Hong Kong Telephone Co Ltd v. The Hong Kong Land Co Ltd

LDLA000005/1982

IN THE LANDS TRIBUNAL OF HONG KONG

Coram: TRIBUNAL:    His Honour Judge Cruden, Presiding Officer and M.W. Phillips, Esq., Member

Date: 5 November 1982

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JUDGEMENT

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1. The applicant is the tenant of the domestic premises situate at 26G Shouson Hill Road, Hong Kong. Initially the applicant was in possession pursuant to a tenancy agreement dated the 24th day of February 1977. Under that tenancy agreement the respondent let the suit premises to the applicant for a period of 3 years from the 1st day of March 1977 at a calendar monthly rent of $8,500 exclusive of rates. Subsequently the tenancy was extended for a period of 2 years from the 1st day of June 1980 at an increased calendar monthly rent of $10,285 exclusive of rates.

2. The rateable value of the suit premises is $96,000 and they are now subject to Part IV of the Landlord and Tenant (Consolidation) Ordinance, Cap. 7. Under Section 117 thereof the applicant has applied for a new tenancy. The respondent does not object to the grant of a new tenancy but the parties have been unable to agree on the duration of the new tenancy nor on the new rent to be payable thereunder.

Duration

3. The applicant applies for a new tenancy of 9 months duration but indicates that if that duration is not granted then alternatively it seeks a 2 year duration. The landlord offers a 2 year term. No special reasons were advanced by the applicant why it sought the relatively short duration of 9 months. Where the duration of a new tenancy is in dispute the position is governed by Section 119I which directs the Tribunal to fix a duration which is :

"... reasonable in all the circumstances, being a tenancy for a term not exceeding 3 years ... "

4. The initial duration was 3 years. The applicant seeks a shorter duration and the respondent is willing to meet that request to the extent of agreeing to a 2 year term. We have had no evidence from the applicant as to its reasons for seeking a 9 months duration or any submissions whether that very short duration would be reasonable in all the circumstances. In these circumstances we determine that the duration of the new tenancy shall be for a period of 2 years.

5. The applicant further submitted that the new tenancy should commence on the 1st day of October, 1982. The respondent submits that the new tenancy should commence on the 1st day of July, 1982. The respondent submits that under Form CR101, served by it on the applicant pursuant to Section 119, the prior tenancy was terminated on the 30th day of June, 1982. Accordingly, it is submitted that the new tenancy granted by the Tribunal should commence on the day next following, namely the 1st day of July, 1982.

6. The applicant refers us to Section 119M which sets out the procedure to be followed by the parties upon the Tribunal making an order granting a new tenancy. That Section provides that unless the tenant notifies the landlord that it does not wish to accept the new tenancy, the parties are obliged to execute a new lease or tenancy agreement in terms of the Tribunal's order. The applicant submits that as the application was heard on the 27th day of September 1982 the earliest date of commencement of the new tenancy should be the 1st day of the month next following the date of hearing, namely the 1st day of October, 1982.

7. Having considered those submissions, we further order in the exercise of our discretion under Section 119I, that the 2 years duration of the new tenancy shall commence on the 1st day of July 1982.

New Rent

8. The applicant submitted that the fair market rent of the premises would be $29,500 per calendar month exclusive of rates for a 2 year lease from the 22nd day of September, 1982. If the lease were to commence on the 1st day of July, 1982 Mr. Cheung, the applicant's valuer agreed that his assessment should be increased to $30,000 per month exclusive of rates. The respondent's valuer, Mr. Lui, assessed the rent at 40,000 per calendar month exclusive of rates for a 2 year lease from the 1st day of July, 1982. This relatively large difference between the valuers assessments arises principally from the different total gross floor areas on which their valuations were based. The applicant's valuer calculated that area as comprising 224.08 square metres (2,412 square feet). The respondent's valuer calculated the gross area as 298.77 square metres (3,216 square feet). To understand these substantial differences in area it is necessary to consider the design of the suit premises in some detail.

9. The suit premises are the middle property in a series of 3 terraced houses completed in 1963. Because of its position in the block, unlike its two neighbours, it only has a view to the front and rear and not to the side. The entrance is at road level which is also the middle level of the premises. This middle level contains the main living room. The higher level above this floor comprises 3 bedrooms and 2 bathrooms. The lower level on the floor below the main living room, includes the dining room, kitchen, guest bathroom and servant's quarter. On this level a large storage area is also provided. The property is constructed on the north-western side of Shouson Hill Road with this lower level floor being built into the hillside below the road level.

10. Because of the steep slope down from the road level the foundations of the building continue for a considerable further distance below the lower level floor opening onto a paved open garden area. The area of these foundations below the lower level floor has been closed in to provide a playroom. The conversion is not elaborate. A series of glass doors enclose the side facing the garden while the low ceiling concrete beams have been encased in timber to improve their appearance.

11. The applicant's valuer did not include this enclosed foundation area, which creates a fourth level to the suit premises, in his gross floor area. The respondent's valuer does so. We had the advantage of submissions on whether this fourth level constituted part of the gross floor area. The parties agreed that under the original Crown Lease dated the 5th day of becember 1934, as subsequently varied under a Deed of Variation, the land on which the suit premises is erected restricts development to the erection of European type apartment buildings to a height not exceeding 3 stories.

12. Having considered these submissions we hold that the lawful residential user of the property is restricted to the 3 stories comprising the upper, middle and lower levels. The enclosed foundation area, used as a playroom, does not therefore form part of the legal gross floor area. However, it is part of the suit premises and must for valuation purposes be taken into account, as ancillary to the residential area comprising the gross floor area, as the garden and car park areas are likewise ancillary.

13. The garden comprises about 1800 square feet and is large compared with more modern town house developments. The garden is well established with mature trees which provide a large degree of privacy. This to some extent compensates for the lack of outlook or view. For being on the north-western side of Shouson Hill the suit premises do not look out towards the sea or Ocean Park but instead to Wong Chuk Hang and the vicinity of the Aberdeen Tunnel Entrance.

14. The remaining ancillary facility is the carpark. This comprises one carpark space immediately outside the front door of the suit premises which itself is one car length space from the formed road surface of Shouson Hill Road. The carpark space is uncovered and unfenced. Physically it appears to be an extension of the Shouson Hill Road surface to the front door of the suit premises. This appearance is borne out by the title and other documents produced in evidence. These show that prior to 1975 the area occupied by the carpark was Crown land forming part of Shouson Hill Road. From April 1975 pursuant to a letter from the Crown dated the 10th day of June 1975 it became part of the parent lot. The minimal parking and access facilities provided by this carpark are further affected by the fact that the suit premises front a relatively sharp bend in Shouson Hill Road, the opposite lanes of which are controlled by a double white no-passing lines. All these factors combine, to create a carpark very inferior to the kind generally provided for residential premises, otherwise of the general standard of these particular suit premises.

15. In arriving at their respective valuations each of the valuers used the same two recent comparable 2 year lettings for modern three storey town houses. One is in a development known as Orchid Valley next door to the suit premises and the other is a house in Ming Villas, a short distance away in the Shouson Hill area. Each of these developments has a communal swimming pool and each town house has two covered car parks as well as the usual small exclusive garden. The Orchid Valley development comprises 6 detached town houses and was completed in the late 1970's. Ming Villas is an even more recent development comprising five semi-detached town houses overlooking Deep Water Bay. Both of these cited comparables are considerably superior to the suit premises.

16. Mr. Lui also mentioned a renewal of a tenancy for a three storey town house in a development known as Springfield Garden, at 11 Shouson Hill Road West. The tenancy is to commence from December, 1982 and is for 2 years at $35,000 per month exclusive of rates. Mr. Lui obtained the information concerning this letting from the agency section of his firm but was unable to identify to which of the identical houses in the development it applied. He said he used this third comparable only as a guide. This was unfortunate as, although modern, the development is less prestigious than either of the others mentioned and does not have a communal swimming pool or any view. The outlook is also somewhat similar to that of the suit premises. In our opinion the Springfield Garden property in terms of physical characteristics is the best of the three comparables. Details of the comparables are listed below.-

17. The Orchid Valley and the Ming Villas houses are each roughly 3,000 square feet in area while the Springfield Garden house is slightly smaller and about 2,800 square feet. Excluding the closed in foundation area used as a playroom, the suit premises have an area of about 2400 square feet or 224 square metres.

18. The respondent submitted that the playroom should be regarded as part of the premises for the purposes of assessing the "fair market value". In cross examination Mr. Cheung agreed that as a matter of policy Government generally tolerates illegal structures erected prior to 1975 if they do not impose a physical danger to life and limb. The applicant submitted that quite apart from the playroom not being part of the gross floor area, even as an ancillary facility a tenant would use its doubtful legal status, as a lever, to negotiate a lower rent for the whole suit premises than otherwise.

19. We have already held that the playroom is not part of the gross floor area. However, it is an enclosed void area suitable for a playroom or related, if limited, use. We are satisfied that its existence could reasonably be expected to attract a slightly higher rent than if it did not exist, in the same way as other ancillary features add value to premises. The possibility that the landlord may at sometime have to remove the glass doors enclosing the area should not be discounted, nor should the probability that it may be allowed to remain for the time being. Fundamentally this is a matter for negotiation between the parties both being fully aware of the nature of the conversion. The same argument applies to the storage area which is located beneath the car park area. However, the additional benefit of this storage area is minimal as the other storage privision is far in excess of what any tenant would reasonably require.

20. In comparing the valuations we accept the respondent's statement that if the playroom were included in the gross floor area, rather than treated as an ancillary feature which enhances the overall value of the suit premises, both valuers calculations on a unit rate basis, as at the 1st day of July 1982, would be almost identical. Any difference would fall within a margin of 5%. Conversely, accepting the playroom as an ancillary facility each of the valuations would also fall within a similar margin.

21. We are also satisfied on that in reaching their conclusions neither valuer made sufficient allowance for the relatively inferior car parking facilities. Nor was it sufficiently recognised that by far the best comparable, if still also superior to the suit premises, was Comparable No. 3 at Springfield Gardens. What comparable had a rent of $35,000 per calendar month exclusive of rates.

22. After considering the whole of the evidence in the light of all these factors we determine the fair market rent of the suit premises for the new tenancy of 2 years commencing on the 1st day of July, 1982 to be $30,000 per calendar month exclusive of rates and management charges.

23. Liberty to apply in respect of any consequential matters is reserved.

DATED this 5th day of November, 1982.

Representation:

Mr. E.W.D. Radcliffe of Deacons for applicant.

Miss M. Fok of Slaughter & May for the respondent.