Lam & Associates Ltd. v. Global Duty International Ltd.

LDNT299/2000

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

Application No.: LDNT No. 299 of 2000

__________________

JUDGMENT

__________________

Background

1. The Applicant is the tenant and the Respondent the landlord of the subject premises known as House 6, Valencia Garden, 23 Wing Lung Road, Clear Water Bay, New Territories ("the Premises"). By a tenancy agreement dated 17 October 1998, the then landlord, Faircal Ltd. and the Applicant entered into a tenancy for a term of 2 years commencing on 1 November 1998 and expiring on 31 October 2000 at a monthly rent of $52,000, inclusive of rates, Government rent and management fees.

2. The Applicant on 20 June 2000 served a Form CR103 to the Respondent requesting a new tenancy commencing on 1 January 2001. The Applicant subsequently applied on 28 August 2000 to the Lands Tribunal for the granting of a new tenancy. The Respondent has not opposed the application. During the hearing, the Applicant asked for the granting of a usual 2 years term but the Respondent requested a term of 1 year only. Therefore, the outstanding issue in this application are the amount of the prevailing market rent (PMR) at the relevant date and the duration of the new tenancy.

3. The Applicant called Mr. Wong Chi Wai, Chartered Surveyor, to give evidence on the PMR of the Premises. He estimated that the PMR as at 31 October 2000 was $34,800 per month. Upon cross examination, he further gave an opinion that the PMR for the new tenancy to commence on 1 January 2001 should be $35,760 per month. On the other hand, Mr. K. T. Liu, Chartered Surveyor, who gave evidence for the Respondent, concluded that the PMR as at 31 October 2000 was $55,000 per month. Mr. Liu further added that his estimated figure for the PMR will not change even though the parties had agreed that a new tenancy should commence from 1 January 2001, as a result which the relevant date for the assessment of the PMR should be 31 December 2000.

4. Both parties considered and analysed the same set of market rental evidence provided by the Rating & Valuation Department, which were reproduced in page 15 of Mr. Liu's report (Exhibit R-1). After analysis, both were in agreement that the best comparable for this valuation exercise should be Comparable No. 1 which is House 3 in the same estate, Valencia Garden. In this respect, I agree with their findings and conclusion.

5. In their valuation reports, the differences between the two experts mainly lie with their opinion on the appropriate adjustments for House 3. Their differences are summed up below:

6. Mr. Wong accepted that the time adjustment factor for assessing the PMR as at 31 December 2000 should be revised to -3% as he considered that the market has revived and picked up by 2% since the end of October 2000.

7. One of the occupiers of the Premises, Mrs. Lam-Wunderli Carmen gave evidence and produced a number of photos, all marked as Exhibit A-2. She said that she had the opportunity of getting inside the garden of House 3 for the purpose of taking these photos, which show the view of Port Shelter from that house. She admitted that some of the photos were taken near the lot boundary, at one end of the garden. She also produced some photos showing the state of the garden in the Premises today and the garden when they first leased the Premises some two years ago.

8. Ms. Jon Hing May, a representative of the Respondent gave evidence herself. She claimed herself to be a knowledgeable property investor and was, apart from the Premises, the owner of other properties. She said that when she had the opportunity of inspecting House 3 in 1998, she noticed that its internal condition was much inferior than that of the Premises. Since she had intended to take back possession of the Premises from the Applicant she asked that the new tenancy be granted for a term of one year only.

Determination of the prevailing market rent

Mr. Wong stated in his report that since the comparable, House 3 "enjoys a wider panoramic seaview than that of the Premises, a downward adjustment of -15% was made to the comparable to reflect the difference." On the other hand, Mr. Liu remarked that House 3 has similar extensive and panoramic view as the subject. The Tribunal finds that although the photos of the view of Port Shelter opposite House 3 taken by Mrs. Lam-Wunderli did not show any adjoining houses in the same estate, it is because they were taken at the edge of the lot boundary of House 3. From the other photos and the various site plans shown in the reports and produced by the parties, the Tribunal finds that both the Premises and House 3 enjoy similar view of Port Shelter opposite the estate. However, the Tribunal agrees with the Applicant that House 3 enjoys an unobstructed side view from some of its rooms and the view of House 3 is slightly superior for being located in a corner position. For these reasons, the Tribunal determines that an upward adjustment of 5% is warranted to reflect these differences.

For the time adjustment, the Tribunal accepts Mr. Liu's estimate based on the rental index information from Rating & Valuation Department and Mr. Liu's personal knowledge. Although some of the figures quoted by the Rating & Valuation Department are only provisional figures, they are accepted as the best evidence of the rental trend for the subject valuation that is available to the Tribunal up to the time of judgment. In the absence of other better evidence by both parties, the Tribunal determines that it is better to rely on some provisional statistical figures, particularly when there are differences of opinion by two expert witnesses.

Finally, regarding the adjustment for the garden, Mr. Wong estimated the area of the garden of the Premises and House 3, based on registered floor plans, to be 34.2 sq.m. (368 sq.ft.) and 121.7 sq.m. (1,310 sq.ft.) respectively. As a result of this, a downward adjustment of -8% was made. However, Mr. Liu gave evidence that the actual occupied area of the garden of the Premises extended to about 1,680 sq.ft. (roughly 24 ft. times 70 ft.). Mr. Liu said that the garden of the Premises was actually greater than that of House 3. Also, the former was roughly rectangular in shape while the latter was a L-shaped garden. Thus, Mr. Liu opined that no adjustment for the difference between the garden of the Premises and that of House 3 would be required. Upon cross examination, Mr. Liu admitted that part of the existing garden/lawn of the Premises fell outside the registered lot boundary of the Premises. In this connection, the Tribunal determines that the assessment of the PMR of the Premises could not include any area outside the registered lot boundary because the landlord would not in the first place have the right to grant a lesser leasehold interest to the tenant on that portion of the area outside the registered lot boundary. In the circumstances, therefore, the Tribunal agrees with the Respondent that a discount to reflect the differences in the areas of the Premises and the comparable, House 3 is required. This the Tribunal estimates to be about 5%.

9. To sum up, the Tribunal determines that based on the best comparable House 3, the following appropriate adjustments are warranted:

For view-	-5%
For time-	+2%
For garden-	-5%
Total	-8%

10. The Tribunal applies the total -8% adjustment to the actual rent of House 3 and makes further necessary adjustments to arrive at the PMR of the Premises, as follows:

11. Thus, the Tribunal determine the PMR of the Premises, for the new tenancy commencing from 1 January 2001, on the basis of inclusive of rates, Government rent and management fee to be $138,000 per month. Also, since the term of the expired tenancy of the Premises, the term of the comparable letting of House 3 as well the usual duration of the typical tenancy for this type of domestic premises were all for 2 years, the Tribunal decides that the term of the new tenancy shall be for 2 years.

Orders

1. New Tenancy for two years commencing from 1st January 2001;

2. New rent at $50,000 per month (inclusive of rates, Government rent and management fees);

3. Deposit to be decreased pro rata in accordance with the new rent;

4. Other terms of new tenancy to be the same as in the current tenancy agreement;

5. No order as to costs.