New Dorset Investments Ltd v. Chiu Mei Kiu and Others
Read the full judgment text of LDCS 30000/2018 on BabelCite. This LDCS judgment was delivered on 9 June 2020.
1. This is an application for a compulsory sale order under the Land (Compulsory Sale for Redevelopment) Ordinance, Cap 545 (“the Ordinance”) (hereinafter referred to as “the Application”) to sell all the undivided shares of Inland Lot No 2963 and Inland Lot No 3035 (hereinafter collectively referred to as “the Lots”). Erected thereon is a 9-storey tenement buildings with two common staircases (“the Building”) having a street address of Nos 99 & 101 Des Voeux Road West, Hong Kong respectively.
Cited by 5 cases · Cites 8 cases
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LDCS 30000/2018 [2020] HKLdT 22 IN THE LANDS TRIBUNAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION LAND COMPULSORY SALE MAIN APPLICATION NO 30000 OF 2018 __________________________ BETWEEN
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_________________ J U D G M E N T _________________ 1.This is an application for a compulsory sale order under the Land (Compulsory Sale for Redevelopment) Ordinance, Cap 545 (“the Ordinance”) (hereinafter referred to as “the Application”) to sell all the undivided shares of Inland Lot No 2963 and Inland Lot No 3035 (hereinafter collectively referred to as “the Lots”). Erected thereon is a 9-storey tenement buildings with two common staircases (“the Building”) having a street address of Nos 99 & 101 Des Voeux Road West, Hong Kong respectively. 2.The occupation permit for the Building (“OP”) was issued pursuant to the then Buildings Ordinance, 1955 on 4 May 1962 whereby permission was granted to occupy the Building for 2 shops on Ground Floor (“G/F”), 2 units for non-domestic use on the Mezzanine Floor (“M/F”) and two residential units on each of the 1/F to 8/F which are served by two common staircases but with no lift. 3.Each of the Lots is governed by a Deed of Mutual Covenant allotting to each unit of each lot 1/10 undivided share, with each of the two 8/F units being given the use of the respective portion of the roof. 4.At the time of the Application, the applicant owned all the undivided shares except those allotted to the 4 units owned by the 6 respondents below:
5.Thus the remaining live respondents are R2 and R3-6. 6.While Mr Mok Yuek Chi (“Mr Mok”), instructed by Messrs Mayer Brown, acts for the applicant, R2 is represented by Mr Adrian But (“Mr But”), instructed by Messrs Liu, Chan and Lam, Solicitors & Notaries, and R3-6 are represented by Mr Ross M Y Yuen (“Mr Yuen”), instructed by Messrs Lo & Lo, Solicitors & Notaries Public. Whether the Applicants are entitled to make the Application 7.Section 3(1) of the Ordinance requires an applicant to have not less than 90% of the undivided shares in a lot before he can make an application. 8.Section 3(5) of the Ordinance provides that the Chief Executive in Council may, by notice in the Gazette, specify a percentage lower than the percentage mentioned in section 3(1) in respect of a lot belonging to a class of lots specified in the notice. 9.The Land (Compulsory Sale for Redevelopment (Specification of Lower Percentage) Notice was gazetted on 22 January 2010 and came into operation on 1 April 2010 (“the Notice”). Section 3 of the Notice lowered the threshold for compulsory sale in respect of the classes of lots specified in the Notice from 90% to 80%. Those classes of lots include: “a lot with each of the buildings erected on the lot issued with an occupation permit at least 50 years before the relevant date (ie the date of the application under the Ordinance)”. 10.As mentioned, the OP for the Building was issued on 4 May 1962 (namely, not less than 50 years before the date of the Application). The Notice is applicable and the threshold percentage should be 80%. 11.At the time of the filing of the Application, the applicant owned an average of 80% of the undivided shares of the Lots. I agree therefore that the applicant is entitled to make the Application under section 3(2)(b) of the Ordinance which may cover 2 or more lots—
The Issues in the Application 12.Mr Mok summarized the following issues as shall be determined by the Tribunal according to section 4 of the Ordinance:
The Evidence 13.The applicants have filed the following documents in support of the Application:
14.R2 filed a witness statement 9 October 2019 by its director Mr Tsang Wai Yu (“Mr Tsang”) who stated that R2’s business includes manufacturing and selling various types of incenses to local and overseas customers for religious ceremonies, personal enjoyment and purifying the surroundings. Since the purchase of R2’s two units in 1998, R2 has been using the premises as its registered office and as a retail shop to display and sell its products. According to Mr Tsang, R2 has retained a constant clientele including both local residents and foreign visitors over the past 20 years. Mr Tsang suggested that if R2 has to relocate its shop to another district in case an order for sale be granted, most retail customers would be lost. For instance, the older customers and the overseas buyers may not be able to find the new shop; R2 will certainly lose many of its customers and hence its business will be badly affected. Unfortunately, all these allegations by Mr Tsang do not fall within the ambit for consideration under the Ordinance. 15.R4 filed a witness statement for himself and on behalf of the R3, R5 and R6 on 9 October 2019 complaining basically that various offers by the applicant did not cover the redevelopment value of the Lots. This allegation is untrue as can be seen as demonstrated by the RDV of the Lots. 16.As stated in paragraph 13(d)(iii) above, R2 and R3-6 relied on the following reports of Ms Sat:
17.Mr C Chan and Ms Sat have prepared two joint statements, one dated 13 December 2019 setting out their agreements and disagreements on EUV, followed by another dated 22 April 2020 on RDV. 18.R2 and R3-6 have not adduced any expert evidence on the age and state of repair of the Building but put the applicant to strict proof on such requirements. 19.During the hearing, both Mr C Chan and Ms Sat produced their revisions as Exhibits A1, A2, A3 & A4 and Exhibits R1, R2 & R3 respectively. EUV as at 21 September 2018 Assessment of G/F units 20.Both Mr C Chan and Ms Sat agreed to use the same set of comparables as follows:[1]
21.As regards the conversion of the ancillary areas to the effective areas, the two experts agreed that it would be 1/6 for the store, 1/6 for the yard, ½ for the wc at yard and ¼ for the cockloft or M/F. The only disagreement between the two experts is the conversion factor for the cockloft or M/F which has a separate entrance around the corner of the building abutting Wilmer Street instead of Des Voeux West (ie the one for comparable A4); Mr C Chan switched from 1/6 to ¼ whereas Ms Sat maintained at 1/6. 22.Then the question arises as to which factor of conversion is appropriate? For a cockloft or M/F inside a shop, it is of course an ancillary area to the shop and its value derives from that of the shop. To the extent that a cockloft or M/F is no longer accessible from the shop inside, its value is detached from the value of the shop. On the other hand, “a relatively higher price will be demanded by the owner if the ground floor shop can form an entrance providing an upper floor shop premises with a direct access from the street and hence increase the value of the upper floor shop premises”: See Bright Dragon Properties Limited v Director of Lands, LDLR 3/2007 (unreported, 8 August 2014) at §§34-36. 23.However, both Mr C Chan and Ms Sat were unable to tell whether an internal staircase has been erected for this comparable to connect the cockloft or M/F. If I agree with Ms Sat that the conversion factor should be maintained at 1/6 (which is lower than ¼), the value for the cockloft or M/F was about $121,100/sq m. Alternatively, if I accept Mr C Chan’s factor of conversion of ¼, the value of the cockloft or M/F was about $155,800/sq m. In the absence of direct comparable, this latter value fares better when I note that both experts agreed the unit rate for the domestic reference unit, ie 4/F, 99 Des Voeux Road West at $154,500/sq m for an area about 63.1 sq m; a commercial floor on a lower floor with separate entrance cannot have a unit rate lower than that of a residential unit in the similar district with no lift; the lift button of the M/F of comparable A4 was disabled by the occupant probably for security purposes only. 24.Apart from the above, they have the following agreements/ disagreements on adjustments[2]:
25.The table below shows the various adjustments applied by Mr C Chan (while those by Ms Sat would be shown in parenthesis if they are different):
Adjustments for Location 26.From the above table, the difference between the two experts on the location adjustments is basically 10% (save for comparable 6 which has a difference of 5% only). Thus, if I accept the adjustment for 1 comparable, then the adjustment for the others would naturally follow. 27.The Building is situated on the northern side of Des Voeux Road West beside Lucky Commercial Centre at its junction with Wilmer Street on the opposite side of which is a pedestrian crossing across Des Voeux Road West. This section of Des Voeux Road West, commonly known as Dried Seafood Street, is within the hub of trades famous for dried seafood stores and groceries. According to the websites of the Hong Kong Tourism Board, “(u)p to 50 years ago the area was dominated by salted fish stores, when workers would dry their products on rooftops, sell them on the ground floors and live on the floors in between. As the area became more residential, businesses expanded their sales pitch to include more high-end and auspicious options, including the Chinese banquet favourite abalone.” During our joint inspection on 5 May 2020, trucks lined the street replenishing the shops, which soon became choked with housewives inspecting their likes. The street was particularly lively on the southern side. I agree that comparables on the southern side are relatively 10% better than the northern side. 28.Comparable A1 is situated further away from the Building to the east and is separated by Sutherland Street. I consider the adjustment of +10% applied by Ms Sat more reasonable than Mr C Chan’s 0%. Comparable A4 is situated across the pedestrian crossing mentioned above and adjustment of -20% by Ms Sat is preferred while -30% of Mr C Chan appears excessive. 29.Comparable A3 is opposite comparable A1 across Des Voeux Road West and is relatively off the centre for dried seafood stores and groceries. Notably, both experts agreed to apply a relative adjustment of -20% from comparable A2 to A3. I therefore consider it better than comparable A1 and in terms of location similar to the Building. I prefer again Ms Sat’s adjustment of 0% than Mr Chan’s -10%. 30.Comparable A2 is situated at a bustling environment like comparable A4 and I am prepared to adopt a location adjustment of -25%, ie midway between Mr C Chan’s -30% and Ms Sat’s -20%. 31.In respect of the two comparables at Queen’s Road West (ie comparables A5 & A6), they lie far away and outside the Dried Seafood Street area. While Mr C Chan argued that this area caters for a more variety of trades serving the residential population living nearby in the local community, I agree with Ms Sat that this area loses the character provided by the conglomeration of trades. Again Ms Sat’s adjustments for these two comparables are preferred. 32.Indeed, in his rebuttal report dated 4 November 2019, Mr C Chan tried to make use of the rateable values of the various comparables to support his location adjustments.[3] While it is true that the Tribunal has on occasions referred to the rateable values of the affected properties for assistance in forming its opinion on values, it would only do so when there is lacking in valuation evidence or the evidence given is not so reliable. Rateable values are assessments by RVD; they are not based on direct comparable sales over arms-length. In Snowland Limited v Director of Lands, LDLR 2/2014 (unreported, dated 11 November 2016), the Tribunal was alerted that the rateable values arrived at by RVD for inclusion in the valuation list were not always correct[4]. And earlier in Good Faith Properties Limited & Others v Cibean Development Company Limited, LDCS 42000/2011 (unreported, dated 31 May 2013), the Tribunal, agreeing with the submission of counsel as follows, rejected the use of rental analysis based on rateable values alongside the direct comparison method of valuation which should be based on the analysis of sales transactions:[5]
33.I also agree with Mr But that Mr C Chan’s approach was a hybrid of both the RVD’s figures (incorporating RVD’s adjustments which are unknown) and Mr C Chan’s own adjustment factors (which are under dispute) to work backwards to cross-check the locational adjustment. This so-called “adjusted unit rate except location” is unreliable and may be misleading. Adjustments for Size 34.As regards the size adjustments, there should not be any difference between the two experts when they both accepted 1% for every 10 sq m difference. For the discrepancy for comparable A1, I was informed during trial that it was just resulted from rounding. Those for comparables A3 & A4 were however owing to the difference in conversion factor for the cockloft or M/F with separate entrance. To the extent that I accept Mr C Chan’s ¼, I shall follow his size adjustments for these two comparables. Adjustments for Frontage 35.Then we come to the frontage adjustments. Generally speaking, the ability to display goods in an efficient and attractive manner is an important factor in retailing. Therefore, a shop with a wider street frontage (and hence, a bigger shop window) is more valuable than a shop of the same area but with a narrower shop front and a greater depth. In the captioned case when the reference shop at G/F, 99 Des Voeux Road West has a frontage of 4.3 metres, I note comparable A3 has a frontage of mere 3.3 metres. The nature of trades in the immediate surrounding is all about homogenous product of dried seafood and other lucrative retail products. Such type of trade is highly dependent on frontage display. In this regard, I prefer Mr Sat’s adoption of 3% for every 1 m to Mr Chan’s 2% for every 1 m to reflect the difference. Adjustments for Layout/Depth 36.Following from the above, in the valuation of a shop, its internal layout has to be taken into account in assessing value. During trial, when Mr C Chan gave evidence, he applied his personal judgment with regard to the shops’ shapes, spaces below staircases and depth etc. For instance, for comparable A1, he considered it has a greater depth of 22.5 metres (depth to frontage ratio of 5.63) when compared with the reference shop’s 17.8 metres (depth to frontage ratio of 4.14) but I note both shops are roughly in rectangular shapes and such a 10% allowance appears excessive. On the other hand, I note Ms Sat applied a layout adjustment of 2% and a depth adjustment of 2.3%. I prefer to adopt an adjustment of 5% for layout. 37.Mr C Chan did not apply any adjustment for layout to comparable A2 but Ms Sat made an adjustment of 2% for layout (owing to its dumb-bell shape) and an adjustment of -1.3% for depth; these two adjustments in effect cancel out each other. I agree there should be no adjustment for this comparable. 38.For comparable A3, again Mr C Chan applied no layout adjustment but Ms Sat applied 0.2% which I consider negligible. 39.Mr C Chan applied -10% to comparable A4 for the reasons (a) that its rear part is narrow and basically under a staircase and (b) that it comprises a relatively large office on M/F which is only accessible via a separate entrance. Ms Sat did not make any adjustment for layout but applied -3.9% for its shallower depth. On the one hand, I consider the office on M/F deserves a separate value and should not affect the value of G/F; on the other hand, I consider the disadvantage of the rear part under the staircase would be compensated to an extent by its shallower depth of 10.2 metres. Therefore, I would apply no adjustment for layout and depth[8]. 40.Mr C Chan applied -5% adjustment to comparable A5 for its narrower portion at the rear while Ms Sat only applied -2.3% for depth. In this regard Ms Sat’s -2.3% is preferred. 41.Then for comparable A6, Mr C Chan again applied -10% adjustment for layout while Ms Sat only applied -3.5% for depth. In this regard Ms Sat’s -3.5% is preferred. Adjustment for Headroom 42.Lastly I have to resolve the difference in opinion on the adjustment for headroom: Mr C Chan adopted 4% for every 1 m difference while Ms Sat applied 2% for every 1 m difference. I consider Mr C Chan’s adjustment more reasonable when storage or volume in this kind of shops is more important. Determination of EUV 43.Thus, my determination of the EUV of G/F, 99 Des Voeux Road West is as follows:
44.Thus, the EUV for the G/F & M/F units of the Building are calculated as follows:
Assessment of U/F units 45.Regarding the domestic EUV for the upper floors, the two experts agreed the unit rate for the domestic reference unit on 4/F, 99 Des Voeux Road West at $154,500/sq m. They also agreed the adjustment factors for floor levels. The only disagreement is the top floor adjustment applicable to the two 8/F units; Mr C Chan applied -3% whereas Ms Sat applied -5%. For the Building at an age of more than 50 years, I consider its top floor more susceptible to heat and water leakage problem. Indeed, Mr B Wong in his Building Condition Survey Report at para 5.4.4 stated that from his “inspection of the ceilings inside the top floor flats, it is evident that there are water seepages through the roof slabs.” Therefore, an adjustment of -5% appears more reasonable. 46.My assessment of the EUV of the respective domestic units is shown below:
Conclusion on EUV 47.Thus, the total EUV of the Building is $241,104,300. The pro rata shares of R2’s units are 18.6112% and that of R3-6’s is 4.1115%. Whether Redevelopment of the Lots is Justified 48.Section 4(2) of the Ordinance provides that the Tribunal shall not make an order for sale unless it is satisfied that the "age or state of repair" of the Building is justified and that the applicant has taken "reasonable steps" to acquire all undivided shares of the Lots. 49.In his opening submission, Mr Mok referred to the guidelines laid down in Top Sail International Limited v Cheng Kai Ming, LDCS 18000/2010 (unreported, dated 15 November 2011 (“Top Sail”) and Charmlink Limited v Lee Tong Hing & Others, LDCS 16000/2010 (unreported, dated 29 November 2011) (“Charmlink”) on the factors that the Tribunal should consider whether redevelopment is justified due to age and state of repair. 50.In Top Sail, the Tribunal stated:
51.Such a discretion by the Tribunal was followed in Charmlink:
52.There is no argument on the principles set out in Top Sail and Charmlink. Both Mr But and Mr Yuen put the applicant to strict proof on the requirement of “age and state of repair” of the Building. 53.For the age and state of repair requirements, the applicant adduced the expert evidence of 2 experts: Mr B Wong who is an Authorised Person and a building surveyor, and Mr So who is a civil and structural engineer. Their expertise is not disputed. 54.Mr B Wong, in his Condition Survey Report dated 9 October 2019, pointed out that the Building was 57 years old while the design life of a concrete building structure would be shorter than 50 years by reference to the “Code of Practice for Structural Use of Concrete 2013”. 55.On physical obsolescence, Mr B Wong considered the appearance of the Building outdated as revealed by 4 signs of physical obsolescence when compared with other modern buildings:
56.According to Mr B Wong, the Building is suffering from 13 aspects of functional obsolescence some of which have safety and hygiene implications as compared with modern standards:
57.In particular, Mr B Wong was of the view that 7 of the 13 aspects of functional obsolescence including (a) obsolete design and construction of the structural frames, (e) lack of barrier free access facilities, and (f) lack of proper refuse disposal system cannot be rectified unless the Building is demolished and redeveloped. Before then, the occupiers will have to remain in occupation of the Building which is sub-standard or even unsafe by current standards. Also, though reparable, the rendering on the external wall surfaces and the waterproofing to roof areas have already passed their respective effective lives. 58.Mr B Wong concluded that the Building is aged as many features and facilities which would nowadays be expected to be standard provisions in a residential/commercial composite building are missing or though provided have not been improved to meet the upgraded construction standards and statutory requirements. 59.Turning to the state of repair, Mr B Wong noted there are many defects in different parts of the Buildings:
60.Mr B Wong opined that the Building is in a poor state of repair and substantial repairs are required to restore the Building to the tenantable standards. He gave the total repair costs to be $10,153,217 which is estimated to be about 46% of the cost of building the superstructure of a new similar building and the repair works would take about a total of 8 months. His conclusion was that the redevelopment of the Building is justified due to the state of repair and age of the Building. 61.According to Mr So in his Structural Assessment Report dated 9 October 2019, the Building was designed on the basis of the LCC By-Laws which were less stringent than the current standards. More particularly, the lack of consideration for robustness is the one of utmost importance – the Building may not possess adequate robustness against disproportionate collapse in the event of accident. 62.Mr So identified cracks and spalling on the beams, columns and slabs both inside the inspected units and in the common areas of the Building. In addition to visual inspection, cover-meter survey, carbonation tests, compression tests on concrete cores, testing on the cement content and chloride test were conducted. Inter alia, Mr So found there have been carbonation of concrete and corrosion in steel reinforcement bars of the Building. The durability of the concrete of the columns, beams and slabs of the Building has been impaired. Mr So came up with structural repair costs of $558,000 which do not cover the footing foundations. Although the present cost of repair may be relatively modest, such cost will escalate in the future as the extent and seriousness of the deterioration of the structural elements increase with age. 63.Based on his findings, Mr So concluded that the structural frames of the Building are in need of repair. He recommended that hammer tapping works on all structural elements together with carrying out of repair works to rectify defects. In view of the age of the Building, Mr So recommended that the next cycle of such repair works should be carried out in 5 years’ intervals after the current repair exercise. 64.As submitted by the applicant, no one seeks to challenge these expert evidences. Both R2 and R3-6 have not adduced any evidence, factual or opinion, in relation to the “age” and “state of repair” of the Building. Throughout the trial, the respondents had not suggested that the Building should be retained. Having considered the evidence before the Tribunal, I am satisfied that redevelopment of the Building is justified due to the age and state of repair. Section 4(2)(b) – Whether Applicants have taken reasonable steps 65.The applicant is under an obligation to take reasonable steps to negotiate on terms that are fair and reasonable for the purchase of the interest of the respondents under Section 4(2)(b) of the Ordinance. 66.It is not disputed that the applicant has made three offers to R2 and R3-6 through its solicitors to acquire the units or interests they own: -
67.In the present case, I note that the applicant’s offers were some 25% higher than the EUV of R2’s units at $44,872,500 and some 20% higher than the EUV of R3-6’s unit at $9,913,000. 68.In Intelligent House Ltd v Chan Tung Shing & Others [2008] 4 HKC 421 where the majority owner relied on its valuation expert to formulate some of the offers, the Tribunal ruled at §334(3) that:
69.I am also informed that the applicant has successfully made offers and acquired the interest of R1 after commencement of the Application. 70.More importantly, the Court of Final Appeal in Capital Well Ltd v Bond Star Development Ltd (2005) 8 HKCFAR 578, [2005] 4 HKLRD 363 (“Capital Well”) has emphasized at §33 that:
71.Bearing in mind the above, I am satisfied that on the evidence available and in the circumstances of the present Application, the applicant has taken reasonable steps to acquire all the undivided shares in the Lots including negotiating for the purchase of such of those shares as are owned by R2 and R3-6 on terms that are fair and reasonable. Disputes on the estimation of the RDV of the Lots Optimum Hypothetical Development Model 72.At the hearing, no suitable redevelopment site comparables were adduced as evidence for this Tribunal to consider. Both Mr C Chan for the applicant and Ms Sat for the respondents agreed to resort to the residual valuation method in determining the RDV. This can be done by deducting development cost (including construction costs, professional fees, finance costs etc) and developer’s profit from the estimated gross development value (“GDV”) of the completed optimum development. Mr C Chan prepared the updated RDV Report of 8 April 2020 assessing the RDV at $240,000,000 as at 7 April 2020 (which was revised at the beginning of the trial to $235,000,000) and Ms Sat in her updated RDV report of 9 April 2020 at $326,000,000. 73.By their Joint Statement dated 22 April 2020, Mr C Chan and Ms Sat agreed a site area of the Lots 172.76 sq m. They agreed that the optimum hypothetical form of development thereon should comprise a 25-storey commercial building with retail shops on G/F with office units above, having a total gross floor area (“GFA”) of 2,930.55 sq m. The only difference is that Mr C Chan considered the plant room should be located on 1/F while Ms Sat argued that the plant room can be split to locate on both 1/F and 2/F. Having heard their evidence and in view of the relatively small size of the site, I consider Mr C Chan’s location appearing to be more reasonable. 74.Apart from that, Mr C Chan and Ms Sat had a dispute on the headroom of the hypothetical office floors from 3/F to 24/F: Mr C Chan suggested 3.5m and Ms Sat suggested 4.0 m[11], the latter for the purpose of maximizing the height limit of the hypothetical developments. 75.Mr C Chan explained his suggestion on the basis of the following new office developments[12]:
76.Ms Sat, on the other hand, based her opinion on the following new office developments:[13]
77.As pointed out by Mr C Chan, the three developments relied on by Ms Sat are of greater scales. For the hypothetical development of much smaller scale with a smaller floor plate on upper floors, I am persuaded that the higher headroom of 0.5 metre per floor would increase the GDV by a rather small amount only but with a disproportionate increase in construction cost. Moreover, the comparable(s) being adopted for analysis, including units in No 6 Wilmer Street, Lucky Commercial Centre or Bupa Centre, all have headrooms about 3 metres or 3.15 metres. I concur with Mr C Chan that the headroom adopted should be 3.5 m. Assessing the G/F Value of the Hypothetical Development Model 78.In assessing the retail portion of the GDV, Mr C Chan relied on the same set of comparables as those in the assessment of the EUV plus an extra one, being the sale of Shop B on G/F & C/L & Yard of 256-258 Queen’s Road West. Ms Sat had no dispute on this addition of comparable but she considered the two former comparables A5 & A6 dated and should be disregarded. But to the extent that this new comparable is also situated on Queen’s Road West just next to former comparable A6, I consider it prudent to include all of them so as to obtain a better picture or analysis. 79.On the other hand, Ms Sat introduced another new comparable, being Shop B, G/F, Lucky Commercial Centre, which is situated in close proximity to the Building but round the corner of Wilmer Street. Mr C Chan criticized this comparable as being too small (having a saleable area of 22.9 sq m only). To the extent, however, that this comparable is situated so close to the Building or the hypothetical development, I prefer to include it in the analysis and adopt Ms Sat’s location adjustment of 20% though I appreciate that their agreed adjustment at 1% for every 10 sq m difference may no longer apply. 80.These two new comparables also have the advantages that they are more recent whereas the other comparables were transacted from March 2017 to August 2018:
81.While the similar adjustments for assessing the EUV apply, for the new comparable C1, Mr C Chan adopted no layout or depth adjustment for this new comparable while Ms Sat proposed 1% and 1.4% respectively. I have reservation on whether adjustments for both depth and layout would have a degree of double counting. I just adopted a total adjustment for layout and depth at 2% only. 82.As regards new comparable C2, Mr C Chan adopted an adjustment of -10% for layout while Ms Sat adopted an adjustment of -2.4% for depth. I am prepared to adopt just -5% for depth/layout. 83.My resultant analysis is as follows:
Assessing the Office Value of the Hypothetical Development Model 84.As stated in §77 above, both experts adopted office transactions in No 6 Wilmer Street as comparable in assessing the GDV for the office portion of the hypothetical development. This No 6 Wilmer Street, however, is not a new development but a building built in 1996 which was renovated in 2016. For this reason, Ms Sat also relied on transactions in Lucky Commercial Centre and Bupa Centre both built in 1991 and 1990 respectively as comparables. While it is a good idea of having more comparables to verify the analysed result, Lucky Commercial Centre is of larger or better development scale (being 5,294.47 sq m) and units in Bupa Centre enjoy permanent panorama seaview. Both Lucky Commercial Centre and Bupa Centre were not renovated. As such, Ms Sat proposed an age adjustment as much as +30%, rendering these 2 comparables not so good for comparison purposes. All the more, Ms Sat also introduced an upward adjustment up to +15% to account for the grading and scale for Lucky Commercial Centre. I do not consider the sales of units in Lucky Commercial Centre or Bupa Centre are comparable to the hypothetical development. Indeed, Mr But for R2 has no strong view on the rejection of Lucky Commercial Centre and Bupa Centre as comparable developments. 85.In regard of the above, I prefer to just adopt transactions in No 6 Wilmer Street for comparison with a time adjustment of 1% per year of age. I do not however share with Mr C Chan that No 6 Wilmer Street is situated at a better location for the main reason that it is next to a MTR station entrance. Remember the Building is situated on Des Voeux Road West which is a major distributor on Hong Kong Island and is convenient for lay people to identify and locate upon. All visitors travelling by tram, buses or taxi will have little difficulty in finding the place and have a drop-off at the roadside nearby. This ease of identification of location at a main street is of utmost importance to businesses which has a reception or appeals to a broader base of lay customers/clients to pay visit to their office premises. By the way, another entrance to the same MTR station is also within 5 minutes’ walking distance from the Building. 86.In comparison Wilmer Street is a side street. Indeed, the southern section is a pedestrian street that is broken from the vehicle passageway at its northern section. Speaking of the seafood shops/stalls at Wilmer Street, it is expected that customers/visitors to No 6 Wilmer Street coming from Des Voeux Road West will inevitably have to walk through such seafood shops/stalls. As evidenced during site visit, the outlook of such stalls can appear to be rather messy and chaotic. Dried seafood (eg salted fish, dried shark fins) were often placed on the ground for drying or display purposes. The stall front and goods encroached onto the footpath of Wilmer Street leaving behind a narrow walking path for pedestrians. As Mr C Chan suggested during cross-examination, the smell of dried seafood and salted fish may be repugnant to people who are not used to it. 87.Neither do I share the view with Mr C Chan that -5% is required for noise because with better building technology, the hypothetical development will be better protected from noise though abutting Des Voeux Road West. 88.The transactions of various office units in No 6 Wilmer Street are shown below[14]:
89.There is no dispute between the two experts on the floor level adjustment: 0.5% per floor level difference is adopted. Likewise, the adjustment for headroom is agreed at 2% per 1 m difference. 90.In respect of the size adjustments, Mr C Chan proposed 1% per 10 sq m while Ms Sat proposed 1% per 20 sq m. I agree with Ms Sat that the value of office of the proposed development is less sensitive to size when compared to that of shops; therefore, her adjustment rate of 1% per 20 sq m is preferred. 91.As regards view, both Mr C Chan and Ms Sat agreed that units in No 6 Wilmer Street enjoy a more pleasant view because it being among the highest in the surroundings and having one side overlooking an open playground; for units where there is difference in opinion between Mr C Chan and Ms Sat: 5% v 8%, I am prepared to adopt 6% instead.
92.Ms Sat did not adopt the five transactions in 2017, considering they were dated. I agree with her view particularly when I find there was only one transaction in 2019 which was sold at a relatively low unit rate and the prices were going down; time is a crucial factor and the adjustment based on RDV index may not reflect properly for this development the longer it is away from the relevant date. Therefore, a unit rate of $254,000 is adopted. While I do not agree with Ms Sat that the 1/F and 2/F have much retail potential, bearing again in mind the small size of the site, the total GDV for the office portion is calculated as follows:[15]
93.Apart from the GDV assessment, the two experts have the following agreement or disagreements:
94.In terms of marketing cost, I agree with Ms Sat that the hypothetical development is of relatively small scale; it will be targeted to a niche group of prospect instead of the general public. I consider 2% should be adequate. For the same reason, I tend to adopt a risk factor which will be reflected in the lower developer’s profit of 20% despite the prevailing US and China trade war and the social event that have negative effect on the economy since 2019. 95.On the other hand, the 15% profit put forward by Ms Sat appears to be too low in the current economic environment. Mr But has tried to refer to some recent compulsory sale cases where 15% profit was adopted. However, the hypothetical developments of those cases mainly comprise a significant residential portion where sales will be readily achievable. 96.As regards discount rate, 4% is generally accepted as the interest cost for developers but Ms Sat tried to show that HIBOR[16] on the basis of which developers would borrow money for investment is showing a downward trend. Mr Yuen for R3-6 even tried to put in evidence of 3-month HIBOR Futures. However, I agree with Mr C Chan that HIBOR is only one of the factors in determining the actual lending rate. The spread over HIBOR is another key factor. On many occasions, the drop of HIBOR is absorbed by increases in the spread. 97.Mr But referred to Century Wide Development Limited v Lai Yee Wah & Others, LDCS 11000/2016 (unreported, 8 November 2019), where the experts agreed the finance costs at 3.625%. There is however no evidence to support this 3.625%. I prefer to maintain the discount rate at 4%. Finding on RDV and the Reserve Price 98.Thus, subject to what we have stated above, I shall follow Mr C Chan’s residual valuation model as contained at of Exhibit A4 on the determination of the RDV which is reproduced at Appendix I to this judgment. I determine the land value of the Lots at $302,000,000 (ie accommodation value of $103,052/m2). 99.I shall adopt the estimated RDV of $302,000,000 as the Reserve Price for the auction of the Lots. Other Incidental Matters 100.The applicant proposes to appoint Mr Ma Ho Fai and Ms Hung Suet Shan Catherine, being partners of Messrs Woo Kwan Lee & Lo, Solicitors, Notaries, Agents for Trademark & Patents, as the sale trustees. Based on the information on their background and experience as set out in their letter dated 31 March 2020, I am satisfied that they are proper persons to be appointed as trustees to discharge the duties imposed on trustees under the Ordinance. The remuneration package proposed in the said letter appears to be reasonable. 101.The applicant has prepared a set of draft Particulars and Conditions of Sale of the Lots[17]. Subject to any amendment that may become necessary as a result of our ruling on the arrangement of auction above, the particulars and conditions of sale of the Lots by public auction submitted by the applicant are also reasonable. Order 102.This Tribunal make the following orders:
Costs 103.In accordance with the compensation approach as determined by the Court of Appeal in Good Faith Properties Ltd and Others v Cibean Development Co Ltd [2014] 5 HKLRD 534, the respondents are entitled to costs notwithstanding the outcome of the Application. 104.Accordingly, I order that the applicant do pay the respondents’ costs in these proceedings on High Court scale with certificate for counsel, including any costs reserved, to be taxed if not agreed. 105.Last but not least, the Tribunal thanks all Counsel for their assistance.
Mr Mok Yuek Chi, instructed by Messrs Mayer Brown, for the Applicant Mr Adrian But, instructed by Messrs Liu, Chan and Lam, Solicitors & Notaries, for the 2nd Respondent Mr Ross M Y Yuen, instructed by Messrs Lo & Lo, Solicitors & Notaries Public, for the 3rd Respondent, 4th Respondent, 5th Respondent and the 6th Respondent
[1] See Bundle B1/212. [2] See Exhibit A1 and R1-1. [3] See Bundle B1/107-108. [4] See §94 of the judgment. [5] See §§133-135 of the judgment. [6] That Mr Chan was not Mr C Chan of this captioned case. [7] LDLR 8/2007 (unreported. 11 December 2008) at §§22-23. [8] Learning that the Tribunal in Kannix Limited & Another v Coreluxe Developments Limited & Others [2020] HKLdT 9 (dated 25 March 2020) at §75 disregarded this comparable for the reason that it comprises a substantial cockloft, Mr C Chan agreed during cross-examination that this comparable could be disregarded. But having found that after allowance of the conversion factor for the mezzanine floor at ¼, the resultant unit rate for the G/F premises falls within a reasonable range; I prefer to have it included in the analysis. [9] Even if comparable A4 is disregarded, the average of the other comparables still comes to $494,483. [10] The Court of Final Appeal stated further at §36 of the judgment that: “What the Tribunal must do is to consider whether, in the circumstances of each case, the offer falls within a band of what represents a fair and reasonable assessment of the value of the minority owner’s interest reflecting a proportionate share of the redevelopment value of the whole site.” [11] The experts however agreed that the headroom for 1/F and 2/F should be 4 metres. [12] See Bundle B2/245. [13] See Bundle B1/202-203. [14] Ms Sat did not adopt those transactions in 2017, considering that those were dated. [15] See Bundle B2/318. [16] Hong Kong Interbank Offered Rate. [17] See Bundle A2/360-385. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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