The Chase Manhattan Bank Na v. Claret Land Co Ltd
Read the full judgment text of LDLA 71/1982 on BabelCite. This LDLA judgment.
1. The applicant is the tenant and the respondent is the landlord of House No. 20, Strawberry Hill ("House 20"). The tenant held the premises under a lease for three years, expiring on 30th November, 1982, at a rent of $25,000 p.m. exclusive of rates.
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LDLA000071/1982 Landlord and tenant - Part IV - duration of new tenancy - date of commencement- date at which new rent determined - fair market rent - Section 115, 119I, 119K, 119M, 119N, Landlord and Tenant (Consolidation) Ordinance, Cap. 7. IN THE LANDS TRIBUNAL OF HONG KONG L.T. No. 71 of 1982 BETWEEN:
Coram: Tribunal: Sir Denys Roberts, President, M.W. Phillips, Esq., Member Date: 14th day of March 198 ---------------- JUDGMENT ---------------- Preliminary matters 1. The applicant is the tenant and the respondent is the landlord of House No. 20, Strawberry Hill ("House 20"). The tenant held the premises under a lease for three years, expiring on 30th November, 1982, at a rent of $25,000 p.m. exclusive of rates. 2. It is agreed by the parties that the rateable value of the premises exceeds $80,000 and that the tenancy is one to which Part IV of the Landlord and Tenant (consolidation) Ordinance ("Cap. 7") applies. 3. On 27th May, 1982, the respondent landlord gave notice of termination to the tenant, under section 119 of Cap. 7 specifying 30th November, 1982 as the date of termination of the tenancy and stating that the landlord would not oppose an application to the Lands Tribunal by the tenant for the grant of a new tenancy. 4. On 14th June, 1982, the tenant notified the landlord that he would not be willing to give up possession of the premises on the 30th November, 1982 (the date of termination) and that the tenant intended to apply to the Lands Tribunal for the grant of a new tenancy. 5. On 16th September the landlord gave notice under section 119D(3)(a)(ii) requiring the tenant to make an application for a new tenancy under section 117(i). The tenant duly applied on 15th November, 1982 for a new tenancy, proposing that it should be for a period of 3 years, at a rent to be determined by the Lands Tribunal ("the Tribunal"). 6. The proceedings before the hearing were conducted in the name of the Strawberry Hill Development Co Ltd. as respondent. Since this company had assigned its interest in the premises to the Claret Development Company Limited before the hearing, however, we permitted the latter company to be substituted as respondent. Premises 7. House 20 comprises a townhouse, in a residential estate known as "Strawberry Hill" which is situated in the Peak area of Hong Kong Island. This estate, which was completed in 1976, includes 46 houses, 7 of them com-pleted in Phase I of the development and 39 in Phase II. The houses can be divided into Types A, B and C, according to size and design. The premises concerned fall within Type A. 8. The floor area of House 20 is about 2,900 square feet (about 270 sq.m.). In addition, there is a garage (about 330 sq. ft. or about 30 sq.m.) and a small garden (about 700 sq. ft. or about 60 sq.m.). 9. Houses at Strawberry Hill have been the subject of previous applications under Part IV, during the past few months. There are thus available, for the purpose of comparison, several determinations of rent by this Tribunal of Other very similar properties, in the same complex and enjoying the same communal facilities and advantages as House 20. Evidence of Rents 10. Mr. Francis Choi, a chartered surveyor employed by Messrs. Jones, Lang, Wootton, gave evidence for the applicant, producing a report, dated 18th February, in which he assessed the Fair Market Rent ("F.M.R.") of House 20 on the date of his report as $49,000 p.m. 11. His report may be summarized as follows -
12. In evidence, Mr. Choi confirmed that the rents of $55,000 p.m., fixed by the Tribunal for the other four Type A houses, had also been "inclusive" rents. 13. He agreed, however, that his estimate of the current F.M.R. would have to take into account the rent of House 11, another Type A house, in relation to which the Tribunal made a consent order, on March 3rd, 1983, for a two-year tenancy at a rent of $45,000 p.m. inclusive. 14. He thought that most of the decline in rents between July 1982 and March 1983 had occurred between July and December 1982. If he had valued House 20 in December 1982, he would have assessed the F.M.R. at about $50,000 p.m. inclusive as compared with his estimate of $49,000 p.m. inclusive as the F.M.R. in the middle of February 1983. He thought that the F.M.R. for House 20 was about $5,000 p.m. higher:than the $44,000 p.m. which he had earlier estimated as the F.M.R. for House 11, because the latter has a better view and a larger garden than House 20. 15. The respondent called Mr. Terence Lo, another chartered surveyor, employed by Collier Petty, who produced a report, dated 30th December, 1982, in which he assessed the F.M.R. of House 20, on 1st December, 1982, as $58,000 p.m. inclusive. 16. Mr. Lo based'his estimate upon the rentals of five Strawberry Hill houses let in 1962. The rents for the two type A houses included in his list were $58,000 exclusive (i.e. the tenant paying both rates and maintenance charges) for a term of two years from 1st July, 1982, and $62,500 for a term of five years from 1st March, 1982, (though he did not know whether landlord or tenant was responsible for payment of the maintenance charges). He also cited three houses of the B/C type, which have a larger floor area than Type A but no private garden, which were let at $60,000 p.m. exclusive, $58,000 p.m. exclusive, and $56,000 p.m., exclusive. 17. Mr. Lo, in his evidence, repeated his view that the F.M.R. for House 20 on 1st December; 1982 was $58,000 p.m., inclusive. He thought House 37, rented at $56,000, exclusive, from 1st December, 1982, to be the best com-parable rental. 18. He accepted that there had been a 10% decline in Strawberry Hill rents since 1st July, 1982 and that the major part of this fall had occurred in late October, 1982. 19. However, he conceded that the recent letting of House 11 for $45,000 suggested that there had been a further decline in rents since December 1982 and that his current valuation for House 20 would be $50,000 p.m. inclusive. 20. He justified the substantial difference ($5,000 p.m.) between the rent agreed for House 11 and his estimate of the F.M.R. for House 20 by the larger garden at House 20 and its better view. 21. Mr. Lo explained that he had not taken as his basis of comparison the rents of $55,000 p.m. assessed by the Tribunal in October, 1982 for the four Type A houses, which were relied on by Mr. Choi, because he thought that the Tribunal had been in error in determining, the F.M.R. as $55,000 p.m., inclusive, and should have fixed it at $55,000 p.m. exclusive. He based his submission that the Tribunal had been in error on his belief that the Tribunal had wrongly assumed, when dealing with the applications to fix the rent of those four houses, that in the four cases cited by Mr. Lo in those applications, the rent was inclusive, though in fact it had been exclusive in at least three of them. Finding as to Fair Market Rent 22. We are satisfied, on the basis of the evidence of both surveyors, that there was a significant decline in the F.M.R. of Strawberry Hill houses in general between 1st July, 1982 and 1st December, 1982. 23. We take as the best comparable rents the assessments by the Tribunal on 30th October, 1982, of $55,000 p.m. inclusive as the F.M.R. of Houses 16, 18 and 26. We have ignored House 15, since that assessment was complicated by the fact that the tenant was to pay management fees and the landlord had provided some furniture. 24. Taking the assessed F.M.Rs. on these three Type A houses as his base, Mr. Choi estimated the F.M.R. on House 20 as $50,000 p.m. on 1st December, 1982 and $49,000 p.m. on 1st March, 1983, "inclusive" in each case. 25. Mr. Lo assessed the F.M.R. of House 20 as $50,000 p.m. inclusive on 1st March, in view of the rent of 545,000 p.m. inclusive agreed for House 11, though he thought it dangerous to give too much weight to this letting unless its full circumstances were known. 26. His revised estimate of $50,000 p.m. inclusive does not accord with his opinion that there had been a 5% decline since 1st December, When he thought $58,000 p.m. inclusive was the F.M.R. So on the basis of his own figures alone, his December estimate is too high or his March figure is too low or the decline has been sharper than 5o since 1st December. 27. We prefer Mr. Choi's assessment, which takes into account a substantial decline in the rent of Type. A houses between let July and 1st December, 1982, that the F.M.R. on House 20 on 1st December was $50,000 p.m. inclusive. 28. We find also that the evidence of the letting of House 11 shows a further decline of rents at Strawberry Hill, as indeed both valuers agreed had occurred, since 1st December. In our opinion, this would reduce the F.M.R. of No. 20 to $48,000 p.m. inclusive on 1st March, 1983. 29. This seems to us to establish a fair differential between House 11 and House 20. The latter has a somewhat larger garden and a less interrupted view. The view from No.11 is attractive, if partly obscured by trees, though some tenants might regard this as an advantage. 30. In reaching these conclusions, we have recognized that maintenance costs have risen since 1st July, 1982. 31. If the F.M.R. of House 20 is taken as $50,000 p.m. inclusive, on 1st December, 1982 and as $48,000 p.m. inclusive on 1st March, 1983, the date at which the F.M.R. is to be assessed is of great importance. Terms of new tenancy 32. It is agreed by the parties that the duration of the new tenancy should be three years and that it should be in the same terms as the current tenancy except that-
33. No reason was given by the tenant for his request, other than that such an exclusion of tenant liability is common. We see no reason to approve such an alteration, which was opposed by the landlord, particularly as it was not suggested by the tenant until trial and no evidence was given as to the difference, if any, which such a change would make to the F.M.R. 34. In this finding, we follow L.T. Application 32/82, in which the Tribunal stated that the onus should be on the party seeking a variation of the terms of the current tenancy to establish such a variation. Duration of new tenancy 35. Section 119I, requires a new tenancy to begin "on the coming an end of the current tenancy". 36. There is thus intended to be in law no interval between the current and the new tenancies, though in fact.there usually will. be, since the Tribunal will seldom have disposed of an application before the notice of termination of the current tenancy has taken affect. 37. Section 119N therefore provides that the effect of a notice of termina-tion given under Part IV shall be to continue the current tenancy until three months after the application for the new.tenancy is "finally disposed of". 38. During this interim period, the tenant, since the current tenancy is preserved, will continue to pay the old rental. However, if the rent is varied under the new tenancy, he will, by virtue of section 119M, have to pay the new rent for the whole of the interim period, unless the tribunal makes special provision under the proviso to section 119M(4) for a "reasonable rent" to be payable during the interim period. 39. Section 119N(1) continues the current tenancy until three months after the application is "finally disposed of". The latter phrase is defined in section 119N(2) as meaning the earliest date by which any proceedings on the application (including any appeal) have been determined, or when the time for appeal has expired or an appeal is abandoned. 40. This is an awkward provision, since it means that the date on which the current tenancy determines is a matter of guess work.The Tribunal can only speculate as to whether the relevant date will be 4 weeks or 6 months after the hearing of the application by it.So, if the Tribunal is minded to grant a tenancy for 3 years, from what date is the 3-year period to run? 41. The problem was faced by Wynn-Parry, J. in Re No. 88 High Road, Kilburn (1959 1 W.L.R. 279), in which he devised a solution which has been approved by the Court of Appeal in Chipperfield v. Shell (1981 E.G. Vol. 257 p. 1042). 42. The method adopted is for the Tribunal to take what it thinks to be an appropriate period (e.g. 3 years), as from the real (as opposed to the notional) ending of the current tenancy (i.e. the date on which the current tenancy was terminated by the landlord) and to add that period to the date of the real ending of the current period, specifying only the date of the end of the three year period but not of its commencement. 43. In this application, the date of the real ending of the current tenancy was 30th November, 1982. It is agreed by the parties that there should be a new tenancy for three years. We therefore decide that, whenever it may start by virtue of the provisions of section 119N, the new tenancy shall determine on 30th November, 1985. Date of fixing of F.M.R. 44. By section 119K, the rent payable under a new tenancy is to be a F.M.R. The section does not specify the date at which the F.M.R. is to be determined. 45. There are several alternative dates which might be adopted, in the absence of agreement by the parties, as the date at which the F.M.R. payable-under the new tenancy shall be assessed-
46. These alternatives were considered in the High Court in Lovely & Orchard Services Ltd, v. Daejan Investments (Grove Hall) Ltd. (E.G.L.R. 1978 No. 246 p. 651). 47. Deputy Judge Finlay decided that the court, under section 34 of the English Landlord and Tenant Act 1954 should determine the rent as at the date of the hearing, but should also have regard to any evidence that changes are likely to occur between the date of the hearing and the date when, assuming that there is no appeal (or application for review in the case of Hong Kong) the new tenancy would begin - i.e. 4 months from the date of judgment. 48. To assess the F.M.R. at a date some months earlier than the hearing of an application, particularly in a period of substantial change in rental levels, is to run the risk of imposing upon a tenancy which is to start in the future a rental which, as is the case on this application, is no longer a F.M.R. on the date of the hearing. 49. But is it sensible to try to project the likely F.M.R. four months into the.future? At best, this can be no more than informed guesswork, in a volatile property market. An assessment of the F.M.R. on the date of hearing, by contrast, would be based on the actual state of the market on that date and on the interpretation of known facts. 50. On balance, though either solution can be said to have advantages, we prefer the greater certainty of a current assessment and will therefore take the date of hearing, 3rd March, 1983, as that on which the F.M.R. of House No. 20 shall be determined. Conclusion 51. In the light of the various considerations discussed above we order that -
52. DATED this 14th day of March 1983.
Representation: Mr. Joseph K.Y. Chan of Gallant Y.T. Ho & Co. for the applicant Mr.E.W.D Radcliffe of Deacons for the respondent |