CHUI PAK KUT v. KU MEI FUNG AND ANOTHER

LDNT156/2003

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

Application No.: LDNT No. 156 of 2003

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JUDGMENT

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Background

1. The Applicant is the tenant and the Respondent the landlord of the subject premises known as 3rd Floor, 29 Cameron Road, Kowloon, Hong Kong ("the Premises"). By a tenancy agreement dated 22 August 2001 made between the Respondent and the Applicant, the Premises was let by the Respondent to the Applicant for a term of 2 years at a monthly rent of $11,000 per month, exclusive of rates and management fee.

2. By an application filed to the Lands Tribunal on 21 October 2003, the Applicant applied for a new tenancy of the Premises and the determination of the Prevailing Market Rent ("PMR") under the new tenancy.

The Respondent's opposition to the Applicant's application

3. By an amended Notice of Opposition to the application, the Respondent contended that "the Applicant was not entitled to apply for a new tenancy because the tenancy had been terminated by the Respondent by the issuance of a Writ of Summons in District Court Civil Jurisdiction Action No. 6023 on 21st October 2003,... As the Applicant does not have a current tenancy, he does not have the legal status to apply for the granting of a new tenancy."

4. During the hearing, Ms. C. WONG, the solicitor for the Respondent submitted that following the issue of the Form CR101 dated 15 May 2003 (Exhibit R1) by the Respondent to the Applicant terminating the tenancy of the Premises on 12 September 2003, the Respondent did not receive any Form CR102 from the Applicant, but instead, the Respondent received a Form CR103 dated 1 September 2003 from the Applicant, requesting the Respondent to grant him a new tenancy of the Premises commencing 7 December 2003. Ms. WONG submitted that the Applicant erred in not issuing a Form CR102 but issuing a Form CR103. In addition, Ms. WONG said it was again wrong for the Applicant to file a new tenancy application by way of Form 22 only on 21 October 2003, after the date of termination of tenancy as indicated in Form CR101.

5. Regarding the forfeiture of the current tenancy, the Respondent admitted that Master Tam of the District Court granted relief on 5 January 2004 to the Applicant provided that the Applicant paid the Respondent the arrears of costs within a certain period of time. The Applicant did comply with the relief condition as a result of which the Respondent admitted that the ground raised in Form 22 that the Respondent did not have the legal status to apply for a new tenancy of the Premises no longer stood.

6. The Respondent submitted that the Applicant had failed to substantiate with good cause his failure to comply with the provisions of the Landlord and Tenant (Consolidation) Ordinance ("the Ordinance") regarding the filing of Form CR102 and the filing of the new tenancy application by Form 22 prior to the date of termination of the tenancy. The Applicant's ignorance of the provisions of the Ordinance could not be accepted as a good cause. Therefore, the Respondent asked the Tribunal to dismiss the Applicant's application.

The Applicant's asked the Tribunal to exercise discretionary power to allow the application

7. Mr. Pang, Tak Hong, the representative of the Applicant gave evidence that he had been negotiating with Ms. Ip, Wai Chung, a representative of Bank of East Asia Limited acting for the Respondent regarding the renewal of tenancy of the Premises. He denied that the Applicant had ever received any Form CR101. He submitted that since the Applicant did not receive any Form CR101, the Applicant filed a Form CR103 to the Respondent. Finally, he said that the Applicant did not realize that the delay in filing Form 22 would deny him entirely the chance of applying for a new tenancy of the Premises.

Tribunal's ruling

8. When the old provisions of the Ordinance applies, it is settled law that an application for new tenancy by the tenant must be made before the vital date, i.e. the date of termination of the current tenancy. In Ram Isardas Mahtani v Wong Kwok-tai [1989] 2 HKLR 296, the Court of Appeal with Power, J.A. dissenting, allowed an appeal from the decision of the Lands Tribunal ordering the landlord to grant a new tenancy. In that case, the tenant's application for a new tenancy was out of time, and the only issue in the appeal was whether there was jurisdiction to extend the time for making such an application. It was held by the majority of the Court that

"1. Following Sin Hua Trust, Savings & Commercial Bank Ltd. v. Ng yee-may (unreported, Civil Appeal No. 137 of 1985). Section 10(2)(d) (of the Lands Tribunal Ordinance) provide no assistance to a tenant who had allowed the date of termination to pass before he made his application to the Tribunal, because by that time he had ceased to be a tenant and had no locus standi to ask for a renewal.

2. A step in proceedings meant a step in proceedings already in existence and did not include the act which initiated the proceedings themselves."

9. However, following the passage of an amendment to the Ordinance in December 2002, the law has changed. The following new sub-section 119D(4) of the Ordinance introduced a new discretionary power for the Tribunal:

"119D Order by Tribunal for grant of a new tenancy

(1) ....

(2) ....

(3) ....

(4) The Tribunal may for good cause entertain an application under section 117(1) notwithstanding that subsection (2) or (3) has not been complied with in respect of the application."

10. The said subsection (2) of section 119D of the Ordinance provided that the application by the tenant for a new tenancy shall not be entertained unless the tenant had filed a Form CR102 within the stipulated time. Similarly, the said subsection (3) of section 119D provided that no application by the tenant for a new tenancy shall be entertained it it is made after the current tenancy has terminated in accordance with this Part of the Ordinance.

11. It follows from the above that there is power for this Tribunal to extend the time in order to allow the Applicant to make his new tenancy application under Section 117(1) of the Ordinance. Based on the facts of this case, I have no doubt that the Applicant has been negotiating with the Respondent for a new tenancy since the expiry of the previous tenancy that commenced in 2001. I am satisfied that the Applicant has good cause to seek from this Tribunal an extension of time in order to apply for a new tenancy. For this reason, I have given the extension of time as sought by the Applicant and continued the hearing of the case on 2 April 2004 and 31 May 2004.

Terms of the new tenancy agreed by the parties

12. The parties had reached agreement on most of the terms of the new tenancy. They agreed that the commencement date of the tenancy should be 13 September 2003. They differed in the duration of the tenancy and the new rent. At the end of the hearing, they finally agreed that all other terms of the new tenancy, with the exception of commencement date, term and rent, should be the same as in the previous tenancy agreement.

Duration of the tenancy

13. The previous tenancy agreement signed by the 2 parties in 2001 was for a term of 2 years. The Applicant continued to ask for a term of 2 years whilst the Respondent sought a term of 1 year for the new tenancy.

14. The Respondent contended that a 1 year term would be appropriate because firstly, the Applicant failed to pay rent on time; secondly, the owner of the flat downstairs complained about water leakage and despite a notice given by the Respondent to the Applicant seeking to repair, the Applicant failed to respond; thirdly, the Applicant objected to the viewing of the Premises by the Respondent's surveyor and finally, the owner of the flat downstairs complained about the noise pollution of the occupants of the Premises. Therefore, the Respondent's view was that the shorter the new tenancy the better. The Respondent admitted that what they really aimed at was to find another more co-operative tenant.

15. The Applicant denied what the Respondent alleged. The Applicant said there was no longer any rent in arrears. Regarding the leakage, the Applicant had already co-operated and dealt with the matter.

16. I do not agree that just because the Respondent did not wish to grant a new tenancy to the Applicant, the Tribunal should grant a short term of 1 year as sought by the Respondent. The right to enjoy the granting of a new tenancy by the Tribunal was afforded by the Ordinance. Also, the matters complained of by the Respondent could be dealt with under the terms of the tenancy or under the law; they should not affect the decision on the duration of the new tenancy.

17. Section 119I of the Ordinance provides that the new tenancy shall be "such a new tenancy as may be determined by the Tribunal to be reasonable in all the circumstances, being a tenancy for a term not exceeding 3 years, and shall begin .... on such other date as may be agreed between the landlord and the tenant...." All circumstances shall obviously include the duration of the previous tenancy agreed by the 2 parties as well as the common duration of most new tenancies in the market. Since the duration in both situations is 2 years, I decide that the appropriate duration for the new tenancy shall be 2 years.

Other terms of the new tenancy

18. The Respondent contended that Clause (16) (i.e. clause giving the tenant an option to renew for a further term of 3 years) of the previous tenancy should be deleted. After some discussion, the Applicant agreed the deletion of the said clause.

19. Summing up, the new tenancy of the Premises shall be for a term of 2 years commencing from 13 September 2003, at a rent to be determined by this Tribunal and otherwise on the same terms as in the previous tenancy agreement. The only outstanding issue is the rent of the new tenancy, which under the Ordinance shall be the Prevailing Market Rent (PMR) of the Premises on the day before 13 September 2003.

Applicant's estimate of the PMR

20. Mr. Pang opined that of the schedules of comparable rents provided by the Rating & Valuation Department, the best comparable was the letting of 4/F of 29A Cameron Road, which was in the same building as the Premises. Based on that comparable, he submitted that the PMR for the Premises should be $8,700 per month, inclusive of rates and management fee.

21. In addition, Mr. Pang asked the Tribunal to take into consideration a letting he personally had knowledge. He produced a copy of the tenancy agreement of the said premises at 54-56 Cameron Road, 8/F, Flat C. It shows a rent of only $7,000 per month, inclusive of rtes and exclusive of management fee.

22. Alternatively, Mr. Pang suggested that it would be appropriate to compare the monthly Government Rates of the Premises between the month of August/September 2001 and the recent months of April/June 2004, respectively at $617.67 and $507.33, or a difference of about 20%. Therefore, a minimum reduction of that order should be applied to the previous rent for the Premises.

Respondent's estimate of the PMR

23. The Respondent submitted that the PMR for the new tenancy should be $11,000 per month, exclusive of rates and management fee. The Respondent submitted that according to the Demand Note for Rates for the quarter of October to December 2003 (Exhibit R5), the Rateable Value of the Premises was $121,800, which was equivalent to an assessed monthly rent of $10,150, on exclusive basis.

24. The Respondent also produced a valuation report dated 24 May 2004 prepared by Mr. Brian W. K. Li, Registered Professional Surveyor of Dudley Surveyors Ltd. In his report, Mr. Li set out his valuation of the PMR of the Premises as at the date on 13 September 2003. Based on his analysis, he estimated the PMR to be in the order of $9,600 per month, exclusive of rates and management fee. However, for reasons not disclosed during the hearing, the Respondent chose not to call Mr. Li as an expert witness. Mr. Pang questioned the suitability of the 6 comparables used by Mr. Li on the ground that they were located quite far away from the Premises. However, as Mr. Li was not called as a witness, there was no opportunity for Mr. Pang to cross-exam him and for Mr. Li to reply. Under the circumstances, and as is usually the case for valuation report presented to the Tribunal, I decide to discard entirely this valuation report since it is simply not fair for one side to present a report, purportedly prepared by a professional surveyor but the preparer of the report, an expert surveyor, was not called as a witness hence the other side and the Tribunal did not have the chance of asking any question to the surveyor on both the background and the suitability of surveyor as an expert as well as, more importantly, on the contents of the report.

Tribunal's estimate of the PMR

25. I agree with Mr. Pang that it is best to look at the comparables in the same building, which was completed in year 1955. Since the rent under the previous tenancy of the Premises was on exclusive of rates and management fee basis, the rent of the new tenancy should be on a similar basis. Therefore, I first convert the rents of the two comparables on a similar basis before analyzing the unit rate of the rent, as follows:

No. 29A Cameron Road, 4/F

The rent on exclusive basis is $8,700 less rates of $494, or $8,206. This equals to $83.06 per sq. m. on saleable area of 98.8 sq. m.

No. 29 Cameron Road, 7/F

The rent on exclusive basis is $10,700 less rates of $408 and management fee of $500, or $9,792. Mr. Pang gave evidence that according to his enquiry, the landlord had renovated the premises after complying with the Building Department's order relating to unauthorized structure. The interior of the premises had been completely and extensively renovated costing a sum of at least $200,000. Based on Mr. Pang's information, I estimate that it would be reasonable to deduct a sum of say $2,448 from the monthly exclusive rent of $9,792, giving an adjusted rent of $7,344, or a unit rate of $98.71 per sq. m. based on the saleable floor of 74.4 sq.m. This estimate was made assuming a 25% deduction of rent to reflect the difference between a completely renovated flat and the subject Premises. Since the saleable area of this comparable was smaller than that of the Premises, a downward allowance in the order of say 5% to reflect the size difference of the two different flats is considered to be reasonable. Hence, the unit rate applicable to the Premises will therefore be $98.71 x 95%, or $93.77 per sq. m.

26. Based on the adjusted unit rates of these 2 comparables in the same building as the Premises, I calculate their average (i.e. $83.77 + $93.06) to arrive at a figure of $88.42 per sq. m. Applying this to the saleable area of the Premises gives $88.42 per sq. m. x 98.8 sq. m., or $8,736. This I round to $8,700 per month as to be the PMR of the Premises on the basis of exclusive of rates and management fee.

27. Hence, I make the following Orders:

Orders

1. The new tenancy of the Premises shall be for a term of 2 years commencing from 13 September 2003;

2. The rent of the new tenancy shall be $8,700, exclusive of rates and management fee; leave to the Respondent to pay to the Applicant over-payment of rent, if any, within one month from today;

3. The deposit of the new tenancy shall be 2 months' rent in the sum of $17,400; leave to the Respondent to pay back to the Applicant the adjustment from the previous deposit held by the Respondent under the previous tenancy, if necessary, within one month from today;

4. Clause (16) (i.e. option to renew clause) of the previous tenancy agreement of the Premises shall not be a term of the new tenancy;

5. Other terms of the new tenancy, with the exception of the commencement date, the rent and the deposit and Clause (16) of the previous tenancy agreement, shall be the same as in the previous tenancy agreement.

6. No order as to costs.