KINCO INVESTMENT HOLDING LTD v. COMMISSIONER OF RATING AND VALUATION

LDRA 33-36/2006

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

Rating Appeal Nos. 33-36 of 2006

(Heard together by Order of Deputy Judge WONG on 24 August 2006)

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JUDGMENT

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Background

1. There are 4 appeals before me and I ordered them to be heard together as they all concern with the same issue.

2. The Appellant was the owner of the whole block of the building at 112 Chun Yeung Street, North Point, Hong Kong (“the Building”), including Room 1, Room 2, Room 3 and Room 5 of the Third Floor of the Building (“the Premises”).  The Premises form the subject tenements of the 4 appeals.  The Appellant acquired the Building on 15 October 2003.  Before the acquisition, the Premises were used as office units.  After the acquisition, the Appellant converted the Building to a hotel/guesthouse and obtained the relevant licence for such operation. 

3. The Premises were renovated and became individual rooms for hotel/guesthouse accommodation.  Major works of renovation included dismantling of partition walls and erection of a new glass wall for Room 2, Room 3 and Room 5, dismantling of partition wall separating the toilet for the disabled and Room 1 and replacement of sanitary wares.  The Appellant’s architect confirmed that the alteration did not constitute a structural change of the Premises.

4. However, the Respondent was of the view that there were “structural alterations” carried out to the former office tenements and hence deleted the Premises from the Valuation List pursuant to section 24(a) of the Rating Ordinance (“the Ordinance”).  The Respondent also made interim valuations of the Premises based on the converted mode of occupation (i.e. licensed guesthouse) pursuant to section 25 of the Ordinance.

5. The Appellant disagreed with the Respondent on the interpretation of what constitute “structural alteration” and hence lodged the present appeals to challenge the Respondent’s decisions in making the deletions and interim valuations.

6. Thus, the only issue in these 4 appeals is whether the renovation works carried out at the Premises amount to “structural alteration” as stipulated in section 24(a) of the Ordinance.

Structural alteration

7. Section 24(a) of the Ordinance stipulates that:-

“The Commissioner may at any time delete from a valuation list any tenement -

(a)    if there has been any structural alteration thereto;”

8. There is no provision in the Ordinance to define exactly what “structural alteration” is, but in section 9(3) of the Ordinance, it is stipulated that:-

“For the purpose of section 24 the erection, dismantling or alteration of any structure or sign, in exercise of the right under subsection (1), shall be treated as a structural alteration of the tenement.”

9. The Appellant contends that “structural alteration” should mean alteration made to a building that would affect its structural stability or safety as well understood within the building industry.  If tearing down brick walls, erection of glass panels or replacement of sanitary wares constitute structural alterations, there would be grave repercussion to hundreds of thousands of households in Hong Kong in respect of rates assessment.  The Appellant also contends that if one looks at the individual items of the renovation works at the Premises, there are some minor alterations such as installation of sinks and dismantling of door.  It is not clear whether any one or all the items of the renovation works should be considered in deciding whether there is any “structural alteration”.

10. I have no doubt that the Appellant’s contentions cannot be substantiated.  The Ordinance does not stipulate any requirement that “structural alteration” must be alteration that would affect the stability or safety of the building in question.  In fact, section 9(3) of the Ordinance, in treating the erection, dismantling or alteration of any structure or sign as “structure alteration”, does not restrict such erection, dismantling or alteration to those that would affect the stability or safety of the building.  It is therefore possible for those erection, dismantling or alteration of any structure or sign that would not affect the stability or safety of the building to be treated as structural alteration.  When section 9(3) does not seek to impose such a restriction, I see no reason why such restriction should be imposed in section 24(a).

11. I also see no reason to incorporate what is allegedly understood in the building industry into the principles of rating valuation.  The principles in rating valuation are clear.  At common law, tenements are valued in their existing state (rebus sic stantibus).  This common law principle is reflected in sections 7 and 7A of the Ordinance.  Section 7A(2)(b) of the Ordinance requires that any relevant factors affecting the mode or character of occupation are to be considered.  In Lai Kit Lau Mutual Aid Committee v. Commissioner of Rating and Valuation [1984] HKDCLR 31, it was held that the statutory references in sections 7 and 7A to the subsisting “mode or character of occupation” required the valuation of the physical tenement to be carried out in accordance with the actual use or any other use within that same mode or character.  The valuation must be restricted within those limits.  These principles are in no way in connection with the stability or safety of the building.

12. Thus, I am of the view that the interpretation of “structural alteration” in section 24(a) must also be confined in the same context and the stability or safety of the building should not come into the picture at all.  When there is a change in the mode or character of occupation, whether or not the stability or safety of the building is affected, the rateable value should be reassessed.  The use of the Premises as hotel/guesthouse is clearly different from the use as office.  They are also not within the same mode or character.  If one were to introduce the element of stability or safety of the structure into the consideration, it would mean that there could be a change in the mode or character of occupation without attracting any reassessment so long as the stability or safety of the building has not been affected.  This is clearly contradictory to the established principles in rating valuation as aforesaid and cannot be right.

13. In Fir Mill, Ltd. v. Royton U.D.C. (1960) 7 RRC 171, it was held that:-

“A dwelling house must be assessed as a dwelling house; a shop as a shop, but not as any particular kind of shop; a factory as a factory, but not as any particular kind of factory.  Some alteration to an hereditament may be, and often is, effected on a change of tenancy.  Provided it is not so substantial as to change the mode or category of use, the possibility of making a minor alteration of a non-structural character, which the hypothetical tenant may be assumed to have in mind when making his rental, is a factor which may properly be taken into account without doing violence to the statute or to the inference we draw from the authorities.”

14. If the Appellant’s contentions were to be accepted as correct, it would mean that a hotel/guesthouse would not be assessed as a hotel/guesthouse.  This simply cannot be right.  The principle laid down in the Fir Mill case has been adopted in subsequent cases like London Transport Executive v. Croydon London Borough Council and Phillips (Valuation Officer) [1974] RA 225 and Ho Tang-fat v. Commissioner of Rating and Valuation [1978] HKLTLR 287.  I see no reason why the interpretation of “structural alteration” should cause a deviation from this long established principle.

15. Minor alterations which would not change the mode or category of use, of course, would not attract reassessment, but one should not look at the individual items of works to see whether there is any “structural alteration”.  All the works must be looked at as a whole to see whether there is any change of the mode or category of use so as to amount to “structural alteration”.  Thus, the question is not whether the Appellant has changed a toilet or pulled down a wall, but whether such works as a whole have changed the mode or category of use, or in the context of section 7A(2)(b), affected the mode or character of occupation.

16. Thus, as submitted by the Respondent, I am of the view that “structural alteration” in section 24(a) of the Ordinance means any alteration made to the structure of a tenement so as to change its mode or character of occupation, and it does not depend on whether the stability or safety of the structure has been affected or not.

Conclusion

17. With my above rulings, the Appellant’s contentions must fail and the appeals ought to be dismissed.

18. I therefore order as follows:-

(1)    The appeals in LDRA 33-36/2006 be dismissed; and

(2)    Costs order nisi: The Appellant do pay the Respondent costs of the appeals in LDRA 33-36/2006, to be taxed on District Court Scale if not agreed.  If there is no further application on costs within the next 14 days, the costs order nisi shall become absolute.