HOLLY PROPERTY CO LTD v. ACEWELL INVESTMENTS LTD AND OTHERS

LDCS 28000/2020

[2022] HKLdT 16

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE MAIN APPLICATION NO 28000 OF 2020

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BETWEEN

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J U D G M E N T

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THE APPLICATION

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 the following lots (hereinafter collectively referred to as “the Lots” or respectively as Lot 1, Lot 2 or Lot 3 where appropriate) together with the buildings thereon:

Lot No		Building/ Address
Remaining Portion of Sub-section 3 of Section B of Inland Lot 98	(“Lot 1”)	47 Staunton Street, Sheung Wan, Hong Kong
Remaining Portion of Section B of Inland Lot 98	(“Lot 2”)	49 Staunton Street, Sheung Wan, Hong Kong
Remaining Portion of Section F of Inland Lot 98	(“Lot 3”)	Wah Yee Mansion, 51, 53, 55 and 57 Staunton Street, Sheung Wan, Hong Kong
Remaining Portion of Section H of Inland Lot 98
Remaining Portion of Section I of Inland Lot 98
Remaining Portion of Inland Lot 98

2.  Nos 47 and 49 Staunton Street (hereinafter referred to as “Building A” where appropriate) comprises a pair of 7-storey commercial/residential composite buildings with basement, street level (“G/F”), mezzanine floor, and 1^st to 4^th Floors, being served by a common staircase onto Staunton Street. According to the approved building plans thereof, there are 2 stores in the basement, 2 shops on G/F (each connected with its basement level store by internal stairs), 2 self-contained storages for non-domestic use on the mezzanine floor (“M/F”), and 2 domestic units on each of the 1^st to 4^th Floors. The owners of the 4^th floor flats have the exclusive right to their respective roofs.

3.  Nos 51, 53, 55 and 57 Staunton Street (hereinafter referred to as “Building B” or Wah Yee Mansion where appropriate) comprises also a 7-storey commercial/residential composite building with G/F and 1^st to 5^th Floors, being service by a common staircase onto Staunton Street. According to the approved building plans thereof, there are 4 shops on G/F (each with its own cockloft stores) and 4 domestic units on each of the 1^st to 5^th Floors. The owners of the 5^th floor flats have the exclusive right to their respective roofs.

4.  Where appropriate, Building A and Building B are collectively referred to as “the Buildings”.

5.  The Buildings are in effect situated at the Mid-Levels of Central near the periphery of a district commonly known as SoHo, Hong Kong which, according to the website of the Hong Kong Tourism Board, “is the multicultural wine, dine, booze, and boogie side of Central, with historic and narrow streets peppered with upmarket bars and exotic restaurants that are chic to the extreme.”

6.  Thanks perhaps to the construction of the Central – Mid-Levels escalator and walkway system in 1993, which provides covered linkage leading off the busiest hub of the CBD in Central to the Mid-levels, the SoHo which comprises an area on both sides of the escalators at Staunton Street and Elgin Street has been transforming from the many old tenements of early settlement to an area now consisting of restaurants, bars, nightclubs, art galleries and antique stores. Buildings in the SoHo area now comprise a mix of commercial/residential, with the commercial businesses on the lower floors, and residential units above. Incidentally, the PMQ, which housed formerly the “Police Married Quarters” at 35 Aberdeen Street to the west of the Buildings, has been revitalised to house around 100 design studios and workshops, showcasing a wide array of products, including fashion and accessories, gifts, homeware, small furniture, and other lifestyle goods. Again according to the Hong Kong Tourism Board, “PMQ is the hottest venue in town for international arts and culture events from Hong Kong and all around the world. From exhibitions, product launches, workshops, car shows and fashion shows to vibrant night markets, it is all happening at PMQ.” Fine restaurants are also situated inside.

7.  Whereas PMQ is situated to the west of the Buildings, a few blocks away to the east of the Buildings is Tai Kwun which comprises some of the earliest structures built under British colonial rule, including the former Central Police Station, the Central Magistracy and the Victoria Prison Surrounded by Hollywood Road, Arbuthnot Road, Chancery Lane and Old Bailey Street. The compound of heritage buildings has been revitalised as a centre for heritage, visual arts, music and theatre performances, film screenings and educational programs, with free lunchtime concerts, evening openings and a line-up of F&B outlets. Tai Kwun was opened to the public in phases since 2018.

8.  The occupation permit of Building A was dated 30 April 1968 and that of Building B was dated 8 April 1971, respectively more than 52 and 49 years before the Application was made on 24 December 2020.

9.  The Buildings are governed by three separate Deeds of Mutual Covenant:

(a) No 47 Staunton Street on Lot 1 is governed by a Deed of Mutual Covenant dated 22 September 1968 and under the Schedule therein, each basement, shop, mezzanine floor and domestic units was allocated 1/7 equal and undivided share.

(b) No 49 Staunton Street on Lot 2 is governed by a Deed of Mutual Covenant dated 1 May 1969 and under the Schedule therein, each basement, shop, mezzanine floor and domestic unit was allocated 1/7 equal and undivided share.

(c) Wah Yee Mansion on Lot 3 is governed by a Deed of Mutual Covenant dated 7 May 1971 and under the Schedule therein, each shop and domestic unit was allocated 1/24 equal and undivided share.

10.  The 1^st respondent (“R1”) is the owner of G/F, 47 Staunton Street. It filed a Form 33 (ie Notice of Opposition) through Messrs Deacons, asserting that (a) redevelopment was not justified by reference to its age or state of repair, (b) the market value assessment (which is usually termed by the valuation profession as the Existing Use Value or just “EUV”) of the unit it owns was less than fair and reasonable and (c) the applicant failed to take reasonable steps to acquire its interest pursuant to Section 4(2)(b) of the Ordinance. Mr Chow Ka Yin Edward (“Mr Chow”), R1’s director, filed a witness statement dated 4^th March 2021 repeating the same.

11.  The 2^nd respondent (“R2”) and 3^rd respondent (“R3”) were at the material times the registered owners of G/F, 49 Staunton Street as joint tenants. By a letter dated 1 September 2020, the applicant instructed Messrs Mayer Brown to make an offer to R2 and R3 for the sale and purchase of their interest which was accepted. Completion of the transaction took place on 18 December 2020 and the Tribunal made an order by consent on 30 December 2020 discontinuing the proceedings as against R2 and R3 with no order as to costs.

12.  The 4^th respondent (“R4”) is the owner of G/F, 53 Staunton Street. It filed a Form 33 (ie Notice of Opposition) through Messrs Chu & Lau, Solicitors & Notaries, disputing the EUV assessment as well. In its witness statement filed by its representative dated 4 March 2021, R4 disputed both the EUV and the redevelopment value (“RDV”) of the Lots.

13.  The 5^th respondent (“R5”) is the owner of G/F, 55 Staunton Street. It filed a Form 33 (ie Notice of Opposition) through Messrs Hau, Lau, Li & Yeung, Solicitors, asserting that (a) redevelopment is not justified due to the age and/or the state of repair of the Buildings, (b) the EUV of the units on the Lots was assessed wrongly and (c) the applicant had failed to take reasonable steps to negotiate on terms that were fair and reasonable for the purchase of the interest of the unit it owns pursuant to Section 4(2)(b) of the Ordinance. Mr Chan Tsie Cheuk, R5’s director, filed a witness statement dated 4 March 2021 repeating the same.

The Evidence

14.  On the other hand, the applicant has filed the following documents in support of the Application:

(a) the witness statement dated 4 March 2021 from Mr Yu Cheung Kong, representative of the applicant;

(b) a Building Condition Survey Report by Mr Benson Wong Sai Ning (“Mr Benson Wong”) dated 3 March 2021;

(c) a Structural Assessment Report by Mr So Kin Shing (“Mr So”) dated 2 March 2021;

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

(i) the Application Report dated 14 September 2020 assessing the EUV as at 1 August 2020 pursuant to Part 1 of Schedule 1 to the Ordinance;

(ii) a Supplemental Report dated 4 March 2021 on the revised EUV as at 1 August 2020 and on the RDV of the Lots;

(iii) a Rebuttal Report dated 5 July 2021 on the EUV report on behalf of R1 prepared by Mr Alnwick Chan (“Mr A Chan”) of Knight Frank Petty Limited, jointly appointed by the respondents R1, R4 and R5;

(iv) a Second Supplemental Report dated 28 December 2021 updating the RDV of the Lots.

15.  As said, R1, R4 and R5 appointed a joint valuation expert, Mr A Chan who have prepared and filed the following reports:

(a) a Rebuttal Report dated 2 June 2021 on the EUV;

(b) a Rebuttal Report also dated 2 June 2021 on RDV;

(c) a supplemental RDV report dated 28 December 2021;

16.  Mr C Chan and Mr A Chan prepared two joint statements, one dated 5 August 2021 setting out their agreements and disagreements on EUV, followed by another dated 10 January 2022 on RDV. Mr C Chan and Mr A Chan had prepared their updated consequential amendments flowing from their agreements in the joint statements as Exhibit A4 and Exhibit R1 respectively.

17.  Mr Mok Yeuk Chi (“Mr Mok”), leading Ms Julia Au, acted on behalf of the applicant whereas Mr Anthony Chan, replacing Mr Bosco Cheng, acted on behalf of R1, R4 and R5.

Whether the Applicants are entitled to make the Application

18.  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.

19.  Section 3(5) of the Ordinance provides that the Chief Executive in Council may, by notice in the Gazette, specify a percentage lower than the percentage mentioned in section 3(1) in respect of a lot belonging to a class of lots specified in the notice.

20.  The Land (Compulsory Sale for Redevelopment (Specification of Lower Percentage) Notice was gazette on 22 January 2010 and came into operation on 1 April 2010 (“the Notice”). Section 3 of the Notice lowered the threshold for compulsory sale in respect of the classes of lots specified in the Notice from 90% to 80%. Those classes of lots include: “a lot with each of the building erected on the lot issued with an occupation permit at least 50 years before the relevant date (ie the date of the application under the Ordinance)”.

21.  As the occupation permit for Building A was issued on 30 April 1968 (namely, not less than 50 years before the date of the Application), the Notice is applicable and the threshold percentage should be 80%. The threshold percentage for Building B is 90%

22.  At the time of the filing of the Application, the applicant owned 85.714% of Lot 1, 85.714% of Lot 2 and 91.667% of Lot 3. I agree therefore that the applicant was entitled to make the Application under section 3(2)(a) of the Ordinance which may cover two or more lots where the majority owner owns not less than the percentage specified in subsection (1) of the undivided shares in each lot.

EUV as at 1 August 2020

Assessment of G/F units

23.  Save for a minor area at G/F of 47 Staunton Street and that of 49 Staunton Street, Mr C Chan and Mr A Chan had no dispute on the particulars of subject premises on basement, G/F or mezzanine floor of the Buildings:[1]

Unit	Saleable Area (m2)	Frontage (m)	Depth (m)	Full Headroom (m)	Cockloft (m2)	Yard (m2)	Effective Area (m2)
G/F, 47 Staunton Street	45.4 + 3.7 ?	4.3	11.9	3.7
G/F, 49 Staunton Street	45.3 + 3.7 ?	4.3	11.8	3.7			49.0
G/F, 51 Staunton Street	47.8	4.7	13.5	2.9	30.1 + 9.8 (enclosed)	3.4	55.9
G/F, 53 Staunton Street	63.1	4.3	15.6	2.9	52.5	3.5	77.1
G/F, 55 Staunton Street	71.1	4.3	15.6	2.9	54.6	5.0	85.6
G/F, 57 Staunton Street	62.2	3.8	15.6	2.9	46.2 + 5.1 (enclosed)	3.7	74.4

24.  That minor difference arises, for instance, from an area of approximately 3.7 sq m which has become enclosed by gypsum boards and inaccessible near the middle part of G/F of 47 Staunton Street. Mr C Chan initially did not count it as the saleable area; he subsequently agreed to adopt half value for this area. Mr A Chan all along however considered this as part of the saleable area and assigned full value to it.

25.  For the similar area on G/F of 49 Staunton Street, in the experts’ Joint Statement dated 5 August 2021, Mr C Chan agreed with Mr A Chan that it was part of the saleable area. According to Mr C Chan’s oral evidence at trial, he changed his mind after inspecting the unit and adopted half value for this area which was occupied as a storeroom at G/F of 49 Staunton Street.

26.  In the Supplemental Witness Statement of Mr Chow, the Director of R1, dated 11 January 2022[2], Mr Chow explained that, as what he understood from another director of R1, when R1 acquired the unit on 31 August 2007, the area in question had not been sealed nor enclosed. It had an opening (ie a hole) for accommodating a staircase that leaded to the unit below, ie Basement of 47 Staunton Street (“the Basement Unit”). As R1 did not acquire the Basement Unit, R1 and the owner of the Basement Unit had jointly engaged a contractor to carry out works to close the opening in August 2007. By reference to a contractor’s quotation dated 25 August 2007, the works carried out included:[3]

“1. 地牢圍牆身板

2． 地下釘樓身板及拆板

……

5. 地牢批盪及批灰油乳膠漆

     地下面批英泥沙面”

27.  After the relevant works were completed, according to Mr Chow, the area was neither sealed nor enclosed and was accessible inside G/F, 47 Staunton Street. Photos were exhibited to show that the area appeared as part of the floor proper of G/F, 47 Staunton Street[4]. At the time, R1 was not aware of whether the works required approval and consent of the Building Authority and, if so, whether the contractor had ever sought the requisite approval and consent from the Building Authority. In any event, R1 had understood from the contractor that the works were safe.

28.  Notwithstanding the above, according to Mr Chow, prior to 2017, there had not been any structure in the area in question and the retail tenants of R1 was able to access and utilize the area. The gypsum board structure was constructed by the present tenant (“the Tenant) after R1 let the unit to him under a tenancy agreement dated 15 August 2017 (“the 1^st Tenancy)[5] for a term of 3 years from 11 August 2017 subject to an early termination clause whereby, if at any time after 21 months of the term herein, R1 shall enter into any sale and purchase agreement for the sale of the unit, R1 was entitled to terminate the tenancy by giving not less than 3 months’ written notice to the Tenant. By Clause 2.25 of the 1^st Tenancy, at the expiration or sooner determination of the 1^st Tenancy, the Tenant was required to yield up and deliver vacant possession of the unit in bare shell condition to R1 with all fixtures, fittings, installations, decoration and chattels, existing as at commencement of the term being removed (save for the two air conditioners provided by R1).

29.  The 1^st Tenancy was renewed on 5 May 2020 for a term of 2 years commencing from 11 August 2020 to 10 August 2022 with the same Clause 2.25 of the 1^st Tenancy (“the 2^nd Tenancy”)[6]. Accordingly, when the 2^nd Tenancy expires on 10 August 2022 in due course or the tenancy is determined sooner, the Tenant is required to remove the gypsum board structure in the area and deliver vacant possession of the unit in bare shell condition to R1. As such, Mr Chow argued, the area would be accessible again upon making the appropriate renovations.

30.  Mr Chow was not cross-examined and his evidence was not challenged. Whereas I was advised that the layout of the G/F, 47 Staunton Street and that of G/F, 49 Staunton Street are supposed to be symmetrical, on the date of joint inspection, ie 9 February 2022, I had as well inspected G/F of 49 Staunton Street where the opening leading to its Basement was also closed and the similar area was occupied as an enclosed store room.

31.  In spite of this, the question comes as to why the Tenant of G/F, 47 Staunton Street affords to enclose and forsake the use of the area, bearing in mind retail areas are usually valuable. That the similar area at G/F, 49 Staunton Street is enclosed just as storeroom instead of other proper use is skeptical because the enclosure has become an intruding obstruction near the middle of the unit. In such regard, I agree with Mr C Chan’s revised approach and would assign half value to it. That is, the effective area of G/F, 47 Staunton Street should be 47.3 sq m and that of G/F, 49 Staunton Street should be 47.2 sq m.

32.  In respect of the assessment of the EUV, Mr C Chan and Mr A Chan agreed to adopt this G/F, 47 Staunton Street as the reference shop unit.

33.  Save for comparables G4 and G8, the shop comparables relied on by the two experts are or were all occupied by F&B outlets. Their major difference in opinion was on the choice of comparables, as a result of which Mr C Chan arrived at an adjusted unit rate of $479,000 per sq m while Mr A Chan arrived at $591,000 per sq m:[7]

Comp	Address	OP Date	Date of Agreement for Sale	Consideration	Saleable Area (m2)	Frontage (m)	Depth (m)	Head-room (m)	Yard (m2)	Cockloft (m2)	Effective Area (m2)	Unit Price (/m2)
Ref	G/F, 47 Staunton Street	1968			45.4	4.3	11.9	3.7	0.0		47.3
G2	G/F, 15 Old Bailey Street	1972	2 Apr 20	$19,280,000	57.8	4.0	13.1	3.8	9.8		59.4	$324,579
G3	G/F, 36 Elgin Street	1959	25 Mar 20	$34,000,000	64.0 + Toilet at yard: 4.4	5.0	12.5	3.2	21.1		69.7	$487,805
G4	Unit 4, G/F, Fook Chi House,  22-24 Gage Street	1972	3 Apr 20	$14,720,000	24.7	3.4	6.7	4.2	0.0		24.7	$595,951
G5	G/F, 47B Elgin Street	1976	22 Oct 19	$42,000,000	75.1 + Toilet at yard: 4.4	3.7	15.3	2.8	41.1	49.6	96.6*	$434,783
G6	Shop 1 & Yard, Upper G/F, King Ho Building, 41-49 Aberdeen Street	1983	14 Oct 19	$33,000,000	74.5	5.1	11.6	3.2	30.8		82.2	$401,460
G8	G/F, 37 Aberdeen Street	1970	24 Jun 19	$36,000,000	54.5	4.4	12.3	5.4	0.0		54.5	$660,550
G10	G/F & C/L, 14 Kau U Fong	1974	19 Jul 18	$37,800,000	52.2	4.9	10.8	2.9	0.0	31.9	60.2	$627,907
G11	Shop B, G/F, Fat Li Mansion, 62-64 Peel Street	1977	6 Jun 18	$34,800,000	68.0	3.7	15.5	4.8	0.0		68.0	$511,765
G12	G/F, 46 Elgin Street	1968	27 Apr 18	$18,200,000	37.9 + Toilet at yard: 2.5	4.0	10.2	4.0	3.4		39.7	$458,438
G13	G/F & C/L, 46 Peel Street	1983	19 Jan 18	$35,000,000	78.8	4.7	14.9	2.9	1.4	52.4	92.1	$380,022

34.  The two valuation expert also had dispute on the value of toilet at the rear yard of the comparables. Mr A Chan considered it part of the saleable area but Mr C Chan just assigned half the value of it. In this regard, I prefer Mr C Chan’s treatment as the toilet is situated away from the area proper and cannot be used as conveniently as the area proper. The toilet is in effect an outbuilding. As a matter of common sense, this is an ancillary area that would not be worth the same unit price as that of the saleable area of the unit itself. By reference to the Code of Measuring Practice published by the Hong Kong Institute of Surveyors (1^st edition, March 1999), the saleable area of a unit comprises the floor area exclusively allocated to that unit …. On the other hand ancillary accommodations such as cocklofts, bay windows, yards, terraces, gardens, flat roofs and the like shall be measured as attachments or additions and to be stated separately with their respective areas. I consider the toilet in the yard should be one of those ancillary accommodations.

35.  Mr Anthony Chan commented that Mr C Chan was not consistent in his approach when he accepted that the lavatory situated at each of G/F of 51 Staunton Street, G/F of 53 Staunton Street, G/F of 55 Staunton Street and G/F of 57 Staunton Street was part of the saleable area and worth the full value without any discount. Alas, and with full respect, Mr Anthony Chan did not observe that such a lavatory is not an outbuilding; it is just behind a partition wall of each of the shop unit. I agree with Mr C Chan that the layout could be modified easily so that the lavatory could have direct access from the shop proper without passing through the rear yard.

Choice of Comparables and Location Adjustments

36.  Comparable G1 was previously adopted by Mr A Chan but has been agreed by both experts to be disregarded.

37.  Comparable G2 was adopted by Mr C Chan only. It is occupied as a Korean restaurant situated just opposite to one of the side exits of Tai Kwun. Mr A Chan did not adopt this as a comparable because he considered this property has limited trading potential as it is located at the fringe of SoHo and is situated at a steep and narrow street, ie Old Bailey Street. Mr A Chan further commented as follows:

“As this comparable is not situated close to any exit of the Central - Mid-Level Escalators, Old Bailey Street has noticeably lower pedestrian flow than the Staunton Street. Also, the side entrance of Tai Kwun is rarely used by visitors, with most visitors entering Tai Kwun through the main entrance directly through the Central - Mid-Level Escalators.”

38.  In spite of the above, Mr A Chan did provide a fallback adjustment on location of +60% but I prefer to adopt the +20% adjustment proposed by Mr C Chan for the time being for the purpose of analysis.

39.  Comparable G3 is occupied by an Argentinian steak house and is adopted by both experts as a comparable. It lies right in the hub of SoHo within close proximity to the Central - Mid-Level Escalators. Mr C Chan proposed a location adjustment of -10% and Mr A Chan proposed +10%, ie in directly opposite direction. In respect of the latter, Mr A Chan argued that the Buildings are situated close to PMQ which, as a revitalized project, might be a tourist attraction. With respect, I doubt how far many people are interested in the design studios and workshops if they have to walk uphill along the steeply sloping Aberdeen Street. In any event, I trust the attraction of PMQ is exaggerated by Mr A Chan. Furthermore, when fine restaurants are situated inside PMQ, why should the prospective patrons take the trouble to walk uphill to find the alternative ones along Staunton Street. Mr C Chan gave oral evidence that he went to PMQ by taxi only. On the other hand, pedestrian traffic has been frequent and convenient along the Central - Mid-Level Escalators. I prefer Mr C Chan’s proposed adjustment of -10%.

40.  Comparable G4 comprises a much smaller size unit when compared with the reference shop unit. It was adopted as a comparable by Mr A Chan only. Mr C Chan refused to adopt this as a comparable because this unit abuts Peel Street and is close to the junction of Peel Street and Gage Street where there is a cluster of wet market stalls and groceries. Those wet market stalls were provided by the Urban Renewal Authority as a resettlement for the vendors of their former premises. I agree with Mr C Chan that the market stalls are not going to move indoors in the coming future. Mr C Chan considered the characteristic and trading potential of this locality are obviously different from Staunton Street which mainly comprises bars and restaurants. I agree.

41.  Moreover, as intimated by Mr C Chan, this sale might be an acquisition with a prospect for redevelopment at value which is independent of its prevailing retail use. According to Mr C Chan, a company related to New World Development Company Limited had acquired the following units since 2011 and another real estate developer, Chuang’s Consortium International Limited, has acquired the adjoining 16-20 Gage Street in August 2020 pursuant to another compulsory sale order made by the Tribunal in LDCS 8000/2019:[8]

Fook Chi House, Nos 22-24 Gage Street	Date of Sale & Purchase Agreement	Consideration
Flat A, 2/F	15 June 2011	$2,500,000
Flat C, 1/F	22 June 2011	$2,000,000
Flat B, 4/F	16 September 2011	$2,565,000
Flat B, 2/F	2 July 2013	$3,100,000
Flat C, 4/F	21 July 2013	$3,000,000
Flat C, 3/F	30 August 2013	$3,500,000
Flat A, 5/F	7 October 2013	$3,911,000

42.  In view of the above, I agree with Mr C Chan that this Comparable G4 has to be disregarded.

43.  Comparable G5 is another common comparables adopted by both experts. It is on the opposite side of Comparable G3 and is being occupied by a Japanese restaurant. Therefore, I prefer Mr C Chan’s -10% adjustment for location to Mr A Chan’s 10%.

44.  Comparable G6 is the third common comparable adopted by both valuation experts. It is occupied as a dog’s hospital but was occupied by a Mediterranean bar & restaurant previously as at the relevant date[9]. This section of Aberdeen Street is narrow and steep; it has only shop premises on one side and is relatively quiet when compared with the subject location. Mr C Chan proposed a location adjustment of +15% and Mr A Chan proposed +20%, meaning this location is inferior to the that of the Buildings. However, this latter adjustment in fact contradicts Mr A Chan’s own suggestion that visitors of PMQ would be interested to walk further uphill if there be a restaurant in the analysis of comparable G3. Notwithstanding this, I prefer Mr A Chan’s proposed adjustment of +20%.

45.  Comparable G7 was previously adopted by Mr C Chan but has been agreed by both experts to be disregarded.

46.  Comparable G8 is the remaining common comparable adopted by both experts. It is close to comparable G6 but situated at a lower part of Aberdeen Street. It is occupied as a cat hospital. Mr C Chan proposed a location adjustment of +10% and Mr A Chan proposed +15%. I prefer Mr A Chan’s proposed adjustment of +15%.

47.  Comparable G9 was previously adopted by Mr C Chan but has been agreed by both experts to be disregarded.

48.  Comparable G10 was adopted by Mr C Chan only. Although it is also occupied as a Japanese restaurant, it is situated in an area outside SoHo and is in closer proximity to Queen’s Road Central which is a main distributor traversing the CBD of Hong Kong. Mr C Chan proposed a location adjustment of +5% whereas Mr A Chan considered this transaction dated and Kau U Fong a different locality in terms of pedestrian flow, commercial potential and trade mix. I agree with Mr A Chan that this should not be adopted as comparable.

49.  Comparable G11 was another comparable adopted by Mr C Chan only. It is occupied as an American Roast Meet Bar along the steep Peel Street where a tragic accident occurred in the evening of 10 December 2021 in which a total of eight people, four men and four women, were hit by an empty private car rolling away from Peel Street before it crashed into a stone wall on Staunton Street in front of a temple. Mr C Chan proposed a location adjustment of +15% whereas Mr A Chan considered this transaction dated.

50.  Comparable G12 was another dated comparable adopted by Mr C Chan only. It was previously occupied by an Asian fusion restaurant but appears to have been vacant for some time. To its left is a church where pedestrian flow is broken till Shelley Street. To its right is the G/F premises which also appear to have been vacant for some time. Mr C Chan proposed a location adjustment of +10% which I considered grossly inadequate. I prefer to adopt +20% instead.

51.  Comparable G13 was the 4^th dated comparable adopted by Mr C Chan only. It again is occupied by a bistro and wine restaurant at a lower section of Peel Street. Mr C Chan proposed a location adjustment of +20%

Time Adjustment

52.  Both the experts agreed to adopt the Private Retail Price Index published by the Rating and Valuation Department (“RVD”) to adjust the time of the transactions. In respect of the transactions which were dated, Mr C Chan even considered the index capable of being applied with high confidence; at trial however, Mr C Chan conceded that those restaurants have been hardest hit by the Government protocols to reduce gathering so as to prevent the spread of the COVID-19. In such regard, less weight would be placed on such comparables which were dated and not adopted by Mr A Chan at all.

Age Adjustment

53.  It has been trite that the value of a G/F shop is not sensitive to its age. Age allowance is however required to reflect the state of the building fabric and building services. In such regard, I prefer Mr A Chan’s adjustment of 1% per 10 years to Mr C Chan’s 1% per 5 years.

Size/Quantum Adjustment

54.  Adjustment is usually allowed to reflect the quantum effect on property values: smaller units normally command a higher unit rate because the lump sum consideration is usually smaller and more affordable. Mr A Chan adopted 2% per 10 sq m for the reference shop unit when compared with the comparables. Mr C Chan on the other hand, citing Top Harmony Limited v Cheung Yuet Sheung & Others, LDCS 39000/2018 (unreported, dated 15 October 2020) and Well Will Corporation Limited v Fortune Max Development Limited & Others, LDCS 28000/2019 (unreported, dated 24 March 2021), suggested 1% per 10 sq m (ie less sensitive) which was accepted by the Tribunal in previous cases.

55.  Not to mention that previous Lands Tribunal decisions are not binding on the present case, the adjustment for size/quantum should not be a uniform formula nor a constant. On most occasions, the adjustment would depend on the location, the kind of trades, the size of the subject shop with respect to the comparables etc. In Eltron Development Limited v Director of Lands, LDLR 4/2013 (unreported, dated 21 August 2015) and Fortress Jet Limited & Others v Tang Hoi Yip and Cheung Sau Chan Property Limited. LDCS 3000/2015 (unreported, 11 August 2017) for instance, a two-tier formula was adopted by the Tribunal for the different sizes of the subject shop assumption.

56.  Returning to Top Harmony, supra, the ground floor units in the immediate vicinity are predominated by a range of grocery stores, hardware shops and car repairing workshops as well as certain restaurants at the corner locations. It was a relatively secondary location when compared with that of the Buildings. I am also of the opinion that the hypothetical shop in Fortress Jet Limited, supra, was secondary to the shops in the present case. In that case, the adjustment adopted was at 1% per 10 sq m or at 1.5% per 10 sq m depending on the size of the hypothetical shop. It is also of interest to note that in Eltron Development, supra, both 1% per 1 sq m difference and 1% per 2 sq m were adopted.

57.  In Well Will Corporation, supra, the formula for size adjustment at 1% per 10 sq m was agreed by the experts.

58.  In the present case, bearing in mind the effective size of the reference shop unit at 47.3 sq m as well as the range of the sizes of the comparables, I prefer Mr A Chan’s adjustment of 2% per 10 sq m on threshold bases.

Headroom Adjustment

59.  Shops with a higher ceiling height enjoys a better exposure, spacious comfort and greater vertical space to be utilized. In some cases, it also provides an opportunity to erect a cockloft and facilities to install a bigger shop signage. Mr C Chan proposed 5% per 1 m difference while Mr A Chan proposed 2% per 1 m difference. I agree with Mr C Chan that Mr A Chan’s formula would arrive at an unreasonably small difference of mere 4% higher when a shop with a headroom of 5 m is compared with one of 3 m.

Frontage Adjustment

60.  Mr C Chan postulated that a wider frontage increases the visibility of a shop unit to passers-by and thus increases the value of the shop. However, the Tribunal has on many occasions stated that there shall not be any adjustment for frontage “unless the frontage in consideration is clearly superior or inferior to the norm that the benefits or disabilities which the frontage produces are clearly evident.”[10] Indeed, if a shop has a frontage of reasonable width, the addition of frontage would not make significant difference. I preferred Mr A Chan’s 2% for every 1 metre difference to Mr C Chan’s 4% for every 1 metre difference.

Layout Adjustment

61.  Mr C Chan and Mr A Chan agreed to apply +5% to reflect the layout difference between the reference shop unit and comparables G3 and G5. They however had dispute on the layout adjustment, if any, for comparable G6: Mr C Chan proposed none whereas Mr A Chan proposed +2%. I agree with Mr C Chan that the shape and configuration of this comparable are similar to the reference shop unit.

62.  On the other hand, I agree with Mr A Chan on his original proposal of -3% adjustment for a “secondary frontage” enjoyed by this comparable G6. As correctly pointed out by Mr C Chan, this is not a return frontage but an extended open yard along its shop front. Although Mr A Chan subsequently revised his adjustment to 0% after the 2^nd joint statement, I am of the view that this extended “secondary frontage” provides a higher street exposure.

63.  As said, Mr C Chan adopted comparables G11, G12 and G13 but Mr A Chan did not. Therefore, only Mr C Chan provided adjustments for layout to which I do not object for the time being.

64.  Based on the above, I arrive at the following analysis:

Comp	Unit Price (/m2)	Adjustments								Adj Unit Price (/m2)
		Time	Location	Age	Size	Frontage	Layout	Headroom	Total
G2	$324,579	-3.0%	20.0%	0.0%	2.0%	1.0%	0.0%	0.0%	19.9%	$389,170
G3	$487,805	-3.6%	-10.0%	1.0%	4.0%	-1.0%	5.0%	1.0%	-4.3%	$466,829
G5	$434,783	1.4%	-10.0%	-1.0%	8.0%	1.0%	5.0%	3.0%	6.6%	$463,479
G6	$401,460	1.4%	20.0%	-2.0%	6.0%	-2.0%	-3.0%	3.0%	23.8%	$497,007
G8	$660,550	-8.9%	15.0%	0.0%	0.0%	0.0%	0.0%	-7.0%	-2.6%	$643,376
G11	$511,765	-13.2%	15.0%	-1.0%	4.0%	1.0%	8.0%	-6.0%	5.4%	$539,400
G12	$408,060	-12.8%	20.0%	0.0%	-2.0%	1.0%	-3.0%	-2.0%	1.5%	$451,561
G13	$380,022	-11.9%	20.0%	-1.0%	6.0%	-1.0%	5.0%	4.0%	14.2%	$433,985
							Average:			$488,309
							Average (without G2):			$502,471

65.  As commented by me at trial, comparable G2 appears to be out of tone with the others. If this comparable is disregarded, the average becomes $502,471 per sq m or if the location adjustment is +30% instead of +20%, the average would have been $492,366 per sq m.

66.  Similarly, comparable G8 appears to be out of tone as well, but on the opposite side of the range. If this comparable is also disregarded, the average becomes $478,987 per sq m.

67.  Or else, if comparables G11, G12 and G13 are further disregarded for the reason that they were dated, the average would become $475,772 per sq m.

68.  As stated in §29 above, G/F, 47 Staunton Street is subject to a tenancy, ie the 2^nd Tenancy, for 2 years from 11 August 2020 (which is close to the relevant date) to 10 August 2022 at a monthly rental of $36,000 inclusive of rates, government rent and management fees for the first year and $38,000 for the second year. This tenancy was a renewal of the 1^st Tenancy which was for a term of 3 years from 11 August 2017 to 10 August 2020 at monthly rental of $40,000 inclusive of rates, government rent and management fees with however a rent free for 79 days as follows:

Rent Free Periods:

From 11 August 2017 to 5 October 2017 & From 11 August 2018 to 4 September 2018

69.  Mr C Chan took an average of $36,000 and $38,000, then applying adjustments for rates, government rent and management fees. He arrived at a monthly rental of $35,150 or $743 per sq m. Mr C Chan then applied a yield of 2.6% derived from that published by the RVD as at August 2020 and arrived at mere $342,983 per sq m[11] which appears to be unreasonably low when compared with the direct comparable analysis above.

70.  Of course, the yield of 2.6% published by the RVD is more or less an average figure which may not be pertaining to the subject premises. In Fan Chun Keung v The Secretary for the Environment, Transport and Works, LDMR 5/2004 (unreported, dated 2 November 2005) at §§25-54, the Tribunal had the following observation concerning valuation by investment method:

“There are 3 elements in this approach: rental income, capitalization rate and holding period. The capitalization rate and holding period will work out a multiplier, i.e. Years’ Purchase. A minor change in the capitalization rate will greatly affect the capital value of the property. It goes without saying that with one more set of variable, there is a less certain chance of arriving at a value that equals to the market value of the subject land, which is the subject matter of valuation.”

71.  Thus, in the present exercise, if a lower yield of 2.0% is adopted, the resultant unit rate would become $445,800 per sq m which is closer to the direct comparable analysis above.

72.  With leave from the Tribunal, Mr Chow provided a 2^nd Supplemental Witness Statement dated 11 February 2022, stating that R1 agreed to reduce the monthly rent from $40,000 to $36,000 for, inter alia, the following reasons:[12]

(a) The Tenant was a good tenant who paid rent punctually during the 1^st Tenancy.

(b) In August 2020, when R1 and the Tenant were engaged in negotiations for renewal of the lease, the Tenant had asked for a rent reduction as the COVID-19 pandemic had adversely affected the Tenant’s business.

(c) Further, at the time, R1 had been in negotiation with the applicant in relation to the acquisition of the G/F, 47 Staunton Street. Since the negotiation failed, R1 envisaged that the applicant would apply for an order for compulsory sale.

(d) In the circumstances, R1 considered it more cost effective to renew the lease with the Tenant than going through the trouble of looking for a new tenant. It might be difficult to secure a good replacement tenant within a short period of time who would be willing to take up a new lease given the uncertainty thrown up by the potential compulsory sale application.

(e) In particular, the replacement tenant would likely be confined to someone intending to run a food and beverage business given the unit was at that time (and still is) set up for that line of business.

(f) Even assuming R1 were able to find a new tenant willing to pay for monthly rental for the unit at the market rate (which, according to Mr Chow, would be higher), the new tenant would likely press for a rent-free period or some other form of discount in light of the possible compulsory sale, which means R1 would have to spend more time and cost to negotiate for what might prove to be a short-term arrangement.

(g) On the other hand, renewing the lease with the Tenant, even at monthly rental lower than the market rate, would encourage the Tenant to carry on leasing the unit or it would discourage the Tenant from walking away. In turn, R1 would get a steady stream of rental return, which would be better than leaving the unit vacant and not having any return at all.

73.  It is trite that after COVID-19 broke out in Hong Kong in January 2020, the F&B outlets have been one of the trades that were hardest hit because of Government’s protocols to reduce gathering so as to prevent the spread of the pandemic. A summary of the measures adopted by the Government can be found at the Schedule of the judgment in China Profair Limited v Sino Copper Limited, LDPE 316/2020 (unreported, dated 3 September 2020). As can also be seen from the Private Retail – Rental Index published by RVD, the index was 183.3 as at August 2017 which fell to 169.1 in August 2020 (ie a drop about 8%). It is therefore no surprise that the Tenant requested a reduction of rental in the renewal of the 1^st Tenancy. Although the term of the renewed tenancy, ie the 2^nd Tenancy, is for 2 years instead of 3 years in the 1^st Tenancy, the latter was subject to an early termination clause whereby the tenancy could be terminated in 24 months, ie two years. See §28 above. Thus, what Mr Chow explained in 2^nd Supplemental Witness Statement is nothing of significance. However, R1’s eagerness to secure steady stream of rental return, which would be better than leaving the unit vacant and not having any return at all, might however justify a lower yield.

74.  Mr A Chan had carried out a similar investment method of valuation on the basis of prevailing tenancy agreements for G/F, 49 Staunton Street and G/F, 55 Staunton Street as follows:[13]

	G/F, 49 Staunton Street	G/F, 55 Staunton Street
Tenancy Term	3 years (From 1 October 2018 to 30 September 2021)	3 years (From 1 March 2018 to 28 February 2021)
Monthly Rent	$67,000 (exclusive of rates, government rent and management fees)	$118,000 (exclusive of rates, government rent and management fees)
Rent-free Period	Nil	7 days (from 1 March 2018 to 7 March 2018)
Reduced Rent	$60,000 per month (from 1 November 2019 to 31 October 2020)	$94,400 per month (from 1 April 2020 to 31 July 2020 and from 1 September 2020 to 28 February 2021)
Net Effective Rent	$64,667	$110,680
Effective Area	49.0 sq m	85.6 sq m
Unit Rent	$1,320/sq m	$1,293/sq m
Time Adjustment	-10.4%	-8.9%
Time Adjusted Unit Rent	$1,182/sq m	$1,178/sq m
Capitalized Unit Rate	$545,761/sq m	$543,651/sq m

75.  Mr A Chan did not adopt the reduced rent to carry out the analysis but instead took the average as the effective rent and made time adjustment by reference to the Private Retail – Rental Index published by RVD. With respect, Mr A Chan’s approach suffers from various deficiencies. Firstly, the hit of the COVID-19 pandemic or the Government measures thereafter could not have been foreseen when the tenancy agreements were negotiated in 2018. Secondly, the fact that rental concessions were made during the terms of the tenancies showed in the very clear terms that the original agreed rent cannot be regarded as market rental as at the relevant date. Thirdly, the rental index and the market yield for retail properties published by RVD are territory-wide and more or less an average that may not be pertaining to the subject premises or to such location. While the same is also true for the capital price index, should the cross-check be properly done, the rental in 2018 should first be capitalized and time-adjusted to the relevant date of 1 August 2020. Unfortunately, such a result would be tortuous and particularly unreliable when it was some 2 years apart. I share the view in Fan Chun Keung, supra. If the figures applied to the formula for the investment method are so unreliable or fraught with inherent problem, the capital value arrived at will be unreliable as any mistake will be greatly amplified. Accordingly, whether or not a valuation obtained using investment method can be used as a check entirely depends on whether the sets of figures adopted are reliable or representative.

76.  On the other hand, rental concession had no indicative value for market rent as the landlord is not obliged to give any concession at all. See China Profair Limited, supra as well as The Center (76) Limited v Victory Serviced Office (HK) Limited, HCA 1020/2020 (unreported, dated 30 October 2020), Sunbroad Holdings Limited v A80 Paris HK Limited, HCA 735/2020 (unreported, 3 June 2021), Holdwin Limited v Prince Jewellery and Watch Company Limited, HCA 718/2020 & HCA 414/2021 (unreported, 20 September 2021), Ho Hon Chiu v Chong Chi Ki Pierre, CAMP 229/2020 (unreported, dated 9 November 2021), Vember Lord Limited v The Swatch Group (Hong Kong) Limited, HCA 1113/2020 & HCA 1114/2020 (unreported, 20 January 2022) and The One Property v The Swatch Group (Hong Kong) Limited, HCA 268/2021 & HCA 269/2021 (unreported, 8 February 2022). Notwithstanding the above, R5, who was the landlord of G/F, 55 Staunton Street, saw fit to reduce the rent temporarily by 20% which is much more than the index drop published by RVD.

77.  Nonetheless, the rental information from G/F, 49 Staunton Street and G/F, 55 Staunton Street does demonstrate that the rentals as reserved for G/F, 47 Staunton Street were, as argued by Mr Chow, below market level. I prefer to rely on the direct comparison method by reference to the comparable analysis.

78.  In view of the comparable analysis in §§64-67 above, I am pleased to adopt $480,000 per sq m as the unit rate for the reference shop unit.

79.  Coming to the determination of the EUV of the G/F premises of the Buildings, the two valuation experts again differed on the adjustment for layout. Mr C Chan considered there being very minor difference in shape between G/F, 57 Staunton Street and the reference shop unit, ie G/F, 47 Staunton Street and therefore applied an adjustment of -2%. Mr A Chan however applied -5% owing to the relative longitudinal shape or depth of G/F, 57 Staunton Street. I agree with Mr A Chan.

80.  G/F, 51 Staunton Street is of a triangular shape and I also agree with Mr A Chan’s adjustment of -10%.

81.  In spite of the above, they agreed the layout adjustment of -2% for the G/F units at 53 and 55 Staunton Street.

82.  My determination is as follows:

Premises	Effective Area (m2)	Adjustments						Adj Unit Price (/m2)	EUV
		Age	Size	Frontage	Layout	Headroom	Total
G/F, 47 Staunton Street	47.3	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	$480,000	$22,704,000
G/F, 49 Staunton Street	47.2	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	$480,000	$22,656,000
G/F, 51 Staunton Street	55.9	0.0%	0.0%	1.0%	-10.0%	-3.0%	-11.8%	$423,360	$23,666,000
G/F, 53 Staunton Street	77.1	0.0%	-4.0%	0.0%	-2.0%	-3.0%	-8.7%	$438,240	$33,788,000
G/F, 55 Staunton Street	85.6	0.0%	-6.0%	0.0%	-2.0%	-3.0%	-10.6%	$429,120	$36,733,000
G/F, 57 Staunton Street	74.4	0.0%	-4.0%	-1.0%	-5.0%	-3.0%	-12.4%	$420,480	$31,284,000
								Total:	$170,831,000

Assessment of EUV for Basement Units

83.  In the assessment of the EUV of the Basement Units, Mr C Chan found no basement comparables but relied on certain 1/F transactions as comparables:[14]

Ref:	Address	Consideration	Date of Agreement	Saleable Area (m2)	Effective Area (m2)	Building Age	Unit Price (/m2)
B1	1/F, 17 Aberdeen Street	$9,500,000	21 Mar 18	43.0	43.0	1982	$220,930
B2	1/F, 40-42 Gough Street	$18,000,000	8 Mar 18	84.0	84.0	1968	$214,286
B3	1/F, 28 Gough Street	$6,880,000	17 Jan 18	31.1 + Yard 1.3	31.3	1973	$219,808

84.  Mr C Chan then proceeded to assess the EUV of the Basement Units as follows:[15]

Ref:	Unit Price (/m2)	Adjustments							Adjusted Unit Price (/m2)
		Time	Location	Accessibility	Visibility	Age	Size	Total
B1	$220,930	-12.7%	0%	17%	-7%	-3%	-1%	-8.8%	$201,488
B2	$214,286	-12.7%	0%	15%	-20%	0%	4%	-16.5%	$178,929
B3	$219,808	-12.2%	-5%	15%	-10%	-1%	-2%	-16.2%	$184,199
								Average:	$188,205

85.  While I agree with Mr C Chan that the comparison approach is the best method of valuation, the process of identifying, analyzing and applying comparable evidence to a property to be valued is fundamental to producing a sound valuation. Thus, comparable evidence can only be as good as the information provided and in the first place, the comparable must, as far as possible, be similar to the property being valued in all respects, including location, age and condition, sizes etc. The transaction date is important as markets are volatile and subject to price fluctuations. I agree with Mr A Chan that all the 3 transactions were out of date for EUV assessment as at 1 August 2020.

86.  In view of the above, I do not consider “the comparables” adopted by Mr C Chan comparable at all for the assessment of the value of the Basement Units.

87.  Having said that, I do not consider those Basement Units of 47 & 49 Staunton Street are basement units as such. They are accessible and visible from the rear lane off Elgin Street where a few hawkers’ stalls are located. Indeed, those Basement Units of 47 & 49 Staunton Street were previously occupied by bars or restaurants.

88.  I agree with Mr C Chan that the lighting conditions and cleanliness of the staircase leading to the Basement Units at the time of our joint site inspection on 9 February 2022 should not be indicative of their conditions when the Basement Units were tenanted and open for business. The same applies to the condition of the rear lane off Elgin Street.

89.  Mr A Chan did not adopt any comparables anyway but applied a conversion factor of 1/5 of the unit rate of the G/F to assess the EUV of the Basement Units. He arrived at a unit rate of $120,474 per sq m.

90.  In his Rebuttal Report dated 5 July 2021, Mr C Chan commented as follows:[16]

“3.5.2 Mr A Chan did not explain any rationale why he has adopted a conversion factor of 1/5 and there is no rule of thumb nor universally accepted conversion ratio to show that unit rate of Basement is 1/5 (or 20%) of the unit rate of the Ground Floor. I set out my analyses hereunder which suggest the conversion factor of 1/5 (20%) adopted by Mr A Chan is very unreasonable.

3.5.3 Two unrelated parties have purchased Basement and Ground Floor of No 25 Staunton Street respectively in January 2021. Detail of the transactions are set out below:-

Address	Date of Transaction	Consideration (HK$)	Converted Area (sq m)	Unit Rate (HK$ per sq m)	% of the ground floor unit rate
Ground Floor, No 25 Staunton Street	28 Jan 2021	$31,100,000	53.3	$583,490	-
Basement, No 25 Staunton Street	20 Jan 2021	$13,000,000	56.2	$223,368	38%

3.5.4 Similar to the Basement units of Nos 47 and 49 Staunton Street, Basement of No 25 Staunton Street is accessible via a rear lane while Ground Floor of No 25 Staunton Street abuts onto Staunton Street. The above transactions indicate the unit rate of basement unit is approximately 38% of the unit rate of ground floor unit.

3.5.5 Similar finding is obtained from my analysis of the monthly unit rents of the Ground Floor and Basement of No 49 Staunton Street. My analysis with reference to the tenancy information attached to the respective latest Agreement of Sale and Purchase of the Ground Floor and Basement of No 49 Staunton Street are set out below:-

Address	Converted Area (sq m)	Monthly Rent (HK$)	Term	Unit Rent (HK$ per sq m)	Time Adjusted Unit Rent (HK$ per sq m)	% of the ground floor unit rent
Ground Floor, No 49 Staunton Street	49.1	$67,000	1 Oct 2018 to 30 Sep 2021	$1,365	-	-
Basement, No 49 Staunton Street	45.8	$29,000	28 Aug 2016 to 27 Aug 2018	$592	$630	46%

91.  The sale of G/F, 25 Staunton Street in January 2021 was adopted by both Mr C Chan and Mr A Chan as a comparable, ie comparable GR5 as will be seen, in assessing the gross development value (“GDV”) of the ground floor shops for the hypothetical redevelopment.

92.  G/F, 25 Staunton Street is occupied by a bar and restaurant (釀酒獅). Its acquisition took place in January 2021 which was less than 6 months from the relevant date. At that time, it was also subject to the Prevention and Control of Disease (Requirements and Directions)(Business and Premises) Regulation[17] whereby, among which, there should be cessation of sale of food and drinks for consumption on premises of catering businesses from 6.00 pm to 4.59 am of the subsequent day. If the Private Retail – Price Index published by RVD is applicable, the difference is between 512.4 and 516.4 which were approximately the same. Particulars of this unit are agreed by the two experts as follows:[18]

Effective Area (m2)	Frontage (m)	Depth (m)	Headroom (m)
54.1*	5.5	11.3	3.4

* instead of 53.3 sq m.

93.  If similar adjustments are carried out with respect to the reference shop unit, the result will be consistent with my analysis in §78 above at $480,000 per sq m:

Unit Price (/m2)	Adjustments								Adjusted Unit Price (/m2)
	Time	Location	Age	Size	Frontage	Layout	Headroom	Total
$574,861	-0.8%	-15%*	0%	0.7%	-2.4%	0%	1.5%	-15.9%	$483,458

* Again, Mr C Chan’s proposed -15% is preferred to Mr A Chan’s 10% as this unit is in close proximity to the Central - Mid-Levels escalators.

94.  I wonder why both the experts did not adopt this sale of G/F, 25 Staunton Street as a comparable in assessing the EUV of the reference shop unit. The most important application of the direct comparison is in the use of sales data of properties comparable to the subject in order to establish its market value as of some date close to those sales. The House of Lords in Bwllfa & Merthyr Dare Steam Collieries (1891) Ltd v Pontypridd Waterworks Co (1903) AC 426 had held that where the valuation task involves a forecast into the future, then if that valuation is later judicially reviewed, it is proper to take into account facts not known at the date the forecast was made. Lord Macnaghten at page 431 of the judgment justified this sensible approach in these term:

“If the question goes to arbitration, the arbitrator’s duty is to determine the amount of compensation payable. In order to enable him to come to a just and true conclusion it is his duty, I think, to avail himself of all the information at hand at the time of making his award which may be laid before him. Why should he listen to conjecture on a matter which has become an accomplished fact? Why should he guess if he can calculate? With the light before him, why should he shut his eyes and grope in the dark?”

95.  And §23.43 at p712 of Land Compensation & Valuation Law in Hong Kong, 4^th Edn, by Gordon N Cruden & Liza Jane Cruden states as follows:

“The Hong Kong practice of admitting and relying on hindsight is firmly established and frequently followed. Any evidence of value after the relevant date is admissible, unless the particular statutory provisions clearly prohibit it being considered. Valuers are therefore generally able to use hindsight, as do the courts.”

96.  Similarly, therefore, I consider the sale of Basement, 25 Staunton Street in January 2021 a good comparable, particularly as it is occupied as a F&B outlet abutting a rear lane, Tsun Wing Lane, which is however wider than that behind the Buildings which is a cul-de-sac. Tsun Wing Lane also has an advantage above the Basement Units at 47 & 49 Staunton Street in that it connects Graham Street and Shelley Street along which the Central - Mid-Levels escalators run. There are other restaurants on the lane.

97.  Thus, based on the information supplied by Mr C Chan above, I set out my analysis:

Unit Price (/m2)	Adjustments					Adjusted Unit Price (/m2)
	Time	Location	Age	Size	Total
$223,368	-0.8%	-15%	0%	-0.6%	-16.2%	$187,182

98.  I adopt $187,000 per sq m as the unit value for the Basement Units at 47 & 49 Staunton Street (which is about 39% of that for the G/F units and appears reasonable). My assessment is as follows:

	Saleable Area (m2)	Unit Rate (m2)	EUV
Basement, 47 Staunton Street	48.9	$187,000	$9,144,000
Basement, 49 Staunton Street	46.0	$187,000	$8,602,000
		Total:	$17,746,000

99.  As regards Mr C Chan using the rental value of the G/F and Basement of 49 Staunton Street to ascertain the relationship between their capital value, Mr Anthony Chan referred to Good Faith Properties Limited & Others v Cibean Development Company Limited, LDCS 42000/2011 (unreported, dated 31 May 2013) where the Tribunal remarked at §135 that: “the rental and capital markets, though inter-related are not moving in the same rate, or not even in the same direction during a particular period of time.” Thus, Mr C Chan’s analysis that the value of the Basement of 49 Staunton Street may be about 46% of that the G/F is unreliable though I agree with Mr C Chan that Mr A Chan suggestion of a conversion factor of 1/5 is also unreasonably low.

Assessment of EUV for M/F Units

100.  Both Mr C Chan and Mr A Chan agreed the particulars of the mezzanine floor of 47 Staunton Street and 49 Staunton Street as follows:

	Saleable Area (m2)	Flat Roof (m2)	Headroom (m)	Former Use as at 1 August 2020
M/F, 47 Staunton Street	45.1	4.7	2.9	Massage Parlour
M/F, 47 Staunton Street	45.2	4.7	2.9	Yoga Studio

101.  Mr C Chan and Mr A Chan could not agree on the effective floor areas of these mezzanine floor units because they used to have a flat roof (about 4.7 sq m each) at the rear which has now been fully enclosed and covered. Upon our joint inspection on 9 February 2022, these flat roofs can no longer be easily recognized as they just appear as part of the units proper if one does not refer to the approved building plans. As well, both Mr C Chan and Mr A Chan confirmed that there exist no enforcement order issued by the Building Authority.

102.  I note that there has been continuous doubt on whether this kind of unauthorised conversion can attract market value, for instance, in determining the EUV under the Ordinance.

103.  Firstly, it must be a market reality that the owner of such unit would not let his premises without charging a rent for the full area of the enclosed premises.

104.  In Join Union Investment Limited v China Tree Investment Limited, [2016] 2 HKLRD 901, there was a subdivision of the ground floor premises into four shops. The structural engineering expert in the case could not cite any example or authority where, in similar circumstances, the Government or the Building Authority took enforcement action requiring demolition of the partitioning and reinstatement of the property to its original state. Chow J (as he then was) was of the view that there was no real risk of enforcement by the Government or Building Authority in respect of the alleged unauthorised partitions. See §§97-103 of the judgment.

105.  At §107 of the judgment, the learned judge observed that:

“... it is apparent, form the evidence of Mr Lai, Madam Chan and Madam Shiu, that none of them considered the 2010 Building Order, or indeed any unauthorised building works in the Property, to be of any great moment. Prior to the respective purchases of the Property by the defendant (through Madam Chan) and the plaintiff (through Madam Shiu), none of them took the trouble to go inside the Property to inspect its physical conditions, or ascertain whether there might be any unauthorised building works in the Property. Even after her attention had been drawn to the 2010 Building Order, Madam Shiu did not carry out any further investigation prior to entering into a binding contract to purchase the Property, and was prepared to accept a modest sum of HK$20,000 from the defendant as sufficient compensation for the costs of complying with the 2010 Building Order. The existence of unauthorised building works in retail premises, especially in the older districts in Hong Kong, is common place and does not appear to have any significant impact on their market or capital values. These properties change hands frequently like ordinary commercial commodities, as demonstrated in the present case by the fact that the defendant (through Madam Chan) purchased the Property in September 2010 and sold it to the plaintiff (through Madam Shiu) in March 2011 for a handsome profit. It is contrary to market reality to treat the existence of an unauthorised cockloft, even of a substantial size like the present one, as constituting a title defect going to the root of title....” (emphasis added)

106.  In Circle Angle Limited v Orchard Enterprise (Hong Kong) Limited, DCCJ 1252/2011 (unreported, dated 6 February 2012), the purchaser was aware that the property which it intended to purchase was subject to a notice issued under section 24C(1) of the Buildings Ordinance. In spite of this, it signed a Provisional Agreement which contained a clause that read:

“買方日后不能藉此拒絕交易”.

107.  Something similar took place in Gold Glory International (HK) Limited v K W Wong Investment Company Limited, HCMP 1618/2012 (unreported, dated 17 December 2013) where the parties agreed that:

“The purchaser and vendor declare that they are both aware of the (two notices by the Building Authority under section 24C(1) of the Buildings Ordinance) where the property is situated. Both parties hereby agree to complete the transaction notwithstanding the (two Notices) ...”

108.  The recognition that unauthorised structure attracts market value is not new. In Hong Kong Telephone Company Limited v The Hong Kong Land Company Limited, LDLA 5/1982 (unreported, 5 November 1982), the Tribunal considered market rent appropriate for the premises although there was an illegal addition in the form of an enclosed void at ground level having been converted into a playroom.

109.  In that case, “(b)ecause of the steep slope down from the road level the foundations of the building continue for a considerable further distance below the lower level floor opening onto a paved open garden area. The area of these foundations below the lower level floor has been closed to provide a playroom”. In that case, therefore, the conversion created a 4^th storey but the Government Lease limited the building to only 3 stories. The Tribunal held that while the enclosed foundation area used as a playroom did not form part of the legal gross floor area, it was part of the suit premises and must for valuation purposes be taken into account as ancillary to the residential area, in the same way as the garden and car park areas were likewise ancillary. The Tribunal was satisfied that its existence could reasonably be expected to attract a slightly higher rent than if it did not exist, in the same way as other ancillary features add value to premises. The possibility that the landlord may at sometime have to remove the glass doors enclosing the area could not be discounted, nor could the probability that it is allowed for the time being.

110.  This view is supported by Transport for London (London Underground Limited) v Spirerose Limited [2009] 1 WLR 1797, [2009] UKHL 44, where Lord Neuberger pointed out at paragraph 50:

“First, if a statute directs that property is to be valued on an open market basis as at a certain date, one would not expect any counter-factual assumptions to be made other than those which are inherent in the valuation exercise (such as the assumption that the property has been on the market and is the subject of a sale agreement on the valuation date) or those which are directed by the statute.”

111.  More recently, in Newbigin (VO) v SJ & J Monk (A Firm) [2015] 1 WLR 4817, Lewison LJ discussed “the reality principle” in these terms:

“It is a well-known principle of valuation, not confined to rating, that in principle you must value the property as it stands on the valuation date. This is the principle of reality; or as classicists prefer to call it, the principle that property must be valued rebus sic stantibus. This principle can be displaced by contrary instructions in the statute or contract under which the valuation takes place.”[19]

112.  Referring back to the Transport for London case above, I do not consider any particular evidence is needed to prove the existence of market value of an unauthorised structure, save for quantum, when this is recognized as a market reality.

113.  Cheung Kwong Yuen v Sun Hui Fang, CACV 112/2015 which has been reported as [2016] 1 HKLRD 464 concerned an appeal from an application for recovery of vacant possession of unauthorised roof top structure of a building at 107 Tai Nan Street, Kowloon. During the trial before the Tribunal, being LDPD 1740/2014, it was found that Suen Chor Ming (alias Suen Ming Fai), the brother of the respondent, Madam Sun, had paid money in 1992 for acquiring the occupation of the corrugated steel sheet structure existing on the roof of the building. Obviously no legal title was passed and the Tribunal considered adverse possession by Madam Sun was not proven. Madam Sun’s subsequent appeal was allowed by the Court of Appeal on 30 January 2015 and the case was remitted to the District Court for retrial, which became DCCJ 743/2016. The District Court found adverse possession in favour of Madam Sun on 6 September 2017 and appeal by Mr Cheung, the unfortunate landlord who failed to verify the status of Madam Sun when he made the purchase on 31 October 2013, was refused by the Court of Appeal on 26 February 2019 in CAMP 64/2017.

114.  From this case, it is manifest that the unauthorised roof top structure commanded market value in 1992. It also continued to attract significant market value at least until early 2019 despite a lapse of some 27 years. Otherwise, Madam Sun would not have taken the time and trouble in advancing her adverse possession claim.

115.  The Tribunal has witnessed similar landlord and tenant disputes on the letting of unauthorised structures. LDPD 1802/2021 was another case where the landlord sought vacant possession of an unauthorised roof-top structure which had been let since 1980. Obviously, the unauthorised roof top structure commanded significant market value from 1980 till at least the commencement of 2022 when the case was heard.

116.  In Joint Hope Limited v Vecent Hong Kong Trading Limited & Others, LDCS 21000/2019 (unreported, dated 9 July 2021), the Building Authority issued to the owner of G/F, including the space underneath the staircase, 38 Ming Fung Street, Kowloon, a building order dated 11 May 2018 under section 24(1) which required the owner to demolish the unauthorised building works that include the structure erected on and over the yard but not the cockloft at high level of the G/F Shop. Then on 31 May 2019, the Building Authority issued a letter to the owner stating that: “As the building works have been modified, I am prepared to withhold further enforcement action for the time being, and withdraw my Order.” As at the land search of 5 February 2021, no order was issued against the cockloft.

117.  Surely, when the Building Authority issued the order of 11 May 2018, it should have known about the unauthorised cockloft (against which notice was issued in 2016). Yet the Building Authority did not enforce against such cockloft in the order of 11 May 2018. Neither did the withdrawal letter of 31 May 2019 mention anything about the cockloft save to state that the premises were not free of any other unauthorised building works.

118.  Similarly, in the same case, on 11 May 2018, the Building Authority issued to the owner of G/F, including the space underneath the staircase, 44 Ming Fung Street, a building order under section 24(1) which required the owner to demolish the unauthorised building works that include the structure erected on and over the yard but not the cockloft at high level of the G/F Shop. Then on 17 August 2018, the Building Authority issued a letter of compliance of the order.

119.  In Sound Advice Property Limited & Others v Mok Wai Ching & Mok Yui Cheung Anthony, LDCS 18000/2020 (unreported, dated 21 December 2021), the Tribunal found that although Building Orders against an unauthorised building structure had been issued in March 2007, the Building Authority had not taken any further action for at least 14½ years until the date of the trial[20].

120.  In Link Harvest Ltd v Wayhang Development [2001] 2 HKC 652, Recorder Edward Chan SC said:

“Even though s24 gives the Building Authority a discretion on whether to exercise its power against a particular contravention and what order it would make if it has decided to exercise its power, in my judgment, prima facie, one would normally expect that the Building Authority would take enforcement action against the unauthorised building or structures. Thus, unless there is a good reason for believing that the Building Authority would not take any action, where a building or structure was erected in contravention of the Buildings Ordinance, there is the risk of an enforcement action by the Building Authority so as to render the title of that building or that structure to be defective. It is difficult to state exhaustively what would be the good reasons. The typical one would be where the breach is very trivial, or where because of the nature and the age of the structure, the enforcement priority within the Building Authority was so low that it could be expected that the time for enforcement would not come even by the end of the practical life of the building or structure in question.” (underline added)

121.  Unlike the Lands Resumption Ordinance, Cap 124 where the value of the land to be determined for compensation is qualified under section 11 and to the provisions of paragraphs (aa), (b) and (c) of section 12[21], there is no such qualification of the market value pursuant to Part 1 of Schedule 1 to the Ordinance. Property of which market value is to be assessed means, under section 2 of the Ordinance, immovable property, authorised or unauthorised.

122.  In the present case, Mr C Chan applied a conversion factor of 1/6 whereas Mr A Chan applied 1/8.

123.  As said, such enclosed flat roofs are not apparent as unauthorised structures on site and I am prepared to adopt ½ instead.

124.  Mr C Chan adopted the same set of comparables in assessing the EUV for basement for assessing the EUV of the mezzanine floor units:

Ref:	Unit Price (/m2)	Adjustments							Adjusted Unit Price (/m2)
		Time	Location	Accessibility	Visibility	Age	Size	Total
B1/M1	$220,930	-12.7%	0%	2%	3%	-3%	0%	-11.0%	$196,628
B2/M2	$214,286	-12.7%	0%	0%	-10%	0%	4%	-18.3%	$175,071
B3/M3	$219,808	-12.2%	-5%	0%	0%	-1%	-1%	-18.2%	$179,803
								Average:	$183,834

125.  Comparable M1, though designed as an office, appears to be occupied for domestic use. No signage whatsoever is detected at the front door. This section of Aberdeen Street is also relatively quiet.

126.  Similar phenomenon was observed for comparables M2 and M3. Therefore, they are not good comparables at all.

127.  On the other hand, Mr A Chan provided a fallback analysis and arrived at $164,000 per sq m or thereabouts. However, his negative adjustments for location are obviously unreasonable as purchasers of these “comparables” did not even consider it for commercial use. Similarly, I do not agree to Mr A Chan’s proposed negative adjustments for “visibility” as no one is prepared to put up a signage there.

128.  In any event, Mr A Chan preferred instead to just apply a conversion factor of ¼ of the unit rate of the G/F as the value of the M/F units, arriving at $147,750 per sq m. But again the question comes as why ¼?

129.  I appreciate that both Mr C Chan and Mr A Chan agreed that the conversion factor of ¼ was applicable to evaluate the cocklofts of Nos 51-57 Staunton Street. However, the headroom of cockloft is 2.6 metres for all the shop units of Nos 51-57 Staunton Street whereas that for the mezzanine floor units of Nos 47 & 49 Staunton Street is 2.9 metres. In addition, by reference to the approved building plans and the relative position of the blacked out structural pillars at the Staunton Street side of the plan, the cocklofts are all set back from the frontage of the shops of Nos 51-57 Staunton Street. The cocklofts are not visible from the street either.

130.  On the other hand, the mezzanine floor units can be seen from both Staunton Street and the rear lane. They are accessible directly from the street, separately from the shop units below. They are capable of, and indeed were, occupied independently from the G/F units for commercial activities. For all these reasons, the mezzanine floor units of Nos 47 & 49 Staunton Street should be superior to the cocklofts of Nos 51-57 Staunton Street and Mr A Chan’s conversion factor of ¼ would be too low for the mezzanine floor units of Nos 47 & 49 Staunton Street.

131.  Incidentally, I note that Mr C Chan had adopted a sale of 2/F, Asiarich Court, 5 Staunton Street on 11 April 2017 at $14,800,000 as comparable, ie comparable F3 as will be seen, in assessing the GDV for the 1/F of the hypothetical redevelopment. Obvious this was a dated sale but as Mr C Chan was content to consider it as a comparable as at current date, ie December 2021, if not today, why did he not adopt this sale as a comparable in assessing the EUV as at 1 August 2020?

132.  This sale of 2/F, Asiarich Court has the good advantage as a comparable in that it is located on the same street as the Buildings. It is situated next to the Central - Mid-Levels escalators and I am prepared to adopt a location adjustment of -15% as proposed by Mr C Chan. This unit, being on the top level of the commercial podium, has a comparable area of 57.8 sq m. Both valuation experts agreed there would not be an adjustment for size or headroom.

133.  In spite of the above, this comparable is served by a common lift and two common staircases whereas the subject M/F units are served by only 1 common staircase. I am prepared to allow -10% for this comparatively poor accessibility and my analysis is as follows:

Unit Price of 2/F, Asiarich Court (/m2)	Adjustments						Adjusted Unit Price (/m2)
	Time	Location	Age	Size	Accessibility	Total
$256,055	-7.0%	-15.0%	-13.0%	0.0%	-5.0%	-34.7%	$167,204

134.  In the absence of any other comparable therefore and bearing in mind the trading potential of the mezzanine floor units should be a little inferior to that of the Basement Units, I am content to adopt $167,000 per sq m.

135.  My assessment of the M/F units is as follows:

	Saleable Area (m2)	Unit Rate (m2)	EUV
M/F, 47 Staunton Street	47.5	$167,000	$7,933,000
M/F, 49 Staunton Street	47.6	$167,000	$7,949,000
		Total:	$15,882,000

Assessment of Upper Floor Domestic Units

136.  There are as many as 12 comparables considered by Mr C Chan or Mr A Chan in the assessment of the EUV of the upper floors domestic units. Depending on their different choice of comparables and adjustments, Mr C Chan or Mr A Chan arrived unit rates of $194,000 per sq m and $158,000 per sq m respectively by reference to 2/F, 47 Staunton Street:[22]

Ref	Address	Consideration	Date of Agreement	Building Age	Saleable Area (m2)	Effective Area (m2)	Unit Price (/m2)
D1	1/F, 79 Caine Road	$8,650,000	11 Feb 20	1966	39.8	39.8	$217,337
D2	3/F, 46 Elgin Street	$5,000,000	4 Oct 19	1968	38.9	38.9	$128,535
D3	1/F, 26A Peel Street	$6,500,000	19 Aug 19	1966	33.0 + F/R:18.6	36.1	$180,055
D4	1/F, 36 Aberdeen Street	$4,900,000	8 Aug 19	1972	32.6 + F/R:10.9	34.4	$142,442
D5	Flat A, 2/F, Kwan Fat House, 44-46 Staunton Street	$4,750,000	3 May 19	1977	22.6	22.6	$210,177
D6	Flat A, 4/F, On Lok Mansion, 39-41 Hollywood Road	$6,480,000	17 Mar 19	1971	31.8	31.8	$203,774
D7	Flat B, 3/F, 47B Elgin Street	$5,800,000	22 Jan 19	1976	27.9	27.9	$207,885
D8	Flat B, 3/F, 61 Caine Road	$5,850,000	5 Dec 18	1978	32.7	32.7	$178,899
D9	Flat A, 3/F, 61 Caine Road	$4,780,000	24 Nov 18	1978	26.9	26.9	$177,695
D10	4/F, 47A Caine Road	$5,080,000	10 Aug 18	1967	28.8	28.8	$176,389
D11	2/F, 50 Elgin Street	$8,500,000	23 Aug 18	1968	43.1	43.1	$197,216
D12	2/F, 25 Staunton Street	$5,900,000	5 May 18	1965	37.8	37.8	$156,085

Choice of Comparables and Location Adjustments

137.  Comparable D1, which is situated on the northern side of Caine Road at its junction with Peel Street, was only adopted by Mr C Chan. Mr A Chan however considered such a location is different from the subject. It is a residential area populated by supermarkets, churches, schools, estate estates with some restaurants. Caine Road, which is a main artery in Mid-Levels, is traversed by heavy vehicular traffic, including buses. So long as there exist comparables in the Soho district, I agree with Mr A Chan that this comparable can be disregarded.

138.  Comparable D2 is a residential unit right above comparable G12 adopted by Mr C Chan in his assessment of the EUV for the reference shop unit. However, he considered this comparable out of tone and did not adopt it. Mr A Chan considered otherwise as again he adopted a location adjustment of -5%. As said, this unit at 46 Elgin Street is situated close to the Central - Mid-Levels escalators; it is as well situated close to Caine Road where a variety of trades or shops are available. I agree with Mr A Chan[23].

139.  There is no agreement on adopting comparable D3 as comparable either. Mr C Chan objected to its use as a comparable because it comprises a flat roof of 18.6 sq m. During the joint inspection on 9 February 2022, it is clear that the flat roof is not enclosed. In any event, both valuation experts agreed that the value of a flat roof would normally fetch 1/6 of the floor proper and the converted effective area should be 36.1 sq m for the purpose of analysis. In respect of the location adjustment, I agree with Mr A Chan’s -5% as this comparable is situated at a lower level of SoHo, closer to the CBD in Central.

140.  Mr C Chan also objected to the use of comparable D4 as a comparable because it comprises a flat roof of 10.9 sq m. Again, both valuation experts agreed that the converted effective area should be 34.4sq m for the purpose of analysis. It is situated close to the Buildings around the corner and I agree with Mr A Chan that there should be no adjustment for location.

141.  Both valuation experts are content to adopt comparable D5 which lies just opposite the Buildings. They agreed that there should be no adjustment for location.

142.  Both valuation experts are content to adopt comparable D6. Mr C Chan applied no location adjustment but Mr A Chan applied -10%. I am prepared to adopt a location adjustment at -5% because this comparable is situated at a lower level of SoHo, closer to the CBD in Central.

143.  Both valuation experts are content to adopt comparable D7 which, like Comparable D2, is situated close to the Central - Mid-Levels escalators. I agree to Mr A Chan’s location adjustment of -5%[24].

144.  Like comparable D1, comparables D8, D9 and D10 are situated on Caine Road. I agree that these comparables can be disregarded.

145.  Like Comparable D2, comparables D11 is a residential unit right above comparable G12. I agree to Mr A Chan’s location adjustment of -5%[25].

146.  Comparable D12 comprises a residential unit at 25 Staunton Street, ie right above comparable GR5. I agree with Mr C Chan this time there should be no adjustment for location. In this connection, I note that Mr C Chan applied a location adjustment of -15% for shops which I agree. Nevertheless, the sensitivity to location is different for residential and retail premises.

147.  Apart from the location, the two valuation experts had disagreement on other adjustment factors. Mr C Chan suggested, for instance, for age, as the Buildings and the comparables were built in the 1960s and 1970s with age differences ranging from 3 years to 10 years, value of these units should not vary much with ages. Mr C Chan proposed an adjustment for age at mere 0.25% per 1 year.

148.  Mr A Chan thought otherwise and I agree with him that a larger difference at 1% per 1 year appears more appropriate.

149.  Having said the above, I am concerned that Mr A Chan applying a further discount of similar magnitude for physical condition (or building management) and appeared to have double counting.

150.  As regards noise, in his Rebuttal Report dated 2 June 2021, Mr A Chan stated at §§5.32 to 5.36 as follows:

“5.32 Mr C Chan applied an upward adjustment of 3% on noise for the comparables situated at Caine Road. I consider such adjustment applied by Mr C Chan that is unreasonable to reflect the greater noise impact suffered by the Property being a low-rise residential building within the SoHo area. My reasons are as follows:

5.33 Firstly, the Property is situated at the SoHo district and are surrounded by numerous bars and restaurants. There are also hawker stalls located at the section of Elgin Street which is adjacent to the Property. The fact that these establishments constantly generate noise throughout the entire day degrades the tranquility of the residential units in the area.

5.34 Secondly, the Property is located close to the junction of Staunton Street and Aberdeen Street which is often jammed with vehicles. During my inspection, there are vehicle noise and car honking noise emitted from the busy intersection intermittently. There were also a lot of lorry vehicles in and out of Staunton Street to unload supplies to serve the nearby bars and restaurants.

5.35 Thirdly, the Property is located close to PMQ which comprises event spaces, shops and restaurants, attracting numerous visitors on daily basis. The noises generated from PMQ also affect the tranquility of the residential units of the Property.

5.36 In view of the above, I consider that the upward adjustment of 3% applied by Mr C Chan on the comparable at Caine Road is unreasonable. In my opinion, a downward adjustment of 10% on the comparables at Caine Road would be more appropriate to justify the huge negative noise impact suffered by the lower-floor residential units in the area.”

151.  While the comments above by Mr A Chan reinforce my decision not to adopt transactions on Caine Road as comparables, Mr C Chan also applied the +3% adjustment for noise to D6 which is on Hollywood Road[26]. With respect to Mr C Chan, I share the view of Mr A Chan afore-stated and I do not consider in the noise respect, the subject location fares any better than comparable R6.

152.  And with those transactions on Caine Road having been disregarded as comparables, the only difference in opinion between Mr C Chan and Mr A Chan on view adjustment was in respect of comparable D4: Mr C Chan applied nil adjustment while Mr A Chan applied -5% on the ground that this comparable looks over PMQ across Aberdeen Street, enjoying a more open view. I agree with Mr A Chan.

153.  As regards the adjustment for internal conditions, Mr C Chan again applied nil but Mr A Chan applied -3% to each of his comparables for the reason that he considered the internal condition of the reference domestic unit, ie 2/F, 47 Staunton Street poor. Similarly, Mr A Chan classified the internal condition of 1/F, 51 Staunton Street as “Poor”.

154.  In resolving this dispute, I have to bear in mind that the relevant date of the EUV was 1 August 2020. By reference to the photos shown in Mr A Chan’s Rebuttal Report dated 2 June 2021[27] for 2/F, 47 Staunton Street, for instance, I agree with Mr C Chan that the internal condition is fair and do not consider any adjustment for internal condition of the comparables necessary.

155.  For the same reason, by reference to the photos shown in Mr C Chan’s Rebuttal Report dated 5 July 2021[28] and that shown in Mr A Chan’s Rebuttal Report dated 2 June 2021[29], I agree with Mr C Chan that the internal condition of 1/F, 51 Staunton Street should not be regarded as poor.

156.  Thus, my analysis of the comparables adopted is as follows:

Comp Ref:	Unit Price (/m2)	Adjustments								Adjusted Unit Price (/m2)
		Time	Location	Floor	Age	Size	View	Lighting & Ventilation	Total
D2	$128,535	0.9%	-5%	0%	0%	0%	0%	0%	-4.1%	$123,265
D3	$180,055	-1.8%	-5%	-2%	2%	0%	0%	0%	-6.7%	$167,991
D4	$142,442	-1.8%	0%	-2%	-4%	0%	-5%	0%	-12.2%	$125,064
D5	$210,177	-3.9%	0%	0%	-9%	0%	0%	0%	-12.5%	$183,905
D6	$203,774	0.7%	-5%	2%	-3%	0%	0%	0%	-5.3%	$192,974
D7	$207,885	5.7%	-5%	2%	-8%	0%	0%	0%	-5.8%	$195,828
D11	$197,216	-3.4%	-5%	-2%	0%	1%	0%	-3%	-11.9%	$173,747
D12	$156,085	-0.5%	-5%	0%	3%	0%	0%	0%	-2.6%	$152,027
									Average:	$170,219

157.  At first glance, the adjusted unit rate for comparable D2 is the lowest but not necessarily out of tone as that for comparable D4, which is situated around the corner of the Buildings, is only marginally higher.

158.  In fact, save for comparables D1, D2 and D3, all the other comparables are all dated more than 1 years prior to the relevant date as at 1 August 2020. This may, as what Mr C Chan gave his oral evidence at trial, affect the reliability of the indices published by the RVD.

159.  As I have demonstrated in §§66-67 above, if comparables one year prior to the relevant date are disregarded, leaving just three comparables G3, G5 & G6, the assessed unit rate for the reference shop unit would be just $475,772 per sq m instead of $482,106 per sq m or $495,382 per sq m. With the benefit of Ex Post Facto sale of G/F, 25 Staunton Street in Jan 2021, I am confident that the unit rate for the reference shop unit at about $480,000 per sq m should be on the mark.

160.  Likewise, I am content to leave out comparables one year prior to the relevant for the assessment of the EUV of the domestic premises, thereby leaving only comparables D2, D3 and D4. As a result, the average adjusted unit rate of the latter three comparables is only $146,528 per sq m. I am prepared to round it up to $150,000 per sq m in light of the higher adjusted unit rate for comparable D5 which is situated just opposite the Buildings.

161.  On review, I am surprised that both Mr C Chan and Mr A Chan arrived at $194,000 per m and $158,000 per sq m respectively which were even higher than their assessments for the EUV of the basement units or mezzanine floor units which are deemed to be for commercial use and more valuable. They should have been alerted that their assessments were something wrong:

	EUV (/m2)
	Domestic*	Basement	Mezzanine
Mr C Chan	$194,000	$188,000	$164,000
Mr A Chan	$158,000	$118,200	$147,750
Tribunal	$150,000	$187,000	$167,000

* The reference domestic unit is 2/F, 47 Staunton Street without service of any lift.

162.  Thus, having arrived at a unit rate for the EUV of the reference domestic upper floor unit at $150,000 per sq m, I note there are still minor differences on the adjustments (on age, size, view and internal condition) between the two valuation experts applicable to the other domestic units of the Buildings. But based on the previous discussion on my preferences, my assessment of the EUV of the domestic units is shown as follows:[30]

Unit	Effective Area* (m2)	Adjustments								Adjusted Unit Price (/m2)	EUV
		Floor	Age	Size	Lighting & Ventilation	View	Top Floor	Internal Condition	Total
1/F, 47 Staunton Street	31.4	2.0%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	2.0%	$153,000	$4,804,000
2/F, 47 Staunton Street	29.2	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	$150,000	$4,380,000
3/F, 47 Staunton Street	29.1	-2.0%	0.0%	0.0%	0.0%	0.0%	0.0%	3.0%	0.9%	$151,350	$4,404,000
4/F & Roof, 47 Staunton Street	25.1	-4.0%	0.0%	0.0%	0.0%	0.0%	-3.0%	3.0%	-4.1%	$143,850	$3,611,000
1/F, 49 Staunton Street	31.8	2.0%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	2.0%	$153,000	$4,865,000
2/F, 49 Staunton Street	29.5	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	$150,000	$4,425,000
3/F, 49 Staunton Street	29.1	-2.0%	0.0%	0.0%	0.0%	0.0%	0.0%	3.0%	0.9%	$151,350	$4,404,000
4/F & Roof, 49 Staunton Street	25.1	-4.0%	0.0%	0.0%	0.0%	0.0%	-3.0%	3.0%	-4.1%	$143,850	$3,611,000
1/F, 51 Staunton Street	42.1	2.0%	3.0%	-1.0%	0.0%	0.0%	0.0%	3.0%	7.1%	$160,650	$6,763,000
2/F, 51 Staunton Street	39.4	0.0%	3.0%	-1.0%	0.0%	0.0%	0.0%	0.0%	2.0%	$153,000	$6,028,000
3/F, 51 Staunton Street	39.4	-2.0%	3.0%	-1.0%	0.0%	0.0%	0.0%	3.0%	2.9%	$154,350	$6,081,000
4/F, 51 Staunton Street	39.4	-4.0%	3.0%	-1.0%	0.0%	0.0%	0.0%	3.0%	0.8%	$151,200	$5,957,000
5/F & Roof, 51 Staunton Street	43.7	-6.0%	3.0%	-1.0%	0.0%	2.0%	-3.0%	0.0%	-5.2%	$142,200	$6,214,000
1/F, 53 Staunton Street	32.1	2.0%	3.0%	0.0%	-2.0%	-2.0%	0.0%	-3.0%	-2.1%	$146,850	$4,714,000
2/F, 53 Staunton Street	28.5	0.0%	3.0%	0.0%	-2.0%	-2.0%	0.0%	0.0%	-1.1%	$148,350	$4,228,000
3/F, 53 Staunton Street	28.5	-2.0%	3.0%	0.0%	-2.0%	-2.0%	0.0%	3.0%	-0.1%	$149,850	$4,271,000
4/F, 53 Staunton Street	28.5	-4.0%	3.0%	0.0%	-2.0%	-2.0%	0.0%	3.0%	-2.2%	$146,700	$4,181,000
5/F & Roof, 53 Staunton Street	31.7	-6.0%	3.0%	0.0%	-2.0%	-2.0%	-3.0%	0.0%	-9.8%	$135,300	$4,289,000
1/F, 55 Staunton Street	42.6	2.0%	3.0%	-1.0%	0.0%	0.0%	0.0%	3.0%	7.1%	$160,650	$6,844,000
2/F, 55 Staunton Street	40.0	0.0%	3.0%	-1.0%	0.0%	0.0%	0.0%	0.0%	2.0%	$153,000	$6,120,000
3/F, 55 Staunton Street	40.0	-2.0%	3.0%	-1.0%	0.0%	0.0%	0.0%	0.0%	-0.1%	$149,850	$5,994,000
4/F, 55 Staunton Street	40.0	-4.0%	3.0%	-1.0%	0.0%	0.0%	0.0%	-3.0%	-5.0%	$142,500	$5,700,000
5/F & Roof, 55 Staunton Street	44.4	-6.0%	3.0%	-1.0%	0.0%	2.0%	-3.0%	0.0%	-5.2%	$142,200	$6,314,000
1/F, 57 Staunton Street	35.0	2.0%	3.0%	0.0%	-2.0%	-2.0%	0.0%	0.0%	0.9%	$151,350	$5,297,000
2/F, 57 Staunton Street	28.6	0.0%	3.0%	0.0%	-2.0%	-2.0%	0.0%	0.0%	-1.1%	$148,350	$4,243,000
3/F, 57 Staunton Street	28.6	-2.0%	3.0%	0.0%	-2.0%	-2.0%	0.0%	0.0%	-3.1%	$145,350	$4,157,000
4/F, 57 Staunton Street	28.6	-4.0%	3.0%	0.0%	-2.0%	-2.0%	0.0%	0.0%	-5.0%	$142,500	$4,076,000
5/F & Roof, 57 Staunton Street	31.9	-6.0%	3.0%	0.0%	-2.0%	-2.0%	-3.0%	0.0%	-9.8%	$135,300	$4,316,000
										Total:	$140,291,000

* The effective or converted area of the units have been agreed by both Mr C Chan and Mr A Chan.

Conclusion on EUV

163.  To conclude, the total EUV of the Buildings as at 1 August 2020 should be:

$170,831,000 + $17,746,000 + $15,882,000 + $140,291,000 = $344,750,000

164.  Thus, the pro rata shares of R1’s, R4’s and R5’s unit are as follows:

Respondent	Unit	EUV	Pro-Rata Share
R1	G/F, 47 Staunton Street	$22,704,000	6.5856%
R4	G/F, 47 Staunton Street	$33,788,000	9.8007%
R5	G/F, 47 Staunton Street	$36,733,000	10.6550%

Whether Redevelopment of the Lots is Justified

165.  Section 4(2) of the Ordinance provides that the Tribunal shall not make an order for sale unless it is satisfied that the "age or state of repair" of the Buildings is justified and that the applicant has taken "reasonable steps" to acquire all undivided shares of the Lots.

166.  In his opening submission, Mr Mok referred to the guidelines laid down in Top Sail International Limited v Cheng Kai Ming, LDCS 18000/2010 (unreported, dated 15 November 2011 (“Top Sail”) and Charmlink Limited v Lee Tong Hing & Others, LDCS 16000/2010 (unreported, dated 29 November 2011) (“Charmlink”) on the factors that the Tribunal should consider whether redevelopment is justified due to age and state of repair.

167.  In Top Sail, the Tribunal said:

“23. ……, we are of the view that when the requirement of “the age” of the Buildings is considered, we should not restrict our consideration to just the physical age of the Buildings.…… we are of the view that the absence of a specific physical age in the Ordinance indicates that the Tribunal has discretion to determine at what stage a building should be redeveloped after considering all the relevant factors concerning the age of the building in question.

24. The physical age of a building is clearly one of the considerations…... The physical conditions of a building and the amount that would be required to maintain the building are other factors that the Tribunal should consider, as they would affect the decision on whether the life of a building should be ended or prolonged. The obsolete design of a building should also be considered as it has an important impact on whether it is too old to serve a modern society.”

168.  Such an approach of exercising discretion by the Tribunal was followed in Charmlink:

“30. We are of the view that the Tribunal has discretion to determine at what stage a building should be redeveloped after considering all the relevant factors concerning the age of the building in question. The relevant factors in the present case are that the Building is over 50 years old and it has passed its designed life. It is also obsolescent in design and not economical to maintain. All these factors point to the fact that the Building has come to an end of its physical as well as economical life. Thus, we find that redevelopment is justified on the ground of the age of the Building.

31. …… It is also within the Tribunal’s discretion to determine in what conditions a building should be redeveloped after considering all the relevant factors concerning the state of repair of the building in question. With the clear evidence from the two experts that the Building is in a poor state of repair and in fact untenantable without substantial repair works to be carried out over a long period of time, we have no hesitation in finding that redevelopment is justified by the state of repair of the Building.”

169.  Parties have no dispute on the applicability of the above legal principles. In any event, during the pre-trial review on 7 January 2022, Mr Bosco Cheng on behalf of R1 confirmed that R1 would not take issue about the age and state of repair of the Buildings.

170.  The applicants adduced the expert evidence of two experts namely, Mr Benson Wong who is an authorised person and a building surveyor, and Mr So who is a civil and structural engineer. Their expertise is not disputed.

171.  Mr Benson Wong, in his Building Condition Survey Report dated 3 March 2021, pointed out that Building A and Building B were 52 and 49 years old respectively while the design life of a concrete building structure would be shorter than 50 years by reference to the “Code of Practice for Structural Use of Concrete 2013”. Mr Benson Wong observed that the Buildings appeared to be one of the oldest buildings in the area.

172.  On physical obsolescence, Mr Benson Wong considered the appearance of the Buildings outdated as revealed by five signs of physical obsolescence as compared with other modern buildings:

a. The appearance of the Buildings was just a plain looking block with monotonous elevations;

b. The external walls were simply rendered and painted. These low cost external finishes were only acceptable in the post war era but have been out-classed by buildings nowadays;

c. An overall untidy appearance was manifested from piecemeal replacements of the old windows with aluminum units of difference types and colours; and

173.  According to Mr Benson Wong, the Buildings were suffering from eleven aspects of functional obsolescence which had safety and hygiene implications as compared with modern standards:

a. Obsolete design and construction of the structural frames as these were made to comply with the less stringent requirements of LCC By-laws applicable more than 50 years ago which were less stringent in seven structural aspects than the current structural design standards;

b. The fire service systems of the Buildings are sub-standard due to the following essential fire service systems are not installed:

(i) Automatic sprinklers system;

(ii) Manual fire alarm system;

(iii) Fire hydrant/hose reel system; and

(iv) Secondary electricity supply.

c. The fire escape arrangements of the Buildings are unsatisfactory with the following deficiencies:

(i) The railings around the outer edge of stairs in the required staircases have gaps more than the maximum width of 100mm;

a. Each of the Buildings has only one required staircase instead of two as currently required; and

b. Building A has no emergency lighting provided to its staircases and non-domestic areas.

d. The outdated aspects of fire resisting construction of the Buildings as compared with the current requirements are as follows:

(i) The existing flat entrance doors are not fire resisting doors; and

(ii) The existing electrical installations and wirings installed in the staircases of Building A and lobbies of Building B are exposed and not enclosed with fire resisting enclosures.

e. The Buildings have no barrier free access facilities as currently required in each of them:

(i) An accessible lift; and

(ii) An accessible ramp.

f. The Buildings have no proper refuse disposal system as currently required in each of them thereby creating inconvenience, hygienic and fire safety problems.

g. The Buildings have no architectural features and proper overhangs on their main facades for weather protection and aesthetical purposes.

h. Building B is not provided with equipotential bonding for exposed metal fixtures such as windows, security gates and water pipes in the common areas and inside the flats thereby endangering the safety of occupants and breaching the Code of Practice for the Electricity (Wiring) Regulations.

i. The Buildings have no lightning protection system to protect their occupants and building parts from lightning strikes.

j. Building A has no condensate drainage pipework system for proper discharge of condensates from air-conditioning units thereby creating nuisances and committing summary offences; and

k. The Buildings have no building management systems which are commonly provided nowadays:

(i) Residents’ intercom and remote door control system;

a. CCTV surveillance system for building entrances exits and roof areas;

b. Instant fault signal and control system for major service installations; and

c. Timer or sensor control of artificial lighting to staircases.

174.  In particular, Mr Benson Wong was of the view that most of the eleven aspects of functional obsolescence including obsolete design and construction of the structural frames, lack of barrier free access facilities, and lack of proper refuse disposal system could not be rectified unless the Buildings were demolished and redeveloped. Before then, the occupiers would have to remain in occupation of the Buildings which are sub-standard or even unsafe by current standards. Also, though reparable, the rendering on the external wall surfaces and the waterproofing to roof areas had already passed their respective effective lives.

175.  Mr Benson Wong concluded that the Buildings were aged as many features and facilities which would nowadays be expected to be standard provisions in a residential/commercial composite building were missing or though provided had not been improved to meet the upgraded construction standards and statutory requirements.

176.  Turning to the state of repair, Mr Benson Wong noted that there were many defects in different parts of the Buildings and the defects and deficiencies are of the nature and magnitude that cannot be easily rectified by simple and piecemeal repairs, and many of these have even imposed threats to the safety of the occupants and the public. Substantial repairs at the costs of $7,619,583 and $11,668,047 are required to restore Building A and Building B respectively to a fair state of repair, which are about 86% and 64% of the construction cost of a new superstructure similar to the Buildings.

177.  Mr Benson Wong’s conclusion was that the redevelopment of the Buildings was justified due to the state of repair and age of the Buildings.

178.  According to Mr So in his Structural Assessment Report dated 2 March 2021, the Buildings were designed on the basis of the LCC By-Laws which were less stringent than the current standards. More particularly, the lack of consideration for robustness was the one with utmost importance because the Buildings may not possess adequate robustness against disproportionate collapse in the event of accident.

179.  Mr So identified cracks and spalling on the beams, columns and slabs both inside the inspected units and in the common areas of the Buildings. In addition to visual inspection, cover-meter survey, carbonation tests, compression tests on concrete cores, testing on the cement content and chloride test were conducted. Among other things, Mr So found that there had been carbonation of concrete and corrosion in steel reinforcement bars of the Buildings. The durability of the concrete of the columns, beams and slabs of the Buildings had been impaired. Although the present cost of repair might be relatively modest, such cost would escalate in the future as the extent and seriousness of the deterioration of the structural elements would increase with age.

180.  Based on his findings, Mr So concluded that the structural frames of the Buildings were in need of repair. He recommended hammer tapping works on all structural elements together with carrying out of repair works to rectify the defects. In view of the age of the Buildings, Mr So also recommended that the next cycle of such repair works should be carried out in five years’ intervals after the current repair exercise.

181.  As submitted by the applicant, the respondents have not adduced any evidence, factual or expert, in relation to the “age” and “state of repair” of the Buildings. Throughout the trial, the respondents have not suggested that the Buildings should be retained and both Mr Benson Wong and Mr So were not cross-examined. Having considered the evidence before the Tribunal, I am satisfied that redevelopment of the Buildings is justified due to the age and state of repair.

Section 4(2)(b) – Whether Applicants have taken reasonable steps

182.  The applicant is under an obligation to take reasonable steps to negotiate on terms that are fair and reasonable for the purchase of the interest of the respondents under Section 4(2)(b) of the Ordinance. However, the Court of Final Appeal in Capital Well Ltd v Bond Star Development Ltd (2005) 8 HKCFAR 578, [2005] 4 HKLRD 363 (“Capital Well”) has emphasized at §33 that:

“In making that assessment (whether an offer is reasonable) the Tribunal is not conducting a valuation exercise. It does not need to adjudicate upon any disputes about the correct valuation principles to be applied. It does not itself arrive at any conclusion as to what figure represents the correct valuation. It merely needs to be satisfied that, on the evidence available, the offer falls within the range of what may broadly be regarded as fair and reasonable compensation for the interest in question.”[31]

183.  The applicant has made the following offers to each of the respondents through its solicitors, Messrs Mayer Brown, to acquire the corresponding units or interests the respondents own: -

Date of offer	R1’s Unit	R4’s Unit	R5’s Unit
1 September 2020*	$31,513,000	$46,401,000	$50,403,000
24 January 2022[32]	$37,816,000	$55,682,000	$60,484,000

* This offer included the advice letters of Mr A Chan setting out the relevant valuation assessments and calculations of the pro rata share of the respective respondents’ units.

184.  More importantly, this latest offer represented an increase in about 20%. The Tribunal in Good Faith Properties, LDCS 42000/2011 (unreported, dated 31 May 2013) held at §61 of the judgment that:

“With a purposive interpretation of Section 4(2)(b), all reasonable steps before the making of a sale order to acquire the minority owner’s share in the Lot should be considered, be it post- or pre-Application.”

185.  R5, in particular, questioned the fairness and reasonableness of the terms of the offer made to it in that the applicant did not make enquiry as to the tenancy status of its unit and that it did not have sufficient time to take professional advice on the valuation of the unit and the terms of the offer.

186.  As regards the latter, Messrs Mayer Brown’s letters of 1 September 2020 stated that the offer was open for acceptance on or before 15 September 2020, ie a period of about 14 days. With respect to R5, this is a reasonable period for acceptance of the offer.

187.  In respect of the former, Messrs Mayer Brown’s letters of 1 September 2020 expressly stated that “If the property is currently subject to tenancy, please provide Mayer Brown with information of tenancy to enable Mayer Brown to amend this item”.

188.  Similar arguments opposing the making of an order for sale were rejected by the Tribunal in Intelligent House Ltd v Chan Tung Shing & Others [2008] 4 HKC 421:

“339. The 15^th Respondent further argues that the offers were unreasonable because one of the terms was that the purchase should be with vacant possession to be completed within one month and that (a) this would have been impossible to achieve if the unit was subject to a tenancy, and (b) there was no offer that Intelligent House would be responsible for paying compensation to tenants.

340. We also reject his argument:

(1) It was specifically stated in Intelligent House’ offer letter: “Please inform us immediately however if the property is to be sold subject to existing tenancy”. We accept that this indicated willingness on the part of Intelligent House to proceed to resolve any complications that might be presented by the existing tenancy.

(2) Intelligent was not privy to the tenancy terms and different tenancies would have presented different complications. For example, a tenancy with an outstanding term of 10 years would have presented problems very different from a monthly tenancy. It would have been unreasonable and impracticable to require Intelligent House to structure an offer which would fit all possible tenancies. The important point is it is clear that Intelligent was prepared to discuss and talk with the minority for any problems what might be encountered in relation to a sale.

(3) The lack of any offer for tenant compensation is not unfair or unreasonable for two reasons. First, the market value of the unit would be directly affected by the ability to provide vacant possession on completion. The price offered assumed the ability of the owner to provide vacant possession on completion. Either the seller was able to hand over the unit with vacant possession on completion and receive the consideration appropriate to vacant possession or it would have been necessary to negotiate a price which reflected the owner’s inability to secure vacant possession for a period of time (depending on the terms of the tenancy). Second, in an auction sale under the Ordinance, the minority owners would be responsible for paying compensation, if any, to their own tenants.” (emphasis added)

189.  More recently, the Tribunal in Century Supreme International Limited v Kam Chi Kit Charles & Others, LDCS 24000/2018 (unreported, dated 21 January 2022) reached a similar conclusion:

“34. It appears to us that the so-called individual circumstances of the minority owners are not likely to be something which the majority owner can find out by themselves but are likely things that are privy to the minority owners. We believe requiring the applicant to take into consideration the personal or individual circumstances of the minority owners which can be varied, diversified, sentimental and uncertain and which the applicant may not be able to resolve would likely land the majority owner in an impossible position.”

190.  More particularly, R5’s unit was subject to a rental concession in late June 2020 and early September 2020 at $94,400 per month exclusive of rates, government rent and management fees. As explained in §76 above, the rental concession had no indicative value for market rent as the landlord is not obliged to give any concession at all. Having said that, by GN 232, 254 of 2020 and GN 2, 28 and 51 of 2021, there existed Government’s imposition of the Prevention and Control of Disease (Requirements and Directions)(Business and Premises) Regulation whereby, inter alia, there should be cessation of sale of food and drinks for consumption on premises of catering businesses from 6.00 pm to 4.59 am of the subsequent day. That R5’s allegation that in February 2021, it and the tenant, which was running a Japanese restaurant (南亭), had agreed in principle for renewal of the tenancy for a fixed term of two years from 1 March 2021 to 28 February 2023 at the original rent of $118,000 per month[33] is totally unbelievable.

191.  In any event, the tenancy status of R5’s unit could provide no assistance in assessing its EUV or the offer of compensation by the applicant when pursuant to Part 1 of Schedule 1 to the Ordinance, the assessment should be on a vacant possession basis.

192.  Bearing in mind the above legal principles and on the evidence available which includes that the applicant has successfully acquired the interest of R2 and R3 who owned G/F, 49 Staunton Street, I am satisfied that the applicant has taken reasonable steps to acquire all the undivided shares in the Lots including negotiating for the purchase of such of those shares as are owned by the respondents on terms that are fair and reasonable.

Disputes on the estimation of the RDV of the Lots

Optimum Hypothetical Development Model

193.  At trial, no suitable redevelopment site comparables was adduced as evidence for the Tribunal’s consideration. Both Mr C Chan for the applicant and Mr A Chan for the respondents agreed to resort 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 GDV of the completed optimum development.

194.  By their Joint Statements dated 5 August 2021 and 10 January 2022, Mr C Chan and Mr A Chan agreed that the Lots after deduction of the setback area under Practice Note for Authorized Persons, Registered Structural Engineers and Registered Geotechnical Engineers (PNAP) APP-152 have a net built over area of 335.5 sq m. They also agreed that the optimal hypothetical development would comprise an 18-storey residential tower with shops on G/F and 1/F. Save for that, the two experts could not agree on the other parameters of the hypothetical development:[34]

Hypothetical development		Mr C Chan	Mr A Chan
No of storeys for the podium		3 storeys	4 storeys
Proposed Plot Ratio		8.6704	8.7638
Building Height		130m above HKPD
Proposed Gross Floor Area (GFA)		3,422.24 sq m	3,459.07 sq m
Component of each constituent floors	Basement	NA	E&M Facilities
	G/F	Five Shops, Commercial Lobby, Residential Lobby and Plant Room	Three Shops, Commercial Lobby, Residential Lobby and E&M Facilities
	1/F	One Commercial Unit & Plant Room	One Commercial Unit
	2/F	Club House & Plant Room
	3/F-19/F	Three residential units on each floor (17 storeys)
	20/F	Two special residential units each with its own roof	Two penthouse residential units each with its private staircase to a private roof
Saleable Area	G/F	226.5 sq m	235.5 sq m
	1/F	255.5 sq m	285.5 sq m
	3/F-19/F	2,030.32 sq m (39.81 sq m per unit)	2,029.91 sq m (39.80 sq m per floor)
	20/F	117.96 sq m (58.98 sq m per unit)	125.91 sq m (62.955 sq m per unit)
Floor Height	G/F-2/F	5 m
	3/F-20/F	3.3 m	3.4 m

195.  The differences in saleable floor areas on G/F and 1/F between Mr C Chan and Mr A Chan lie on the provision of plant room. While it is not constructive to debate on the areas and location of plant rooms as such areas are non-GFA accountable and would not impact significantly on the assessment of the GDV, Mr C Chan found that The Staunton, The Pierre and Central 8 all have larger G/F plant room areas than Mr A Chan’s provision of 25 sq m:

	The Staunton	The Pierre	Central 8
Plant Room Area	79 sq m	32 sq m	129 sq m

196.  In addition, I agree with Mr C Chan that it is very unusual for having no E&M facilities on a floor, eg 1/F which is proposed to accommodate shop/restaurant. During cross-examination, Mr A Chan admitted that his arrangement of providing no plant room on the 1/F would increase construction cost that he had not taken into account. I agree therefore with Mr C Chan’s assumptions on layout for the hypothetical development.

GDV for Shops

197.  Then and again, the major difference between the two experts lies in the choice of shop comparables:

Comp	Address	OP Date	Date of Agreement for Sale	Consideration	Saleable Area (m2)	Frontage (m)	Depth (m)	Headroom (m)	Yard (m2)	Effective Area (m2)	Unit Price (/m2)
GR1	G/F, 25 Aberdeen Street	1969	19 Nov 21	$32,180,000	47.1 + C/L: 32.5	4.2	12.0	3.4	1.9	55.5	$579,820
GR2	G/F, 61 Staunton Street	1970	20 Aug 21	$15,500,000	14.1	3.2	4.4	5.0		14.1	$1,099,291
GR3	G/F & C/F, 2-4 Kau U Fong	1984	1 Mar 21	$32,300,000	61.3 + C/L: 37.3	9.1	11.8	2.9		70.6	$457,507
GR4	G/F, 39 Aberdeen Street	1970	9 Feb 21	$22,000,000	48.2	4.2	11.8	4.3		48.2	$456,432
GR5	G/F, 25 Staunton Street	1965	16 Jan 21	$31,100,000	54.1	5.5	11.3	3.4		54.1	$574,861
GR6	G/F, 15 Old Bailey Street	1972	2 Apr 20	$19,280,000	57.8	4.0	13.1	3.8	9.8	59.4	$324,579
GR7	G/F, 36 Elgin Street	1959	25 Mar 20	$34,000,000	64.0 + Lav at yard: 4.4	5.0	12.5	3.2	21.1	69.7*	$487,805
GR8	Unit 4, G/F, Fook Chi House,  22-24 Gage Street	1972	3 Apr 20	$14,720,000	24.7	3.4	6.7	4.2		24.7	$595,951
GR9	G/F, 47B Elgin Street	1976	22 Oct 19	$42,000,000	75.1 +  C/L: 49.6 + Lav at yard: 4.4	3.7	15.3	2.8	41.1	96.6*	$434,783
GR10	Shop 1 & Yard, Upper G/F, King Ho Building, 41-49 Aberdeen Street	1983	14 Oct 19	$33,000,000	74.5	5.1	11.6	3.2		82.2	$401,460
GR11	G/F, 37 Aberdeen Street	1970	24 Jun 19	$36,000,000	54.5	4.4	12.3	5.4		54.5	$660,550

* The lavatory at yard is taken as half the value of the floor proper.

198.  Apart from that, there is a dispute on the number of shops to be provided on G/F: Mr C Chan proposed 5 whereas Mr A Chan proposed 3, as a result of which, the latter would comprise a larger floor area up to 78.5 sq m instead of 45.3 sq m.

199.  Mr A Chan suggested that developers in the locality tended to provide larger shop spaces, citing the following examples:

Address	OP Date	Saleable Area (m2)
G/F, The Staunton, a serviced apartment building at 22 Staunton Street	March 2017	159.29
G/F, 28 Aberdeen, a composite development at 28 Aberdeen Street		126.92
G/F, Gramercy, a composite development at 38 Caine Road	Sept 2012	196.58		76.31
G/F, Centrestage, , a composite development at 108 Hollywood Road	Dec 2011	59.34	56.01	76.69	358.79

200.  Mr C Chan considered otherwise, particularly in light of the dilemma faced by the F&B outlets under the Government’s measures to restrict social gathering. However, by reference to the shops prevailing at the Buildings, and sizes of shops for comparables, I agree with Mr A Chan. Even Mr C Chan himself proposed the hypothetical shop on 1/F as large as 255.5 sq m. I also accept with Mr A Chan’s argument that shops of a larger size may be more easily subdivided in case when it is necessary.

201.  Therefore, a hypothetical shop of 78.5 sq m proposed by Mr A Chan is taken as the reference.[35]

Choice of Shop Comparables and Location Adjustments

202.  By reference to the intended comparables, many of them are in fact comparables proposed by the valuation experts in the assessment of EUV for shops.

203.  Comparable GR1 is a common comparable adopted by both valuation experts. It is situated at a lower level of Aberdeen Street, which as stated in §39 above, is a steeply sloping street. It lies outside the SoHo area and pedestrian flow is low. I accept therefore Mr A Chan’s location adjustment of +10% instead of Mr C Chan’s -5%.

204.  Comparable GR2 is proposed by Mr A Chan only. It lies close to the Buildings on Staunton Street but perhaps owing to its small size of mere 14.1 sq m, it is occupied as a laundry. And also because of its small size as compared to the reference unit, it cannot be regarded as a comparable at all. The value of such a small shop cannot be properly adjusted; even the principle of zoning cannot come to rescue when the hypothetical development is only at a conceptual stage where the actual design of the hypothetical shop is uncertain.

205.  Comparable GR3 is proposed by Mr C Chan only. Like comparable G10 in the assessment of EUV for shops, this “comparable” is situated on Kau U Fong which lies in a different locality in terms of pedestrian flow, commercial potential and trade mix. I am going to disregard it as a comparable although Mr C Chan proposed again a location adjustment of +5%.

206.  Comparable GR4 is a common comparable adopted by both valuation experts. It is situated next to comparable G8 in the assessment of EUV for shops. It appears to be occupied by a Japanese restaurant. Mr C Chan proposed a location adjustment of +10% while Mr A Chan proposed +15%. Like my consideration for comparable G8, I prefer that of Mr A Chan.

207.  Comparable GR5 again is a common comparable adopted by both valuation experts. As stated in §92 above, it is occupied by a bar and restaurant close to the Central - Mid-Levels escalators. I accept Mr C Chan’s adjustment of -15% as opposed to Mr A Chan’s +10%.

208.  Comparable GR6 is in fact the same as comparable G2 in the assessment of EUV for shops. It has been demonstrated to be out of tone and has been disregarded.

209.  Comparable GR7 is in fact the same as comparable G3 in the assessment of EUV for shops. I accept Mr C Chan’s adjustment of -10% as opposed to Mr A Chan’s +10%.

210.  Comparable GR8 is in fact the same as comparable G4 in the assessment of EUV for shops. For reasons explained in §§40-41, “this comparable” has been disregarded.

211.  Comparable GR9 is in fact the same as comparable G5 in the assessment of EUV for shops. This comparable is however dated when compared with value at the present moment. For the time being, I accept Mr C Chan’s adjustment of -10%. as opposed to Mr A Chan’s +10%.

212.  Comparable GR10 is in fact the same as comparable G6 in the assessment of EUV for shops. This comparable is also dated though for the time being I adopt Mr A Chan’s proposed location adjustment at 20%.

213.  Comparable GR11 is in fact the same as comparable G8 in the assessment of EUV for shops. This comparable is also dated though for the time being I adopt Mr A Chan’s proposed location adjustment at 15%.

Age & Other Adjustments

214.  In the EUV assessment, I have preferred Mr A Chan’s adjustment of 1% per 10 years to Mr C Chan’s 1% per 5 years when the subject and the comparables are all aged. But in the case of the hypothetical development, it is brand new when compared with those aged comparables. I adopt 1% per 5 years this time.

215.  For other adjustment factors, I am content to adopt the same as those discussed in the assessment of EUV.

216.  Thus, my assessment of the GDV of a hypothetical shop unit as proposed by Mr A Chan is as follows:

Comp	Unit Price (/m2)	Adjustments								Adjusted Unit Price (/m2)
		Time	Location	Age	Size	Frontage	Layout	Headroom	Total
GR1	$579,820	0.0%	10.0%	10.0%	-4.0%	8.0%	8.0%	8.0%	46.3%	$848,277
GR4	$456,432	-2.1%	15.0%	10.0%	-6.0%	8.0%	8.0%	4.0%	41.2%	$644,482
GR5	$574,861	0.7%	-15.0%	11.0%	-4.0%	6.0%	5.0%	8.0%	9.6%	$630,048
GR7	$487,805	-2.2%	-10.0%	12.0%	-2.0%	7.0%	7.0%	9.0%	20.6%	$588,293
GR9	$434,783	2.9%	-10.0%	9.0%	5.0%	9.0%	9.0%	11.0%	39.8%	$607,827
GR10	$401,460	2.9%	20.0%	8.0%	4.0%	7.0%	7.0%	9.0%	73.1%	$694,927
GR11	$660,550	-7.6%	15.0%	10.0%	5.0%	8.0%	8.0%	-2.0%	40.3%	$926,752
								Average:		$705,801
								Average (if GR11 is disregarded):		$668,976
								Average (if GR9, 10 & 11 is disregarded):		$677,775

217.  From the above, it appears that GR4 and GR5 are the best comparables in terms of timing and location. Comparable GR1, as discussed above in §202 above, lies outside the SoHo area and pedestrian flow is low. Alternatively, if Mr Chan’s location adjustment of -5% were adopted, the average would have been $689,317. And if comparables, GR9, GR10 and GR11 are also disregarded because they were dated, the average would become $648,929.

218.  In light of the above, I am prepared to adopt $650,000 per sq m as the unit rate of the hypothetical shop as opposed to Mr A Chan’s assessment of $741,000 per sq m.

219.  In respect of the GDV on 1/F, Mr C Chan considered the following transactions as comparables:

Comp	Address	Consideration	Date of Agreement	Building Age	Saleable Area (m2)	Unit Price (/m2)
F1	Unit on 19/F, 18 On Lan Street	$73,750,000	6 Apr 2020	2013	151.0	$488,411
F2	Unit on 18/F, 18 On Lan Street	$82,008,000	23 May 2019	2013	151.0	$543,099
F3	2/F, Asiarich Court, 5 Staunton Street	$14,800,000	11 Apr 2017	1994	57.8	$256,055

220.  In fact, 18 On Lan Street is a Ginza-type development within the hub of the CBD in Central. Its advantageous position and type of development is completely different from the proposed hypothetical development on the Lots. Indeed, Mr C Chan himself proposed to apply as much as -55% adjustment for location. The transactions of units in such a building cannot be regarded as comparables at all.

221.  As regards the only comparable left, Mr C Chan proposed the following adjustments:

Unit Price of 2/F, Asiarich Court (/m2)	Adjustments							Adjusted Unit Price (/m2)
	Time	Location	Facilities	Age	Size	Headroom	Total
$256,055	-5.4%	-15.0%	15%	5.0%	-20.0%	8.0%	-16.1%	$214,830

222.  Mr A Chan, while he could not find any suitable comparable, considered this transaction proposed by Mr C Chan not comparable at all. In respect of the sale of 2/F, Asiarich Court, Mr A Chan considered the building was aged and there is no exclusive commercial lift and lobby for access to this floor. Mr A Chan simply adopted ½ of the value for the ground floor as the value of the 1/F, which is $325,000 per sq m by reference to my calculation above.

223.  Alternatively, if I adopt simply an age and facilities adjustment of +30% so as to take into account Mr A Chan’s comment on this only comparable, the analysis would become:

Unit Price of 2/F, Asiarich Court (/m2)	Adjustments						Adjusted Unit Price (/m2)
	Time	Location	Age & Facilities	Size	Headroom	Total
$256,055	-5.4%	-15.0%	30%	-20.0%	8.0%	-9.7%	$231,218

224.  I find the significant difference between $231,218 and Mr A Chan’s $325,000 is that Mr A Chan had not specifically accounted for the significant difference in size between G/F(78.5 sq m) and 1/F (255.5 sq m). If his figured is discounted by 30%, the result would become $227,500 per sq m. Of course, the question arises again on why Mr A Chan assumed the conversion factor of ½ the value for the ground floor as the value of the 1/F? Although Mr A Chan explained, during cross-examination, that the sentiments of the market for commercial units were good at the time when he prepared the valuation, that could not explain the conversion factor of ½. In any event, such factor as high as ½ seldom appeared in past Tribunal’s decisions as the difference in value between G/F and 1/F.

225.  Incidentally, 1/F of The Staunton at 22 Staunton Street, which is owned by R4, was let for a term of 6 years from 1 April 2021 at a monthly rent of $85,000 plus a turnover rent equivalent to 10% of monthly gross sales exceeding the base rent. It is difficult to analyse a rental which incorporates turnover rent. But prior to that, the same 1/F was let for a term of 5 years from 20 May 2019 at a monthly rent of $110,000 for the 1^st year, $115,000 for the 2^nd and 3^rd years and $120,000 for the remaining 2 years, all plus a turnover rent equivalent to 10% of monthly gross sales exceeding the base rent. Unfortunately, this former tenant broke the tenancy. In this regard, Mr C Chan assumed that this former tenant could not even afford to pay the base rent of $115,000 after the 1^st year and $115,000 would set the maximum that the former tenant could afford to pay. On the basis of a saleable area about 263 sq m, Mr C Chan capitalized it to represent the market value around $200,000 per sq m.[36] I agree that this is a reasonable assumption.

226.  In light of the above, I am prepared to adopt $230,000 per sq m as the unit rate for the hypothetical 1/F. This is about 35% of the value for the hypothetical G/F unit.

GDV for Upper Floors

227.  In assessing the unit rate for the upper floor domestic premises, Mr C Chan and Mr A Chan had minor disagreement on the choice of the reference unit. While they agreed that a unit on 11/F would be adopted, Mr A Chan counted his proposed transfer plate as a level. Mr C Chan countered that their comparable developments, ie The Pierre, 28 Aberdeen Street, Gramancy, Central 8 and CentrePoint have transfer plates of only 1.7m, 2.0m, 2.4m, 2.5m and 2.5m respectively. Mr C Chan questioned the necessity and reasonableness of the 3.0m thick transfer plate proposed by Mr A Chan. Moreover, Mr C Chan commented that Mr A Chan had not allowed for any extra construction costs for this thick transfer plate in his residual calculation. In reply, Mr A Chan suggested that in Hong Kong GDV always outweighs construction cost by 6 to 16 times generally so that there is nothing to lose to enhance floor and height level. Mr A Chan added that the enhancement and cost would be spread over 22-23 floors.

228.  I am not persuaded by Mr A Chan’s answer. Whereas both valuation experts agreed that each higher floor, say of 3.3 metres in height may enjoy an enhancement of 0.5% in value, as can be seen later in this judgment, the GDV for the residential units might be increased by some $730,000,000 x 0.5% = $3,650,000 by the addition of one floor/ level. But the difference in thickness of the transfer plate between Mr C Chan and Mr A Chan is merely 0.5 metres to 1 metre by reference to that of the comparables. That is the enhancement in value would be insignificant or nominal and this may explain why developers of the comparable developments did not see fit to provide a thick transfer plate. In any event, Mr A Chan had provided no evidence to support his argument that this enhancement is surely justified by the provision of a thick transfer plate. I agree therefore with Mr C Chan.

229.  Remember in the assessment of value for the G/F shops, I prefer Mr A Chan’s size adjustment of 2% per 10 sq m on threshold bases to Mr C Chan’s 1% per 10 sq m. The two experts switched their position in assessing the GDV of the domestic units: Mr C Chan proposed 1% per 5 sq m whereas Mr A Chan proposed 1% per 10 sq m.

230.  Mr C Chan explained that for a typical unit of the hypothetical development with 39.8 sq m as agreed with Mr A Chan, the change in size is more sensitive than that for medium size units. However, if the assumed typical unit and the comparables are in similar size range, I prefer adjustment at 1% per 10 sq m. Of course, if the difference between the subject and the comparables is large, I would consider 1% per 5 sq m applicable.

231.  Mr C Chan and Mr A Chan have further agreements/ disagreements as follows:[37]

Adjustment Factor		Mr C Chan	Mr A Chan
Floor Level		0.5% per floor
View	Partial Seaview	-15%	-
	Distant & Partial Seaview	-	-5%
	Building View	5% to 8%	5%
	Open Building View*	0%
	Close Building View	10%	-
	Very Close Building View	15%	-
Age		1% per year	2% per year
Headroom		4% per 1m	2% per 1m
Holding Cost (applicable to pre-sale transactions)		At a rate of 2.4% per annum for the period from the completion date of transaction to the material dated of the development	-

* Both valuation experts agreed the typical hypothetical unit will enjoy open building view.

232.  Notwithstanding the above differences in opinion, Mr C Chan and Mr A Chan arrived at the following unit rates by reference to comparable transactions in The Richmond, Central 8, The Pierre, Gramercy, Caine Hill, CentrePoint and 28 Aberdeen:[38]

Comparables		OP Date	Mr C Chan’s Assessment (/m2)	Mr A Chan’s Assessment (/m2)
The Richmond	62C Robinson Road	2021	$351,102	-
Central 8	8 Mosque Street	2021	$356,262	-
The Pierre	1 Coronation Terrace	2014	$317,203	$359,436
Gramercy	38 Caine Road	2012	$338,492	$364,795
Caine Hill	73 Caine Road	2023 (under construction)	$312,052	-
CentrePoint	72 Staunton Street	2011	-	$322,179
28 Aberdeen	28 Aberdeen Street	2017	-	$406,704

233.  From the above, Mr C Chan arrived at a unit rate of $335,000 per sq m whereas Mr A Chan arrived at a unit rate of $340,000 per sq m[39], ie just 1.5% higher which is negligible.

234.  The Richmond is situated right in the Mid-Levels high-class residential area which is different in character from the subject locality. I agree with Mr A Chan that the prospective buyers are completely different.

235.  The same applies to Central 8 and I therefore would disregard transactions in these two development as comparables.

236.  Whether transactions of units in Caine Hill and Gramercy are comparables might be more debatable when they are situated at the section of Caine Road between its junction with Old Bailey Street and with Peel Street respectively. However, as explained in §136 above, Caine Road is a main artery in Mid-Levels which is traversed by heavy vehicular traffic, including buses. So long as there exist comparables in the Soho district, I agree with Mr A Chan that such other comparables on Caine Road can be disregarded.

237.  Having said that, there are few new residential unit comparables coming within the SoHo.

238.  I note, as Mr C Chan commented in their joint statement dated 10 January 2022, that Mr A Chan adopted sales transactions of Gramercy with saleable area over 60 sq m which is much larger than the saleable area of the hypothetical typical residential unit of 39.8 sq m.[40] I agree with Mr C Chan that such analysis is less reliable even when adjustments are made.

239.  Caine Hill is a new commercial/residential development under construction. But if transactions from The Richmond and Central 8 are disregarded, this is the only development which is new and comparable to the subject hypothetical development.

240.  In Million Add Development Ltd v Secretary for Transport, LDMR 3/1994 (unreported, dated 4 February 1997), the Tribunal rejected the use of the pre-sale comparables, notwithstanding having acknowledged that they were actual market transactions, because:

“proper analysis would have to take into account a variety of factors, several of which would not easily be quantified. Allowance would have to be made for loss of interest on pre-payments; uncertainties over quality and completion dates; and varying market conditions over the relevant period... We consider it extremely difficult to make reliable adjustments for the presale factors....”

241.  More recently in Good Faith Properties Limited and Others v Cibean Development Company Limited, LDCS 42000/2011, supra, the Tribunal remarked that:

“185. .... It may sound peculiar to someone who is not familiar with the basic assumption of residual valuation that if pre-sales (even if they are close to the relevant valuation date) are used, difficult adjustments would have to be made because in the market, pre-sale transactions are usually completed with stage payment, i.e. without the need for the purchasers to pay up the full amount of purchase price (hence the gearing ratio of the investment is different from the purchase of a completed development). It is this factor that Mr. Chan sought to argue that presale prices could most likely be inflated by the vendor/developer as the purchaser does not need to pay the full price today.”

242.  However, ever since the implementation of the Residential Properties (First-hand Sales) Ordinance, Cap 621 which came into effect on 2 April 2013, pre-sales of residential units in Hong Kong have become more apparent. For every new residential development for sale, a Register of Transactions has to be kept whereby the vendor/ developer has to set out, inter alia, “the terms of payment (including any discount on the price, and any gift, or any financial advantage or benefit, made available in connection with the purchase)”. Therefore, pre-sales of residential units can be adopted and adjusted, for instance, for holding costs, as comparables.

243.  Mr C Chan did not adopt sales in CentrePoint as comparables because of the age of the development. Mr A Chan, however, adopted 6 transactions of CentrePoint as comparables:

Unit	Consideration	Date of Sale	Saleable Area (m2)	Effective Area* (m2)	Unit Rate (/m2)	Adjustments							Adjusted Unit Rate (/m2)
						Time	Floor	Size	View	Age	Head-room	Total
Flat B, 12/F	$11,400,000	12 Oct 21	45.296	46.204	$246,732	0.0%	0.0%	0.0%	5.0%	20.0%	1.0%	27.3%	$314,090
Flat F, 12/F	$12,600,000	30 Sep 21	52.682	53.594	$235,101	-0.9%	0.0%	1.0%	5.0%	20.0%	1.0%	27.4%	$299,519
Flat E, 11/F	$10,000,000	5 Jul 21	44.067	44.837	$223,030	-0.9%	0.5%	0.0%	5.0%	20.0%	1.0%	26.7%	$282,579
Flat A, 8/F	$13,180,000	18 Mar 21	52.457	53.058	$248,407	1.3%	2.0%	1.0%	0.0%	20.0%	1.0%	26.5%	$314,235
Flat E, 3/F	$10,580,000	25 feb 21	43.945	44.715	$236,610	2.6%	4.0%	0.0%	5.0%	20.0%	1.0%	35.8%	$321,316
Flat D, 8/F	$8,400,000	15 Nov 20	31.499	32.027	$262,279	3.7%	2.0%	0.0%	5.0%	20.0%	1.0%	34.6%	$353,028
Flat E, 10/F	$12,000,000	10 Apr 19	43.945	44.715	$268,366	0.5%	1.0%	0.0%	5.0%	20.0%	1.0%	29.2%	$346,729
Flat C, 10/F	$8,380,000	19 Feb 19	31.346	31.879	$262,869	7.5%	1.0%	0.0%	0.0%	20.0%	1.0%	31.6%	$345,936
											Average:		$322,179

* inclusive of bay window at conversion factor of ¼.

244.  Mr C Chan had correctly pointed out that it is not reasonable to adopt the latter 3 sales in 2019 and 2020 when there are adequate recent comparables. If these three comparables are excluded, the average would only be $306,348 per sq m.

245.  Similarly, Mr A Chan adopted a transaction in The Pierre dated 10 May 2019 in addition to the 3 transactions adopted by Mr C Chan. If this dated transaction is excluded, the average unit rate of Mr A Chan’s analysis would be $355,080 per sq m instead.

246.  Lastly, as Mr C Chan pointed out at trial, the only comparable adopted by Mr A Chan for 28 Aberdeen was a show flat which was sold in April 2019 and included furniture, fittings and other chattels installed at or within the unit[41]. Mr A Chan tried to produce extracts of sale and purchase agreements for the unit in which no particular furniture and fitting was mentioned[42]. Upon query raised by the bench, Mr A Chan agreed that such furniture and fitting could be set out in a side letter. Indeed, the unit price for sale for this unit was exceptionally high at $406,704 per sq m. In such regard, I do not take this as a comparable.

247.  In view of the above, without going into details of the adjustments or analysis, I consider Mr C Chan’s assessment at $335,000 per sq m about the mark if not already on the high side.

248.  In respect of the value of the special unit to be provided on the top floor, Mr A Chan relied on a dated sale of 25/F of 28 Aberdeen. With respect, this unit was also a show flat with furniture, fittings and other chattels installed at or within the unit[43]. Again, this cannot be regarded as a comparable.

249.  Indeed, each “special unit” of a building would have its own individuality because of its location and design; it might be difficult to find a comparable, in the absence of which, I agree that the most realistic approach in assessing the value of such “special unit” is by making a paired comparison between the value of the “special unit” and that of the unit below.

250.  With regret, such a paired comparison is not provided by any of the two valuation experts. In the absence of information to the contrary, I am prepared to accept Mr C Chan’s approach by marking up 20% of the value of typical unit as that for the unit on the top floor.

251.  Thus, I follow the calculation and analysis of Mr C Chan for the other floor units:[44]

Floor	Saleable Area (m2)	Adjustments					Adjusted Unit Rate (/m2)	Proportion
		Floor	Size	Special Unit	Headroom	Total
3/F	43.47*	-4%	-1%	0%	0%	-5%	$318,000	6.04%
4/F – 19/F	39.81	0%	0%	0%	0%	0%	$335,000	88.50%
20/F	58.91	5%	-4%	20%	0%	21%	$405,000	5.46%
					Average:		$338,000

* inclusive of Flat Roof conversion at 1/6.

Determining the Other Parameters in Residual Valuation

252.  The table below sets out Mr C Chan’s and Mr A Chan’s agreement and disagreement on other parameters in their residual valuation:[45]

	Mr C Chan	Mr A Chan
Marketing Cost/Agency Fee	3%	2.0%
Demolition Cost for the Buildings	$4,015,235 ($2,228/m2)
Demolition Period	0.75 year	0.5 year
Construction Cost	$151,581,613 ($44,293/m2)	$127,587,455 ($36,879/m2)
Construction Period	30 months	21 months
Professional Fee	6%
Developer’s Profit	15% on Construction/Demolition cost and Professional fee
Interest Rate	4.0% pa	3.5% pa
Stamp Duty	4.25%	-
Legal Cost	0.10%	-
Land Value (based on the revised hypothetical development proposal)	$508,000,000	$695,000,000
Accommodation Value	$148,441/m2	$200,921/m2

Marketing Cost

253.  In the past, the Tribunal used to adopt a marketing cost of 3% for residential cum retail development with similar scale. And in view of the ongoing global COVID-19 pandemic, the property market is undergoing a difficult period. I find no reason to depart from such a usual rate.

Construction Cost

254.  In respect of the construction cost, both Mr C Chan and Mr A Chan relied on the Building Cost Data for Private Sector Developments in Hong Kong published by Rider Levett Bucknall Limited (“RLB”) in September 2021. However, Mr C Chan assumed the proposed hypothetical development will have High to Very High Quality whereas Mr A Chan saw fit to divide the hypothetical development into two parts, one for the retail podium and the other for the upper floors residential portion.

255.  I find this latter treatment by Mr A Chan unrealistic for a residential cum retail development with only retail provision on the lowest 2 floors. While retail units are usually delivered in bare shell, I accept Mr C Chan’s opinion that the E&M requirement would be more substantial.

256.  In addition, Mr C Chan had provided an analysis of the construction costs incurred by the comparable development:[46]

Development	OP Date	Total GFA (m2)	Construction Cost (/m2)	Time Adjustment	Adjusted Costs (/m2)
Subject	New	3,422.2	?
The Richmond	Nov 2021	3,412.5	$68,411	3%	$70,463
Central 8	Mar 2021	3,190.5	$72,271	3%	$74,439
28 Aberdeen	Aug 2017	2,497.7	$88,782	-9%	$80,792
The Pierre	May 2014	3,671.2	$45,204	15%	$51,985

257.  From the above, the unit construction cost adopted by Mr A Chan was much lower than the actual unit construction costs of the comparable developments. I agree with Mr C Chan that buyers paying higher unit rates to buy a flat normally expect higher specifications and quality. It is unreasonable for Mr A Chan to adopt the high transaction prices of the comparable development on the one hand but chose to adopt a unit construction cost which is much lower than those of the comparable development on the other hand.

258.  A fortiori, Mr C Chan found that Mr A Chan adopted higher unit construction costs for composite developments in much inferior locations in two other recent compulsory sale application cases when he acted for the applicants:

Development	Location	Date of Trial	Total GFA (m2)	Unit Cost (/m2)	Adjustment		Adjusted Unit Cost (/m2)	Residential GDV
					Time	Scale
Subject	Staunton Street	Feb 22	3,459.1	$36,879	-	-	$36,879	$344,000
LDCS 11000/2019	Lok Shan Road/ Mei Wa Street/ Ha Heung Road in Tokwawan	Aug 21	8,525.5	$39,601	1%	10%	$43,957	$243,500
LDCS 15000/2018	Nga Tsin Long Road in Kowloon City	Oct 21	5,510.5	$37,039	0%	5%	$38,891	$243,602

259.  Mr A Chan tried to explain that each site would have its own constraints and challenges but he failed to elaborate the difference, if any, between these alternative sites and the subject. I prefer to adopt Mr C Chan’s $151,581,613, ie ($44,293 per sq m, having regard to in particular the Lots on a sloping site.

Construction Period

260.  Mr A Chan allowed a development period of 2 years for demolition of the Buildings and construction of the hypothetical development. He referred to Onbrave Limited v Malkani, Sunita Bhagwan, LDCS 27000/2020 (unreported, dated 14 December 2021) where the Tribunal stated as follows at §56:

“I agree with Mr TC Wong the demolition period of the Building is 0.5 year instead of 0.75 year as suggested by Mr Charles Chan and the construction period of the hypothetical development is 2.5 years instead of 3.25 years as suggested by Mr Charles Chan. Accordingly, the development period including the demolition period is 3 years. Although some developers may have their own considerations to defer a project and/or are not in a hurry to complete a project, the development period in the subject residual valuation should be the best practical period from the perspective of a reasonable and prudent developer because the GDV is based on current value only without any projection. Mathematically, a longer development period in a residual valuation with GDV on current value would lead to a lower land value.” (underline added)

261.  Thus, while on the one hand previous decision of the Tribunal is not binding, Onbrave Limited does not assist Mr A Chan when he is proposing a total construction period including that for demolition of 27 months only. In Onbrave Limited, there existed a 9-storey residential block on a site area of 962.56 sq m but subject to a setback and right of way of 231.6 sq m. However, the hypothetical development in that case had only a domestic plot ratio of 5 (i.e. gross floor area of about 4,812.8 square meters) whereas in the present case, Mr A Chan agreed that it has plot ratio about 8.7 or 3,422.24 sq m.

262.  In his Rebuttal report dated 5 July 2021, Mr C Chan had made reference to the construction period of The Richmond, Central 8 and 28 Aberdeen Street as follows:[47]

Development period of New Residential Development in the Vicinity
Development	Total GFA (m2)	Period of Superstructure Construction		Approximate Duration
The Richmond	3,142.5	Start Date	17 Jun 2019	2.5 years
		Estimated Completion	30 Nov 2021
Central 8	3,190.5	Start Date	11 Feb 2019	1.9 years
		Estimated Completion	31 Dec 2020
28 Aberdeen Street	2,497.7	Start Date	26 Oct 2015	1.8 years
		Estimated Completion	1 Aug 2017

263.  Having reviewed the above, I agree with Mr C Chan that Mr A Chan’s 2 years’ development period for demolition of the Buildings and construction of the hypothetical development is impractical and underestimated.

264.  Notwithstanding the above, I am prepared to assume a demolition period of 0.5 years but a total construction period of 3 years as in Onbrave Limited.

Interest Rate

265.  In a recent judgment, Lead Harvest Group Limited & Others v Cheong Wing Electric Limited & Another, LDCS 6000/2018 (unreported, dated 7 February 2022), the Tribunal had reviewed the interest rate applicable in a residual valuation. The Tribunal even noted that recently Link Asset Management Limited, the manager of Link Real Estate Investment Trust (Hong Kong stock code: 823), announced that it had successfully priced the US$600 million senior notes with 10-year maturity, due 2032, at coupon rate of 2.75% despite Federal Reserve of the United States just said that they expected to hike interest rates three times in 2022.

266.  Since then, however, one month HIBOR has kept growing up to about 0.30%.

267.  Having regard to the above, I prefer to adopt an interest rate of 4.0% for the purpose of discounting in this residual exercise.

Developer’s Profit

268.  In HKIS Guidance Notes on Valuation of Development Land published by the Hong Kong Institute of Surveyors at paragraph 3.9 (p18) under the heading of Stamp Duties, there are the following:

“3.9.1 ... The normal market practice is for the buyer to be responsible for the Ad Valorem Stamp Duty and it should be noted that the tax liability will be borne by parties involved in the transaction.

3.9.2 Developers would take into account these stamp duty liabilities in the assessment for purchase price for development land...

3.9.3 It is noted that some market practitioners do not allow stamp duty explicitly in their residual valuations. Where practitioners prefer not to allow the stamp duty explicitly, then a higher developer’s profit should be required in the residual valuation model to reflect relevant stamp duty liability.”

269.  In the most recent compulsory sale application where a high-rise residential development up to 8,173 sq m was proposed, Century Supreme International Limited v Kam Chi Kit Charles & Others, LDCS 24000/2018 (unreported, dated 21 January 2022), the Tribunal adopted a developer’s profit of 15% plus stamp duty and legal costs.

270.  In comparison, unit prices for residential units are falling and as said in §246 above, Mr C Chan’s assessment at $335,000 per sq m might be on the high side of the range. I prefer to maintain a developer’s profit of 15% plus stamp duty and legal costs.

Finding on RDV and the Reserve Price

271.  Subject to what I have stated above, I follow Mr C Chan’s residual valuation model as contained at page 7 of Exhibit A3 on the determination of the RDV which is reproduced at Appendix I to this judgment. I assess the land value of the Lots at $529,000,000 (ie accommodation value of $154,577/m²).

272.  I shall adopt the estimated RDV of $529,000,000 as the Reserve Price for the auction of the Lots.

Other Incidental Matters

273.  The applicant proposes to appoint Mr Ma Ho Fai and Ms Kung Ying Chang, being partner and assistant solicitor of Messrs Woo Kwan Lee & Lo, Solicitors, Notaries, Agents for Trademark & Patents as the sale trustees. Having considered the information on their background and experience as set out in their letter dated 6 January 2022, I am satisfied that they are proper persons to be appointed as the trustees to discharge the duties imposed on them under the Ordinance. The remuneration package proposed in the said letter appears to be reasonable.

274.  The applicant has prepared a set of draft Particulars and Conditions of Sale of the Lots[48]. Subject to any amendment that may become necessary as a result of our ruling on the arrangement of auction above, the particulars and conditions of sale of the Lots by public auction submitted by the applicant is considered reasonable.

Order

275.  This Tribunal make the following orders:

(1) This Tribunal is satisfied that the redevelopment of the Lots is justified due to the “age” and “state of repair” of the Buildings and that the applicant has taken reasonable steps to acquire all the undivided shares in the Lots including those of the respondents;

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

(3) Mr Ma Ho Fai and Ms Kung Ying Chang of Messrs Woo Kwan Lee & Lo, Solicitors, Notaries, Agents for Trademark & 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 Lots 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 Trademark & Patents dated 6 January 2022.

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

(i) The sale of the Lots 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 $529,000,000.

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

(iv) Liberty to the applicant, the 1^st. 4^th and 5^th respondents and the Trustees to apply to the Tribunal for further direction(s) under the Ordinance.

Costs

276.  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, I make a costs order nisi that the applicant do pay the costs of these proceedings (including any reserved costs) to the respondents, with certificate for counsel, to be taxed on the High Court scale if not agreed. Unless any parties apply by summons to vary the costs order nisi, it shall become absolute upon expiration of 14 days from the date of this judgment.

277.  I thank counsel for their able assistance.

								Appendix 1
Residual Valuation
Gross Development Value
G/F Retail	226.50	m2	x	$650,000	/ m2	=	$147,225,000
1/F Commercial	255.50	m2	x	$230,000	/ m2	=	$58,765,000
3/F-20/F Residential	2159.12	m2	x	$338,000	/ m2	=	$729,782,560
							$935,772,560
Less Marketing Costs			@	3%			0.97
							$907,699,383
Present Value in	3	years	@	4.0%			0.889
								$806,944,751
Development Costs
Demolition Cost	1802.17	m2	x	$2,228	/ m2	=	$4,015,235
Professional Fee			@	6%			1.06
Developer's Profit			@	15.0%			1.150
							$4,894,571
Present Value in	0.25	year	@	4.0%			0.9902
								$4,846,604
Construction Costs							$151,581,613
Professional Fee			@	6%			1.06
Developer's Profit			@	15.0%			1.15
							$184,777,986
Present Value in	2	years	@	4.0%			0.9246
								$170,845,726
								$631,252,421
Stamp Duty			@	4.25%
Legal Cost			@	0.10%
Developer's Profit			@	15.0%			÷	1.19350
								$528,908,606
							say	$529,000,000
					Accommodation Value			$154,577