Moira James v. Childwall Valley Co. Ltd.

LANDS TRIBUNAL
Application No. NT 260 of 1997

HEADNOTE

Property Law - Part IV of Landlord and Tenant (Consolidation) Ordinance, Cap.7 - determination of prevailing market rent - rateable values of Premises give an indication as to the relativity of their values, a better flat bears a higher rateable value.

IN THE LANDS TRIBUNAL OF

THE HONG KONG SPECIAL ADMINISTRATIVE REGION

Application No. NT 260 of 1997

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Reasons for Decision

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The Applicant and the Respondent were respectively the tenant and landlord of Flat No. 206, 2nd Floor, Welsby Court, 78-80 Macdonnell Road, Hong Kong ("the subject premises"). The Applicant applied to this Tribunal for a new tenancy under Section 117 of the Landlord and Tenant (Consolidation) Ordinance, Cap. 7 ("the Ordinance").

2. It was common ground that the new tenancy would commence from 7th February 1998. The Tribunal was required to determine the new rent and the length of the term for the new tenancy and whether or not the new tenancy agreement should contain a clause requiring it to be endorsed by the Commissioner of Rating and Valuation under Section 116(4) of the Ordinance whereby the new tenancy shall be excluded from the application of Part IV of the Ordinance.

3. The parties first appeared before a Member of this Tribunal on 12th December 1997 when they showed some intention for settlement. At that time the rental market was falling as a result of the financial turmoil which started from October 1997. The Tribunal considered that it was prudent to adjourn the hearing to a later date so as to allow time for obtaining rental information of lettings of comparable flats effective from around 6th February 1998, the relevant date for assessment of the rent for the new tenancy which according to the Ordinance, shall be the prevailing market rent as at that date. The adjournment would also allow time for parties to negotiate for a settlement. The case was later heard by the Member on 1st April and 5th May 1998. During the hearing, parties argued amougst other things about the internal condition of the subject premises. The Member then inspected the subject premises and several units within the same building on 11th May 1998 in the presence of both parties. As there was a point of law in dispute, namely, whether or not the new tenancy agreement should contain a clause requiring its endorsement by the Commissioner of Rating and Valuation under Section 116(4) of the Ordinance, the case was finally heard by a Presiding Officer and a Member on 7th July 1998 which date was fixed to suit the parties.

Tenancy History

4. The Applicant tenant first entered into a tenancy agreement (Exhibit A1) with the Respondent for a term of 2 years effective from 7th August 1991 at a monthly rent of $18,000. In 1993, the Applicant continued to lease the subject premises by entering into a second tenancy agreement ("the 1993/94 tenancy agreement" - Exhibit A2) for a term of 1 year commencing from 7th August 1993 at a rent of $22,000 per month. This time the subject premises were let fully furnished and the landlord was obliged by the terms of the tenancy to maintain and repair the premises, furnishings and fittings. Under clause 4(k) of the tenancy agreement parties agreed that this agreement be submitted to the Commissioner of Rating and Valuation for endorsement under Section 116(4) of the Ordinance. If so endorsed, the tenancy would be excluded from the application of Part IV of the Ordinance and the tenant would lose her security of tenure at the end of the 1-year contractual tenancy. However, the tenancy agreement had never been submitted to the Commissioner for his endorsement. As the tenancy had not been terminated by the landlord or otherwise in accordance with the provisions of Part IV of the Ordinance, the Applicant tenant continued to reside in the subject premises after the expiry of the 1-year contractional tenancy by paying the same rent of $22,000 per month and otherwise subject to the same terms as in the 1993/94 tenancy agreement. The Respondent landlord did not seek to terminate the tenancy by giving the tenant a prescribed notice of termination (Form CR101) until July 1997 when the Respondent gave the Applicant such a prescribed notice terminating the tenancy on 6th February 1998. The Applicant now applied to this Tribunal for a new tenancy.

Rent for the New Tenancy

5. Under Part IV of the Ordnance, the rent for the new tenancy in this case shall be the prevailing market rent of the subject premises as at 6th February 1998. Neither the Applicant nor the Respondent called an expert witness. The Applicant submitted that the rent for the new tenancy should not be more than $30,000 per month. She tried to compare her flat with an identical flat at one floor higher in the same building, i.e. Flat No. 306, the landlord of which made an offer to the tenant in May 1998 to renew the tenancy for 2 years commencing from 1st September 1998 at a rent of $30,000 per month. The Applicant told this Tribunal that this offer was not accepted by the tenant. This unaccepted rental offer could only be a rough indication of the rental level in May 1998. However, the Tribunal had to assess the rent for the new tenancy in this case by referring to the market rental level prevailing in February 1998. The Respondent claimed that the new rent should be $44,000 per month on the basis that the landlord would decorate up the premises and provide new furniture. The Respondent had no concrete evidence to support his claim. Furthermore, the tenant refused the landlord's proposal of decorating up the flat and providing new furniture which would increase the rent payable for the new tenancy.

6. The Commissioner of Rating and Valuation supplied to the Tribunal with 2 schedules of comparable rents (Exhibits T1 and T2) which were shown to the parties during the hearing. The rents recorded in Exhibit T2 were rents of flats within the same building as the subject premises. However, these rents with commencement dates falling between April and September 1997 were out-dated and did not represent the market rental level in February 1998. Exhibit T1 recorded more recent rents of comparable flats in the same neighbourhood. Four of these rents were effective from the first quarter of 1998 and were therefore more relevant as the Tribunal had to determine the prevailing market rent of the subject premises as at 6th February 1998. The rental market was unstable and kept falling after October 1997. It was therefore more reliable to refer to rents in the first quarter of 1998 for the purpose of assessing the new rent. However, without any expert witness, it was difficult to comprehend all the relative advantages and disadvantages of the comparables and the subject premises in terms of location, orientation, view, environment etc. To get over this problem, the Tribunal referred to the current rateable value per month figures of these flats supplied by the Commissioner of Rating and Valuation in Exhibit T1. In simple terms, the rateable value of a property is its annual letting value. The current rateable values of the flats in question have been assessed by valuers of the Rating and Valuation Department under the Rating Ordinance, cap. 116, by reference to market rentals prevailing around 1st July 1996 having regard to all the advantages and disadvantages of these flats. Although the current rateable values do not represent the market rental values in February 1998, they do clearly indicate the relativity of values of these flats. Simply, a better flat bears a higher rateable value. The current rateable value per month figures supplied by the Commissioner are the monthly equivalent figures of current rateable values. The current rateable value per month of the subject premises is $26,900. Comparing this with the corresponding figures of the comparable flats listed in Exhibit T1, those rents which took effect from the first quarter of 1998 were analysed as follows : -

these analyses could reasonably support a rent of $32,000 per month.

7. The Tribunal noted that the comparable rents were rents of fresh lettings. For a fresh letting, a landlord would normally decorate up the flat, e.g. repainting the flat, polishing the floors, tidying up the premises and attending to all repairs, before the flat could attract a new tenant. The Tribunal Member inspected the subject premises and the furniture therein on 11th May 1998. The condition of the premises, which had been subject to wear and tear for a number of years, was substantially inferior to the much better condition which was normally expected of for freshly let premises. This difference in condition justified a downward adjustment of the rent by -10%. The Tribunal also noted that the comparables were not let fully furnished. The subject premises were let with furniture which was quite old though the tenant was still using it. The provision of such old furniture by the landlord could only justify an upward adjustment of the rent by +5%. Furthermore, the terms of the subject tenancy obliged the landlord to undertake all repairs including internal repairs which were normally the tenant's liability. For this additional repairing responsibility on the landlord, the Tribunal allowed an upward rental adjustment of +5%. In sum, the total amount of downward adjustment (-10% for inferior condition) exactly equalled the total amount of upward adjustments (+5% for furniture and +5% for landlord's additional repairing liability) and as a result, no adjustment to the estimated rent of $32,000 per month was actually necessary. Accordingly, the Tribunal determined the rent for the new tenancy at $32,000 per month.

Length of New Tenancy

8. The Applicant applied for a new tenancy for 2 years but the Respondent advocated for 1 year so that the new tenancy might be endorsed by the Commissioner of Rating and Valuation under Section 116(4) of the Ordinance. The last written tenancy agreement entered into by the parties was for 1 year expiring on 6th August 1994 and the Applicant continued to reside in the subject premises thereafter under the provisions of Part IV of the Ordinance by paying the same monthly rent. In such circumstances, the Tribunal thought it appropriate to follow the same length of the term of 1 year as that of the last written tenancy agreement in the absence of strong reasons to support any change. The Tribunal therefore determined the length of the term of the new tenancy to be 1 year. As there was no evidence indicating that the rent for a 1-year tenancy should be different from that for a 2-year tenancy, the Tribunal decided that no adjustment to the determined rent of $32,000 per month was necessary.

Endorsement of New Tenancy under Section 116(4)

9. The Respondent averred that the new tenancy should contain the same terms as those in the current tenancy agreement except for the amount of rent. The new tenancy agreement, according to the Respondent, should therefore contain the same clause 4(k) as in the last written tenancy agreement requiring its endorsement by the Commissioner of Rating and Valuation under Section 116(4) of the Ordinance. The Applicant refused to include such a clause in the new tenancy agreement. Whilst when granting a new tenancy the Tribunal does normally adopt the same terms of the current tenancy (other than terms as to the amount of rent payable) and would not make any change except with the consent of parties or where there are strong reasons for change, the Tribunal does have the power to determine the terms in the new tenancy under Section 119J of the Ordinance which reads :

" The terms of a tenancy granted by order of the Tribunal under this Part (other than terms as to the duration thereof and as to the rent payable thereunder) shall be such as may be agreed between the landlord and the tenant or as, in default of such agreement, may be determined by the Tribunal or by a valuation surveyor appointed by the Tribunal; and in determining those terms the Tribunal shall have regard to the terms of the current tenancy and to all relevant circumstances."

As this point of law was in dispute, it was referred to a Presiding Officer for determination under Section 9(6) of the Lands Tribunal Ordinance, Cap. 17. The Presiding Officer will give separate reasons for decision on this point of law.

Dated this 12th day of August, 1998.