Gloryson Ltd. v. Alfred Lau & Co.

LDPE000238/2002

LDPE238/2002

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

New Tenancy Application No. 238 of 2002

Coram: Member W K LO

Dates of hearing: 30 April 2002, 29 May 2002 and 21 June 2002

Date of judgment: 31 July 2002

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JUDGMENT

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Background

1.The Applicant was the former landlord and the Respondent the tenant of the subject premises known as Unit 1901-2 Wing Shan Tower, 173 Des Voeux Road Central, Hong Kong ("the Premises"). According to the information given by both parties, the Applicant has disposed of the Premises on 30 April 2002. Prior to the assignment of the Premises to the new owner, the Applicant filed an application to the Tribunal on 7 March 2002 (as amended on 26 March 2002), applying for recovery of possession of the Premises on the ground that "the Respondent has failed to pay rent since 1 December 2001 and the expiry of Tenancy Agreement on 11 March 2002, as per attached". The attachments set out the outstanding sums owned by the Respondent: rental for the period from 1 December 2001 to 11 February 2002 in the sum of $40,439.29 calculated at the rate of $16,000 per month or part thereof, management fee for the period from 1 December 2001 to 11 March 2002 in the sum of $15,700.65 calculated at the rate of $4,680 per month or part thereof, and interest for the period from 1 December 2001 to 28 February 2002 in the sum of $1,986.99 calculated pursuant to Tenancy Agreement. The total amount claimed in the Application was $58,126.93.

2.The Respondent filed a notice of opposition on 19 March 2002, stating the following three grounds for opposing the application:

1. Rental for December 2001 & January 2002 had been paid.

2. The Respondent opposes that the air-conditioning has been out of service at many occasions.

3. The Respondent opposes that there are water leakage in many parts of the Premises.

3.In the hearing held on 30 April 2002, the Respondent sought and was granted leave to amend the Notice of Opposition. The Respondent added the following additional two grounds for opposing the application:

4. As per the 1st paragraph of the tenancy agreement dated 4th July 2000, it was provided that no rent shall be paid from 12th March 2000 to 11th May 2000, 1st March 2001 to 31st March 2001, 12 February 2002 to 11th March 2002 (i.e. two months free rental for the 1st year and the 2nd year of the tenancy). It was also agreed with Mr. Sit, the representative of the Landlord that two months' free rental would be applicable to the one year option to the tenant.

5. Also by the 15th line of paragraph one of the tenancy agreement, it is stipulated that rental for the option to renew would be subject to the market rate (i.e. the current present market rental rate at the time of the option). If the amount is not agreeable between the parties, the matter will be referred to arbitration. In consequence, it would be exceedingly wrong for the landlord to charge $16,900.00 for the rental for the option renewal.

4.Mr. A. Lau for the Respondent gave evidence that the Respondent had been negotiated a new tenancy with the new owner subsequent to the formal assignment of the Premises to the new owner on 30 April 2002. Therefore, the period in dispute between the Respondent and the Applicant was only for a short period of time, from 12 March 2002, the date after the expiry of the previous tenancy, to 30 April 2002.

Whether cause of action existed for the Applicant at the date of Application?

5.The Applicant conceded that since the Premises as part of Wing Shan Tower had already been assigned to the new owner on 30 April 2002, the Applicant could not recover possession of the Premises from the Respondent. Therefore, the Applicant in the final submission only sought recovery of rent, rates and management fee for the period from 12 March 2002 to 30 April 2002, with the rent to be calculated at the market rental rate to be determined by the Tribunal.

6.Nevertheless, for the purpose of deciding the merit of the case and hence the costs to be awarded, the Tribunal still has to determine whether as at the date of Application, there was the cause of action on the part of the Applicant. In this regard, the Respondent in the Notice of Opposition pointed out that the rents for December 2001 and January 2002 had been paid. There was however no evidence from the Respondent as to the actual date of payment of these two months' rents. Also, the Respondent did not challenge the evidence from the Applicant that the cheques for the payments of these rents for the period from 1 December 2001 to 11 February 2002 were only received by the Applicant on 12 March 2002, 21 March 2002 and 26 April 2002 (details shown in Exhibit A2), all of these dates being after the date of Application, 7 March 2002.

7.The Respondent also raised in the Notice of Opposition that "the air-conditioning has been out of service at many occasions" and "there are water leakage in many parts of the premises". However, clause 2 in page 2 of the Tenancy Agreement contains the following stipulation:

"The Tenant hereby agrees with the Landlord as follows: (a) to pay the rent for the premises and the Operating Charges in advance to the landlord...The Tenant shall pay to the Landlord...all such sums due hereunder...without any deduction on account of any set-off or claim which the Tenant may have against the Landlord..." (Underline added)

8.Therefore, the above ground nos. 2 & 3 of the Notice of Opposition do not give the Respondent as the tenant the right to refrain from paying the rents, etc. in advance to the Applicant.

9.The other grounds, nos. (4) and (5) of the Notice of Opposition only affect the assessment of rent and / or mesne profits for the period from 12 March 2002 to 30 April 2002, since the parties did not dispute that under the Tenancy Agreement, the rent from 1 December 2001 to 11 February 2002 should be calculated at the rate of $16,900 per month, and there was a rent-free period between 12 February 2002 and 11 March 2002.

10.Hence, the Tribunal finds that as at the date of Application, the Respondent owed the Applicant outstanding rents and management fee from 1 December 2001. Thus, notwithstanding that the Respondent had paid two months' rents after the lodging of the Application by the Applicant (i.e., ground no. 1 of the Notice of Opposition), the cause of action did exist at the date of Application. The Applicant will also be entitled to costs of this Application.

Whether a 2 months rent-free period was applicable to the 1-year option period and if yes, when was the rent-free period?

11.The Respondent in their final submission submitted that "part of the 2 months rent free period for the option year should be applied from 12th March 2002 to 30th April 2002 for which the old landlord has acted accordingly in the first and second year period and there is no principle of law or logic that such rent free period should not be applied in the 3 (sic) year (the option year)."

12.The first question the Tribunal has to ask is, whether the tenancy agreement ("Tenancy Agreement", a copy of which is produced as Exhibit A1) entered into between the parties on 4 July 2000 is a 2-year tenancy or a 3-year tenancy. Under clause 1 on page 1 of Tenancy Agreement, the term and the rent-free period of the tenancy are stated as follows:

"for the term of 2 years fixed commencing on the 12th March 2000 and expiring on 11th March 2002, with an option to renew for another 1 year lease commencing from 12th March 2002 to 11th March 2003 subject to the market rate, at the calendar monthly rent of ...HK$16,900 exclusive of rates, operating charges and Government Rent and at the calendar monthly charge of ...HK$4,680 subject to revision from time to time...Provided that no rent shall be paid from 12th March 2000 to 11May 2000, 1st March 2001 to 31st March 2001, 12th February 2002 to 11th March 2002." (Underline added)

13.It is clear from the above that the tenancy stated in the Tenancy Agreement is a 2-year term tenancy, with an option to renew for another 1 year. It is only when the said option has been exercised that the third year will come into play. There is however no other clause in the tenancy agreement governing the manner in which the option to renew should be exercised.

14.The Respondent stated in ground no. 4 of his Notice of Opposition, "it was agreed with Mr. Sit, the representative of the Landlord that two months' free rental would be applicable to the one year option to the tenant." However, the Respondent did not adduce any evidence on the said agreement with Mr. Sit of the Landlord (i.e. the Applicant). Also, the above said agreement stated in the Notice of Opposition appears to contradict with the Respondent's final written submission which stated that Mr. Sit, the Applicant's representative had the following response when Mr. Lau of the Respondent met the latter and sought to finalize the details for the option year:

"The old landlord had never performed his part or his duty to see the option had been carried out smoothly even we the tenant had firmly made their wish and intention to proceed for the one year option renewal. The old landlord representative Mr. Sit just said that he will leave the matter to the new landlord to deal with the option notwithstanding the date for the option was 12th march 2002 which date was long before the Assignment took effect on 30th April 2002. We can never think out of any reason for Mr. Sit's suggestion."

15.This written submission was in line with Mr. Lau's evidence in chief, given during the hearing on 29 May 2002 that the parties had never agreed on the rent for the option year. Moreover, Mr. Lau gave evidence that during that meeting held between him and Mr. Sit of the Applicant, the latter did not indicate to him whether his interpretation of the tenancy agreement that "there are two months' rent free period for every year of the tenancy" was acceptable to the Applicant.

16.Therefore, summing up, Mr. Lau's own evidence was that at the time nearing the end of the 2-year term, there was still no consensus of opinion between the landlord and the tenant that firstly, there would definitely be a third year term, and secondly, that there would be a 2 months rent-free period. One could also infer that there was no such consensus even at the time of signing the Tenancy Agreement; otherwise, there was no necessity for the Respondent to have tried to discuss, and negotiate, though unsuccessfully, with the Applicant over the issue of the rent-free period and the rent for the third year.

17.Besides, the Tenancy Agreement expressly stated the specific months of the original 2-year term during which no rent shall be paid and the same said Agreement did not state that for the third year (option year), there would be a 2 months rent-free period.

18.Based on the above, the Tribunal finds that although the Respondent intended to take up the option to renew with the Applicant, the Applicant's representative, a Mr. Sit, did not reach any agreement with the Respondent regarding the option year but instead asked the Respondent to negotiate the matter with the new landlord. Therefore, there was no third year tenancy between the Applicant and the Respondent. Also, it would be wrong to infer, as the Respondent did in the submission, that the Respondent as the tenant would be automatically entitled, a 2 months rent- free period from 12 March 2002 in the third year of tenancy, even assuming its existence.

Assessment of market rent, or mesne profit of the Premises from 12 March 2002 to 30 April 2002

19.From the foregoing, the Tribunal decides that there is no automatic 2 months rent-free period following the expiry of the original 2-year lease term. There was no provision in the Tenancy Agreement that "if the amount is not agreeable between the parties, the parties will be referred to arbitration." However, both parties agreed that, in the event that the Tribunal decides that there is no rent-free period following 11 March 2002, the mesne profit of the Premises from 12 March 2002 to 3 April 2002 should be based on the prevailing market rent of the Premises to be determined by the Tribunal.

20.The Applicant adduced rental evidence in the subject building to support an estimate of $12 per sq. ft. as the prevailing market rent for the period from 12 March 2002 to 30 April 2002. The Applicant produced Exhibit A6, setting out fully the rental information for units in the subject building owned by the Applicant. The rents under the recently agreed tenancies for four units were also summarized in the document marked "G-L-1" enclosed with the Applicant's written final submission. These tenancies were considered by the Applicant to be most relevant for the purpose of assessment of the mesne profit for the Premises. These tenancies commenced from January 2002 to April 2002, fetching rents with unit rates of between $11 and $14 per sq. ft., on gross area basis. As to the difference in the unit rate of the new letting vis-à-vis the renewals in the building, the Applicant conceded that they have allowed a discount (to a maximum of 20%) to new tenants in order to compensate them for the costs of refurbishment and furnishing. After making adjustments for the rent-free periods provided under the respective tenancies, the effective unit rates for three renewals were $12.00, $13.00 and $12.80 per sq. ft., whilst that for a new letting was $10.50 per sq. ft., all on gross area basis.

21.In the final analysis, the Applicant submitted that the market unit rent for the Premises was estimated by taking the average of these 4 comparables, or $12.075, which was rounded to $12.00 per sq. ft. on gross area basis

22.The Respondent submitted that "comparables within the same building is no true comparable at all and it does not reflect the current market rental in the same area." The Tribunal considers this statement to be wrong. On the contrary, in general, it is well established that for the valuation of a unit in a particular building, rents within the same building do provide the best comparables, unless there are good reasons to reject any of the comparables.

23.The Respondent produced a letter (Exhibit R1) from Mr. Liu King Tong, Chartered Surveyor stating that the market rent of the premises for the said period "was in the region of HK$8.00 p.s.f. per month exclusive of rates and management fees on gross floor area basis." The Respondent submitted that the evidence of Mr. Liu, as an independent expert, should be preferred to the evidence adduced by the Applicant. However, as rightly pointed out by the Applicant, Mr. Liu's letter contained a limiting condition, which said that "In accordance with our standard practice, we must state that the valuation is for the use only of the party whom it is addressed and no responsibility is accepted to any third party for the whole or any part of the contents." Mr. Liu's letter also did not include any evidence of facts supporting his conclusion. Moreover, since the Respondent did not call him as a witness, his opinion could not be tested or challenged by the Applicant. For the aforesaid reasons, the Tribunal cannot accept Mr. Liu's opinion as stated in his letter.

24.In the light of the above and in the absence of any other evidence, the Tribunal accepts the Applicant's evidence that the market rent for the Premises is in the order of $12 per sq. ft. of gross area. On that basis, the amount of mesne profit payable by the Respondent to the Applicant is calculated as $12 per sq. ft. x 1,300 sq. ft. x (1 + 20/31) months, or $25,664.52. This amount is the same as that set out by the Applicant in paragraph 8 of their final written submission.

25.Similarly, the Applicant set out in the final submission the estimates of the outstanding rates for the period from 1 April 2002 to 30 April 2002 in the sum of $244.95 and the outstanding management for the period for the period from 12 March 2002 to 30 April 2002 in the sum of $7,699.35. The Respondent did not dispute these figures or the liability to pay. Therefore, the Tribunal accepts these figures for the amount of outstanding rates and management fee to be correct.

Deduction of deposit by the Applicant

26.The Respondent complained in the final submission that they were informed by the new landlord that "Gloryson Limited had entirely without lawful ground and justification deducted a sum of $40,319.07 from the deposit leaving a balance4 of $2,830.93 ...This act of violence is highly intolerable by the Respondent." However, this matter does not form the subject matter of this Application and is also outside the jurisdiction of this Tribunal.

Costs

27.The Tribunal finds that the Applicant's cause of action, for recovery of possession, rent etc. and costs, did exist at the date of Application. Due to the formal change of ownership of the Premises on 30 April 2002, the Applicant conceded that the Applicant would no longer seek vacant possession of the Premises. Nevertheless, in accordance with the usual basis for the award of costs in civil proceedings, the Applicant should still be entitled to the costs of this Application.

28.The Applicant set out in Exhibit A2 the expenses incurred in filing the Application. The amount of costs claimed, in the sum of $601, includes the filing fee for the amendment of notice of application. However, that was entirely unnecessary if the Applicant was careful in not omitting a few words when completing the Form 22 in the first instance. In the circumstances, the fee for the amendment, in the sum of $61, is not allowed. Therefore, the Tribunal decides to award costs in the sum of $540 to the Applicant.

Orders

1. The Application for vacant possession of the suite premises to the Applicant is dismissed;

2. The Respondent shall within 7 days from today pay the Applicant arrears of mesne profits from 12 March 2002 to 30 April 2002 as assessed by the Tribunal in the sum of $25,664.52;

3. The Respondent shall also within 7 days from today pay the Applicant (i) arrear of rates for the period from 1 April 20002 to 30 April 2002 in the sum of $244.95 and (ii) arrears of management fee for the period from 12 March 2002 to 30 April 2002 in the sum of $7,699.35;

4. The Respondent shall within 7 days from today pay the Applicant's costs of this Application, in the sum of $540;

5. Payment out to the Applicant upon payment in by the Respondent, if any.

Representation:

Ms. Yeung, Fuk Yi Floria, the representative of Gloryson Ltd., for the Applicant

Mr. A. Lau, the representative of Alfred Lau & Co., for the Respondent