Dunlop Hong Kong Ltd v. Strawberry Hill Development Ltd

LDLA000042A/1982

Landlord and tenant - Part IV - application for new tenancy - grant of new tenancy rejected by tenant - tenant vacates within statutory time limits - whether interim rent at old or new rate - if new rate whether discretion to fix a lower rent for interim period under "reasonable rent" proviso applies when new rent only material difference - Held: 1. by statute new rent is backdated to expiration of old tenancy; 2. discretion to fix lower interim rent only exists where terms of new tenancy, other than rent, are materially different to terms of old tenancy. Sections 117, 119K, 1191M(2) and (4) Landlord and Tenant (Consolidation) Ordinance, Cap. 7.

IN THE LANDS TRIBUNAL OF HONG KONG

Application L.T. No. 42 of 1982

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

Date: 22nd day of March 1983

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JUDGMENT

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1. The applicant last.year had applied for a new tenancy of House No. 26 Strawberry Hill, 8 Plunkett's Road, Hong Kong, for a duration of 2 years from the 1st day of July 1982 at a rent of $43,000 per calendar month exclusive of rates. The application was opposed and heard as part of a subsequently consolidated application in which judgment was delivered on the 30th day of October, 1982. The applicant, who was represented by Counsel, was the 8th Applicant in those consolidated proceedings.

2. The Tribunal granted a new tenancy of House No. 26 to the applicant for a period of 2 years commencing on the 1st day of July, 1982 at a rent of $55,000 per calendar month exclusive of rates, On the 29th day of November 1982 the applicant, pursuant to Section 119M(2) of the Landlord and Tenant (Consolidation) Ordinance, Cap. 7, rejected the offer of that new tenancy. In terms of that Sub-section the applicant on that day.served on the Tribunal and the respondent a notice in the specified form, namely Form CR106, stating that it did not wish to accept the new tenancy and that it would give up possession on the 30th day of November, 1982.

3. Possession of the suit premises was given up by the applicant to the respondent on the 30th day of November 1982 and rent was paid by the applicant to the respondent up to and including the 30th day of November 1982 at the old rate of $14,250. Subsequently the respondent made demand on the applicant for the difference between the old rent and the new rent for the interim period between the 1st day of July 1982 and the 30th day of November 1982.

4. The applicant disputes liability for payment of that sum and on the 7th day of December 1982 wrote to the Tribunal wanting to be heard on that issue. We have treated that letter as an application for review, pursuant to section 11A of the lands Tribunal Ordinance, Cap. 17, of our judgment dated the 30th day of October 1982. The application should have been made within 1 month and was therefore 7 days out of time. Under Rule 30 of the Lands Tribunal Rules we have power to enlarge time and we have treated the application for review as necessarily also including an application to enlarge time.

5. The applications were set down for hearing on the 14th day of December 1982 when leave was granted to Mr. A. MacDonald to represent the applicant. The respondent's solicitors appeared and did not object to the application being out of time.Time was enlarged accordingly.

6. The applicant submitted that while its initial application for a new tenancy under Section 117 (1), filed by its then solicitors, sought a new tenancy for 2 years commencing on the 1st day of July 1982, those particulars were merely a proposal subject to acceptance depending on whether it was prepared to accept the new rent to be ordered. The applicant submitted that it did not agree to that new rent commencing on the 1st day of July 1982, in the event of it electing to reject the new tenancy.

7. The respondent submitted that the parties agreed on the date of commencement. Further that whether a new tenancy was accepted or rejected by a tenant, the new rent was backdated to the expiration of the prior contractual tenancy under Section 119M(4). The respondent finally pointed out that the power of the Tribunal to fix a lesser or "reasonable rent" for the interim period under the proviso to Section 119M(4) was limited: It was submitted that the Tribunal only had a discretion to fix a lesser rent under the proviso where:

"... the terms of the new tenancy, apart from rent, are materially different from the term of the current tenancy ... "

8. These submissions raise an important practical issue. For there is a substantial financial difference whether rent for the interim period is paid at.the old rate of $14,250 or at the new rate of $55,000. They also raise what appears to us to be a major distinction between the new Part IV provisions of our Ordinance and the comparable provisions of the English Landlord and Tenant Act 1954 upon which our Part IV is based.

9. Under Section 24 of the English Act, the old tenancy is con-tinued until the application for a new tenancy is determined. Initially the old rent also continued to be paid during this interim period. It is not surprising that at least some tenants in England resorted to various tactical ploys to delay the final determination of an applica-tion so that they could enjoy the invariably lower old rent, during the interim period. We have already in Towers, Perrin, Forster & Crosby Inc v. Suvindra Ltd. L.T No 57/82 mentioned the abuses which arose in England citing Espresso Coffee Machine Co. Ltd.v. Guardian Assurance Co. Ltd. (1958) 1 W.L.R. 900 and Woodfall Landlord and Tenant (28th Edn) 2-0710.

10. No doubt it was to limit some of those abuses which led to the enactment of Section 24A as inserted by the Law of Property Act 1969. Section 24A empowers.a landlord to apply during the interim period to the Court to fix a reasonable rent. The current English position is therefore that during the interim period the old rent continues unless the landlord applies for a different rent, defined as a "reasonable rent", to be paid pending the final determination whether a new tenancy, including a new rent, is to be granted. If an interim rent application is made before the application for a new tenancy is determined, it is usually adjourned to be heard with the substantive application. 1 Hill and Redman's Law of Landlord and Tenant (17th Edn) 751 in referring to English practice under Section 24A declares:

"It is generally to be expected that the interim rent will be lower that the final rent fixed for a new tenancy ordered by the Court. "

However, the reported cases indicate that the interim rent is usually far closer to the new rent than the old rent. The explanation is no doubt because as Hill and Redman go on to state at page 752:

"The purpose of the interim rent procedure introduced by the Law of Property Act 1969 was to prevent the injustice to landlords which stemmed from the old out-of-date rent continuing while negotiations or court pro-ceedings went on. If the interim rent can be substantially lower than the new rent that injustice is mitigated rather than ended and tenants still have a financial interest in delay. "

11. An early English example where an interim rent was fixed is English Exporters (London) Ltd. v. Eldonwall Ltd. (1973) 1 Ch. 415 where Megarry J. concluded his judgment in these terms:

"I doubt if the two elements of market rent and existing rent are intended to be given equal weight. Section 24A(3). provides that section 34 "shall apply" to the determination in the manner stated and merely requires the court to "have regard" to the existing rent. I think the process envisaged is not that of striking a balance between two factors of equal weight, but it is that of applying one factor, namely the market rent and, where appropriate, suitably tempering it by reference to the existing rent. On the facts before me,I do not think that much of a case for tempering the market rent by any very substantial amount has been made out; there is some case, but not much. What, then, is the right figure, closer to the interim market rent of ?5,000 than to the existing rent of ?,655 that will duly reflect the intention of section 24A in relation to the facts of this case? Doing the best I can in this very difficult jurisdiction, I can only say that, for reasons which defy any detailed analysis, I would, on the facts of this case fix the interim rent at ?4,000 a year; and I therefore determine the rent under section 24A at this figure. I would only add that, obvious though my reasons for regretting the length of this judgment must be, part of the responsibility may not unfairly be laid at the door of Parliament.

12. When in 1981 our Part IV was drafted, the provisions of the English Landlord and Tenant Act were closely followed. However, the draftsman, no doubt because of the' anomalies which had arisen over interim rent in England, did not resort to their provisions as a precedent.A very different approach was adopted. The English concept of the old rent continuing was rejected. Instead our Section 119M(4) provides:

"During the period from the date on which the current tenancy would have come to an end ... until -

the tenant shall be liable to pay the rent fixed in respect of the new tenancy ... "

Subsection (2) empowers the tenant to reject the new tenancy.So in Hong Kong during the interim period between either the old and the new tenancy or the between the old tenancy and the tenant rejecting a new tenancy, the new rent is payable. In other words the new rent is backdated to the expiration of the contractual tenancy.

13. The second major difference relates to our discretion. In England the Court has a twofold discretion in relation to interim rents. First, it has an unfettered discretion whether to fix an interim rent or instead merely allow the old rent to continue for the duration of the interim period. Secondly, if it does decide to fix an interim rent, it has a discretion, subject to statutory guidelines provided by the old and new rents, to fix the amount of the interim rent.

14. In Hong Kong the statutory backdating of the new rent to the commencement of the interim period is only subject to the Tribunal's very limited discretion under the proviso to Section 119M(4):

"Provided that, if the terms of the new tenancy apart from rent, are materially different from the terms of the current tenancy, the Tribunal may, on the application of either party, order that the tenant shall be liable to pay a reasonable rent which may be lesser or greater than the rent fixed in respect of the new tenancy under section 119K. "

Unlike the English provision, either landlord or tenant in Hong Kong may apply for the fixing of a reasonable rent for the interim period. However, instead of a general discretion, the Tribunal's power to fix a reasonable rent only arises where the new terms, other than rent, are materially different to the current terms. In practice the common major difference between the old and new terms is in respect of the rent payable. Where that is the case, we have no discretion to fix an interim rent.

15. It is possible to envisage cases where it would be useful if the Tribunal had a general discretion to fix an interim rent. In parti-cular where a tenant, not guilty of any delay or otherwise in default, elects to reject a new tenancy because of the extent of the increase in the new rent, the power to fix a lesser rent for the interim period before he vacates, might appear to be just. Whether a similar power should be available to cushion the effect of any increase in favour of a tenant who elects to accept a new tenancy is a separate question.

16. What is clear is that in the instant case, irrespective of the date of commencement of any new tenancy, we have no power, under the proviso, to fix an interim rent. It therefore follows that we are obliged to dismiss this application for review. We would confirm that the new rent of $55,000 is therefore payable, because of the statutory provisions of Section 119M(4), from the 1st day of July 1982 to the 30th day of November 1982. There will be no order as to costs.

DATED this 22nd day of March 1983