Rj Rhoades v. Lee Wai Lee

LDLA000042/1983

Landlord and tenant - Part IV - on application for new tenancy request for inclusion of break clause and additional carpark space - prevailing market rent should not be determined by averaging - where landlord maintains rents at a level higher than prevailing market rent then exceptionally assessment of new rent should not be determined by accepting direct comparison of identical flats in the same block as the best evidence but greater weight must be given to comparables provided by flats owned by different landlords which will usually be in other blocks but in the same locality - Sections 117, 119J and 119K Landlord and Tenant (Cphedlidation) Ordinance, Cap. 7.

IN THE LANDS TRIBUNAL OF HONG KONG

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

Date: 15th day of September, 1983

------------------------

JUDGMENT

------------------------

1. The applicant is the tenant of the domestic premises being Flat A3, 2nd Floor, Block A, South Bay Villas, 4 South Bay Close, Repulse Bay, Hong Kong. On the 28th day of April 1983 he applied, pursuant to Section 117(1) of the Landlord and Tenant (Consolidation) Ordinance, Cap. 7 to the respondent landlord for a new tenancy of 2 years duration.

2. The applicant has been in possession of the subject premises since 1971. The last written tenancy agreement between the parties was for 2 years duration from the 1st day of December 1978 at a rent of $6,500 per calendar month exclusive of rates. Since the expiration of that agreement the applicant has remained in possession under the protection of the landlord and Tenant (Consolidation) Ordinance. The current rent is $7,865 per calendar month exclusive of rates.

3. At the beginning of the hearing we were informed that the parties were in agreement that a new tenancy should be granted for 2 years duration commencing on the 1st day of July 1983. There were three provisions upon which the parties were unable to reach agreement. First, the applicant sought a new condition giving him the right of prior termination. The respondent would not agree to such a new clause. Secondly, the applicant sought the provision of a second car park for which he was prepared to pay additional rent in the sum of $750 per calendar month. Thirdly, the parties were unable to agree upon the prevailing market rent for the new 2 years duration.

4. As to the inclusion of a break clause the applicant informed the Tribunal that he was a citizen of the United States of America and employed in Hong Kong by an American company. He sought the right to terminate the new tenancy upon 2 months notice in the event of being transferred back to the United States at any tine during the 2 years duration. The prior agreement did not give the tenant any such right. The new proposed duration has only a balance of less than 1 year 10 months yet to run. We appreciate that the break clause sought by the applicant is rather more tightly drawn against the tenant than are some we have had to consider. We have recently in Roger King v. Luke Him Sau L.T. No 41/83 considered an application to include a break clause and in refusing to include such a new term set out our approach on a contested application. We confirm we have a wide discretion in considering applications of this kind. After considering all the circumstances of the instant case, in the light of the principles set out in our previous decision, we are not prepared to grant the application for a break clause.

5. The respondent opposed the provision of a second car park. At present the applicant has the use of one car park. We note that under the prior agreement, Clause 27 thereof, provides that while the landlord is under no responsibility to provide a car park, where it is made available only one carparking space per flat will be provided for which the tenant shall not have to pay any additional rent. In the absence of agreement to provide two car park spaces both the contents of the tenancy agreement and the parties prior practice become of importance. We are not prepared to order the variation sought. The new tenancy will therefore, other than rent, be on the same terms as the old agreement. When we come to determine the new rent, we will do so on the basis that the respondent will continue for the duration of the new tenancy to make available to the applicant one car park space without the applicant having to pay any additional rent for that car park space.

6. Flat A3 is situated on the second floor on Block A of South Bay Villas which is a residential development comprising 4 seven-storey blocks. All of these blocks share a common vehicular entrance from South Bay Close. Block A is nearer Repulse Bay than the other blocks and in fact fronts directly onto Repulse Bay Road although there is no direct access to that road. The subject premises have a net area of 2,266 square feet (210 square metres) which includes a living-dining room, 3 bedrooms, 1 study bedroom, kitchen, 2 servants quarters and incidental facilities.

7. The applicant offers a new rent of $17,640 per calendar month exclusive of rates. The respondent claims a new rent of $24,000 per calendar month exclusive of rates. There is, therefore, a substantial difference between the parties. Turning first to other recent new rentals in Block A we were supplied with the following information:

In addition the respondent did not dispute the applicant's assertion that during February or March 1983 he had received the following offer for a new tenancy from the landlord:-

The respondent also informed us that there had been the following recent lettings in relation to Block D, namely Flat D3 (2nd Floor) $24,000 2 years from 15.8.83 (new letting); Flat D5 (3rd Floor) $25,000 2 years from 15.4.83 (new letting); and Flat D14 (7th Floor) 2 years $25,000 from 1.1.83 (new letting).

8. Mr. F. Choi, the chartered surveyor called to give expert evidence for the respondent, based his estimate of the prevailing market rent for the subject premises of $24,000 per calendar month exclusive of rates, on the higher comparables of from $24,000 to $25,000 within South Bay Villas. He emphasised that these were all recently negotiated rents and that they indicated that the prevailing market rent for the subject premises as at the 1st day of July 1983 was $24,000 per calendar month exclusive of rates. Before reaching this conclusion Mr. Choi adjusted his comparables to allow for the fact that the new rent for the subject premises is to be inclusive of maintenance charges while the actual rents for his comparables were exclusive of maintenance charges.

9. The applicant did not call an expert. However, he stated he had lived  in the subject premises for the past 10 years during which he had observed rental movements in Repulse Bay. In addition, as Managing Partner of the Western Arkansas land Company, which is incorporated in Hong Kong, he acts as a consultant and adviser to Hong Kong clients, on the purchase of land and residential properties in the United States. He produced a 5 page document which included an analysis of asking rents in Repulse Bay. We have recently in John H. Lee v. The Hong Kong & Shanghai Hotels Ltd. L.T. No. 15/83 pointed out in detail that evidence of asking prices is not conclusive of value. We need not repeat those comments here, except to confirm again that generally little or no weight can be given to evidence of this kind. This is particularly so where, as in this case, we have substantial evidence of a number of actual concluded rental agreements.

10. However, from this information based on the evidence of mere asking prices he arrived, after averaging that information and after deducting 8% as a negotiating allowance, at what he termed to be a realistic average fair market rent of $7.20 per square foot. Applying that average to his own premises he obtained the monthly rent of $17,640 which he maintained was the prevailing market rent for the new tenancy.

11. We appreciate that the applicant has displayed considerable industry both in the investigations he has made and his efforts at averaging the other rentals available to him. However, the practice of averaging is not an acceptable means of determining value. Such an approach has been criticised by courts on many occasions and in particular was strongly condemned by the High Court of Australia in The Commonwealth v. Milledge (1953) 90 C.L.R. 157.

12. In the absence of any other factors the best evidence is usually direct comparison of identical flats in the same blocks - Towers, Perrin, Forster & Crosby v. Suvindra L.T. NO. 57/82, Sentry Holdings (Asia) Ltd. and The Colonial Treasurer Incorporated v. Cali Enterprises Ltd. However, even in those cases it will usually be prudent, as we have recently indicated in Roger King v. Luke Him Sau L. T. No. 41 /83, to chock the rentals of those identical flats with rentals of other flats outside the same block but within the sane locality.

13. In this particular application, if no other factors existed, Mr. Choi would no doubt be on good grounds in relying on the direct comparison of other flats in South Bay Villas. As to flats within Block A, the applicant pointed out that those on the higher floors of Block A, had superior views to those on the lower floors. In particular, the erection of the new Burnside Estate flats between Block A and the sea, had materially affected the view of his flat on the 2nd floor but the views of flats on the 3rd and higher floors remained unaffected by the completion of the Burnside Estate. Photographs were produced showing the view from the subject premises on the 2nd floor both before and after the completion of Burnside Estate and also of the existing views from the 2nd and 3rd floors. We accept the applicant's evidence on the reduced view of his flat caused by Burnside Estate and that flats on higher floors have not been so affected. In addition, the applicant stated that the lower floors of Block A suffered from a severe traffic noise problem created by passing traffic on Repulse Bay Road which limited the enjoyment, particularly in weekends, of the flat's balcony facilities. We accept that there is a problem caused by traffic noise but are also of the opinion that the same noise would affect, at least some of the flats, on floors higher than the subject premises.

14. The applicant further submitted that the tenant of Flat A5, immediately above him on the 3rd floor, had obtained a renewal of his tenancy for 2 years which was negotiated during December 1982 at a rent of $22,000 per calendar month exclusive of rates. We were disappointed that Mr. Choi was not able to include this lower rent in his list of comparables. The applicant maintained that the subject premises were inferior to Flat A5 at least because of their restricted view and the greater traffic noise factor. In addition, he submitted rents generally have fallen since the 1st day of December 1982 and so for the subject premises the prevailing rent, as at the 1st day of July 1983, was clearly very much lower than $22,000 par calendar month.

15. In attempting to resolve these factors we note that the rentals for South Bay Villas flats range from $22,000 to $25,000. Many of these rentals are relatively recent new lettings in the higher range of $24,000 to $25,000. These rentals seemed to us to be higher than we would have anticipated in this area of Repulse Bay.

16. We have the benefit of considerable recent experience of other flats in Repulse Bay. For example, in Roger Zing v. Luke Him Sau (supra) in which we delivered judgment on the 6th day of September 1983, the sub-ject premises were at Repulse Bay Towers which we would expect to command a higher rent than South Bay Villas. Repulse Bay Towers included a communal swimming pool. There is no pool at South Bay Villas. We  granted a new tenancy in the Repulse Bay Towers application for 2 years from the 1st day of July 1983 at $23,000 per calendar month exclusive of rates. On the 3rd day of August 1983 we granted a new tenancy for a flat in Repulse Bay Apartments for 2 years from the 1st day of July 1983 at a new rent of $21,500 per calendar month exclusive of rates - John H. Lee v. The Hongkong & Shanghai Hotels Ltd. (supra). We are of the opinion that the latter flat too, was superior to the subject premises. In determining the new rents for those other two Repulse Bay properties we had the advantage of having evidence of identical flats within the same blocks and also the rents of other similar flats, in blocks elsewhere in Repulse Bay.

17. Recent rents for South Bay Villas, even allowing for current maintenance charges, appear to be high. However, there may well be good reasons for this higher level of rents. In the respondent's favour we are satisfied that South Bay Villas are very well managed and the upkeep of common areas indicates a high standard of maintenance. We appreciate too, that South Bay Villas arc within very convenient walking distance to Repulse Bay supermarkets, restaurants, banks, post office and to the American International school. These are all factors which one could expect to be reflected in prevailing rents. However, these are benefits also enjoyed, if to a varying extent, by other Repulse Bay comparables.

18. However, the generally higher level of rents in South Bay Villas suggests that one of the reasons might be that the respondent, rather than letting flats as they became empty at whatever is then the prevailing market rent, is willing to wait until a new tenant is found prepared to pay the higher sought rent. This was the type of problem which at one stage concerned u s in Boulton v. Loon King Development Co. Ltd. L.T. No. 62/82. If that   factor were established, then the method of direct comparison of identical flats within the same block exceptionally becomes misleading and greater weight has to be given to new lettings of comparable properties elsewhere.

19. If a landlord has patiently waited to obtain rents which are higher than the prevailing market rent, then in a large development one would expect to find as a probable corollary some flats vacant. South Bay Villas is a large development of 4 blocks comprising a total of 56 flats. There were no vacant flats in Block A. The only other Block referred to by the respondent was Block D. We inspected that Block which included 3 of the respondent's 6 comparables. On inspection we found that 4 of the 14 flats in Block D were empty.

20. We also noticed that the new rents for Block A indicated a pattern, which tended to reinforee the inference which could be drawn from the number of  vacant flats, that the respondent was seeking new rents a little above the prevailing market. This pattern indicated the higher new rents in Block A in the ; $25,000 to $24,000 range are new lettings with the exception of Plat A14. Flat A14 we recognise was a renewal at $24,000 but being on the top floor has the best view and presumably is less affected by the noise factor. On the other hand, the renewals generally are for lower new rentals. For example, Flat A5 was renewed at $22,000 and the offer to the applicant for Flat A3 was also at $22,000.

21. A further complicating factor is that on now lettings being made and also in the case of most renewals, the respondent was taking the opportunity to completely renovate the kitchens. We inspected a renovated kitchen and also, in the case of the subject premises, an unrenovated kitchen. The renovated kitchens are far superior to the unrenovated kitchens. In considering the prevailing market rent for the subject premises, in the absence of any unconditional offer by the respondent to carry out similar renovation work, we have to determine a new rent for the subject premises on the basis of the premises having an old unrenovated kitchen. In comparing the subject premises with the renewal of the 3rd floor Flat A5 at $22,000, We also remind ourself that the kitchen of that flat has a renovated kitchen. This tends further to widen the difference, adverse to the subject premises, between. Flats A3 and A5.

22. After taking all these factors into account we are satisfied that the respondent is maintaining the rents for new lettings at a level slightly higher than others in Repulse Bay. We must give that factor duo weight. We must also give weight to the fact that the subject property is inferior in view and in kitchen facilities to Flat A5 and might also have a marginally greater noise problem. Giving duo consideration to these factors, together with the rest of the evidence adduced, we order the grant of a new tenancy for 2 years from the 1st day of July 1983 at a new rent of $21,000 per calendar month exclusive of rates but otherwise in accordance with the terms and conditions of the prior tenancy agreement dated the 16th day of October 1978 which is inclusive of maintenance charges. There will be no order as to costs.

DATED this 15th day of September, 1983.

Representation:

The applicant in person.

Mr. Tse of Johnson, Stokes & Master for the respondent.