Susan Q. Clavano v. Right Line Co. Ltd.

LDNT 214/2002

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

NEW TENANCY APPLICATION NO. 214 OF 2002

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J U D G M E N T

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1. This is an application from Ms. Susan Q. Clavano (the Applicant) for granting of a new tenancy in respect of Flat A on 1/F No.9-11 Wing Hing Street, Causeway Bay, Hong Kong (hereinafter referred to as "the subject premises"), under Part IV of the Landlord and Tenant (Consolidation) Ordinance. Ms. Clavano is the tenant of the subject premises and Right Line Company Limited (the Respondent), the landlord. The application was lodged on 16th October 2002. The Applicant appeared in court in person and Messrs. S.T. Poon & Wong, Solicitors, represented the Respondent.

2. In the hearing on 20th January 2003, the two parties reached agreement on the following terms of the new tenancy: -

(a) One year term certain;

(b) New tenancy to commence on 16th October 2002;

(c) Deposit at the same rate as provided under the previous tenancy, i.e. equivalent to the sum of two months rental;

(d) Landlord responsible for structural repair and tenant for internal repair (wear and tear excepted);

(e) Rent inclusive of rates and management fees;

(f) Stamp duty to be shared by the two parties on equal basis; and

(g) Other terms in the previous tenancy remain in full force under the new tenancy.

Rent therefore, is the only outstanding issue that needs the adjudication of the Tribunal.

The Applicant's Arguments

3. The Applicant considered that the over-all rental market had gone down substantially in the past months and therefore the rent payable for the subject premises should be revised downwards upon tenancy renewal. In her opinion, the appropriate rent payable should be in the region of $5,500 per month inclusive of rates and management fees. She derived such rental figure from the information she procured from estate agency firms in business within the same locality of her home, which had good experience in arranging leasing of the same kind of properties for many landlords. She said that the Rating and Valuation Department rental information produced by the Respondent's solicitor are all confined to tenancies of residential units owned by the Respondent. If they were based to arrive at the rent of the subject premises, the assessment would be biased. She considered that the Respondent purposely demanded an excessive rent from tenants upon tenancy renewal so to deter sitting tenants from renewing their tenancies. As a result, the Respondent can take back vacant possession of the whole building for re-development without paying the sitting tenants the required compensation. At present, she estimated that over 50% of the units of the building are vacant. She did not consider that the asking rent was inappropriate for the Tribunal to form a view on the rent of the subject premises as if the asking rent is not the final rent agreed, the negotiation will be settled at an even lower amount in view of the market trend.

The Respondent's Arguments

4. The Respondent's solicitor admitted that all the six units on the Rating and Valuation's rental information record are owned by the Respondent, but considered that the Rating and Valuation Department rental information are appropriate for valuation by the Tribunal. He dismissed the Applicant's arguments by pointing out that out of the six transactions on the Rating and Valuation Department rental record, three were new lettings and three were renewal cases. Were it the intention of the Respondent to take back vacant possession of the building, no new letting would be entertained by the Respondent. He advised that Comparable 4 of the Rating and Valuation Department's rental record was useful to be based in setting the rent of the subject premises. Since the subject premises are on lower floor than Comparable 4 and slightly larger in size, with the benefit of a large side roof, the rent of the subject premises should be the same as Comparable 4, i.e. $6,500 per month inclusive of rates and management fees. He said he would not advise the Tribunal to base on Comparable 1 to decide on the rent of the subject premises because Comparable 1 being a unit on the 6th floor commanded a rent even lower than the respective rent of the two units on the 3rd and 4th floor. As such, he considered that the rent of Comparable 1 did not tone in well with the rent of the other five comparables. However, he did not rebut that the over-all rental market had gone down substantially in the past months.

Tribunal's Analysis and Valuation

5. The Applicant's suspicion concerning the Respondent's intention to take back possession of the building is unfounded as 50% of the transactions on Rating and Valuation Department's rental record are new lettings. Asking rent very often is not the final rent upon finalization of the tenancy terms. The final rent may be higher or lower. Notwithstanding this, if other terms of tenancy associated with the asking rent had not been made known, it is inappropriate to utilize the asking rent for valuation. It should also be noted that sometimes, it is a promotion tactic of agents to lure the prospective tenants by setting the asking rent of some property lower than its market rental even though such property is not yet available for leasing. In conclusion, it is too risky to base on the asking rent obtained from estate agents to decide the rent of the subject premises, whilst there are actual transactions from the Rating and Valuation Department, which has no bias towards either party.

6. The Tribunal share with the Applicant's view that the flat roof which is one floor above the ground floor shops, susceptible to noise and fumes from motor vehicles in Wing Hing Street and practically can only be used for placing of potted plants, should not be able to command a significant rent in the open market.

7. The Tribunal does not share with the view of the Respondent's solicitor that Comparable 1 is unsuitable to be based to arrive at the rent of the subject premises (It is unclear as to whether Comparable 1 or Comparable 4 is out of the tone without in depth analysis. If the unit rents of the six comparables are able to give a clear and logical pattern, a decision could have already been made on the hearing day without the need for a deferred judgement.). To resolve this issue, the Tribunal has ranked the six comparables together with the subject premises in the descending order of their unit rent and floor level (this is because properties on higher floor should be able to command more rent than properties on lower floor), but in the ascending order of the time the tenancy was created (this is because rental market has been dropping since some time ago) per the table hereunder so as to determine the level of rent of the subject premises.

Conclusion

8. From the table above, the unit rent of Comparable 6 (i.e. $203.8 per sq.m.) ranked No.1 is reasonable as Comparable 6 ranked No.2 for both factors of "Time" and "Floor", and that of Comparable 2 (i.e. $197.89 per sq.m.) is also reasonable since Comparable 2 ranked No.1 for "Floor" and No.3 for "Time". The unit rent of Comparable 5 (i.e. $195.70 per sq.m.) ranked either No.3 or 4 is acceptable. The question is whether Comparable 3 (i.e. $192.61 per sq.m.) should be ranked before Comparable 5 or after it. The unit rent of Comparable 4 (i.e. $176.60 per sq.m.) ranked No.5 is also not arguable. The logic is self-evident. In the case of the rental positions of Comparable 1 (which unit rent is $166.20 per sq.m.) and the Subject Premises, it is also self-evident that the Subject Premises should be ranked after Comparable 1. Therefore, the solicitor's argument that Comparable 1 should not be based for valuation should be dismissed. The monthly rent of the subject premises should be $300 - $600 below that of Comparable 1 having regards to the rental differences between Comparable 5 and 6 and between Comparable 3 and 4 (i.e. one floor above/below). Considering that the new tenancy of the subject premises is only of one year certain as distinct from the previous tenancy and also most of the comparables in use for valuation, the rent payable should be around $6,000 per month inclusive of rates and management fees.

Orders

9. Accordingly, I order that: -

(1) The Applicant shall be granted a new tenancy for a term of one year commencing on 16th October 2002 with no provision for early determination;

(2) The new rent shall be at $6,000 per month, inclusive of rates and management fees;

(3) The rental deposit shall be maintained at the same rate, i.e. equivalent to the sum of two months rental;

(4) The Respondent shall refund the excess in the amount of deposit paid within one month from the date hereof;

(5) Save as aforesaid, other terms in the previous tenancy shall remain in full force and of effect under the new tenancy; and

(6) No order as to costs.