjustment, in so far as floor level is concerned for this comparable and Comparable 5, both being on the 17th floor. But he made an adjustment of + 1% per floor for all the other 5 comparables. In my view, since Comparable 1 is 1 floor higher than the Premises, commanding a better view, an adjustment of - 1% should be made. Therefore the rental should be $73,260 ($74,000 x 99%)

10. The Premises have been suffering from serious water leakage problems, the source of which as at the date of trial has yet to be identified. The Applicant has suffered inconvenience and stress. Mr. Cheung made a 20% downward adjustment to reflect the inferior condition of the Premises. In his report he stated, "In my valuation, I have taken into account of the comment made by PYP Surveyors Limited (PYP) on the effect of the water leakage. I agree with PYP that the leakage is serious and difficult to remove. Therefore a 20% downward adjustment has been made to reflect the inferior condition of the subject property." On the other hand Mr. Tse commented that even if the defects of the Premises cannot be rectified, the downward adjustment of rent should be 5%.

11. In my judgment, a downward problem adjustment of 20% on the rental is a very substantial adjustment. Taking into account all the circumstances, including the fact that some of the defects have been remedied, I would at most make a downward adjustment of 12% on the rental.

12. Mr. Cheung made a 10% downward adjustment on the fittings and decorations provided by the Applicant. In his report he said, "Moreover, since our client provided decoration to cover up all the defect rather than the landlord, and thus a downward adjustment on the rental value on the comparable has to be applied as the decoration of the subject property will be left behind if our client moved out of the premises." These fittings and decorations included wall papers and carpets provided by the Applicant at the commencement of the expired tenancy in June 1998.

13. Miss Yuk of the Respondent testified that before the hand over of the Premises, the Respondent had repainted the walls of Premises, and offered to remove the paint stains on the floor as a result of the repainting work. But Mr. Danon of the Applicant turned down the offer as it was unnecessary since they would fit the carpets on the floor and the carpets would cover the paint stains. The Applicant signed, on 21.5.1998, an agreement (Exhibit R2) the relevant portion of which reads as follows :-

"Both the Tenant and the Landlord agree present condition of the following items and they will remain unchanged after the termination of the lease;

- paint stains on floor everywhere in the flat.

- the part of floor at the entrance is not vanished..........."

14. The Applicant has not adduced any evidence to contradict the Respondent's evidence in this regard. I accept the Respondent's evidence. Since the Applicant accepted the then condition of the floor, and declined the Respondent's offer to have the paint stains on the floor removed, it cannot afterwards make any complaint thereof. Therefore I reject Mr. Cheung's 10% downward adjustment on the rental.

15. The total downward adjustment is 12%. Therefore this Tribunal determines the P M R of the Premises, for the new tenancy commencing from 25.9.2000, to be $64,468.80 ($73,260 x 88%), which is to be rounded up to $64,400.

16. The Tribunal makes the following orders :-

1. New tenancy for a term of 2 years, commencing from 25.9.2000.

2. New rent at $64,400 (exclusive of rates, management fees and rates).

3. The amount of rental deposit to be adjusted in accordance with the rent.

4. The Seventh Part of the Schedule to the Tenancy Agreement to be deleted.

5. The date as set out in clause 8 of the Tenancy Agreement to be amended to reflect a new date for the break clause.

6. Other terms of the new tenancy to be the same as in the Tenancy Agreement.

7. No order as to costs.