TAM SHIU HONG v. COMMISSIONER OF RATING & VALUATION

Property Law - landlord and tenant - appeal against Certificate of Increase of Rent - increase to be in accordance with formular which requires an assessment of the prevailing market rent as at the date the Certificate is issued - valuation based on comparables preferred to other methods - usually methods based on statistics of general market trends will be suspect and liable to error particularly if large percentage adjustments are made - suitability, application and analysis of comparable rents in valuing a flat converted from the ground floor of a reconstructed and renovated, pre-war two storey dwelling - Sections 58, 59 and 60 Landlord and Tenant (Consolidation) Ordinance Part II, Cap. 7.

IN THE LANDS TRIBUNAL OF HONG KONG

(Appellate Jurisdiction)

Landlord and Tenant Appeal No. 30/84

_____________

JUDGMENT

_____________

1. This is an appeal under Section 60 of the Landlord and Tenant (Consolidation) Ordinance, Cap. 7 against a decision of review by the Commissioner of Rating and Valuation of a Certificate of Increase in Rent in respect of a ground floor flat at 6 Devon Road, Kowloon Tong. The premises were first let to the appellant in 1977 at a rent of $4,200 per month exclusive of rates, which has subsequently been increased at various intervals in accordance with Part II of the Ordinance, until it reached $5,720 per month exclusive of rates, which was the current rent at the time the landlord made an application under Section 57 for a certificate of increase in rent. The application was made in April 1984 and, on 6th July 1984, the Commissioner of Rating and Valuation issued a certificate certifying an increase of $1,140 pursuant to Section 58.

2. Following the serving of a notice of increase by the landlord, the appellant applied for a review, under Section 59. The Commissioner issued a notice of decision on 19th October 1984 confirming the increase of $1,140 per month and under Section 59(4) determined that the increase should take effect from 16th August 1984.

3. Following that notice of decision, the appellant now appeals to this Tribunal on the grounds that the increase is incorrect and excessive.

4. The appellant only served notice on the Commissioner of Rating and Valuation and not the landlord whose solicitor advised Counsel for the respondent, that the landlord did not wish to be included as a respondent. The Commissioner submitted a report and valuation by Mr. P. K. Yuen, a Senior Rating and Valuation Surveyor who gave evidence on behalf of the Commissioner.

5. The suit premises is a ground floor flat converted from a single two storey dwelling at 6 Devon Road, Kowloon Tong. While the building was constructed before the war, it was substantially rebuilt in 1949 and therefore is excluded from Part I of the Landlord and Tenant (Consolidation) Ordinance. The parties agreed that it falls within Part II.

6. Under Section 52 of the Landlord and Tenant (Consolidation) Ordinance premises falling within Part II of the Ordinance may be subjected to increases in rent at 2 yearly intervals. Section 58 provides for the increase to be half the difference between the current rent and the prevailing market rent as defined in the Ordinance or 30% of the current rent if that is the lesser of the two assessments. From December 1983 a further provision for the increased rent to be at least 30% of the prevailing market rent was added. This additional provision does not affect the present case. The prevailing market rent is to be assessed as at the date the Commissioner issues a certificate under Section 58. In this case the date of issue of the certificate and hence the relevant date of assessment is 6th July 1984.

7. The suit promises appears to be most of the ground floor portion of the original two storey house with the former servant's quarters and garage being converted to form another two self-contained units at the rear. Both of those rear units, which are separated by a paved courtyard, are occupied by, the owner. The first floor is let as a separate flat and includes the exclusive use of the fenced off front lawn. The suit promises has a covered area of 167.3 square metres and consists of three bedrooms, two bathrooms, neither of which are attached to a bedroom, a large combined living and dining room, as well as a kitchen, pantry and servant's room to the rear of the flat. Open car parking is available on the driveway. As is usual in Kowloon Tong the site is surrounded by a high boundary wall.

8. The appellant Tam Shiu Hong is a Chartered Surveyor employed in the Rating and Valuation Department as a Rating and Valuation Surveyor. He appeared in person. He submitted four-separate approaches as to how the prevailing market rent for the suit premises might be assessed. From each of these approaches he concluded that the prevailing market rent could not exceed the rent of $5,720 per month exclusive of rates currently being paid by him, and therefore no increase should be made.

9. Mr. Yuen on behalf of the Commissioner assessed the prevailing market rent as at the relevant date of 6th July 1984 at $8,000 per month exclusive of rates. His calculations in accordance with Section 58 led to the Commissioner certifying the increase permitted at $1,140, which is half the difference between the current rent of $5,720 and the prevailing market rent of $8,000. The sum of $1,140 is less than 30% of the current rent. The matter in question is then the assessment of the prevailing market rent.

10. The first of Mr. Tam's four assessments was based on an apportionment of the Commissioner's Rateable Value assessment of the whole of the ground floor on the latest valuation list which came into effect on 1st April 1984.

11. This list of Rateable Values was based on the market as at lst July 1983. The whole ground floor has a Rateable Value of $148,800 or the equivalent of $12,400 per month exclusive of rates. Based on his opinion that the two rear units if let separately would attract a total rent of $8,000 per month, Mr. Tam has apportioned $4,600 per month to the subject flat. Before he had the benefit of a plain of the promises produced for this hearing by Mr. Yuen, he apportioned half of the $12,400 or $6,200 to the suit premises and then deducted 15% for the fall in rents generally between July 1983 and July 1984. He cited the Rating and Valuation Department publication of the "Property Review 1984" to support this deduction. It appears, in his oral evidence, that he now dispenses with the 15% deduction and is content with the $4,600 per month assessment.

12. From the evidence adduced, it seems that at the time of the revaluation the Commissioner's records were incomplete and did not include any information of the existence of the three units on the ground floor. The premises were treated as one unit. The existence of the three separate units was only discovered in relation to this case. Because the assessment was apparently based on incomplete records, any apportionment of the rateable value in such circumstances is meaningless.

13. Mr. Tam also produced a copy of a circular of the Senior Non-Expatriate Officers Association which was entitled "Newsletter No. 1 of 1983". This circular, which is in connection with Private Tenancy Allowances for civil servants, referred to rental statistics produced by the Rating and Valuation Department. Accordingly he submitted that there was a relationship between the rental movement statistics and the private tenancy allowances. He also produced extracts from the "Property Review 1984" pointing particularly to the reference to older properties as, "Becoming more difficult to shift and values have fallen at a faster rate".

14. On the information included in the Property Review, Mr. Tam adjusted his originally negotiated rent of $4,200 per month in August 1977 to $6,950 for April 1984. He then deducted 21%, which is equivalent to 3% per annum for the 7 years the tenancy has run, to allow for wear and tear. This gave him his second alternative figure of $5,230 per month. This, he maintained was his conclusion based on the "Private Tenancy Allowance".

15. He carried out a similar exercise based on the market rent calculated by the Commissioner of Rating and Valuation in connection with the first increase allowed under the rent protection provisions in July 1979, plus the general trends shown by the Property Review. This led to Mr. Tam's third assessment of $5,250 per month as at July 1983.

16. Both these assessments consisted of large percentage adjustments which were based on very general observations in the Property Review plus his own opinion with respect to wear and tear which should, in any case, have already been a built in factor in the Property Review statistics. Obviously such approaches must be suspect particularly when adjustments as much as 65% ,21% and 32½%are made. It is difficult to believe that, the appellant expected to arrive at a valuation with any degree of accuracy when employing such approaches, for, as well as the extremely large adjustments, the comparison of the suit premises as a converted flat in an old house with statistics of the market trends for what must generally be purpose built flats, should have led him to doubt the usefulness of such an exercise.

17. Valuations must be based on the best evidence available and this will usually be comparable transactions of similar properties. In Cheung Lai-wan and Others v. Director of Public Works (1977) H. K. L. T. L. R. 14, p.20, it was stated:-

"The Tribunal wishes to make it quite clear that it considers that valuations arrived at by the use of comparables are very much preferable to those arrived at by any other methods. Any such comparables however should be fully analysed in the evidence of the valuers as the Tribunal cannot otherwise be satisfied as to their usefulness and applicability. Further we feel that where comparables in the area concerned are lacking in either numbers or suitability then other similar areas should be examined and analysed in addition."

This was basically the approach of Mr. Yuen but his valuation did suffer to a degree from the application of unsupported adjustments.

18. In Union Carbide Asia Limited v. The Hong Kong Land Company Limited (1982) H. K. D. C. L. R. 75, the Tribunal emphasised, in relation to rental valuations, that:-

"It is well established that comparison should be made between premises which are reasonably alike and even analysis (underlining added) should be avoided if more direct evidence is available."

19. Evidence of rents is available but, the appellant submitted that the rents for those properties listed by Mr. Yuen in his affidavit, with the exception of the rent for the first floor flat at No. 6 Devon Road, were all in an area which was environmentally superior and therefore should be disregarded. Although they are rents for premises in Kowloon Tong, they are situated on the other side of Waterloo Road and free of the same affects of through traffic as is the suit premises. Even though a main arterial road separates the subject premises from these listed comparable premises, the type, age and they general locality are similar and they should not be disregarded simply on the basis of any difference in the amount of passing traffic. Nor should the proximity of the Kowloon Tong Mass Transit and K. C. R. stations or the motel establishments in the area have such a detrimental effect so as to rule out these comparables as suggested by the appellant.

20. With the exception of La Salle Road which appears to have a similar traffic density to that of Devon Road, the other streets in the list of comparables are not affected by heavy traffic. However, these sites are directly under the airport flight path. Also noise from the nearby schools and the shops at which school children condrigate could be considered similarly detrimental.

21. The appellant did not disregard the letting of the first floor flat which is above his at 6 Devon Road. It was let in April 1983 at $12,000 per month exclusive of rates. The area is 189 square metres and includes the exclusive use of a flat roof and the fenced off front garden. A plan of this flat shows it has two bedrooms and a study bedroom, a living room and separate dining room but only one bathroom. It also has a kitchen and servant's room. The layout results in better utilisation of space than that of the subject premises, but the supposed deficiency in the layout of the subject premises has been exaggerated by the appellant ,as has the poor state of repair which on inspection revealed merely a lack of maintenance and perhaps a little more than the usual dampness experienced in most Hong Kong premises. I find also that the appellant's considered effective area of 130 square metres, which is a reduction of some 37 square metres due to thicker walls and inferior layout, to be unrealistic.

22. The appellant drew attention to the first floor flat having the exclusive use of a flat roof on the same level, the roof area above the flat itself as well as the fenced off garden. It would appear that Mr. Yuen has taken account of the garden but not the roof areas. He did make an allowance of $300 per month for water. Apparently the tenant does not pay any water charges in association with his occupation of this flat. Also $500 is allowed for the open car parking space, and $1,000 is allowed for the garden. These deductions were not accompanied by any analysis to show what added value might be reflected in the market for car parking spaces or gardens. Nor was there any evidence of what water charges might be expected in relation to this flat. Mr. Yuen arrived at an analysed base rate of $53.96 per square metre.

23. The appellant made a series of deductions for the roofs and the garden which totalled $4,100. Together with Mr. Yuen's deductions of $500 for the car park and $300 for water, he arrived at a base rent of $7,100 per month or a rate of $37.5 per square metre. From this analysis and using the overly reduced effective area of only 130 square metres as well as a 12½% reduction for the time difference, Mr. Tam arrived at a figure of $3,900 for the main area of the suit premises. To this he added $100 for the front terrace and then the same allowances as Mr. Yuen of $100 for the rear yard and $500 for the car parking space to arrive at his fourth and final assessment of $4,600 per month, but rounded down to $4,500 per month exclusive of rates.

24. This first floor flat was let over one year prior to the relevant date of 6th July 1984. Due to this time difference and the lack of any comparative analysis for the added value factors, particularly those derived from the exclusive use of the garden and the roof areas, I am unable to arrive at any conclusive rental value for the suit premises based on this comparable. However, it does indicate that there is little difference in the rental levels between this area and that on the other side of Waterloo Road where the other comparables are located.

25. The appellant also argued that his flat suffered by comparison with others due to a lack of privacy, susceptibility to burglaries, poor natural ventilation and lighting, settlement of the building, as well as other sundry detrimental affects from insects, dead trees in the garden, the proximity of a dog's kennel and so on. Mr. Yuen made a 15% deduction on his base figure for these and other factors. This unsupported percentage deduction appears excessive as many of these: items are common to the comparables.

26. The poor natural lighting, state of repair, lack of privacy and proximity to traffic noise seems to be similar to that for the comparable at Durham Road which was one of those rejected by the appellant. This flat which was let in December 1983, is also a converted ground floor flat. It has two bedrooms and has a smaller area of 154.5 square metres compared with the suit premises of 167.3 square metres. It has a small garden but the building is located very much closer to the road than the subject premises. There is no car parking space. After allowing $600 for the small garden Mr. Yuen has analysed the rate per square metre at $51.9. The premises was built in 1953 and is of a similar appearance and state of repair to the subject premises which although pre-war was rebuilt in 1949 and renovated in 1977 immediately prior to the appellant's occupation. This comparable flat has one less bedroom than the suit promises but the master bedroom has an attached bathroom. Allowing for this as well as the lesser amount of traffic, the difference in size and the slightly better layout, this comparable supports a rent of perhaps a little more than $8,000 per month for the suit premises. This comparable is well supported by the others listed for nearby premises which were let between April 1984 and August 1984 at rents which were analysed by Mr. Yuen to reflect base unit rates of $51.6 and $54.7 per square metre for two first floor flats, to $62.2 per square metre for a ground floor garden flat in Oxford Road. Mr. Yuen deducted $1,500 per month for the 200 square metre front garden.

27. Although I am unable to reconcile some of the deductions made by Mr. Yuen in his valuation, the resultant figure of $8,000 per month exclusive of rates as the prevailing market rent for the suit premises as at 6th July 1984 appears on the evidence available to be most reasonable. In any case the appellant has failed to convince me that I should interfere with this assessment. Accordingly the assessed increase in rent of $1,140 per month effective from 16th August 1984 must stand. I dismiss the appeal and make no order as to costs. Dated this 11th day of February, 1985.