Urban Parking Ltd v. The Commissioner of Rating & Valuation

LDRA 377 & 378 of 2002

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

RATING APPEAL NOS. 377 & 378 OF 2002

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JUDGMENT

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Background

1. This is an appeal by the Appellant under Section 42(i) of the Rating Ordinance, Cap. 116 ("the Ordinance"). The Appellant sought to reduce the rateable value of the subject tenement from $7,680,000 to $4,075,834.61 for the year of assessment 2001/2002 and from $6,780,000 to $4,075,834.61 for the year of assessment 2002/2003.

2. The subject tenement, described as "TT 1187 Heung Fan Liu St. Tai Wai Sha Tin Carpark" ("the tenement") was a fee-paying public car park situated at the junction of Mei Tin Road and Heung Fan Liu Street in Tai Wai area of Shatin district, New Territories, Hong Kong. The tenement was a piece of roughly reverse L-shaped open land with an area of about 16,100 sq. m. Vehicular access was located at Heung Fan Liu Street, a 2-lane, 2-way cul-de-sac branching off Mei Tin Road. The Appellant was the operator which held the tenement under a short term tenancy ("STT") granted by the Director of Lands on behalf of Hong Kong SAR Government. The STT was for a term of one year commencing from 22 August 2001. According to the Respondent, the car park ceased operation on 2 September 2002 and the rating assessment of the tenement has been deleted from the valuation list under the Ordinance since that date.

3. Both the Appellant and the Respondent filed their expert reports, respectively prepared by two expert surveyors, Mr. Wong Yung Shing ("Mr. Wong") and Mr. Louis Leung ("Mr. Leung"). They were both called to give evidence in the appeal hearing. Apart from these two experts, there was another witness, one Mr. Cheung Wai Sun, a senior manager of the Appellant who gave evidence on the physical state of the tenement. Otherwise, there was no other witness. In the final submissions, both parties relied exclusively on the evidence of their experts in reaching their conclusions of values for the tenement. The Appellant submitted that it had discharged the burden of proof before the Tribunal on the balance of probabilities in that (1) the tenement was valued above its proper rateable value for both years of assessments, 2001/2002 and 2002/2003 and (2) the tenement should be assessed at $4,075,834.61 for both years of assessment. On the contrary, the Respondent submitted that the Appellant had not met the required standard of proof to establish either of these two conclusions.

4. Therefore, the parties agreed that the issues before the Tribunal were relatively simple, as follows:

(i) the choice of suitable comparables, with no common comparable between the 2 experts;

(ii) the adjustments of the comparables chosen by the Tribunal.

The common valuation approach of the two experts

5. The experts adopted the same direct comparison valuation approach to determine the rateable value for the tenement. At the beginning of the hearing, both parties, in answering a question from the Tribunal, confirmed that there was no dispute in the valuation methodology.

The interpretation of the factors set out in Section 7A of the Ordinance

6. The Appellant in paragraph 11 of the Closing Submission said, " In cross-examination, A's expert emphasized that the existence and subsistence of open fee-paying car park highly depends on the availabilities of amenities surrounding the site of the open fee-paying car park...., rather that (than) the location of the open car parks where they were situated because the users of them would not park in the open car park without using the amenities nearby. He also gave evidence that the hinterland of an open fee-paying car park depended on the availability and number of amenities." The Appellant further paraphrased what its expert, Mr. Wong said in his report, "a car park is close to the nearest commercial area and the buildings which can produce a magnetic effect of attracting the driving commuters from the outer districts." The Appellant also submitted that "location is not so decisive as to outweigh other factors set out in Section 7A of the Rating Ordinance."

7. Counsel for the Respondent rejected the above interpretation of Mr. Wong and the submission by the Appellant on the ground that they were erroneous. The Respondent submitted that whilst Mr. Wong erred on emphasizing the amenities of a location as something separated from the locality itself, the relevant provisions under Section 7A of the Ordinance actually listed all such amenities as factors affecting the locality.

8. I also find it difficult to understand the reasoning of Mr. Wong and hence the submission of the Appellant. I agree with the submission of the Respondent that both were obviously wrong even from a plain reading of the wordings of the said section of the Ordinance. I do not think that I need to add any more except by quoting below the actual provisions of the said Section 7A of the Ordinance, which reads,

"7A.Rateable values in new valuation lists

(1) (Repealed 11 of 1987 s.3)

(2) The rateable value of any tenement to be included in a list prepared under section 12 shall be ascertained by reference to the relevant date on the assumption that at that date－

(a) the tenement was in the same state as at the time the list comes into force;

(b) any relevant factors affecting the mode or character of occupation were those subsisting at the time the list comes into force; and

(c) the locality in which the tenement is situated was in the same state, with regard to other premises situated in the locality, the occupation and use of those premises, the transport services and other facilities available in the locality and other matters affecting the amenities of the locality, as at the time the list comes into force.

..... "

9. Besides, apart from the valuation assumptions (as stated in Section 7A(2) of the Ordinance) that must be taken into account when undertaking the valuation for the tenement to be included in the new valuation lists, one should bear in mind that the rateable value of the tenement was defined under Section 7(2) of the Ordinance as to be "an amount equal to the rent at which the tenement might reasonably be expected to let, from year to year....". In this respect, I agree with the Respondent's submission that the general rules for the ascertainment of the rateable value of any rateable tenement in Hong Kong (including the tenement in the present appeal) are set out in Section 7 and 7A of the Ordinance. Therefore, in relation to all matters referred to in Section 7(2) of the Ordinance, the tenancy is to be based on the statutory hypothesis but not on the actual provisions under the tenement's tenancy agreement.

The choice of comparables and their adjustments

10. Mr. Wong considered a total of 11 comparables all of which were tenancies of fee paying car parks in Shatin district (referred to as "ST-1" to "SF11"). During the hearing, he discarded his Comparable ST-7. He said that of all the six factors of adjustments he had considered, the adjustments should be nil for all his comparables for the factors of location, topography and time. He made suitable adjustments to the comparables for the other factors of accessibility, size and shape. He estimated the adjusted unit rate for each of his ten comparables and arrived at an average adjusted unit rate of $1.96 per sq. ft. (or $21.10 per sq. m.) (detailed in the amended pages 99 to 102 of Exhibit AR-1) He applied this to the area of the tenement, 16,100 sq. m. to arrive at a rental value of $339,710 per month, or $4,076,520 per year. Finally since Mr. Wong considered that there was no change in the rental level over time, he estimated that the rateable value of $4,076,520 was the same for the 2 relevant valuation dates of 1 October 2000 (for the year of assessment 2001/2002) and 1 October 2001 (for the year of assessment 2002/2003).

11. On the other hand, Mr. Leung considered the tenement itself (describe as Comparable 1), and 3 other comparables, all of which were situated in Tai Wai area of Shatin district. He made adjustments to his Comparables 2, 3 and 4 in respect of the factors of location, time, size and shape. He also analyzed the unsuccessful second and third bids of the tenement's tender result of August 2001 as a check to the adjusted rents of the other comparables. In the final analysis, using the unit rates of $40/sq.m. and $35/sq.m. respectively, he estimated the rental values of the tenement at $640,000 and $565,000 for the years 2001/2002 and 2002/2003, resulting in the rateable value of $7,680,000 and $6,780,000 for the consecutive year of assessment.

12. To sum up, the Appellant argued, both implicitly and explicitly, that it was both correct and admissible for Mr. Wong to select and adopt his 10 comparables, other than those located in Tai Wai area and adopted by the other expert, Mr. Leung, because-

(1) all Mr. Wong's comparables, notwithstanding their being some distances away from Tai Wai area (in which the tenement was located), were all located in the same Shatin district;

(2) it had been decided by the Lands Tribunal in other cases (e.g. the unreported case of Hsin Kuang Restaurant (Holdings) Limited v. Commissioner of Rating & Valuation (referenced Rating Appeal No. 52 of 1997, Judgment dated 27 October 1998) that it would be proper to use comparables in other locations;

(3) the use of comparables from other locations were common practice within the profession, as evidenced by the admission of Mr. Leung that he had the experience of choosing comparables from different locations when undertaking valuations in the past;

(4) the availability of amenities surrounding the suitable comparable car parks should be an important factor and that location should not be a decisive factor as to outweigh other factors;

(5) the rentals of the tenement (referred to by Mr. Leung as his Comparable 1) which was under appeal, should be excluded as one of the basis for valuation analysis;

(6) all renewed tenancies (including Mr. Leung's Comparables 2 and 4, i.e. STT 1017 and STT 1126 respectively) should be discarded as they were not at arms length and were unreliable; and

(7) only comparables 6 months before or after the dates of the referenced valuation should be used (and hence, Mr. Leung's Comparable 3, STT 1119 should be discarded).

13. On the other hand, the Respondent submitted that Mr. Leung had chosen his 4 comparables for the following reasons:

"(i)The decision in Garton v. Hunter (VO) [1969] 1 All ER 451 had allowed the actual rent paid for the appealed property to be given relevant considerations as other comparables. In any event, Mr. Leung confirmed that he had relied on his Comparables 2, 3 and 4 in arriving at his opinion of value. He had only sought to analyze the 2nd and the 3rd bids of the tenement (Comparable 1) and used this as a check to confirm that the adjusted rents represented by the 2nd and 3rd bids as being in line with the adjusted rents of Comparables 2 to 4.

(iii)Comparable 2 was just opposite to the subject tenement.

(iv)Comparable 3 was situated at the fringe of an industrial area in Tai Wai and opposite to Tai Wai Village.

(v)Comparable 4 was similar in size to and located not far from the subject tenement."

14. In commenting on the comparables used by Mr. Wong, Mr. Leung said that they were all further away from the tenement. In particular, Mr Wong's comparables ST-1 to ST-5 were located in the industrial area of Shek Mun whereas the tenement was surrounded by residential developments. As for the comparables in Ma On Shan (ST-8 to ST-11), Mr. Leung said that there was a much larger supply among car park operators in Ma On Shan when compared with Tai Wai area.

15. Counsel for the Respondent further submitted that Mr. Wong in answering his question admitted that he had not included the comparables in Tai Wai because it appeared to him the rents of those comparables were high.

Choice of comparables by the Tribunal

16. I find that the choice of the most relevant and suitable comparables in this appeal is a matter of fact finding only. I do not agree with Mr. Wong and the Appellant that because all Mr. Wong's comparables were located in the same Shatin district, they should be considered as suitable comparables for the tenement. Shatin district is a geographical district for census, planning, land and other civil administration purpose. It is not necessarily the case that properties located within the same Shatin district are appropriate comparables to each other. This is the same regardless of whether the properties in question are residential, commercial, industrial or special properties.

17. Therefore, I find that the general rule of valuation for properties should still apply in the present rating appeal regardless of whether the tenement, or fee-paying open car-parks are special properties or not. That is, if suitable comparables are available in locations close to the subject tenement, they are invariably preferred to the other comparables, even though the latter were also located in the same district of Shatin.

18. There is of course no rule in principle against using comparables that are located some distance away from the subject tenement. (Hsin Kuang Restaurant (Holdings) Ltd. Case refers) But, as rightly pointed out by Counsel for the Respondent, if there is good comparables situated close to the tenement, why should comparables further away be adopted as the best comparables?

19. In this regard, I have estimated from the survey plan, Sheet 7 of Series HM:20C/2 (Exhibit AR-2) and find that Mr. Leung's comparables are roughly within a horizontal distance of about one and a half km. from the tenement whilst Mr. Wong's comparables are at least 3 km. away from the tenement, with the majority of comparables at Shek Mun to be about 4 km. away and those at Ma On Shan to be even further, at about 6 km. away. I should however add that I quote these distances not because I consider that the relevance of comparables necessarily bear any direct relation with the distance between the comparables and the tenement in question. However, it assists one to gauge the rough distances between the subject tenement and the different major groups of comparables adopted by the parties' experts.

20. Next, I have considered but find that the reasons given by Mr. Wong and the Respondent for rejecting Mr. Leung's comparables to be not valid. Firstly, there is no reason for rejecting the comparables STT1017 and STT1126 just because they were renewed tenancies. I cannot agree that renewed tenancies are necessarily not at arms length, as alleged by Mr. Wong. And, in the hearing, there was no evidence whatsoever that these two renewals were not at arms lengths. Moreover, as rightly pointed out by the Respondent, since the overwhelming majority of property transactions in general are not by tender but by private treaty, is it right that we should exclude all private treaty sales or tenancies as comparables in property valuations? My simple answer, obviously, is no. Secondly, it was also wrong for Mr. Wong to discard STT 1119 because it was outside his self-imposed criteria of 6 months before or after the relevant valuation date. In this regard, I note that Mr. Wong did not see it necessary to make any adjustment for time for all his 10 comparables with relevant dates of between July 2000 and October 2001 (a total of 15 months spanning in between these 2 dates). It follows that rental levels of open fee paying car parks remained quite constant throughout this period, according to Mr. Wong. Therefore, it is an irony that Mr. Wong found that the time factor was so important that he had to exclude STT 1119 because it was some 7 months earlier than the relevant valuation date of 1 October 2000.

21. To conclude, I find that the reasons given by Mr. Wong and the Respondent in support of the choice of Mr. Wong's comparables and the rejection of all the comparables of Mr. Leung are either unclear or wrong. Some of the reasons are not supported by facts and common sense, and are not consistent with the valuation of Mr. Wong. On the other hand, Mr. Leung has chosen comparables which are closest to the tenement. As location is the most important factor of a piece of real property, including the tenement, there is no sufficient reason to reject Mr. Leung's comparables outright. There may well be differences between the tenement and Mr. Leung's comparables in terms of various factors of location (and accessibility, whether or not this is a separate factor or a factor considered together with location), size, shape and time. However, as common in other valuation exercise, these are only factors to be reckoned with in the valuation process. The differences between the tenement and the comparables should be dealt with in the process of adjusting the comparables but not the reasons for discarding these comparables per se. Otherwise, since normally no two properties are identical, there will simply be no solution to the problem of valuation by direct comparison approach. Therefore, for the reasons stated above, I consider Mr. Leung's comparables as to be the best comparables but rejected all of Mr. Wong's comparables as (1) they were all situated further away from the tenement in different areas of the same Shatin district and (2) other good comparables are already available.

Adjustment of Mr. Leung's comparables

22. Mr. Leung adjusted his comparables in terms of the factors of time, size, location and shape. His adjustments were set out in Appendix I of his report (Exhibit AR-1, page 162). Also, he analyzed some rental transactions of open car parking lots for the purpose of quantifying (i) the changes of values over time and (ii) the changes of values in relation to size for this type of property.

Location

23. Mr. Leung did not allow any adjustment for location for his Comparable 2 which was located opposite to the tenement. He allowed adjustments of -5% and -10% for his Comparables 3 and 4. Mr. Leung also considered that there was no need to add another factor of accessibility for his comparables. Since Mr. Wong did not adopt the comparables of Mr. Leung, he did not comment any further on the adjustments that should be applied for Mr. Leung's comparables.

24. On the other hand, Mr. Wong did not see fit to make any adjustment for any location differences of all his comparables. However, Mr. Wong made adjustments of the same -5% to most comparables for the factor of accessibility. Mr. Wong argued that since all the comparables were located in open area and were away from town centres and commercial areas, they were the same in terms of location. As such, no adjustment was warranted. I find this to be erroneous. There are so many factors affecting the demand and supply of open car parking lots that I consider that Mr. Wong's peculiar reasoning for the locational characteristics of open car parks cannot be right.

25. In the final analysis, I agree with Mr. Leung's nil adjustment for his Comparable 2 but decide that higher adjustments of -10% and -15% were warranted for Mr. Leung's Comparables 3 and 4 respectively.

Time

26. Both experts did not disagree that in principle there was the need to make time adjustment for each comparable. However, Mr. Wong stated that as there was no index showing any change in rental value of open car parking lot over time, he prepared his own trend of market rental values based on his research of sales transactions of 17 private car parks in 2000 and 6 private car parks in 2001, in the development known as Royal Ascot in Shatin. As the records show that the sale prices of these car parks remained constant, at $250,000, he concluded that there was no change in rental value of car parks in Shatin district and that there should be zero adjustment to his comparables for the factor of time.

27. On the other hand, Mr. Leung analyzed the rentals of some open fee paying car parks in Shatin. This analysis suggested to him that the rentals of this type of property declined at an average rate of about 11% per annum during the relevant period.

28. On balance, I give Mr. Wong's conclusion less weight as it was based on sales but not rents of car parks in a particular estate. Secondly, it appears to me that his conclusion of constant rental values for the relevant period of 2000 and 2001 was against the general market trend that the rents of all types of properties fell during the period. Therefore, I accept to use Mr. Leung's adjustments for his comparables.

Size

29. Both experts also agreed in principle on the need to make size adjustments on the basis that the large the size of the car park, the lower would be the rental per sq. m. of site. I agree with Mr. Leung's finding that there was no material difference in unit rentals between car parks with size ranging from 10,000 sq. m. to 22,000 sq. m. Therefore, I agree with Mr. Leung that nil adjustment would be required for his Comparable 4. As for his Comparables 2 and 3, I decide to adopt higher adjustments of -30% and -25% respectively.

Shape

30. Again, both experts agreed in principle that the shape of a car park would affect its efficiency and hence its rents. I agree with Mr. Leung's adopted percentage of adjustment for Comparable 3, which has an odd shape.

Summary of Tribunal's adopted adjustments to Mr. Leung's comparables

31. The following table set out my adjustments of Mr. Leung's comparables:-

Comp No..	Unit Rate (per sq. m.)	Value as at 1 Oct., 2000			Value as at 1 Oct., 2001
		Adjustments		Adj. Rate (per sq.m.)	Adjustments		Adj. Rate (per sq.m.)
2.	$50.00	Time Size Total	6% -30%____ -24%	$38.00	Time Size Total	-5% -30%_____ -35%	$32.50
3.	$54.51	Time Size Location Shape Total	-6% -25% -10% 10% _____ -31%	$37.61	Time Size Location Shape Total	-17% -25% -10% 10%______ -42%	$31.62
4.	$45.97	Time Location Total	2% -15%____ -13%	$39.99	Time Location Total	-9% -15%_____ -24%	$34.94
Average				$38.53 =====			$33.02 =====

Valuation of the tenement

32. Adopting the average adjusted unit rates arrived above, the tenement's ratable values are assessed as followed:-

Year 2001/2002 -

= 16,100 sq.m. x $38.53/sq.m. x 12

= 7,443,996 rounded to $7,443,600

Year 2002/2003 -

= 16,100 sq.m. x $33.02/sq.m. x 12

= $6,379,464 rounded to $6,379,200

Orders

(1) Appeal allowed; the rateable value of the tenement be fixed at $7,443,600 (for 2000/2001) and $6,379,200 (for 2001/2002);

(2) The Respondent be directed to amend the valuation lists accordingly;

(3) The Respondent shall within one month refund to the Appellant any rates overpaid;

(4) Order nisi for costs in favour of the Appellant on District Court party to party scale, to be taxed if not agreed; leave to either party to apply within 14 days to vary the order, otherwise the order shall become absolute;

(5) With liberty to apply for ancillary and consequential matters.