Linen Export Co,. Ltd. v. Director of Lands

IN THE LANDS TRIBUNAL OF HONG KONG

Crown Land Resumption Reference No. 24 of 1994

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H E A D N O T E

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Property law - crown lands resumption - claim for compensation for ground floor commercial premises - claim of $3.3 million disputed by Crown which valued property at $1.6 million - law required the affect of the 1986 C.R. A. zoning or the Resumption Scheme to be ignored - market value based on comparable sales evidence - sales analysis must be realistic and acknowledge any additions or fixtures which affect the price obtained in the market - investment method check was not reliable in this case - vacant possession value is only necessary when redevelopment value is the basis of compensation value - Held : Compensation of $1.9 million awarded plus interest and costs.

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JUDGMENT

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The applicant is the registered owner of the Ground Floor shop premises at No. 1 Sui Lun Street, Hung Hom, Kowloon ("the subject premises"). The subject premises were resumed by the Crown pursuant to section 3 of the Crown Lands Resumption Ordinance, Cap. 124 ("the Ordinance") under a Notice of Resumption dated 26th June 1992, published in Volume CXXXIV Hong Kong Government Gazette on 3rd July 1992 as G.N. No. 2264 of 1992 and reverted to the Crown on 3rd October, 1992. Since then, the subject premises have been demolished. The applicant now claims compensation under section 6(2) of the Ordinance.

2. Mr. Tam, chartered surveyor, values the applicant's claim at the sum of $3.3 million based on the following calculation :-

It is noted that the area of the yard is 16sq. m. and not the 17.9sq. m. claimed by Mr. Tam. The calculation should result in a figure of $3,299,420 which would not alter the claim of $3.3 million.

In support, Mr. Tam relies on the valuation report prepared by him dated 1st March 1995 (Exhibit A1) and a supplementary report dated 30th June 1995 (Exhibit A2). The first report, (Exhibit A1) is based on the investment method which was presented at the hearing as only a check on the comparison of comparables adoped in the supplementary report (Exhibit A2)

3. The respondent's expert witness, Mr. Ng, chartered surveyor, in his Rule 20 Report dated May 1995 (Exhibit R1) supported a valuation of $1,600,000 which was based on a unit rate of $40,000 per sq.m. for the 39.1 square metres of ground floor proper and $5,000 per sq.m. (1/8 rate) for the open yard of 16 square metres.

4. We note that the subject premises were part of a major resumption of more than one hundred properties for the Hong Kong Housing Society's Urban Improvement Scheme ("the Scheme"). In addition to Sui Lun Street, the Scheme site extended to Pau Chung Street, Ma Tau Kok Road, Pak Tai Street, San Shan Road and Wang Cheung Street in Ma Tau Kok. In fact, earlier on 10th October, 1986, the Scheme site had been designated as a Comprehensive Redevelopment Area ("CRA") by gazetted amendments to the Draft Ma Tau Kok Outline Zoning Plan S/K10/1 under the Town Planning Ordinance, Cap. 131. This re-zoning had the effect of preventing owners of properties within the CRA from re-developing their lots other than in accordance with the overall scheme.

5. The Tribunal have had occasions to consider compensation for other properties resumed under the Scheme in, e.g., CLR Nos. 13/94, 15/94, 17/94 and 8/95. In particular, CLR No. 13/94 concerned No. 9 Wang Cheung Street, CLR No. 17/94 concerned No. 16 Wang Cheung Street and CLR 8/95 concerned No. 11 Sui Lun Street. In the said previous cases, different members of the Tribunal reviewed the authorities and came to the same conclusion that any affect of the CRA or the Resumption Scheme on value must be ignored.

6. For valuation purposes, Sui Lun Street where the subject premises were situated is almost identical with Wang Cheung Street running parallel and immediately next to it. Each is a cul-de-sac of equal length as the other. In CLR No. 13/94, a differently constituted Tribunal, considered in detail all factors affecting valuation for compensation for the resumption of the ground floor shop at No. 9 Wang Cheung Street. The Tribunal came to the conclusion that, as at 3rd. of October, 1992, the front end section to Wang Cheung Street near to its junction with Pau Chung Street should attract a value of $4,300 per sq.ft. (equivalent to about $46,300 per sq.m.), and the rear dead end of that street $3,750 per sq.ft. (equivalent to about $40,000 per sq.m.), with the middle section of Wang Cheung Street $4,000 per sq.ft. (equivalent to about $43,000 per sq.m.) for covered building area and 1/8 rate for open yard area. In CLR No. 8/95, a differently constituted Tribunal held that in view of the almost identical circumstances of Wang Cheung Street and Sui Lun Street, the unit rates established in CLR No. 13/94 also apply to Sui Lun Street.

7. We gained no assistance from Mr. Tam's first report (Exhibit A1). In his supplemetary report (Exhibit A2) Mr. Tam relies on the same or related comparables as those he adopted in the earlier hearings. Most if not all were, for various reasons, found to be unsuitable. He now puts particular reliance on the sale of a restaurant at 20 San Shan Road for $2,950,000 on 6th November 1991. This sale was preceded by a sale of the same property in July 1991 at $1,880,000. Both sales were considered in the case of Lam Kit v. The Director of Lands CLR 15/94. The later and higher sale was introduced by way of submission after the hearing. Mr. Tam sought to rely on it in that case but the sale was rejected by the Tribunal due to the huge increase of over $1 million in four months not being supported by the remaining relevant comparables in that case. We still hold that view.

In support of this sale Mr. Tam has included new evidence of the sale of a nearby shop at 38 San Shan Road for $2,490,000 on 29th October 1991. This is the sale of a ground floor shop and cockloft. Mr. Tam seeks to disregard the cockloft as he says it appears to be unauthorised. He produced a copy of the assignment a plan which shows the cockloft as a dotted line. There is nothing apparent to us that it is unauthorised. To the contary, on the evidence, we regard this cockloft as legitimate. The only reason to disregard the existence of the cockloft seems to be in order to gain support for the out-of-line sale of Number 20 by increasing the analysed rate per square metre. There is no doubt the cockloft existed at the time of sale. It is completely unrealistic to assume, even if it were unauthorised, that in the market, it had no value to the seller or the purchaser. Whether approved by the Building Authority or not, such cocklofts affect the market prices realised for shops. The fact that they were not approved under the Building Ordinance may not be readily apparent as they may well fall within the permitted plot ratio limits and otherwise comply with the provisions of the crown lease.

The inclusion of the cockloft at 1/4 rate would give a rate of about $42,000 per sq. metre compared with Mr. Tam's $52,300 per sq. metre when the cockloft is ignored. On Mr. Tam's adjustment of 34.6% for the twelve months time lapse between October 91 and the relevant date of October'92 gives a rate of about $56,500 per square metre compared with the $68,500 advocated by Mr. Tam. From more reliable data, the Tribunal in the Lam Kit case, determined the Pau Chung Street corner site in that case to be worth $53,000 per square metre. Even on Mr. Tam's exaggerated time allowance, the sale lends support rather than detracts from the Lands Tribunal's decisions in previous cases. If 30% were allowed for time the rate would be about $54,500 per square metre.

In any case such large percentage adjustments tend not to assist accuracy. The sale of a better located shop at 182 Pau Chung Street at about $60,000 per sq. metre as recently as March 1994 puts something of a ceiling on the time allowances suggested by Mr. Tam. This sale was produced in evidence in the Lam Kit case.

8. The earlier sale, of Number 20 San Shan Road which incidently is not mentioned in Mr. Tam's Exhibit A2, at $1.88 million in July 1991 was analysed by the respondent's expert in the Lam Kit case as indicating a value for the Pau Chung Street site of about $56,000 per square metre. It now appears from Mr. Tam's copy of an assignment, together with an assignment plan for Number 20 in his report (Exhibit A2), that a full cockloft is incorporated in this shop. If the cockloft is allowed for at 1/4 rate, and with the same adjustments for the time and location factors as used in that case, a rate of about $46,500 per square metre for the Pau Chung Street site results.

9. From other more reliable data in that case, the Tribunal arrived at a range in value of $50,000 to $55,000 per sq metre. The rate determined by the Tribunal after allowing for the corner location was $53,000 per square metre. If 5% is now added for the corner influence, a rate of about $49,000 per square metre would result from the analysis of this sale. So the acceptable sales of the two properties which Mr. Tam would have us consider result in a range in value of between $49,000 and about $55,000 per sq. metre for a Pau Chung Street conrner site. This new evidence of the existence of a cockloft at 20 San Shan Road only reinforces the correctness of the Tribunal's earlier decision to apply $53,000 per sq.metre to the site in the Lam Kit case which in turn relates to the other decisions in Wang Cheung and Sui Lun Streets.

10. When we review the whole of the evidence available to us we are satisfied that there are no special features relating to the subject property to render the Tribunal's earlier findings inapplicable.

11. Accordingly, we see no reason not to apply the unit rate of $4,300 per sq.ft. (equivalent to $46,300 per sq.m.), for the ground floor proper and 1/8 value for the open yard. Applying these rates, we calculate that :-

Saleable area of the shop proper	39.1 sq.m.	@ $46,300	=	$1,810,330
Open yard	16.0 sq.m.	@1/8 rate	=	$92,600
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				$1,902,930
		say		$1,900,000

12. Mr. Ng drew attention to the property having being let from 1st May 1990 to 31st Jan 1992 at a rent of $4,400 per month (inclusive of rates). There was also a sub-lease but this has no effect on the value of the owner's interest. Mr Ng felt obliged to allow for vacant possession to be obtained by the claimant. There is no necessity for this as it is only the value of the shop as it stood at 3rd October 1992 which has to be determined. Vacant possession is only relevant if redevelopment value is to be the basis of compensation. This is simply a case in which, if there existed any profit rent to be enjoyed by the tenant, it should have run out at the end of January 1992. If the tenancy had not been renewed and, as it appears, the shop was still being let on a month to month basis at the old rent, the owner could have remedied this at any time by granting a new lease at the current market rent. The value of the tenant's interest as at the 3rd October 1992 was only as good as the time required to increase the rent, or about one month. The result is negligible.

13. Accordingly we determine compensation in the sum of $1,900,000. Leave is reserved to apply for the rate of interest, if not agreed, to be determined under section 17(3A) of the Ordinance. There is an order nisi that the Respondent shall pay the Applicant's costs on the High Court party and party scale to be taxed if not agreed; to be made absolute unless application is made, within 21 days, to the contrary. Liberty to apply is also reserved for ancillary and consequential matters.

Dated this 18th day of October, 1995