Joint Hope Ltd v. Vecent Hong Kong Trading Ltd and Others
Read the full judgment text of LDCS 21000/2019 on BabelCite. This LDCS judgment was delivered on 9 July 2021.
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 the following lots in Kowloon, Hong Kong (hereinafter collectively referred to as “the Lots”):
Cited by 11 cases · Cites 19 cases
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LDCS 21000/2019 [2021] HKLdT 51 IN THE LANDS TRIBUNAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION LAND COMPULSORY SALE MAIN APPLICATION NO 21000 OF 2019 __________________________
________________________ Before: Mr Lawrence Pang, Member of the Lands Tribunal Dates of Hearing: 25-26 & 29-31 March 2021 Date of Closing Submissions of the Respondents: 8 April 2021 Date of Closing Submissions of the Applicant: 28 April 2021 Date of Judgment: 9 July 2021 _________________ 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 the following lots in Kowloon, Hong Kong (hereinafter collectively referred to as “the Lots”):
2.Erected thereon the 1st Lot is an 8-storey tenement building (“1st Building”) with 4 retail shops on G/F (ie Shops A, B, C & D with No 32 being Shop A etc) and 6 residential units (A-F) on each of 1/F to 7/F being served by two common staircases. Each of the 4 shops has been allotted 2/50 undivided shares and each of the 42 domestic units has been allotted 1/50 under a Deed of Mutual Covenant dated 28 September 1965. The occupation permit of the building was issued on 7 July 1965. 3.Erected thereon the 2nd Lot is a 6-storey tenement building (“2nd Building”) with 2 retail shops on G/F (ie Shops A & B) and 2 residential units (A & B) on each of 1/F to 5/F being served by one common staircase. Each of the 12 units has been allotted 1/12 undivided shares under a Deed of Mutual Covenant dated 28 June 1965. The occupation permit of the building was issued on 2 October 1964. 4.Erected thereon the 3rd Lot are six 6-storey tenement building (“3rd Building”) with 6 retail shops on G/F (ie Shops 38-48) and 6 residential units on each of 1/F to 5/F being served by one common staircase. Each of the 36 units has been allotted 1/36 undivided shares under a Deed of Mutual Covenant dated 10 June 1970. The occupation permit of the building was issued on 21 November 1962. 5.Where appropriate, the 1st Building, the 2nd Building and the 3rd Building are collectively referred to as “the Buildings”. 6.Mr Mok Yeuk Chi (“Mr Mok”), counsel for the applicant, contended that at the time of the Application dated 28 June 2019, the applicant owned all units of the Buildings which represent not less than 80% of the undivided shares of each of the Lots subject to the remaining shares as follows:
* After the filing of the Application, the applicant purchased the units or interests of R6, R7, R8, R10, R11, R12, R13, R15, R23 and R24 and has discontinued the proceedings against them. 7.R1, R2, R4, R5 and R21 are represented by Mr Julian Chan (“Mr J Chan”), instructed by Messrs Joseph Li & Co, Solicitors & Notaries; R14 & R25 are represented by Mr Adrian But (“Mr But”), instructed by Messrs Liu, Chan and Lam, Solicitors & Notaries; R16 and R22 are represented by Mr Jonathan Lee (“Mr Lee”), instructed by Messrs Robertsons, Solicitors & Notaries; and R17, R18, R19 and Personal Representative of R20 are represented by Ms Elizabeth Yang of Messrs Samuel LC Yang & Co. 8.The remaining live respondent, ie R3 is not represented but has settled on the minimum proceeds in case of an auction sale. 9.R9 is a missing owner where service has been dispensed with. Whether the Applicant is entitled to make the Application 10.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. 11.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. 12.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 building 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)”. 13.As the occupation permits for the Buildings were issued on 7 July 1965, 2 October 1964 and 21 November 1962 respectively, not less than 50 years before the date of the Application, the Notice is applicable and the threshold percentage should be 80%. 14.The applicant, owning not less than 80% of the undivided shares of each of the Lots at the time of the Application, was entitled to file the Application under section 3(2)(a) of the Ordinance which may cover two or more lots where the majority owner owns not less than the percentage specified in subsection (1) of the undivided shares in each lot. The Issues in the Application 15.Each of R1, R2, R4, R5, R14, R16, R18, R19, R21 and R22 filed a Notice of Opposition disputing the valuations as required under Schedule 1 and Schedule 2 to Ordinance and some also on whether the majority owner has taken reasonable steps to acquire all the undivided shares in the lots (including, in the case of a minority owner whose whereabouts are known, negotiating for the purchase of such of those shares as are owned by that minority owner on terms that are fair and reasonable) under section 4(2)(b) of the Ordinance. The Evidence 16.The applicant has filed the following documents in support of the Application:
17.As said, Dr Wong had been appointed by the respondents (save and except for R3 and R9) and prepared the following reports:
18.Besides, Mr C Chan and Dr Wong prepared two joint statements, one dated 31 July 2020 setting out their agreements and disagreements on EUV (“1st Valuation Joint Statement”) and another one dated 4 March 2021 on RDV as well as further agreements on the EUV in respect of the internal conditions of some domestic units (“2nd Valuation Joint Statement”). Whether Redevelopment of the Lot is Justified 19.In accordance with Section 4(2) of the Ordinance, the Tribunal shall not make an order for sale unless it is satisfied that redevelopment of the Lots due to the “age or state of repair” of the Buildings is justified. 20.For the age and state of repair requirements, the applicants have adduced the expert evidence of Mr B Wong, the building surveyor and Mr So, a registered structural engineer. 21.Mr So had conducted a structural assessment of the Buildings and prepared a report dated 4 May 2020. He found the following defects in the Buildings[1]: 22.1st Building
232nd Building
243rd Building
25.Mr So considered that the structural frames of the Buildings are deteriorating. He also considered that the existence of cracks and spalling on the structural elements, the corrosion of the steel reinforcement bars and concrete covers being penetrated by carbonation are the results of the age and/or the lack of proper repair of the Buildings. The inadequacies as revealed cannot be rectified and the structural performance of the structural frames of the building may have already been adversely affected. The deterioration will continue steadily due to extensive carbonation of the reinforced concrete structural elements. It is inevitable that new defects will occur and previous defects though repaired will relapse readily, requiring substantial repairs or even partial demolition and re-construction of some defective structural elements in the future when, for example, there are unacceptably high reductions in the factors-of safety, or structural performance factors in the reinforced concrete structural elements due to loss of cross-sectional areas of the embedded steel reinforcement bars and deterioration in the quality of the concrete. Although repairs are possible, repair work will need to be carried out regularly in the future and that such repairs will be more and more extensive as the building grows older. 26.While the present cost of repair may be relatively modest, such costs will escalate in future as the extent and seriousness of the deterioration of the structural elements increase with age. 27.Mr So was of the opinion that the design and construction of the structural frames of the Buildings had complied with the less stringent requirements in terms of the current standards. The structural frames were designed and constructed more than 50 years ago and the applicable standards were the LCC By-laws. There are 7 structural design and construction aspects for the 1st Building, the 2nd Building and 3rd Building respectively that do not comply with the current structural engineering design requirements specified in the Code of Practice for the Structural Use of Concrete 2004 and the Code of Practice for the Structural Use of Concrete 2013, especially the requirement on robustness. Therefore, let alone other structural engineering deficiencies, the Buildings might not possess adequate robustness to avoid disproportionate collapse due to accidents. Also the thickness of concrete covers for the beams and slabs do not comply with the requirements specified in the Code of Practice for Fire Safety in Buildings 2011. 28.Mr B Wong, in his Condition Survey Report dated 4 May 2020, stated that:[2]
29.Mr B Wong was of the view that most of the above functional obsolescence cannot be rectified unless the Buildings are demolished and redeveloped. Before then, the occupiers will have to remain in occupation of the Buildings which are aged, sub-standard or even unsafe by current standards. 30.Finally, thought repairable, the rendering on the external wall surfaces and the waterproofing to roof areas have also passed their respective effective life. 31.Mr B Wong was of the view that the Buildings are in a poor state of repair. He assessed the total cost of repair works at $26,513,567 which amounts to 35% of the construction cost of a new similar superstructure. He considered the repair cost disproportionately high and the Buildings have reached a state which is beyond reasonable economic repair. He recommended the owners to redevelop rather than repair the Buildings, particularly the Buildings do not possess any historical value or architectural merit. 32.The respondents have not provided any evidence to the contrary. Both Mr B Wong and Mr So were not cross-examined. Thus, I accept the applicant’s evidence in whole. I am satisfied that based on the evidence of Mr So and Mr B Wong, redevelopment of the Lots is justified due to the age and the state of repair of the Buildings. EUV as at 4 June 2019 Assessment of EUV of G/F Units 33.By reference to the 1st Valuation Joint Statement, the 2 experts agreed the particulars of the G/F units of the Buildings as follows[3]:
Unauthorized Cocklofts 34.As can be seen from the table above, the shops in the 2nd Building and 3rd Building are of split-level design each with a staircase leading from the front portions to the rear portions. In addition to the areas as quoted above, there are areas treated as “cockloft” by Mr C Chan which, I agree, are indeed extensions from the elevated rear portions which cover the void over the front portions. By reference to the Code of Measuring Practice published by the Hong Kong Institute of Surveyors, Mr C Chan insisted such areas, if counted, should be measured in terms of “internal floor area”. I agree. 35.On the other hand, Mr C Chan pointed out that some of these cocklofts or extensions from the elevated rear portions are subject to the following warning notices that request the owners to, inter alia, “alter or demolish” the cocklofts:[4]
36.Of particular interest is that, on 11 May 2018, the Building Authority issued to the owner of G/F, including the space underneath the staircase, 38 Ming Fung Street, a building order under section 24(1) which required the owner to demolish the unauthorized building works that include the structure erected on and over the yard but not the cockloft at high level of the G/F Shop. Then on 31 May 2019, the Building Authority issued a letter to the owner stating that: “As the building works have been modified, I am prepared to withhold further enforcement action for the time being, and withdraw my Order.”[5] As at the land search of 5 February 2021, no order was issued against the cockloft. 37.As pointed out by Mr Lee, at the time of issuing the order of 11 May 2018, the Building Authority clearly knew about the unauthorized cockloft (against which notice was issued in 2016). Yet the Building Authority did not enforce against such cockloft in the order of 11 May 2018. Neither did the withdrawal letter of 31 May 2019 mention anything about the cockloft save to state that the premises were not free of any other unauthorized building works. 38.Similarly, on 11 May 2018, the Building Authority issued to the owner of G/F, including the space underneath the staircase, 44 Ming Fung Street, a building order under section 24(1) which required the owner to demolish the unauthorized building works that include the structure erected on and over the yard but not the cockloft at high level of the G/F Shop. Then on 17 August 2018, the Building Authority issued a letter of compliance of the order[6]. 39.In Join Union Investment Limited v China Tree Investment Limited, [2016] 2 HKLRD 901, there was also a subdivision of the ground floor premises into four shops. The expert in the case, a registered structural engineer, could not give any example or authorities of the government or the Building Authority taking enforcement action to require reinstatement of the property to its original state in similar circumstances. Chow J was of the view that there was no real risk of enforcement by the government or Building Authority in respect of the alleged unauthorised partitions, see §§97-103 of the judgment. 40.At §107 of the judgment, the learned judge further observed that:
41.In Circle Angle Limited v Orchard Enterprise (Hong Kong) Limited, DCCJ 1252/2011 (unreported, dated 6 February 2012), the purchaser was aware that the property which it intended to purchase was subject to a notice issued under section 24C(1) of the Buildings Ordinance: “買方日后不能藉此拒絕交易”. Something similar took place in Gold Glory International (HK) Limited v K W Wong Investment Company Limited, HCMP 1618/2012 (unreported, dated 17 December 2013) where the parties agreed that: “The purchaser and vendor declare that they are both aware of the (two notices by the Building Authority under section 24C(1) of the Buildings Ordinance) where the property is situated. Both parties hereby agree to complete the transaction notwithstanding the (two Notices) ...” 42.In Link Harvest Ltd v Wayhang Development [2001] 2 HKC 652[7], Recorder Edward Chan SC said,
43.More recently in Wong Tin Chor v The Appeal Tribunal (Buildings Ordinance) & The Building Authority, HCAL 1662/2019 (unreported, dated 15 July 2020), it was disclosed that there had not been much change in the enforcement policy by the Building Authority since 2001[8] which was revised in 2011 to extend to include all unauthorized building works on roof-tops and flat roofs as well as those in yards and back-lanes of buildings, irrespective of their risk to public safety or whether they are newly constructed. 44.Dr Wong, indeed, had referred to the Buildings Department’s website which in effect states prevailing enforcement policy as follows:[9]
45.Dr Wong also gave his opinion that during his professional practice (though not as an authorized person under the Buildings Ordinance), he had never come across an enforcement order from the Building Authority requiring demolition of such unauthorized cockloft which had been constructed for quite some time (instead of a new construction). 46.In response, Mr C Chan provided two examples where the Building Authority had issued a building order against similar unauthorized cocklofts:
47.In respect of the building order against G/F, 250 Hai Tan Street, according to the land search from the Land Registry[14], there appeared to be two preceding building order of C/TD/001605/16/K (vide memorial 16072601900091) and C/TD/000139/17/K (vide memorial 17022300870211) dated 24 June 2016 and 9 January 2017 respectively. There was no building notice issued by the Building Authority. 48.In respect of the building order against G/F, 310 Tung Chau Street, according to the land search from the Land Registry[15], there appeared to be a preceding building order of CFZ/TD/008043/05/K (vide memorial 06011700740713) dated 6 December 2005 subsequent to which a letter of compliance was issued on 5 July 2006. There was no building notice issued by the Building Authority. 49.Mr C Chan had provided no evidence to show that these cocklofts were newly constructed or otherwise.However, it was Mr C Chan’s evidence that in a case where G/F, 149 Queen’s Road West was sold to the Urban Renewal Authority, a building order dated 31 March 2004 was noted requiring, inter alia, that “a structure at the upper part of G/F (在地下高層加建閣仔)” to be removed. A Letter of Compliance was issued on 20 September 2004. But the owner constructed a new unauthorized cockloft in plywood on steel H bars. Subsequent building orders were issued in 2010 and 2013 etc in respect of other matters but not the newly erected cockloft which was then never subject to any enforcement action by the Building Authority. 50.What was the difference between the old and new unauthorized cocklofts? The definition of “building works” in section 2 of the Buildings Ordinance includes “any kind of building construction and building operation”, and “alterations and additions”. 51.Having reviewed the above, I tend to accede to Dr Wong’s observation. If the Building Authority was care to take enforcement actions against the cocklofts at the high level of G/F Shops at 38 & 44 Ming Fung Street, I cannot see the reason why the building orders issued on 11 May 2018 did not include the requirement for the demolition of the cocklofts. I also cannot explain the reasons why when the Building Authority came across such unauthorized cocklofts at high level of G/F Shops at 38 & 44 Ming Fung Street, it failed to take notice of similar unauthorized cocklofts at high level of G/F Shops of other units in the Buildings which are visible from the outside. 52.Quite recently, in 803 Funds Limited v Director of Buildings, HCAL 2215/2020 (unreported, dated 27 May 2021), the prevailing enforcement policy as referred to in §44 above was once again confirmed. At §21 of the judgment, the following was expounded:
53.In the same case at §44, the Court of First Instance remarked that:
54.In view of the above, I consider the unauthorized cocklofts in the present case, whether issued against which a building notices or otherwise, would attract market value which is subject only to quantum. 55.Apart from the above, the two experts had no agreement on the value of the elevated open yard at the rear of the shops for the 2nd Building and the 3rd Building though they agreed the value of open yard for the 1st Building should be valued at 1/6 of that of the ground floor proper. Mr C Chan considered there should be no difference between the value of the elevated open yard and the open yard at ground level. Dr Wong considered more reasonable to adopt a lower conversion factor of 1/10 for the elevated open yard to reflect the level difference. In such regard, I agree with Dr Wong though I appreciate that difference between the two is not significant. 56.By their joint statement dated 31 July 2020, Mr C Chan and Dr Wong referred to the following comparables to be adopted for valuation on direct sales comparison basis:[16]
* PASP stands for provisional agreement for sale and purchase. ** The roof deck of this comparable was not available for inspection. While there is a minor difference in opinion on its value (Mr C Chan: 1/6 & Dr Wong: 1/10), I just pick the middle of 1/8. In any event, the difference is not significant as the area involved is small. 57.To arrive at the effective unit price above, the appropriate conversion factor for the ancillary areas of the premises has to be determined. Mr C Chan and Dr Wong have agreed, for instance, that the values of the elevated portion at the rear, the yard as well as the water closet in the yard at 3/5, 1/6, and 1/2 of the value of the G/F proper of the units respectively. However, they were unable to agree on the value of the cockloft by reference to the value of the G/F proper (Mr C Chan suggested 1/8 whilst Dr Wong suggested ¼). 58.The question as to which conversion factor is appropriate then arises. 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. In Bright Dragon Properties Limited v Director of Lands, LDLR 3/2007 (unreported, 8 August 2014) at §§34-36, the Tribunal agreed that “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.” 59.If Mr C Chan’s 1/8 is adopted, the effective area for Comparable A4 would be 113.2 sq m and the unit price would become $254,417 per sq m (the unit price for the cockloft would be $31,802 per sq m). On the other hand, if Dr Wong’s ¼ is adopted, the effective area would become 121.7 sq m and the unit price would become $236,647 per sq m (the unit price for the cockloft would be $59,162 per sq m). 60.If the similar analysis is carried out for Comparable A5, the value of the cockloft derived by Mr C Chan and Dr Wong would be $23,635 per sq m and $44,291 per sq m respectively. The similar results would occur for other comparables that contain cocklofts and it appears that Dr Wong’s assessments are more realistic. Therefore, Dr Wong’s assumption of ¼ is adopted. 61.At trial, Mr Mok remarked that such assumption failed to consider the headroom of the cockloft involved which may affect values. While this is true, it is unfortunate in real life that the comparables (and of course their cocklofts) cannot be inspected internally. Thus, in the absence of evidence to the contrary, a valuer can only assume that the cocklofts are of reasonable headroom for their purpose. This assumption can of course be rebutted by evidence and in such event, the value of the cockloft to the ground floor proper can be adjusted accordingly. 62.Mr C Chan and Dr Wong had the following agreements/ disagreements on adjustments[17]:
63.The proposed adjustments by Mr C Chan are shown in the table below (whereas those by Dr Wong are shown in parenthesis if they are different)[18]:
* By multiplication. Choice of G/F Comparables and Location Adjustments 64.The Buildings are located in a residential area with the vicinity comprising a mix of commercial/ residential composite buildings. Because of topography difference, Ming Fung Street is laterally divided into two sections – one at a higher level and one at a lower level separated by a retaining wall and safety barrier. Ground floor shops along the subject section at the higher level of Ming Fung Street are occupied by a variety of trades like car repairing workshops or those selling car accessories. The occupiers as at the relevant date were as follows:
* The Reference Shop Unit 65.Owing to the presence of a wet market at the lower level of Ming Fung Street at its junction with Sheung Fung Street to the east, shops along the eastern section of Ming Fung Street comprise more variety of trades including education centres, a grocery store, a hair salon and restaurants. 66.Mr C Chan just relied on Comparables A3, A5, A6, A7 & A8, ie he just relied on comparables along Ming Fung Street (ie A7), Tsui Fung Street (which is one block to the north) (ie A3, A5 & A6) and Fei Fung Street (which is one block to the south) (ie A8) but not any comparables along Wan Fung Street which lies in another neighbourhood to the east. Mr C Chan arrived at an average of $173,000 per sq m based on these five comparables[19]. 67.Dr Wong did not consider comparables along Tsui Fung Street because it is dominated by car-repairing or engineering workshops and even two coffin shops. Pedestrian flow is also comparatively low. Dr Wong arrived at a unit value of $200,000 per sq m taking into account the comparables along Wan Fung Street as well as two comparables on Ming Fung Street (ie A9 & A10) which Mr C Chan considered dated[20]. However, I consider the trade character of the ground floor premises at Tsui Fung Street resembles those at the subject section of Ming Fung Street to a certain extent. I am prepared to adopt Dr Wong’s fallback location adjustment of +20%. 68.And for the same reason, I agree to adopt Dr Wong’s comparables at Wan Fung Street but I agree with Mr C Chan’s location adjustment for A4 at -10%. 69.Comparable A8 was a common comparable. However, during trial it transpired that this transaction was quite close to the date of acquisition by a developer in 2020 in the sum of $10,000,000. This comparable is now subject to a compulsory sale application being LDCS 33000/2020. Notwithstanding this, both experts agreed that they could not verify whether this transaction was affected by the compulsory acquisition. But by reference to the Private Retail Price Index published by the Rating and Valuation Department (“RVD”), sale prices of shops reached towards the peak of the market in early 2018. I cannot see anything special as regards this transaction as comparable. And my view is supported by the analysis in §81 below. 70.Mr C Chan did not adopt Comparables A9 & A10 because he considered these two comparables dated though they are situated at Ming Fung Street as well. But in view of the relatively small adjustments in time, I am content to have these two comparables included. I adopt the location adjustments of 3% and -10% respectively. Frontage Adjustments 71.Mr C Chan and Dr Wong agreed the adjustments for frontages at 0.1% per 0.5m difference but could not agree on that for the return frontage of Comparable A9 which had indeed been sub-divided into various shops. In such regard, I agree with Mr C Chan’s -15% adjustment. Size Adjustments 72.Mr C Chan and Dr Wong agreed the adjustments for sizes at the rate of 0.1% per 1m difference. The differences in adjustments arise only because of the difference in the conversion value of the ancillary areas. While I adopt the conversion values proposed by Dr Wong, I am prepared to follow his adjustments for sizes. Headroom 73.As regards the adjustment for headroom, Mr C Chan proposed 5% for every 1 m difference in full headroom as opposed to Dr Wong’s 2% for every 1 m difference. 74.Mr C Chan considered the value of a shop is largely determined by, inter alia, its overall headroom. A shop with higher headroom has larger internal volume as well as a higher shop front, which contributes to higher value of the shop. He preferred simply making allowance on the basis of full headroom but in order to avoid double counting the rear part having cockloft, he purposively adopted a lower unit rate for the cockloft at 1/8 of that of the G/F. 75.But I am of the opinion that Mr C Chan’s assertion is only true to some of those occupiers who require a grand shop front which may not necessarily apply to local trades shops. 76.In Chan Kai Yuen & Another v Director of Lands, LDLR 8/1999 (unreported, 1 September 2000), the Tribunal observed that the experts analysed the unit value of the ground floor based on a normal headroom of 3 metres. Then if there be a cockloft, be it authorized or unauthorized, it would provide an extra headroom. Thus, “willing buyers in the market will derive additional benefit out of the headroom space, of 2.1m in this case, and hence are prepared to offer an extra bid for the subject premises when making comparison with other properties without such benefit of the unusual headroom.” 77.For the purpose of analysis, assuming there be two shops sitting side by side with the same saleable area of 50.0 sq m and full headroom of 5.3m with one having a cockloft at the front and the other having no cockloft. If the latter one with no cockloft is selling at a unit rate of X and Mr C Chan’s approach be followed, the other unit having a cockloft (which covers half of the ground floor space) will be valued at 50X[21] + 25X/8 = 53.13X. But if Dr Wong’s approach is followed, the G/F value adjusted for headroom, say 3m will be 47.7X[22] and that value of the cockloft will become 25 x 0.954X/4, giving a total of 53.66X. Or else, if Chan Kai Yuen is followed, but assuming the headroom adjustment is 5% per 1 m difference, the G/F value of the shop with cockloft adjusted for headroom will be 44.25X and the value of the cockloft will be 25 x 0.885X/4, giving a total of 49.78X:
78.As we have found the cockloft to be more realistically valued at 1/4 that of G/F, for premises which do not have cockloft covering the whole of G/F, it appears more reflective of the real life to adopt Dr Wong’s the approach which accords with Chan Kai Yuen based on a headroom adjustment of 2% per 1 m difference. 79.In response, Mr C Chan suggested that for a shop with an authorized cockloft, a new occupier may remove the cockloft if he prefers to have higher headroom for his business. Alternatively, another occupier may prefer to keep the cockloft for, say, storage of stocks. He contended that if the headroom of a shop is high enough to allow the flexibility of whether to have a cockloft to the occupier, the value of a shop with a cockloft and the value of a similar shop but without a cockloft would not be largely different. In Chan Kai Yuen, where the type and use of the subject premises and the other properties in the vicinity are mainly engaged in hardware and machinery trades, the Tribunal also decided to adopt an enhancement of 5% to the adjusted unit rate on the basis of normal headroom of around 3 metres in assessing the G/F area with an extra 2.1m of headroom. Applying the same to the above example, Mr C Chan’s assertion would only match, ie 47.7 x 1.05 = 50.09 if the headroom adjustment is based on 2% per 1 m difference. As can be seen from the above example, Mr C Chan’s assertion would only be true if the occupier is quite conscious of the high headroom where an adjustment based on 5% per 1 m difference is applicable. Thus, Mr C Chan’s assertion may not be wrong but can only be applicable on case by case basis; it is however not applicable to the present case where the type and use of the subject premises and the other properties in the vicinity are mainly engaged in hardware and machinery trades. Layout 80.Mr C Chan considered the adjustment on layout should be preferred to the adjustment for depth as the latter could not reflect factors such as shape and presence of the elevated rear portion of the retail shops. I agree but the adjustment for depth is also important. I would adopt Dr Wong’s proposed adjustments save for Comparable A9 which has in effect the benefit of return frontage and been subdivided. The adjustment simply on the basis of depth is misconceived and not justified. Similarly, I consider Dr Wong’s adjustment for depth of those subject shops which are of split level design misconceived when he took it for granted up to the elevated rear portion. In the latter regard, I am content to adopt Mr C Chan’s adjustments for layout. 81.To conclude, the adjustments for the comparables are as follows:
* By multiplication. 82.As can be seen from the above, the average of all the comparables is $195,446 per sq m but if only Mr C Chan’s comparables are considered, the average will become $192,843 per sq m which is not significantly different. I am prepared therefore to adopt $195,000 per sq m as the unit value of the Reference Shop Unit as at 4 June 2019. 83.When I proceed to apply this unit value of $195,000 per sq m to the other ground floor units of the Buildings, as discussed in §§35-54 above, there was disagreement on whether the unauthorized cocklofts should be taken into account. Whereas I have concluded that they should have values, I agree their values should be 1/6 (instead of ¼) of that of the ground floor proper as proposed by Dr Wong. 84.Mr Mok submitted that the valuation experts would not be able to conduct internal inspection of the comparable shops and therefore unable to verify if there be any unauthorized cockloft similar to the units in the Building, as a result of which assigning a value to the unauthorized cocklofts may have double counted the value, if any. However, as I pointed out during trial, although the valuation experts cannot conduct the internal inspection as suggested by Mr Mok, they should be alerted of such unauthorized cocklofts if there are extensions of the cockloft from the rear which is reasonably visible from the outside. As experts, they have the duty to assist the Tribunal and conduct due diligence. 85.Mr Mok also suggested that what might be visible from the outside may perhaps be false ceiling instead of an unauthorized cockloft. But as pointed out in Chan Kai Yuen and other cases, if the high headroom is so desirable, it is unreasonable for an occupier to install false ceiling without making use of the space above. The chance of the latter should be minimal. Indeed, Mr Mok acknowledged that it was common ground that the subject shops are in a locality where the construction of unauthorized cockloft. 86.Anyway and as shall be seen below, the extension to the elevated rear portion (ie the unauthorized portion) of each shop extends to some 24 sq m - 25 sq m and the unit value assigned to it is about $30,000 per sq m. The resultant value is just about $720,000 to $750,000 which is less than 10% of the assessed EUV of the respective shops which is within the permissible margin of error in the profession[23]. For instance, Mr Mok also pointed out that out of the 10 shop comparables, A4, A5, A7 and A8 have authorized cocklofts covering the rear part which might be converted to extend to the front part as well. If the latter be the case, only the adjusted unit rate of these 4 comparables might be lowered by less than 10%. The resultant average would have become $188,000 per sq m which is less than 4% of $195,000 per sq m. 87.Mr Mok submitted further that in the case of a shop with an unauthorized cockloft, the shop’s value is derived from its internal volume and the value of the unauthorized cockloft is not derived from the value of its occupation, but rather on its construction or demolition cost. With respect, this assertion is not so true as value does not necessarily equal to cost in the first place. Otherwise, in the example quoted by Mr C Chan in §49 above, after the old unauthorized cockloft was removed pursuant to a building order, the owner would not have taken the risk and trouble to construct a new unauthorized cockloft in plywood on steel H bars. The value of an authorized structure should include the time cost or convenience and even the risk of enforcement by the authority, if any. For instance, many shops are transacted for investment purposes. The investors would be concerned about how much the tenant or occupier will be ready to pay by reason of their occupation or business being conducted thereon which would likely reflect the value of the unauthorized structure if any. 88.On the other hand, I agree with Mr C Chan that the elevated open yards should enjoy the same conversion factor as other open yards which is 1/6. Conclusion on EUV for G/F & Cockloft 89.My assessment of the EUV of G/F (including cockloft, if any) of the Buildings is as follows:[24]
* By multiplication.
90.The two valuation experts had agreed that the unit value of the Reference Domestic Unit, being Flat D, 4/F, 26-32A Ming Fung Street (ie the 1st Building), as at 4 June 2019 was $109,100 per sq m if it was in fair condition or $105,900 if it was in poor condition (ie a difference of -3%). In any event, both experts classified the Reference Domestic Unit as in poor condition and there are not material differences between them in the assessment of EUV[26]. They could not however agree on the adjustments on lighting & ventilation and headroom for the other upper floor domestic units. 91.In respect of the former, Mr C Chan considered that adjustments for lighting & ventilation should be adopted for Flat Fs on 3/F or above for the 1st Building as they enjoy two aspects while the other units enjoy one aspect only. Although Dr Wong did not agree to such adjustments, saying that there was not too much difference, I note that he himself suggested similar adjustments for Flats of the 2nd Building and 3rd Building. For the sake of consistency, I am prepared to adopt such adjustments on lighting & ventilation. 92.Mr But had referred to Exhibit R3 for argument that the lighting and ventilation of the windows were facing backwards and any sunlight/glare would have been largely blocked by the residential building located on Tsui Fung Street etc. With respect, Mr But must have mixed up this factor of lighting & ventilation with that for view. Sunlight/glare would come from the sky high above and not be blocked by buildings of similar height. 93.As regards the adjustment on headroom, Dr Wong proposed an adjustment of 2% per 1m difference while Mr C Chan proposed none. Having regard to the minor difference in headroom, and in view of the age of the Buildings where residents would not take the difference so seriously when compared with new developments, I agree no such adjustment is required. 94.Mr C Chan and Dr Wong had different opinion on the internal condition of Unit A, 1/F of the 2nd Building: Mr C Chan considered it poor but Dr Wong considered it fair. Having conducted the joint inspection, I adopt Dr Wong’s opinion. But as a side issue, Mr But on behalf of R14 submitted that this unit should be valued on the basis of a commercial unit, pointing to the fact that 1/F, No 48 Ming Fung Street was previously occupied as a clinic. That may be the case but it does not necessarily mean that its value for commercial use should be greater than that for domestic purpose, particularly when there exists a security gate installed at the entrance of the building. 95.Mr But also referred to the 1/F premises along Sheung Fung Street which are currently occupied for various commercial purposes. But as noted from the joint site inspection, those premises along Sheung Fung Street appear to be the commercial hub of the neighbourhood perhaps owing to the proximity to the public wet market. I do not agree that the highest and best use of Unit A, 1/F of the 2nd Building is for commercial purpose comparable to those on 1/F along Sheung Fung Street. In any event, both Mr C Chan and Dr Wong agreed that Unit A, 1/F of the 2nd Building should be valued for domestic use. 96.Out of the blue, Mr But in his closing submission suggested that all the “uninspected” upper floor units which are owned by the applicant should be classified as “very poor” (instead of “poor”) for the reason that the conditions of such inspected units must have been too bad for any meaningful inspection to be carried out, or otherwise inspection would not have been disallowed by the applicant. However, as submitted by Mr Mok, Mr But did not cross-examine Mr Li or Mr C Chan in relation to this point. I agree with Mr Mok that Mr But is not entitled to make this submission. 97.Thus, my assessments of the EUV of various domestic units of the Buildings are as follows: 26, 26A, 28, 30, 32, & 32A Ming Fung Street, 1st Building
98.The total EUV of the Building is therefore $121,309,000 + $135,128,000 + $50,158,000 + $149,243,000 = $455,838,000 and the pro rata shares of R1, R2, R3, R4, R5, R9, R14, R16, R17, R18, R19, R20, R21 and R22’s interests are as follows:
Section 4(2)(b) – Whether Applicant has taken reasonable steps 99.The applicant is under an obligation to take reasonable steps to negotiate on terms that are fair and reasonable for the purchase of the interests of the respondents under section 4(2)(b) of the Ordinance. 100.Complaints had been made by Mr Lee on the sharp and unreasonable practice by the applicant as follows:
101.In respect of (1) above, Mr Mok referred to Clause A of each of the provisional sale and purchase agreement which was specifically confirmed by the relevant respondent as seller agreed to unilaterally sign the document first and agreed to the agent acting for the seller to organize the collective sale of 80% or more of the undivided shares of the properties in question:
102.Mr Mok submitted that when the respective respondents agreed to sign first in an intended sale of 80% or more of the undivided shares of the properties and endorsed the way the agent organized the collective sale by appointing the agent as their agent,
103.In respect of the second complaint, namely the use of Clause 10 to obtain the cancellation agreements, Mr Mok submitted the following:
104.In respect of the third complaint, namely the price level in the provisional sale and purchase agreements and related documents being much higher than the subsequent offers, Mr Mok submitted that cannot be a valid complaint. Mr Mok referred to the agent organizing the collective sale and the provisional sale and purchase agreement clearly stating that the relevant respondents agreed to the format of how the collective sale was organized by their agent, namely the unit owners signed their provisional sale and purchase agreements and related documents to enable the agent to try to sell the project (80% or more of the undivided shares) to the developers. A unit owner should know that if he was offering to sell at a price higher than the other unit owners, everything being equal, the buyer would likely prefer to accept the other units than his. If his unit was not chosen by the developers, he would face the proceedings under the Ordinance that would follow. 105.Mr Mok explained it was Mr Lee’s understanding that the agent tried to sell the project to more than one developer and the applicant was willing to pay the price level as shown in the provisional sale and purchase agreement and related documents chosen by the applicant in order to reach the threshold of 80%. However, the applicant was unwilling to offer at the same level subsequently and only made offers at the level according to the Ordinance, namely at a level as assessed by their valuation expert according to the statutory formula. Mr Mok submitted this can hardly be regarded as sharp and unreasonable practice. 106.Mr Mok referred to Top Harmony Limited v Cheung Yuet Sheung & Others, LDCS 39000/2018 (unreported, dated 15 October 2020) where a similar practice was discussed at §§112-113 of the judgment. The Tribunal then referred to Michael v Salford City Council [2016] UKUT 370 (LC) and considered the price level (ie $10,500 per sq ft in that case) as shown in the provisional sale and purchase agreement comprised “a premium value as the last bit in the jigsaw to assemble the development site”. The Tribunal agreed with Mr Mok in that case that the insistence of the respondents on receiving the average rate of $10,500 per sq ft would have the effect of deterring majority owners to be more generous in making early offers. That would run against the legislative intent of the Ordinance to encourage negotiation and settlement among the majority owner and the minority owners. 107.I agree again with Mr Mok’s submissions above. Having said that, I must express my concern that the provisional sale and purchase agreements in respect of the unit owned by R18, R19 and R21 were signed or endorsed by the applicant on 4 October 2018, ie after the critical date of 30 September 2018 as stated in Clause 10. However, I also note that it fell within the period of 14 days which allowed the applicant to make up its mind whether to continue the purchase. Then of course R18, R19 and R21 signed the cancellation agreement on 18 October 2018 and forfeited the $100,000. In Ming Shiu Chung & Others v Ming Shiu Sum & Others[2006] 2 HKLRD 831, (2006) 9 HKCFAR 334, the Court of Final Appeal ruled that parties of full age and ordinary understanding would be held to documents which they had chosen to sign unless there was a recognized legal basis for concluding that their apparent consent had been vitiated; or that reliance on that document by some other person fell into some category of unconscionable conduct justifying relief in equity. There has been no evidence of such vitiating factors before me. 108.On the other hand, I take notice of the following offers made by the applicant to the corresponding respondents as follows:
109.According to the applicant, the latest offers made in March 2021 were around 10% above the assessment of the share of each unit owned by the respondents done by Mr C Chan. 110.Also, as stated in §6 above, the applicant has successfully acquired the units or interests of R6, R7, R8, R10, R11, R12, R13, R15, R23 and R24 and has discontinued the proceedings against them. 111.The Court of Final Appeal in Capital Well Ltd v Bond Star Development Ltd (2005) 8 HKCFAR 578, [2005] 4 HKLRD 363 (“Capital Well”) emphasized at §33 that:
112.On the other hand, in Intelligent House Ltd, supra,where the majority owner relied on its valuation expert to formulate some of the offers, the Tribunal ruled at §334(3) that:
113.On the evidence available, I am satisfied that 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 R1, R2, R3, R4, R5, R14, R16, R17, R18, R19, R20, R21 and R22 on terms that are fair and reasonable. 114.I also agree with Mr Mok that R9 is a missing co-owner and there is no obligation by the applicant to make an offer to him. Disputes on the estimation of the RDV of the Lot Hypothetical Development Model 115.Both Mr C Chan and Dr Wong resorted 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. 116.Based on an agreed developable site area of the Lots at 894.65 sq m, both valuation experts had agreed there could be built thereon a hypothetical 25-storey residential/commercial composite development with retail shops on G/F & 1/F. There is only minor difference in the proposed gross floor area (“GFA”): Mr C Chan proposed 7,548.67 sq m while Dr Wong proposed 7,548.61 sq m. They however differed in detail as follows[31]:
117.The particulars of the above differences can be discerned from Dr Wong’s Rebuttal Report on RDV dated 22 June 2020 as follows[32]:
118.Firstly, I note that despite the above differences in opinion, the proposed GFA is nearly the same. It does not matter much between 7,548.67 sq m and 7,548.61 sq m especially they both agreed the construction cost of $242,538,833[33]. Common Areas and Plant Room Provision on Ground Floor 119.In respect of the common areas and plant room provision on G/F, I understand that both Mr C Chan and Dr Wong referred to those in Aspen Crest as reference. The main argument of Dr Wong was that the site area of Aspen Crest[34] at around 1,000 sq m is larger than that of the Lots at 894.65 sq m and therefore the provision of common areas etc would be larger for a larger scale development. However, I consider this misconceived. When the two developments are of similar scale both providing, for instance, a residential lobby, 3 lifts and 2 staircases, I do not consider there should be any significant difference in terms of the areas of the common parts. While Dr Wong calculated the common area for G/F of Aspen Crest at 80 sq m, Mr C Chan arrived at 85.16 sq m. For the sake of convenience, I just adopt the saleable area of the G/F at 700 sq m in view of the provision of more shopping spaces on the 1/F of the hypothetical development. 120.Thus, I would also adopt the saleable area of 49.12 sq m on 1/F as proposed by Mr C Chan. Proposed Number of Residential Units, Flat Mix and Common Areas 121.The term ‘nano flat’ has never been officially defined, but it is generally understood as flats with a saleable area smaller than 20 sq m (equivalent to 215 sq ft), or a saleable floor area smaller than 15 sq m (equivalent to 161 sq ft). 122.The following is the reproduction of statistics of completion of small units (with saleable area less than 40 sq m) compiled by the RVD but the media reports that more than 3,000 nano flats (flats with a saleable area less than 200 sq ft) are scheduled for completion between 2019 and 2021[35]:
123.In Success Active Limited v Harbourview International Holdings Limited & Others, LDCS 31000/2018 (unreported, 19 April 2021), Mr C Chan, who happened to be a valuation expert in that case as well, explained that seasoned developers nowadays prefer to have larger typical residential units as nano residential units are no longer marketable. In that case, the Tribunal remark that it was appropriate to compare like with like so that Mr C Chan’s 31.83 sq m was preferred[36]. 124.However, the comparables adopted by the experts in that case were in respect of a new development which was yet to be completed. In contrast, Aspen Crest was marketed for sale in 2015 when the market conditions may be more different than today. 125.Having reviewed the above, I prefer to adopt Mr C Chan’s Reference Unit having a Saleable Area of 25.48 sq m without delving into details on the composition of the units since the exercise of ascertaining the gross development value is more or less an averaging exercise[37]. Similarly, I prefer to adopt the total saleable area of the residential units proposed by Mr C Chan. 126.In this connection, I also accept Mr C Chan’s common area per floor for the following reasons:
127.As a side issue, however, there was a dispute between Mr C Chan and Dr Wong on whether the GFA and plot ratio calculation of the common lift shafts and staircases on G/F and 1/F are accountable as non-domestic or otherwise. However, I need not resolve this difference as the total GFA proposed by the 2 experts are nearly the same. GDV for Shops 128.In determining the GDV for the G/F, the two valuation experts relied on the following comparables:
Choice of G/F Comparables and Location Adjustment 129.From the above, it is obvious that apart from Comparables C1 to C4, Mr C Chan or Dr Wong referred to the same set of comparables adopted in the assessment of EUV. In respect of the latter, as can be seen from §82 above, those comparables along Wan Fung Street were not necessarily excluded from consideration. 130.In contrast, in assessing the GDV, those comparables along Wan Fung Street become more relevant as the sales would show how they may be affected by the new development, Aspen Crest, which was completed in September 2018. On the other hand, I agree with Dr Wong, with the prospective new development in place covering nearly half of the street[38], those comparables along Tsui Fung Street are no longer relevant. 131.For the same reason above, I consider Comparables C13 and C14 should also be disregarded. In addition, these two comparables are dated. 132.I would also disregard Comparables C11 and C12 as their environment may no longer be comparable to that of the prospective new development in place. Also, these two comparables are dated. 133.Thus, I would only adopt 5 comparables, ie Comparables C1, C2, C4, C5 and C6 for consideration. 134.Comparable C1 is situated next to Comparable C14 (ie Comparable A10 in the EUV assessment above). Both experts agreed that there should have a location adjustment of -10%. However, Dr Wong considered there would be an improvement in the environment when the prospective new development is completed. He proposed an uplift of 10%. Therefore, I would rather adopt nil adjustment in location. 135.Comparable C2 is situated within the busiest hub in the vicinity opposite the junction of Ming Fung Street and Sheung Fung Street next to a pedestrian crossing. It is currently occupied as a restaurant. I agree with Dr Wong that a location adjustment of -20% is appropriate on the basis that the hypothetical development is completed. 136.Though situated on Wan Fung Street, Comparable C4 is located close to the end of the street uphill away from Aspen Crest. It is relatively quiet and close to the scene of a tragic explosion at a garage workshop at 63 Wan Fung Street in 2015. I consider a location adjustment of +20% appropriate. 137.Mr C Chan and Dr Wong had no dispute that the location adjustments for Comparables C5 and C6 are 0% and +3% respectively. 138.At this juncture, I would like to comment on Dr Wong’s proposition to refer to the anticipated traffic interchange below the junction of Shatin Pass Road and Fung Tak Road in support of his +10% in business environment. I regret that there is no definite plan of the traffic interchange for its completion. According to the MTR document of 29 September 2020 attached to Mr Lee’s closing submission, the traffic interchange will have 2 levels: the upper one is a parking station of tourist buses and according to the MTR document of 25 February 2021, the ground floor level will be used as a public light bus terminal for the existing routes which are now having stops along Shatin Pass Road nearby. It is obvious that the provision of the traffic interchange will be for the purpose of removing the terminal stops of these public light buses routes away from Shatin Pass Road to improve the flow of road traffic on the road. I agree with Mr Mok that it should not have much impact on the business environment of the shops included in the hypothetical development or the convenience of the residential units therein. 139.Mr Lee also included in his closing submission a quote from the explanatory statement to the Approved Tsz Wan Shan, Diamond Hill and San Po Kong Outline Zoning Plan No S/K11/29 that “(a)n area of about 2.26 ha located immediately to the east of Wong Tai Sin Temple is reserved for the provision of institution and community facilities to better serve the needs of the districts as well as for the development of tourism-related and ancillary uses that would enhance the character of the area as a place of visitor attraction”. With respect, there is no definite plan for its completion and that location immediately to the east of Wong Tai Sin Temple is also far away from the Lots that especially pedestrians or patrons of the tourism-related and ancillary uses have to go uphill to reach the Lots or its vicinity. There is in any event no point of attraction to improve pedestrian flow. Time Adjustment 140.The 2 experts had also no dispute on the adjustments for time which, I understand, is based on the latest Private Retail Price Index published by the RVD. Frontage and Size Adjustment 141.Mr C Chan and Dr Wong agreed to adopt frontage and size adjustments at 1% per 0.5m difference and 1% per 10 sq m difference respectively. Headroom Adjustment 142.As explained in §78 above, I am prepared to adopt 2% per 1 m difference. Layout and Depth 143.Again, as explained in §80 above, I am content to adopt Mr C Chan’s adjustments for layout. Age Adjustment 144.Mr C Chan adopted an adjustment of 1% per 5 years difference in age but Dr Wong proposed 0.1% per annum with an addition of 10% for improvement in environment upon completion of the prospective new development. While I have already had the latter in mind in determining the location adjustment, I prefer to adopt Mr C Chan’s 1% per 5 years difference in age. In any event, it is generally accepted that the factor of age is not so important for retail purposes. Sewage Maintenance 145.According to the Provisional Agreement for Sale and Purchase of Comparable C1, the purchaser would be responsible for the payment of any cost arising from the maintenance order on the manhole or sewage of the building, and the purchaser may not rescind the agreement based on the existence of this maintenance order. Dr Wong considered not unreasonable to adopt +5% adjustment to reflect the cost, time and risk that may be involved. Mr C Chan responded however that there had been no existing building orders or notices on this issue. According to him, such clause might be inserted where the seller has heard of possible maintenance or renovation programme in respect of the building and the purpose is to avoid dispute. 146.Mr Mok submitted that Dr Wong had provided no evidence to prove the amount of contribution to be required or the extent of work required. Mr Mok also calculated 5% of the transacted price of $9,500,000 to be equal to $475,000 which is unreasonably expensive for sewage repairs to be organized by the unit owners in an aged tenement building comprising a total of 90 shops and domestic units. 147.Notwithstanding the latter, I consider such a sewage maintenance clause unusual which might be inserted for a purpose. This is especially significant for shop premises as the business operation is likely to be disrupted when there are sewage problems. The insertion of the clause for better or for worse would have alerted the prospective buyer of an uncertainty. Therefore, I agree to the adjustment proposed by Dr Wong as a matter of contingency. Assessment of the GDV for Reference Shop 148.Thus my assessment of the GDV for the reference shop is as follows:
* By multiplication. 149.Although the resultant adjusted unit rates for Comparables C1 and C2 appear to be high, they are in fact the best comparables in terms of time and location. I agree with Dr Wong that these 2 comparables deserve more weighting. Therefore, I am content to adopt $285,000 per sq m as the value of reference shop. 150.Both valuation experts proposed shops on 1/F and agreed that the value of the 1/F shop would be 50% of that of the hypothetical G/F. GDV for Domestic Floors 151.As said, in the determination of the GDV for the upper residential floors, both Mr C Chan and Dr Wong referred to the sales of units in Aspen Crest at 68 Wan Fung Street:
152.As can be seen from the above, the latter comparables are relatively dated. In light of the so many comparables available, I agree with Mr C Chan that only those that occurred in the second half of 2020 are adopted. 153.On the other hand, Dr Wong was of the opinion that Comparables D4 and D5 are studio flats which were not proposed in the hypothetical development by Mr C Chan and should not be adopted. These two units however, having a saleable area of 18.4 sq m, are not significantly smaller than the other comparables. I do not agree that they should be disregarded. 154.The two valuation experts have the following agreements or disagreements[39]:
155.Firstly, regarding the adjustment for location, I agree with Dr Wong that the subject location is better in terms of accessibility. Aspen Crest is built on a sloped terrain where residents have to walk uphill from Sheung Fung Street. It would be much more burdensome and demanding if one walks up from Wong Tai Sin or Diamond Hill MTR station. In terms of transport, Aspen Crest does not have direct access to public transport. Those who take the minibus will have to get off nearby the hospital on Sheung Fung Street[40] and walk past a street without any covered walkway at Kam Fung Street. In contrast, the Lots are located right at the first minibus stop of route 37M without the need to walk any distance. 156.As regards the headroom of the hypothetical unit, I note that the comparables in Aspen Crest all have a headroom of 3.5m. In this regard, I prefer Dr Wong’s 3.35m which is closer to 3.5m. 157.Turning on view, I note that both the prospective new building and Aspen Crest occupy an elevated position. Out of the 9 comparables that took place in the second half of 2020, I observe the 2 experts only had dispute on the adjustment for D3 only and the difference is minor. I am content to allow no adjustment on view. 158.As regards the +2% adjustment for the Flat Ds, for instance, I have reviewed the photo extracted from the news coverage and videos[41]. I do not agree that the relative small window of the bedroom looking onto the utility platform would justify such an adjustment. In any event, only comparables D7 and D8 have such a small window but their unit price appears not to be affected. 159.For the adjustment on age, Dr Wong suggested an additional upward adjustment of 5% to reflect the market preference to new flats provided with new fittings, finishes and appliances. I, like Mr C Chan, do not agree as Aspen Crest is also a relatively new development. However, Dr Wong provided a lot of media coverage in which the quality of Aspen Crest had been heavily criticized[42]. In Perfect Horizon Limited v Co Sam & Others, LDCS 23000/2018 (unreported, dated 11 September 2020) at §100 where units in two older developments were relied on as comparables, the Tribunal had to review whether 1% for every one year’s difference is appropriate. I allow for an additional adjustment of 3% (ie in the present case, a total of 6%). 160.In respect of the adjustment for special units, I prefer the approach of Mr C Chan in allowing a robust addition of 15% since the exact areas of the flat roof on 24/F or top roof as proposed by Dr Wong are subject to dispute[43]. Particularly, the flat roof on 24/F up to 95.3 sq m may be difficult to justify. 161.Thus, my assessment of the value of the reference unit on 13/F of the hypothetical development is as follows:
162.I have arrived at an average of $226,277 per sq m which is rounded to $226,300 per sq m. I then follow Mr C Chan’s adjustments for units of different levels as follows[44]:
163.The two valuation experts have the following agreements or disagreements on other development parameters in the residual valuation[45]:
164.From the above, it is manifested that Mr C Chan and Dr Wong happened to agree on most of the development parameters. The major difference is the adoption of developer’s profit. Mr C Chan referred to LDCS 32000/2018, LDCS 39000/2018 and LDCS 2000/2018 (all unreported, dated 30 October 2020, 15 October 2020 and 29 January 2021 respectively) where the Tribunal determined a developer’s profit of 15% but the market condition had not improved since then. With respect to Mr C Chan, the domestic property market condition did have improved since the beginning of 2021 by reference to the latest Private Domestic Class A Price Indices published by the RVD. Therefore, I am content to adopt the developer’s profit of 12% as suggested by Dr Wong. 165.Indeed, during trial Mr C Chan attempted to work from another residual valuation of a Government tender of a site which is under marketing as One Soho in order to determine the developer’s profit ceiling[46]. Incidentally, he arrived at a developer’s profit of around 20%. While this approach is in theory possible, it in practice involves too many variables as is usually criticized in a residual valuation. For this Government site in Mong Kok, which lies in a complete different location, there is another specialty in that it involves the provision of Government accommodation on the ground or lower floors which render the calculation subject to more uncertainty. 166.Mr But also referred to the recently announced special time-limited policy by the Lands Department offering an option for landowners to pay a standard premium for lease modifications for the redevelopment of industrial lots[47]. The applicable rate of “Use After Lease Modification (Residential)” in Kowloon East is $100,000 per sq m. Mr But submitted that, aside the issue of certainty and transparency, the policy is an incentive to attract and encourage industrial landowners to apply for lease modification with a view to increasing domestic land supply in Hong Kong and resolve housing shortages. Mr But argued that the policy would become meaningless and redundant when compared with the conventional lease modification process. For such reason, Mr But submitted that there are strong reasons to believe that the standard rate represents the lower end of the land value/ accommodation value of lands in Kowloon East. 167.But which part of Kowloon East comprises industrial land that has been rezoned for residential purposes? The obvious answer appears to be Yau Tong which the Government intends to regenerate. This is a complete different location from the Lots[48]. A fortiori, Mr But has overlooked that the policy also set the standard rate for “Use Before Lease Modification (Industrial/Godown)” at $40,000 per sq m. That is, the Government has already marked the difference and whether this policy is attractive or not would depend on this difference instead of the applicable rate for “Use After Lease Modification (Residential)”. I do not consider such standard rate providing any guidance on the RDV of the Lots. Finding on RDV 168.Subject to what I have said above, I shall follow Mr C Chan’s residual valuation model as contained in his revision which is reproduced at Appendix 1 to this judgment[49]. I arrive at a land value of the Lots at $805,000,000 (ie accommodation value of $106,642/m2). Other Incidental Matters 169.The applicant proposed to appoint Mr Ma Ho Fai and Ms Hung Suet Shan Catherine, being partners of Messrs Woo Kwan Lee & Lo, Solicitors, Notaries, Agents for Trademarks & Patents, as the sale trustees. Based on the information on their background and experience as set out in their letter dated 23 February 2021, 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 reasonable. 170.The applicant has prepared a set of draft Particulars and Conditions of Sale of the Lots[50]. 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 applicants are also reasonable. Order 171.This Tribunal make the following orders:
Costs 172.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. 173.Accordingly, I order that the applicant do pay the respondents’ costs in these proceedings on the High Court scale with certificate for counsel, including any costs reserved, to be taxed if not agreed. 174.Last but not least, the Tribunal Thanks Counsel for their assistance.
Mr Mok Yeuk Chi, instructed by Messrs Mayer Brown, for the Applicant Mr Julian Chan, instructed by Messrs Joseph Li & Co, Solicitors and Notaries, for the 1st, 2nd, 4th 5th & 21st Respondents Mr Adrian But, instructed by Messrs Liu, Chan and Lam, Solicitors and Notaries, for the 14th & 25th Respondent Mr Jonathan Lee, instructed by Messrs Robertsons, Solicitors & Notaries, for the 16th & 22nd Respondents Ms Elizabeth Yang of Messrs Samuel LC Yang & Co, for the 17th, 18th, 19th Respondents and Personal Representative of the 20th Respondent The 3rd & 9th Respondent, not legally represented and did not appear Appendix 1
[1] See Bundle F1/95-104. [2] See Bundle E1/84-89. [3] See Bundle D3/660-661. [4] See Bundle D1/72 [5]See Bundle C9/2065-9. [6] See Bundle C9/2172. [7] This case was also cited in Technic Investment Co Ltd v Appeal Tribunal (Buildings) [2012] 3 HKLRD 245 at §25. [8] More particulars of the “Buildings Department’s Enforcement Policy Against Unauthorised Building Works” published in 2001 can be found in Technic Investment Company Limited & Another v Appeal Tribunal (Buildings) & Building Authority [2012] 3 HKLRD 245. [9] https://www.bd.gov.hk/en/safety-inspection/ubw/enforcement/index.html [10] UBS stands for unauthorized building works. [11] Cocklofts are not specifically listed as actionable items for removal under a building order. [12] This was one of the units subject to a compulsory sale application, LDCS 32000/2018, the judgment of which was handed down on 30 October 2020. [13] This was one of the units subject to a compulsory sale application, LDCS 23000/2020, which remains to be heard. [14] Exhibit A7. [15] Exhibit A6. [16] See Bundle D3/663-664. [17]See Bundle D3/662. [18]See Bundle D3/665-667 & 724. [19] See Bundle D3/724. [20] See Bundle D3/686. [21] That is no adjustment for both having the same full headroom. [22] That is 50.0m2 x (1- 2.3 x 2%)X = 47.7X. [23] See Singer and Friedlander Limited v John D Wood & Co (1977) 243 EG 212; (1977) 2 EGLR 84. [24] See Bundle D3/688 & 726. [25] See Bundle D3/688. [26] See Bundle D3/690, 691 & 728. [27]See for example Bundle C9/173/2226. [28]See for example Bundle C9/173/2226 as regards the provisional sale and purchase of the unit owned by R18 & R19 . [29]See for example Bundle C9/176/2229. [30] 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.” [31] See Bundle D3/675. [32] See Bundle D3/624-625. [33] See Bundle D3/694. [34] This site was the subject of a compulsory sale application LDCS 6000/2014 which was withdrawn after trial in October 2014. [35] See for instance https://www.jll.com.hk/en/newsroom/residential-sales-monitor-july-2019 and https://hk.news.yahoo.com/%E7%A0%94%E7%A9%B6-%E5%8D%81%E5%B9%B4%E9%96%93%E5%BB%BA%E5%85%AB%E5%8D%83%E5%A4%9A%E7%B4%8D%E7%B1%B3%E5%96%AE%E4%BD%8D-%E6%9C%80%E7%B4%B0%E9%9D%A2%E7%A9%8D%E5%9B%9B%E5%BC%B5%E9%9B%99%E4%BA%BA%E5%BA%8A%E8%A4%A5-065551208.html [36] See §80 of the judgment. [37] In Pacific Base Holdings Ltd and Others v. Lee Hop Biu and Others, CACV 426/2020 (reported dated 31 May 2021), the Court of Appeal stated at §43 that “the proposed redevelopment could only be presented to the Tribunal on a conceptual level with a high degree of generality.” [38] The residual method requires the valuer to estimate the market value on completion on the basis of values that are current on the valuation date assuming that the project has already been completed on that day. [39] See Bundle D3/712 & 716. [40] Our Lady of Maryknoll Hospital. [41] See exhibited R1. [42] See Bundle D3/756. [43] The resultant end figure of the value of the top floor unit proposed by Mr C Chan is higher than that by Dr Wong. [44] See D3/735. [45]See D3/694. [46] See Exhibit A5. [47] Pilot Scheme for Charging Land Premium at Standard Rates on Lease Modifications for Redevelopment of Industrial Buildings: https://www.landsd.gov.hk/doc/en/practice-note/lpn/PN%201_2021.pdf [48] Indeed, a tender for Lot No. 1069 in Survey District No. 3 which is a residential site off Anderson Road, Kwun Tong, Kowloon was awarded on 19 May 2020 to a subsidiary of CK Assets Holdings Limited at a premium of $4,951,000,000 which was equivalent to an accommodation value of $48,933 per sq m. Not less than 1,000 units out of the total number of residential units to be erected within the lot shall be starter homes units to implement the Starter Homes Pilot Project. [49] See Bundle D3/731. [50] See Bundle C/2412-2443. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cases cited in this judgment
Other judgments that cite this case
Further hearings and rulings under LDCS 21000/2019