Sound Advice Property Ltd and Others v. Mok Wai Ching and Another
Read the full judgment text of LDCS 18000/2020 on BabelCite. This LDCS judgment was delivered on 21 December 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 Remaining Portion of Subsection 1 of Section H Inland Lot No 816 (“the Lot”). Standing thereon is a 5-storey tenement building (“the Building”) which is located at No 145 Third Street, Hong Kong.
Cited by 12 cases · Cites 8 cases
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LDCS 18000/2020 [2021] HKLdT 79 IN THE LANDS TRIBUNAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION LAND COMPULSORY SALE MAIN APPLICATION NO 18000 OF 2020 __________________________ BETWEEN
__________________________ Before: Deputy District Judge Soong, Presiding Officer of the Lands Tribunal and Mr Lawrence Pang, Member of the Lands Tribunal Dates of Hearing: 27-30 September 2021 Date of Inspection: 28 September 2021 Date of Applicants’ Closing Submissions: 29 October 2021 Date of Respondents’ Closing Submissions: 15 October 2021 Date of Judgment: 21 December 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 Remaining Portion of Subsection 1 of Section H Inland Lot No 816 (“the Lot”). Standing thereon is a 5-storey tenement building (“the Building”) which is located at No 145 Third Street, Hong Kong. 2.The applicants also apply that, in the event of the grant of a compulsory sale order, the Lot together with the following lots (“the Adjoining Lots”) (hereinafter collectively referred to as “the Land”) be auctioned as a joint sale:
3.Under the occupation permit issued on 23 May 1955, the Building, the 2nd Building, the 3rd Building (hereinafter collectively referred to as “the Buildings”) and a fourth one originally standing at No 143 Third Street were completed as a row of Chinese tenement buildings for domestic purposes[1]. The fourth building which originally shared two common staircases with the Building had been demolished and redeveloped in the early 90s (together with the adjoining buildings previously standing at No 135 to 141 Third Street) into a new high-rise building known as Borita Building. 4.Under section 2 of the then Buildings Ordinance, 1950 Edition, ‘domestic building’ was defined to mean “any building constructed, used or adapted to be used, wholly or partly, for human habitation, but does not include any building where caretakers only, not exceeding two in number, pass the night” (emphasis added) 5.In Tsuen Wan Trade Association Education Foundation Ltd. v. Chui Kam Ying [2012] 2 HKLRD 1163, Jeremy Poon J (as he then was), deciding on a similar provision under the old Buildings Ordinance No 18 of 1935, ruled that “even if two domestic permits had in fact been issued, it does not necessarily follow that the Property can be used for residential purpose only. ….. This inferentially but strongly shows that the Property can in fact be used for non-residential purposes legally.” (emphasis added). 6.Each of the Buildings is governed by its own Deed of Mutual Covenant and Grant (“DMC”). For each of the Buildings, the ground floor (“G/F”) and the 4 upper floors each is allotted 1/5 of the undivided share of their respective Lots. 7.Because of the sloping topography of the site, there is a basement unit at the back of each of the Buildings abutting Tam Lane, which is a scavenging lane located at a level lower than Third Street and running parallel to it. No undivided share is allotted to these basement units of the Buildings (“the Basement Units”) which are accessible from Tam Lane only. According to the Approved Building Plans dated 17 January and 15 February 1955 respectively, the Basement Units were designated as “non-domestic”. 8.The DMC for the Building was dated 15 August 1955[2] which does not mention about the existence of any basement floor/unit. The DMC states that the Lot was vested to the parties as Tenants in Common in equal shares. Clause 1 of the DMC provides that:-[3]
The DMCs for the Buildings at No 147 Third Street and No 149 Third Street on the Adjoining Lots contain the same provision.[4] 9.As at the date of the Application on 9 July 2020, the 1st applicant and 2nd applicant altogether owned 4 units (including the G/F of the Building) which comprise 80% of the undivided shares of the Lot. The respondents owned only the 1/F of the Building ie the remaining 20% of the undivided shares of the Lot. 10.Mr Mok Yeuk Chi (“Mr Mok”) act on behalf of the applicants. The respondents are represented by Mr Desmond Leung (“Mr Leung”). The Issues in the Application 11.Mr Leung identified the following issues to be determined by the Tribunal, namely: -
12.Mr Leung confirmed that should the applicants prove to the satisfaction of the Tribunal that the relevant statutory requirements for a compulsory sale have been met, the respondents would not take issue on the “age or state of repair of the Building”. 13.Specifically, the respondent does not take issue about the applicants’ application for a joint sale of the Land. The Evidence 14.The applicants filed, inter alia, the following documents in support of the application:
15.The respondents filed, inter alia, the following:
16.Mr Chan and Mr Lee have also prepared a joint statement one dated 10 March 2021 setting out their agreements and disagreements on EUV, followed by another one dated 13 September 2021 on RDV (“2nd Valuation Joint Statement”). 17.Mr Chan and Mr Lee have since revised their respective assessment of EUV and RDV. Whether the Applicant is entitled to make the Application 18.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. 19.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. 20.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:
21.As the Lot is one with each of the units thereon representing 20% of the total undivided shares (ie more than 10% of all the undivided shares in the Lot), and since the occupation permit for the Building was issued on 23 May 1955 (ie not less than 50 years before the date of the Application), the Notice is applicable and the threshold percentage should be 80%. 22.The applicants, owning 4 out of 5 (ie 80%) undivided shares of the Lot, was entitled to file the Application under section 3(1) of the Ordinance. EUV as at 1 August 2019 Assessment of EUV of G/F Units 23.In compliance with Part 1 of Schedule 1 to the Ordinance, the applicants filed a valuation report dated 25 May 2020 prepared by Mr Chan to set out the assessed market value of each property on the lot—
24.In the Valuation Joint Statement dated 10 March 2021, Mr Chan and Mr Lee agreed the particulars of the G/F units of the Buildings as follows[5]:
25.G/F of No 149 Third Street, ie the 3rd Building is chosen by the valuation experts as the Reference Shop Unit. Mr Chan assessed the EUV of the Reference Shop Unit as at 25 May 2020 at $280,000 per sq m while Mr Lee assessed at $254,888 per sq m. 26.They agreed to adopt the following comparables for valuation on direct sales comparison basis:[6]
27.Mr Chan and Mr Lee also agreed on the following adjustments[7]:
28.The two valuation experts can agree on most of the adjustments except the adjustments for location for comparables A6 and A7. 29.The Building is situated at a relatively quiet section of Third Street between its respective junctions with Water Street and Pok Fu Lam Road. This section only allows one-way vehicular traffic from Water Street to Pok Fu Lam Road. 30.Comparable A6 is currently occupied by a laundry. It is situated at a location with similar if not worse trading potential. It lies adjacent to a church and a school opposite a small park. Also, a redevelopment called 15 Western Street (transactions of which are being adopted by both Mr Chan and Mr Lee for the assessment of the reserve price for the sale of the Land) was, as at 25 May 2020, taking place at the junction of this section of Third Street and Western Street. We therefore agree with Mr Chan’s 0% (which he revised from the previous +5%) instead of Mr Lee’s -5%. 31.Comparable A7 is situated along a major distributor with better trading potential, being close to the junction between Queen’s Road West and Western Street. However, the pedestrian flow is weak and broken by the police station across Western Street to its west. We agree with Mr Lee’s adjustment of -10% in preference to Mr Chan’s -5%. 32.Thus, the adjustments for the comparables are as follows:
33.The adjusted unit rates above cover a wide range from $221,708 per sq m to $356,110 per sq m, a difference of as much as 60% which is undesirable from the valuation perspective. On review, only comparable A1 has the transaction took place in year 2020 while the transactions of other comparables are relatively dated hence would require adjustments for time based on the Private Retail Price Index which is however just average figures rather than specific to the subject location. The total adjustments for comparables A4 to A7 are significant, more than 20% or so mainly due to the adjustments for location which, in our view, would affect the accuracy of the valuation. 34.We decide to rely on the average of the adjusted unit rate of the first 3 comparables which is about $275,000 per sq m. 35.Our assessment of the EUV of the various shop units on G/F of the Buildings is as follows:
Assessment of EUV of Basement Units 36.As stated in §7 above, no undivided share is allotted to the Basement Units of the Buildings. 37.According to the 2nd Supplemental Witness Statement of Mr Kwo dated 2 August 2021, the Basement Units had all along been possessed by the respective owners of the G/F units situated above. The applicants are not aware of any other owners of the Buildings who had asserted any right to use or occupy the Basement Units. More particularly, when the applicants acquired the G/F units of Nos 145, 147 and 149 Third Street respectively, the said properties were sold with the interest in the whole of the basements. 38.Evidence also reveals that after the applicants acquired the respective G/F units, they had been settling the Government rates payable in respect of the Basement Units. 39.Mr Kwo produced a copy of the Provisional Agreement for Sale and Purchase of G/F, No 145 Third Street dated 12 December 2017 entered into between Chow Sui Hei and Chow Sui Tak (in the capacity as the executors of the estate of Tong Siu, deceased) as the Vendors and the 1st applicant as the Purchaser[8]. Clause 5 of the appendix to the said Agreement for Sale and Purchase specifically provided that G/F, No 145 Third Street was sold with the interest in the whole of the basement “地庫” subject to three tenancy agreements of the G/F shop and the basement space.[9] 40.Upon completion of the sale and purchase on 30 January 2018, G/F, No 145 Third Street was assigned to the 1st applicant subject to and with the benefit of the tenancies in respect of the G/F shop and the upper basement “地庫上層” while vacant possession of the lower basement “地庫下層” was delivered to the 1st applicant. Apart from the tenancy agreements, nothing in the title deeds and documents registered in the Land Registry contains any information on “地庫”, “地庫上層” and “地庫下層”[10]. 41.According to Mr Kwo, since 30 January 2018, the 1st applicant continued to let the 145 upper basement “地庫上層” to the then existing tenant, Mr 王程 (“Mr Wong”) (who resided there together with his family members, including his wife Madam 顏秀珠 (“Mrs Wong”) until end of June 2021. Thereafter, the applicants obtained vacant possession of the 145 upper basement. 42.Mr Kwo said that the applicants had made enquiry with Mr Wong/Mrs Wong regarding Mr Wong’s tenancy in respect of the 145 upper basement. On 15 June 2021, Mr Kwo, together with the applicants’ solicitors, paid a visit to and had an interview with Mrs Wong to obtain some further information as follows:[11]
43.As regards the acquisition of G/F, No 147 Third Street and G/F, No 149 Third Street, the history was generally the same. A clause in the Provisional Agreement for Sale and Purchase specifically provided that the G/F units were sold subject to and with the benefit of the tenancies of the respective G/F shops and basements, if any.[12] 44.While the respondents did not dispute the above facts regarding the Basement Units, they are of the view that the Basement Units are common parts of the Buildings and hence their values should not be considered. 45.On the question of whether the values of the Basement Units shall be counted, Mr Mok cited Jumbo King Ltd v Faithful Properties Ltd & Others [1999] 3 HKLRD 757, [1999] 4 HKC 7, (1999) 2 HKCFAR 279 where no undivided shares was allotted to the utility rooms and flat roofs and it was argued that they should be considered as “common parts” or “common areas”. The Court of Final Appeal rejected this argument and held that the undivided shares allotted to the other units owned by the developer carried the exclusive right to occupy the utility rooms and flat roofs. 46.Mr Mok also submitted that, by reference to the Approved Building Plans dated 17 January and 15 February 1955, the Basement Units were designed and constructed as a unit for exclusive use in contrast to the roofs, the entrance hall, staircases, landings and passages. None of the 2 common staircases respectively of Nos 145, 147 and 149 can access the respective Basement Units. Neither the 3 DMCs for the Buildings at Nos 145, 147 and 149 identified the Basement Units as for common use. 47.Mr Leung, while not disputing on the general principles of interpretation of the DMC laid down in Jumbo King, suggested that Jumbo King should be distinguished on its own factual matrix. He submitted that Jumbo King is not authority for the proposition that simply because no undivided share is allotted to certain part of the building, and that such part is not explicitly referred to as common part in the Deed of Mutual Covenant, then such part would invariably be reserved to the developer who may then freely dispose of the same together with some other undivided share(s) in the building. 48.The main plank of Mr Leung’s arguments is that according to Approved Building Plans, the G/F units were (similar to the upper floor units) designed for domestic use with kitchens, servants’ quarters, etc, whereas the Basement Units were designed for non-domestic use and have separate entrance at the rear. 49.With respect, we consider this argument of Mr Leung neither here or there as ‘domestic building’ was defined in the then Buildings Ordinance to mean “any building constructed, used or adapted to be used, wholly or partly, for human habitation …” (underlined added)[13] 50.Mr Leung also referred to the circular features marked “WELL” on the Basement yards of No 145 and No 149 as shown on the Basement floor plans which were wells for residents of the Buildings to fetch groundwater for flushing purposes. It was submitted that fresh water meters for all units of the Buildings are situated within the Basement Units which suggested that the basement units should be “common” in nature. We are not persuaded by this argument in reality there are situations where some common facilities are located within areas (e.g. roofs) which are exclusively assigned to individual owners who own the property subject to other party’s right of access to inspect and maintain the common facilities. 51.Relying on the fact that the Basement Units are not allotted any undivided shares of the Lots, Mr Leung tried to equate the Basement Units to the roofs of the Buildings which are also not allotted any undivided shares. In our view, one must not lose sight of the fact that the DMCs do expressly states that the roof is intended to be used in common with the other owners of the Buildings whereas the Basement Units are not mentioned to be for common use. 52.For the similar reason, Mr Leung referred to section 2 of the Building Management Ordinance, Cap 344 where, under section 2, “common parts’ is defined as follows:
Mr Leung submitted that the Basement Units have not been specified or designated in an instrument registered in the Land Registry as being for the exclusive use, occupation or enjoyment of an owner and therefore they should be deemed to be “common parts”. 53.For the purpose of illustration, Mr Mok has set out the history of the assignments of the various units in the Buildings in Exhibit A1 which is now reproduced below:
54.In short, on 29 November 1954, the first registered owners (“the 1st Owners”) purchased the Land on which the Buildings were erected. The approved general building plans of each building clearly showed that each of the Basement Units was designed and constructed as a unit intended for independent occupation and use. The OP came on 23 May 1955, ie a few months after the 1st Owners purchased the Land. 55.The 1st Owners subsequently sold the 1/F, 2/F, 3/F and 4/F of each of the Buildings before the execution of the DMCs. The 1st Owners then executed the DMCs with the corresponding new owners. 56.At the time of the execution of the DMCs, the 1st Owners had not sold the G/F and the Basement Units but the upper floors. The Basement Units are not identified as part of the common facilities and areas of common use, nor were the Basement Units mentioned in clause 7(b) of each of the DMCs which provides that:
57.Clause 13 of each of the DMCs provides that each party shall have the fullest right and liberty without reference to the other owners and without the necessity of making the other owners parties thereto, inter alia, “to let or demise any floor to which such party is entitled hereunder to any tenant or lessee”. (underline added) The Basement Units, according to the Approved Building Plans, clearly constitute a separate floor. 58.Oral evidence from Ms Mok of the respondents transpired that the Basement Unit of No 145 Third Street had always been occupied as an independent unit and that the respondents had never contributed to any upkeep expenses or payment of rates of the Basement Unit of No 145 Third Street. Prior to the Application, the entitlement of the G/F owner to let out the Basement Unit of No 145 Third Street had never been queried or challenged. 59.We agree with Mr Mok that the facts of the present case bears similarities with Jumbo King where the developer sold a domestic unit and entered into a Deed of Mutual Covenant with this first purchaser, one Mr Cheng. The 1st schedule of the Deed of Mutual Covenant allotted 1/720 undivided share to Mr Cheng against his domestic unit and the rest (719/720) of the undivided shares to the developer. However, the schedule setting out the undivided shares of each party and the developer did not expressly include the utility rooms and flat roofs as part of the commercial portion of the building (the title of which formed the subject of dispute before the Court of Final Appeal). As a result, the head-note stated as follows:
60.The Court of Final Appeal held:
61.In reaching the decision above, the Court of Final Appeal took into account the following matters:
62.The above are nearly on all fours with the present case. It is further noted that the Provisional/Formal Agreements for Sale and Purchase of the G/F units entered into between 2017 and 2018 provided that the Basement Units were sold together the G/F units. Mr Leung submitted that there appeared to be no instrument in the chains of title whereby the predecessors in title had obtained title to the Basement Units. On this point, we agree with Mr Mok that this was not necessary. The 1st Owners assigned the 1/5 undivided share to the registered owner/purchaser of each G/F units and that 1/5 undivided share had carried the right to exclusive possession of the G/F units and the Basement Units. As quoted above, “so long as the vendors were owners of undivided shares in the land and building, deriving title from the developer, they were entitled to assert right of exclusive possession to parts of the building, such as the utility rooms and the roof spaces. Their title to those units cannot be impeached”. 63.It is further observed that the 1/5 undivided share allotted to the 1st Owners as tenant in common with the other parties to each of the DMCs was not tied to any unit. According to Jumbo King at §31:
64.We agree with Mr Mok on the application of the principles in Jumbo King in the present case and find that the Basement Units are not common parts or common areas. 65.Irrespective of the question of whether the Basement Units are common parts or common areas, Part 1 of Schedule 1 to the Ordinance stipulates that the valuation report (ie the Application Report) which is required to be attached to the Application has to set out the assessed market value (ie the EUV as referred to above) of each property on the Lots. “Property” as defined in the Ordinance means “immovable property” and there is no requirement that it is endowed with any undivided share of the Lots. In the reality of the present case, the Basement Units physically exist as an immovable property and in our opinion whether the Basement Units are common parts or not is neither here or there from the perspective of valuation. Even if the Basement Units were common parts of the Buildings (which we disagree), we are content that the Basement Units constitute “property” under the Ordinance and should be assessed for their EUV. 66.We now proceed to assess the EUV of the Basement Units. 67.Mr Chan provided 3 comparables as follows:
68.It is the respondents’ position that the Basement Units are common parts of the Buildings and should not have a market value (which we disagree)., Mr Lee therefore did not provide any comparables or assessment of the EUV of the Basement Units. 69.We therefore only have the evidence of Mr Chan on the EUV of the Basement Units:[16]
70.Mr Chan applied this $84,000 per sq m to all the Basement Units and arrived at the EUV of each of the Basement Units in the sum of $3,320,000. 71.We have conducted inspection of these comparables and have no disagreement with Mr Chan’s analysis save that we agree with Mr Leung that the title to the Basement Units is not as clear at the first instance. We are of the opinion that the market value should be subject to a discount. 72.Mr Leung also referred to various Building Notices/ Building Orders issued by the Building Authority for the attention of the respective owners of the G/F units as follows:
73.As can be seen from the above, the earliest of the Building Orders that involved an unauthorized building structure was dated as long ago as March 2007. Upon cross-examination, Mr Benson Wong could not explain why the Building Authority had not taken any further action for some 14½ years. In our view, the risk of enforcement of any of these Building Orders might not be so imminent as reasonably expected. 74.When conducting the EUV assessment of the Basement Units, Mr Chan had not taken into account the value of the unauthorized structures, if any. We agree with Mr Mok that the reinstatement cost, even if required to be incurred in due course, should not affect much the value of the Basement Units. 75.Taking into account the possible argument on title that may lead to potential litigation, we agree that there should be a discount of the value of the Basement Units for about 20%. We assess the EUV of each of the Basement Units at $2,650,000. Assessment of EUV of Upper Floor Domestic Units 76.Mr Chan and Mr Lee had agreed that 2/F, No 149 Third Street which had a poor internal condition is the Reference Domestic Unit. 77.Mr Chan assessed the EUV of the Reference Domestic Unit as at 25 May 2020 at $123,000 per sq m whereas Mr Lee assessed it at $137,032 per sq m. The following comparables are adopted for valuation on a direct sales comparison basis:[22]
78.Mr Chan and Mr Lee had the following agreements/ disagreements on adjustments[23]:
79.The first disagreement on the adjustments is on age. Mr Lee adopted a rate of 1% per 5 years which is the same as the adjustment rate he adopted for shop comparables. 80.On many occasions, the Tribunal have held that the value of the retail premises on ground floor is less sensitive to ages. During cross-examination, Mr Lee conceded that the terms imposed by banks on aged premises are more stringent than those imposed on aged commercial units. Taking into account also the vast differences in the age of the comparables, we consider it more suitable to have larger adjustments and therefore adopt Mr Chan’s 0.5% per 1 year difference. 81.The second disagreement on adjustments is on noise. Mr Chan and Mr Lee managed to agree on the adjustments for comparables B2, B3, B4, B5, B9 and B10. Having conducted the joint inspection on 28 September 2021, however, we agree with Mr Lee’s adjustments. 82.Our assessment of the EUV of the Reference Domestic Unit is set out as follows:[24]
83.The experts had no dispute on the various adjustments for the subject units of the Buildings. Our assessment of the EUV of the domestic units is set out below:[25]
Conclusion on EUV 84.The total EUV of the Buildings is therefore
and the pro rata shares of respondents’ interest is 5.4745%. Whether Redevelopment of the Lot is Justified on “Age” or “State of Repair” 85.Section 4(2)(a) of the Ordinance stipulates that the Tribunal shall not make an order for sale unless it is satisfied that redevelopment of the Lot due to the “age or state of repair” of the Building is justified. Experts’ Evidence 86.On this issue, the applicants adduced the Condition Survey Report dated 12 January 2021 by Mr Wong, the Building Surveyor and the Structural Assessment Report also dated 8 January 2021 by Mr So, the Structural Engineer. 87.In the Structural Survey Report, Mr So concluded as follows:[26]
88.Mr So recommended that hammer tapping works be carried out to the internal surface of all structural elements of the Building and any defects such as spalling and cracks discovered together with the spalling and cracks already identified to be repaired. Mr So was not cross-examined by Mr Leung. 89.In the Condition Survey Report, Mr Benson Wong concluded that[27]:
90.In the end, Mr Benson Wong recommended the owners to redevelop rather than to repair the Building, particularly bearing in mind that the Building does not possess any historical value or architectural merit, and is merely a building of the past that can be replaced. 91.The respondents had not adduced any evidence to rebut either the Condition Survey Report dated 12 January 2021 by Mr Benson Wong or the Structural Assessment Report dated 8 January 2021 by Mr So. 92.Having considered the evidence before the Tribunal, on the basis of a holistic approach, we are satisfied that redevelopment of the Building is justified due to the age and state of repair. Section 4(2)(b) – Whether Applicant has taken reasonable steps 93.The applicants are 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. 94.As mentioned in the witness statement of Mr Kwo, the applicant had, based on the assessments by Savills and through its solicitors Messrs Vincent TK Cheung, Yap & Co, made the following offers to acquire the respondents’ interest
95.Obviously, these offers were higher than the EUV as determined by us at §83 above. 96.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:
97.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:
98.On the evidence available, we are satisfied that the applicants have taken reasonable steps to acquire all the undivided shares in the Lot including negotiating for the purchase of the share owned by the respondents on terms that are fair and reasonable. Disputes on the estimation of the RDV of the Lots Hypothetical Development Model 99.Both Mr Chan and Mr Lee agreed to resort to the residual valuation method in determining the RDV. This can be done by deducting the 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. 100.Based on an agreed developable site area of the Lots at 316.37 sq m (which is relatively small), both valuation experts agreed that a hypothetical 23-storey residential/commercial composite development could be built thereon. However, they have slightly different development models. Mr Chan assumed that the hypothetical development has plant room on lower ground floor, retail shops and plant room on G/F, communal garden and plant room on 1/F, clubhouse on 2/F which is surmounted from 3/F to 23/F by typical residential flats. Three special units will be provided on 24/F.[29] 101.On the other hand, Mr Lee assumed that the hypothetical development has plant room on lower ground floor, retail shops on G/F, shops, communal garden and clubhouse on 1/F which is surmounted from 2/F to 23/F by typical residential flats. Two special units will be provided on 23/F and 24/F each. 102.In gist, Mr Chan had more domestic saleable area while Mr Lee allowed some 1/F shops and therefore less domestic saleable area on the upper floors. In view of the poor retail potential at this section of Third Street (as evidenced by the relatively low G/F value of about $275,000 per sq m above and the following analysis), we agree with Mr Chan that the hypothetical development should have no shops on 1/F. 103.Another issue concerns the Practice Note for Authorized Persons, Registered Structural Engineers and Registered Geotechnical Engineers – APP-152 (“APP-152”) which provides that, “(i)n order to improve air ventilation, enhance the environmental quality at pedestrian level and mitigate street canyon effect, buildings fronting a street less than 15m wide shall be set back...”[30] This section of Third Street is less than 15m wide. But “(w)here a cross-ventilated communal podium garden with a clear height of not less than 4.5m is provided, no part of the building up to a level of 15m above the street level, should protrude above the 45o inclined plane, the base of which is placed at street level …” 104.In order to comply with the greenery GFA exemption requirements under the “Criteria and Conditions for Exempting Green and innovative Features from GFA and/or SC Calculations” of Joint Practice Note No 1 issued by the Buildings Department, Lands Department and Planning Department (“JPN 1”)[31], Mr Chan proposed a podium garden on 1/F so that no setback on the ground floor is required. 105.Although Mr Lee’s design has podium garden, retail accommodation and club house on 1/F, Mr Chan commented that, according to an advice from an Authorized Person (Mr Albert Chan), the Building Authority would not grant exemption if there be any occupied accommodation such as the retail accommodation and club house such as those proposed by Mr Lee. In response, Mr Lee said that such advice was wrong as the criteria requiring no occupied accommodation on 1/F only applies to non-residential buildings.[32] 106.We note that Mr Lee had relied on an old version of APP-152 dated January 2011[33]. During cross-examination, Mr Lee explained that he was aware that APP-152 had been updated but he thought that the one which he relied on was the updated version (which actually is not). 107.In spite of the above, when Mr Lee was referred to the updated APP-152 dated January 2016, he insisted that his design of having retail accommodation and club house on 1/F would still comply with the greenery GFA exemption requirements. 108.As we observe, the criteria requiring no occupied accommodation at the same floor of the podium garden and “the floor is for use as podium garden for sitting out purpose only” are clearly stated under paragraph 1(d) of JPN 1. Mr Leung’s referral to the criteria that it only applies “under the footprint of a non-residential tower” cannot come to his rescue. The word “footprint” is defined in the Oxford Advanced Learner’s English-Chinese Dictionary, as “2 the amount of space that something fills, for example the amount of space that a computer takes up on a desk (某物所佔的)空間量， 面積.” 109.Having considered the above, we find Mr Chan’s hypothetical model more preferable. GDV for G/F 110.Mr Chan and Mr Lee also agreed to a reference new retail unit on G/F of the hypothetical development with a saleable area of 85.5 sq m, a frontage of 3.8 metres abutting Third Street and a headroom of 5 metres. 111.Mr Lee adopted the following 7 comparables but Mr Chan agreed on the first 5 only: [34]
112.Notwithstanding the above, Mr Chan and Mr Lee had the following agreements on adjustments[35]:
Choice of G/F Comparables and Location Adjustment 113.Despite this being named as a lower ground floor unit, Comparable C1 is situated on ground floor on Second Street, close to its junction with Centre Street in proximity to both the Centre Street Market and the Sai Ying Pun Market. This is among the busiest part of the region. It is currently occupied by a small supermarket. We agree with Mr Chan’s proposed adjustment of -30% instead of Mr Lee’s -15%. 114.Comparable C2 is situated at the busiest section of Third Street, again in close proximity to the Sai Ying Pun Market. It is occupied by a popular butcher’s chain, 錢大媽 (Aunt Qian). We agree with Mr Chan’s proposed adjustment of -25% instead of Mr Lee’s -10%. 115.Comparable C3 is situated at the relatively quiet section of Second Street, one block down the slanting street from the Building. It appears to be previously occupied as a restaurant. We are prepared to adopt an adjustment of -5% for location. 116.Comparable C4 is situated west of comparable A5 in the assessment of EUV where both experts agreed a location adjustment of -25%. It is currently occupied as a florist. This comparable is also situated obliquely opposite comparable C2 across the street. We see no reason why the location adjustment should come down so drastically as suggested by Mr Lee at -5%. We would adopt Mr Chan’s adjustment of -25%. 117.Comparable C5 is currently occupied by a real estate agent next to a restaurant. We would adopt Mr Chan’s proposed -20% instead of Mr Lee’s -15%. 118.Comparable C6 is situated at a quieter section of High Street. It is currently occupied as a restaurant. Mr Chan did not adopt this as a comparable because it was dated as compared to the others. But in case this is considered a good comparable, Mr Chan suggested an adjustment of -15% for location which we prefer instead of Mr Lee’s 0%. 119.Comparable C7 is the same as comparable A1 in the assessment of EUV where both experts agreed a location adjustment of 5%. Mr Chan and Mr Lee now also agreed in the assessment for the GDV although Mr Chan did not adopt this as a comparable because it was dated. Business Condition 120.Mr Lee proposed this adjustment of +5% on the premise that the business environment would improve upon development of the Lots. We agree. Layout 121.We agree that the hypothetical shop has a relatively narrow frontage and long depth. Thus, it has an inferior layout of 3.8 metres shopfront and a depth up to 22 metres whereas the Reference Shop Unit in the EUV assessment has a frontage of 3.9 metres and a depth of 19 metres. 122.We agree with Mr Chan’s comment that Mr Lee’s layout adjustments are inconsistent with his adjustments in the EUV assessment. One example would be, Mr Lee had adopted comparable C7/A1 in his EUV assessment and the GDV assessment. He applied a layout adjustment of -10% for the former but –5% for the latter despite the hypothetical shop’s layout appears to be inferior. 123.Some more examples are, Mr Lee adopted -8% for comparable C4 but -15% for comparable A4 whilst comparables C4 and A4 actually have similar depths and layout. 124.Comparables C2 and C7 appear to have similar depth and layout but Mr Lee adopted different layout adjustments for these two comparables (ie 0% and -5% respectively). 125.Save for the above, we agree with Mr Lee that comparable C3 has a slightly inferior layout because of its parallelogram shape and a minor level difference with the pavement. However, we would only allow +3% as opposed to Mr Lee’s +10%. 126.Hence, our assessment of the GDV of the reference new retail unit is as follows:[36]
GDV for Upper Floors 127.In assessing the GDV for the upper-floor residential units, Mr Chan relied on the recent sales in three developments, namely One Artlane, Two Artlane and 15 Western Street whereas Mr Lee adopted only the sales in the last one only:[37]
128.According to Mr Lee, he did not adopt transactions in One Artlane and Two Artlane because he suspected that those transactions were second-hand sales and the units were “used properties”. The building specification and the fixtures and appliances fitted inside were no longer new or brand-new.[38] With respect, we believe such comments were Mr Lee’s mere speculation without evidential support. During our joint inspection on 28 September 2021, these two developments appear to be new. Mr Chan further produced Exhibit A6 and Exhibit A7 to show that his comparables from One Artlane and Two Artlane were first-hand sales directly by the developers 129.Mr Lee accepted that these developments are at position superior to the Land in terms of location/ accessibility. In the 2nd Joint Statement dated 13 September 2021, Mr Lee agreed to Mr Chan’s adjustments of -5% for location for the facts that these developments are located right next to an MTR station entrance[39]. 130.Mr Lee, however, did not agree with Mr Chan’s adjustment of -3% for scale and facilities provided by these developments[40]. On this, we disagree with Mr Lee. The site area of One Artlane or Two Artlane is about twice larger than that of the Lots. We agree with Mr Chan that a development of larger scale and providing better facilities should have an added attraction but since there is no evidence of these “better facilities” as compared with the subject hypothetical development, no allowance would be allowed for that. 131.Mr Lee agreed with other adjustments proposed by Mr Chan[41]. Subject to our observations above, we would adopt Mr Chan’s assessment based on the comparables in One Artlane and Two Artlane as follows:[42]
132.Although both Mr Chan and Mr Lee agreed to adopt the transactions of the units in 15 Western Street as comparables, Mr Chan found that they were sold at a higher unit rate than One Artlane or Two Artlane and such was considered unreasonable by Mr Chan because One Artlane and Two Artlane are situated at a superior location. After making effort to investigate, Mr Chan found that the agency fee offered by the developer of 15 Western Street was as high as 8% of the sale prices, which is much higher than that under the common market practice. Mr Chan opined that portion of the agency fee may be rebated to the purchasers from the property agent. However, the amount of cash rebate, if any, cannot be reflected in the Price List nor the Register of Transactions of the development and may vary in each transaction, thus rendering the transactions of the units in 15 Western Street less reliable. 133.In addition, Mr Lee proposed +3% for the better lighting and ventilation of the hypothetical units. However, as commented by Mr Chan, the Land is classified as Class A site (ie abutting one side of the street) surrounded by high-rise developments. In comparison, 15 Western Street enjoys a Class B site (ie a corner site which abuts two streets) with relatively open view to the east. We agree with Mr Chan that the proposed +3% adjustment by Mr Lee is not justified. Mr Lee’s opinion appears to be self-contradictory as he agreed that there should be a -3% adjustment for the better view of the units in 15 Western Street. 134.About the traffic noise generated by vehicles going up Western Street, we agree with Mr Lee that it would affect the value of the units in 15 Western Street. We would allow +3% instead of Mr Lee’s proposed +5% (from which he deducted 2% for location). 135.The analysis of the sales of the units in 15 Western Street is as follows:[43]
136.While the average arrived above is $335,934 per sq m, it would become $331,917 per sq m if the three transactions disregarded by Mr Chan are excluded, which is higher than the average of the adjusted unit rate of $314,691 per sq m derived from the transactions of One Artlane (by 5.5%) and is also higher than the average of the adjusted unit rate of $281,077 per sq m derived from the transactions of Two Artlane (by 12.0%). 137.Although Mr Chan has not been able to provide any concrete proof of the transactions of the units in 15 Western Street being subject to the 8% agency fee, we consider it prudent to adopt a unit rate of $315,000 per sq m (round up of $314,691) as the unit rate for the hypothetical development. 138.The two valuation experts had the following agreements or disagreements on other development parameters in the residual valuation that follows: [44]
Construction Cost 139.We have adopted Mr Chan’s development model which does not have any shop provision on 1/F. As a result, Mr Lee’s apportionment of a different unit cost for the retail portion appears arbitrary and unnecessary. We consider Mr Chan’s construction cost estimate more reasonable. Construction Period 140.We consider that Mr Chan’s estimated construction period of 2 years is reasonable. Developer’s Profit 141.Mr Chan considered a developer’s profit of 15% reasonable having referred to the previous judgment of the Tribunal in other compulsory sale applications. In Kinstar Development Limited v Tse Yiu Kuen & Others, LDCS 10000/2019 (unreported, dated 26 July 2021), the most recent case which Mr Chan referred, the Tribunal determined the land value by way of the residual method of valuation based on a developer’s profit of 15%. This 15% was actually the agreement reached by the respective valuation experts of the parties involved in that case. The developable site area in that case was 297.86 sq m (ie similar in size to the Lots) while the proposed gross floor area (“GFA”) was about 2,701.2 sq m (which is also similar in size to the hypothetical development in the present case). 142.Mr Lee referred particularly to Joint Hope Limited v Vecent Hong Kong Trading Limited & others, LDCS 21000/2019 (unreported, dated 9 July 2021) where the Tribunal adopted a developer’s profit of 12% on the ground of improved domestic property market condition. The developable site area in that case was however 894.65 sq m (that is about 3 times of the area of the Lots which is 316.37 sq m) while the proposed gross floor area (“GFA”) was about 7,548.61 sq m (that is also some 3 times of the GFA of the hypothetical development which is about 2,676.25 sq m). 143.More recently, in Famous Concept Development Limited v Thousand Treasure Investment Limited & Others, LDCS 30000/2019 (unreported, dated 2 November 2021) which concerned a hypothetical development of similar scale and in similar locality as the subject Lots, the Tribunal determined the developer’s profit at 12.5%. 144.As stated in the Modern Methods of Valuation by Eric Shapiro, David Mackmin and Gary Sams, 12th edition, 2019 at p222:
145.Having reviewed the above, we are prepared to adopt 12.5% as the developer’s profit. Interest Rate 146.Mr Chan and Mr Lee are content to adopt an interest rate of 4% for discounting purpose. In Famous Concept Development Limited, supra, the Tribunal, having studied the trend of Hong Kong Interbank Offered Rate (HIBOR) for the interest period of 1 month for Hong Kong Dollars quoted by The Hongkong and Shanghai Banking Corporation Limited, adopted an interest rate of 3.5%. 147.In Fancy Million Limited & Another v Year Glory Limited & Others, LDCS 15000/2018 (unreported, November 2021), the Tribunal also applied an interest rate of 3.5% to test the result in determining the reserved price for the order for sale. 148.In light of the above, we are prepared to do the same and adopt an interest rate of 3.5%. Finding on RDV 149.Subject to what we have said above, we shall follow Mr Chan’s residual valuation model as contained in his revision[45] which is reproduced at Appendix I to this judgment. We arrive at a land value of the Lots at $375,000,000 (ie an accommodation value of $139,999/m2) on the basis of an interest rate of 4%. 150.Adopting an interest rate of 3.5%, we shall arrive at a land value of the Lots at $380,000,000 (ie the accommodation value $141,866/m2). 151.We determine the reserve price of the Lots at $380,000,000 (which is equivalent to $141,866/m2). Other Incidental Matters 152.The applicants proposed to appoint Mr Anthony Chow and Ms Anna Chow, both being consultants of Messrs Guantao & Chow, Solicitors & Notaries, as the sale trustees. Based on the information on their background and experience as set out in their letter dated 20 August 2021[46], we are satisfied that they are proper persons to be appointed as trustees to discharge the duties imposed on the trustees under the Ordinance. The remuneration package proposed in the said letter appears reasonable. 153.The applicants have prepared a set of draft Particulars and Conditions of Sale of the Land[47]. 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 Land by public auction submitted by the applicant are also reasonable. Order 154.This Tribunal make the following orders:
Costs 155.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, we order that the applicants do pay the respondents the costs of the Application, to be taxed on the High Court scale if not agreed. 156.Last but not least, the Tribunal thank Counsel for their assistance.
Mr Mok Yeuk Chi instructed by Messrs Vincent T K Cheung, Yap & Co, Solicitors, for the Applicants Mr Desmond Leung, instructed by Messrs Kwok, Ng & Chan, Solicitors & Notaries, for the Respondents
[1] See Bundle F1/150. [2] See Bundle F1/268-279. [3] See Bundle F1/270 & 271. [4] See Bundle F1/283 & 295. [5] See Bundle C2/230. [6] See Bundle C2/233. [7] See Bundle C2/231. [8] This Provisional Agreement for Sale and Purchase was not registered in Land Registry. [9] See Bundle F2/341. [10] See Bundle F2/362. [11] See Bundle B/43-44. [12] See Bundle B/45-46. [13] See §4 above. [14] That is, a situation similar to the present case. [15] This building has been renamed as Hankow Centre. [16] See Bundle C2/271. [17] See Bundle D1/148. [18] See Bundle F2/563. [19] See Bundle D1/120 & F3/616. [20] See Bundle D1/123. [21] See Bundle D1/140. [22] See Bundle C2/242. [23] See Bundle C2/243-245. [24] See also C2/273 & 282. [25] See Bundle C2/277 & 283. [26] Bundle E/44-48. [27] See Bundle D1/78-82. [28] 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.” [29] See Bundle C2/358. [30] See Exhibit A8 para 7. [31] See Appendix A of Exhibit R2. [32] See Bundle C2/258. [33] That is Exhibit R1. [34] See Bundle C2/362. [35] See Bundle C2/363-366. [36] See Bundle C2/390 & 397. [37] See Bundle C2/368. [38] See Bundle C1/216, §3.5 to 3.7. [39] See Bundle C2/329, 376 & 381. [40] See Bundle C2/368. [41] See Bundle C2/367. [42] See Bundle C2/392. [43] See Bundle C2/378-380 & 392. [44] See Bundle C2/386-387 & 401-402. [45] See Bundle C2/386. [46] See Bundle F2/676. [47] See Bundle F2/682-707. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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