Shun Tak Enterprises Ltd v. Tobermory Investment Ltd

LDLA000022/1982

IN THE LANDS TRIBUNAL OF HONG KONG

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

Date: 31st day of March, 1983

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JUDGMENT

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1. The applicant being the tenant of the domestic premises described as the 6th Floor Penthouse, Guildford Court, 5 Guildford Road, The Peak, Hong Kong, has applied pursuant to Section 117(1) of the Landlord and Tenant (Con-solidation) Ordinance, Cap. 7 for the grant of a new tenancy. The respondent is the landlord of the suit premises. The current rateable value of the premises is $171,000 so they are very clearly subject to Part IV.

2. The parties agreed to a new tenancy commencing on the 1st day of July 1982 for a duration of 3 years. The sole issue in dispute is the new rent. The parties further agreed that the new rent is to be ascertained as at the 1st day of July 1982. The applicant submitted that the fair market rent as at that date was not more than $40,000 per month exclusive of rates. The respondent submitted that the fair market rent was $57,000 per month exclusive of rates.

3. The suit premises were first leased by the applicant for a period of 3 years from the 15th day of August 1977 at a monthly rent of $13,000 exclusive of rates. That rent was increased on the 1st day of March 1981 to $15,730 per month under Part II of the Ordinance to which the premises were then subject.

4. The suit premises comprise the whole of the top or 6th floor of Guildford Court. Each of the lower floors includes two flats, one being Type A having 4 bedrooms and the other Type B with 3 bedrooms. The Type A flats share one lift while the Type B flats share a separate lift. Access to the suit premises is by the Type A lift. The flats also have access to a service lift. All flats also share a communal swimming pool. The suit, premises include two carparks. All the other flats are allocated one carpark.

5. The suit premises, covering the whole of one floor, are relatively large having an area of about 475 square metres (over 5,000 square feet). We were shown the original floor plan and it appears that at some time after Guildford Court was constructed but apparently well before the applicant went into possession the layout was substantially altered with a number of apparent resulting disadvantages. The rear staircase now opens direct into the dining area instead of into the service area; the only access of one bedroom to a bathroom is through an adjoining bedroom; another bedroom only has access to the main passage through another bedroom; plaster board has been used for some of the partitioning; all the windows to Guildford Road are opaque preventing any view to that aspect; some of the original windows have been either wholly or partly blocked up with plaster board resulting in uneven wall surfaces with the outline of the original windows clearly showing. The suit premises have no private access to the roof or exclusive use of any roof area. The only access to the roof is through the servants quarters and this at times has to be shared by workman attending to the other flats.

6. The dominating feature of the premises is their sheer size. They include an exceptionally large living and dining area, 4 bedrooms, 3 bathrooms, a family room and an enclosed garden room. The service areas include a kitchen, two servants rooms and a servant's bathroom. There is central air-conditioning.

7. From this description it is apparent that the premises do not possess many of the characteristics common to penthouses. Penthouses are usually apartments built on the roof of the main structure and often have access to the roof for living, recreational or entertainment purposes. These particular premises are in reality simply the top floor of a block of flats. The only major difference between the premises and the Type A and Type B flats on the lower floors is that the latter types of flats are smaller. Another signifi-cant difference is that the design of the lower floor flats is markedly superior to the modified layout of the suit premises.

8. Mr. Allport, a chartered surveyor employed by the applicant and the actual occupant of the suit premises, gave oral evidence as well as submitting his written valuation which supported a fair market rent of $40,000 per month exclusive of rates and management charges. One of his comparables was a penthouse in Grenville Gardens let in April 1982 for 2 years at a rent of $40,000 per month. This penthouse included a living area of 3,350 square feet together with a roof garden of 1,700 square feet.

9. Mr. Arnold, a chartered surveyor employed by an associated Company of the respondent, which is responsible for the management of Guildford Court, sought to support a rent of $57,000 per month exclusive of rates. For back-ground purposes he cited a penthouse at Branksome, Tregunther Path of 4,300 square feet let on 1st, September 1982 at $52,000 per month and a penthouse at Valverde, May Road of 5,420 square feet let on 1st July 1982 for $65,000 per month He also produced evidence of asking prices in June 1982 for pent-houses at Altadena, Barker Road of $70,000 per month, Tregunther, Tregunther Path of $60,000 per month (He understood $55,000 was eventually paid.) and Cliffview, Conduit Road, of $55,000 per month.

10. After then going on to adopt a number of mathematical approaches, he finally placed most reliance on evidence of recent lettings of other flats in Guildford Court. As a base he took the 1977 rents for Guildford Court, when the premises were not subject to Part II rent controls, in order to obtain a suitable multiplying factor to apply to the 1977 rent for the suit premises. He explained that many penthouses in Hong Kong are owner-occupied and do not commonly come onto the market for letting. He also recognised that the asking prices for some of the penthouses he referred to were of minimal, if of any value, in ascertaining the fair market rent of the suit premises for the purposes of this instant application. Another serious objection to other penthouse rents being relied upon is that we are very doubtful if the suit premises can accurately be described as a penthouse or directly compared with other penthouses properly so-called.

11. In fact the suit premises are in a number of respects quite unusual and we fully appreciate the difficulty both Mr. Allport and Mr. Arnold faced in their search for satisfactory comparables. In Mr. Allport's view a pent - house could not be compared with a standard flat but generally was more comparable to a townhouse. He further stated that for a rent of $45,000 or more the independent facilities of a townhouse, as distinct from the more com-munal facilities of a flat, were expected. Mr. Arnold was not necessarily prepared to accept that distinction. In any event he was of the opinion that penthouses have a particular attraction to a certain type of tenant and develop a market of their own. In the absence of other satisfactory comparables, he considered that a penthouse could properly be compared with other smaller flats in the same building to produce an indication of the comparative additional value that might reasonably be placed on such a penthouse.

12. There is merit in the statements of both valuers but there are also other factors which must be considered. The market for penthouses is more a matter for individual and differing tastes than is the case generally for large Part IV flats. Not only are penthouses more subject to personal and subjective criteria but they also tend to be more suspectible to obsolescence. In the majority of cases they provide the convenience of large scale luxurious accommodation in high rise and high density locations. On the other hand, the suit premises are not situated in high density Zone I or Zone II areas such as Central or Mid-levels but instead are closer to the lower density developments typical of The Peak and southern side of Hong Kong Island. Some of the attractions of penthouses in the former localities are not so relevant in different localities such as Guildford Road, We are therefore of the view that even if the suit premises were strictly a penthouse, it would be wrong to give substantial weight to other penthouses in more typical high density and central localities.

13. Faced with all these difficulties we are satisfied that the best evidence of value is that provided by other flats in the same development. We also take into consideration that potential tenants of the suit premises would have within the same immediate locality a number of townhouses either as alternatives or comparisons. However, even the evidence provided by the other Guildford Court flats must be weighed with considerable care. Certainly this is not an application where a unit rate basis of valuation may be mechani-cally applied. The large amount of waste or under-utilised space in the suit premises compares unfavourably with the much better designed layout of the other if smaller flats in Guildford Court.

14. We consider in these exceptional circumstances, that the better course is to look at the rent obtained for Flat A6, Guildford Court. This flat, like the suit premises, includes 4 bedrooms and is situated on the floor immediately below the suit premises. Flat A6 was let on the 1st day of July 1982 at a rent of $37,000 per month. We are aware that it is only let on a month to month basis but the rent is supported by other lettings in Guildford Court which are for 2 years. We are satisfied that for our purposes Flat A6 provides the best evidence of value.

15. The suit premises must be given a higher value to allow for the extra rooms; greater space and additional carpark. The glassed-in balcony of the suit premises must be compared to its advantage with the unusual fact that the other flats in Guildford Court have no balconies although. the Ground Floor flats have their own gardens. After taking all these factors into account we determine the new rent for a 3 year tenancy of the suit premises commencing on the 1st day of July at $43,000 per month exclusive of rates and management charges. There will be no order as to costs.

16. DATED this 31st day of March, 1983.

Representation:

Mr. Peter Lo of Woo, Kwan, Lee & Lo for the applicant.

Mr. Warren Chan instructed by Johnston, Stokes & Master for the respondent.