Chuen Ming & Co Ltd v. Vohg Keng Hong
Read the full judgment text of LDBG 1/1982 on BabelCite. This LDBG judgment.
1. The applicant is the owner of the suit premises at No. 56 Yen Chow Street, Kowloon, Hong Kong. The respondent is the owner of the adjoining property known as No. 52 and No. 54 Yen Chow Street. On the 3rd day of October 1980 the respondent pursuant to Section 18(1) of the Buildings Ordinance entered the suit premises to erect shoring thereon. The shoring was removed in January 1982. The applicant now claims compensation pursuant to Section 18(5) of the Ordinance for the loss or damage it h
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LDBG000001/1982 Buildings Ordinance - shoring - application for compensation - basis of assessment compared with power to award compensation under other Ordinances - obligation on part of owner of affected property to mitigate loss - right of tenant to apply in addition to right of owner of affected property - Sections 18 and 18A Buildings Ordinance, Cap. 123. IN THE LANDS TRIBUNAL OF HONG KONG Application No. K.B. 1/82
____________________________ BETWEEN;
____________________________ JUDGMENT ____________________________ TRIBUNAL : His Honour Judge Cruden, President and M.W. Phillips, Esq., Member. 1. The applicant is the owner of the suit premises at No. 56 Yen Chow Street, Kowloon, Hong Kong. The respondent is the owner of the adjoining property known as No. 52 and No. 54 Yen Chow Street. On the 3rd day of October 1980 the respondent pursuant to Section 18(1) of the Buildings Ordinance entered the suit premises to erect shoring thereon. The shoring was removed in January 1982. The applicant now claims compensation pursuant to Section 18(5) of the Ordinance for the loss or damage it has suffered. 2. This application is an example of a miscellaneous number of applications for compensation under different Ordinances which formerly came before the now defunct Tenancy Tribunal. Those functions were transferred to the Lands Tribunal under the Landlord and Tenant (Consolidation) (Amendment) (No. 2) Ordinance No. 76/81 on the 11th day of June 1982 pursuant to Legal notice No. 185 of 1982 published in Volume CXXIV Hong Kong Gazette on the 28th day of May, 1982. In approaching compensation claims it is important to remind ourselves that the basis of calculating compensation under these different Ordinances varies. For example the position under the undermentioned Ordinances, which now come under our jurisdiction, may be summarised as follows:
4. Under Section 4 the Tenancy Tribunal, apparently over many years, established a series of basic rates for commercial and domestic Part I premises. These may originally have been related to the incremental value - which was the measure of the tenant's interest - of properties under the Demolished Buildings (Re-development of Sites) Ordinance. Once the basic rates were established the Tenancy Tribunal continued to apply them in exclusion eases under the Landlord and Tenant (Consolidation) Ordinance. The Tenancy Tribunal was supplied by the Commissioner of Rating and Valuation with the size of those portions of the premises occupied by each tenant and sub-tenant and he also informed the Tribunal whether they were occupied for residential, commercial or other purposes. The Tenancy Tribunal awarded compensation by applying the basic rates to the respective square footage occupied by each tenant and sub-tenant increasing the compensation, where it thought it was appropriate, for hardship sand inflation. This system of assessment evolved from the daily practice of Tenancy Tribunal and was not expressly prescribed by the Ordinance. For section 4 does not set out any guidelines but merely gives the Tribunal an unfettered discretien in awarding compensation to a tenant. It may be that on some future appropriate occasion this Tribunal will have to determine whether to continue the past practice or whether to prescribe a different and perhaps more satisfactory basis of assessment. 5. In this application under the Building Ordinance we are solely concerned with our power to award compensation under section 18(5)(a) of that Ordinance which provides:
6. The applicant initially applied directed to the respondent for compensation but the respondent declined to make any payment. A “dispute” has therefore arisen between the parties in terms of Section 18(5)(b). The Lands Tribunal, under the amended Section 18A, has jurisdiction to hear and determine any such dispute. The applicant has accordingly applied to this Tribunal to hear and determine this particular dispute. 7. The applicant has claimed compensation of $63,368 made up as follows:
8. At the date the respondent entered to erect the shoring the suit premises were leased by the applicant to the Lee Yuen-yick Rattan Factory Ltd. at a rent of $3,000 per month. The shareholders of the applicant and the Lee Yuen-yick Rattan Factory Ltd. were the same being members of the family of Madam Lee Chan Wing-yeo (A.W.1). That tenant is, of course, a separate legal entity from the applicant but we are entitled to lift the veil of incorporation to the limited extent that in considering the rent of $3,000 per month we may take into consideration that the two companies have the same shareholding and are under the same control. The rent of $3,000 is therefore not necessarily the true market rent of the premises as the parties may not be at arms length. 9. The premises have been excluded, by consent, from the provision of Section 9 of the Landlord and Tenant (Consolidation) Ordinance. The landlord is not restricted to imposing merely the permitted rent finder the Ordinance. The premises are therefore free of rent restrictions. 10. The shoring was in place for a period of 15 months from the 3rd day of October, 1980 until January 1982. However, the applicant only claims loss of rent for the 8 months from the 1st day of June 1981 to the 31st day of January 1982. The claim for this reduced period arises from the fact that the Lee Yuen-yick Rattan Factory Ltd. remained in possession until the 1st day of June 1981 and continued until that date to pay the applicant the full contractual rent of $3,000 notwithstanding the erection of the shoring. The period for which loss is claimed ends at the date when the shoring was removed. It may also be noted that quite apart from the removal of the shoring in January 1982 the Building Authority in any event on the 19th day of February 1982 served notice on the applicant, pursuant to Section 26(1) of the Buildings Ordinance, under which he declared the suit premises to be dangerous and specified certain works which he required the applicant to carry out to remove that danger. 11. The Lee Yuen-yick Rattan Factory Ltd., vacated the suit premises by the 1st day June 1981. According to Madam Lee the tenant left because of the existence of the shoring which had adversely affected the tenant’s business. However, Madam Lee went on to state that the tenant moved to other ground floor premises at 390 Lai Chi Kok Road, in a newly completed building, also owned by the applicant. The shoring, according to Madam Lee, took up much space within the suit premises, affected movement within the premises; caused inconvenience to customers approaching the shop and to other passers-by. 12. Upon the Lee Yuen-yick Rattan Factory Ltd. vacating, the applicant sought a new tenant. Advertisements were placed in the Sing Tao and Wah Kiu Yat Po newspapers while notices were also affixed to the outside of the suit premises. During the period from June 1981 until May 1982 the applicant offered the suit premises at monthly rents initially from $12,000 reducing to $10,000 and, $8,000 until the premises were finally let in May 1982 to the present tenant at $7,200 per month. 13. In November 1981 the applicant instructed Kinglsey Sit and Associates, Chartered Surveyors, to value the suit premises for rental purposes on the basis that the shoring was removed. Mr. P.H.T. Cheung (A.W.2), then of that firm, prepared a valuation report and he was called to give evidence when he produced his valuation report as Exhibit A4. In that report he stated that as at the 26th day of November 1981 the market rental of the suit premises, assuming the shoring was removed, was $7,500 per month exclusive of rates. In oral evidence Mr. Cheung estimated that if the premises were let with the shoring, then his valuation would need to be reduced by from 30% to 40%. 14. No analysis was given to support his opinion of that per centage reduction. However, he considered the immediate locality of the suit premises to be principally used for retail purposes, rather than wharehouses or light industry. When he carried out his inspection for valuation purposes, the suit premises were vacant. He based his opinion of retail user after taking into account other users in the locality. We note that the former use of the premises was as a rattan factory but that part of the premises were also used for storage but some retail sales were carried out from the premises. The new tenant is a piece goods dealer and uses the premises for both storage and retail purposes. 15. In 1982 the respondent instructed Jones Lang Wootton to prepare a valuation report to comment on the effect of the shoring on the marketability of the suit premises; the loss in retal value as a result of the shoring; and the open market rental value of the premises at June 1981 if the shoring had not been erected. On the 20th day of August 1982 Mr. R.H.K. Leung, Chartered Surveyor of that firm, first inspected the premises and prepared a report in terms of those instructions. Mr. Leung (R.W.1) gave evidence and produced his report as Exhibit R.1. 16. When Mr. Leung inspected the premises, the shoring had already been removed and the premises re-let. However, he obtained and produced as Exhibit R.2 the shoring plan prepared by the respondent’s authorised architect Mr. Frank C.P. Lau and used that plan, together with his inspection of the premises, as the basis of his calculations. His rental valuation of the premises, without shoring, as at June 1981 was $7,200 per month which compares with Mr. Cheung’ s rental valuation as at the 26th day of November, 1981 of $7,500 per month. The difference between the valuers, particularly given the time difference, is minimal. After considering the whole of the evidence we are prepared to accept that a rent of $7,500 per month is reasonable. 17.Turning to the effect of the shoring on the rental value, Mr. Leung disagreed that it would be as great as the 30% to 40% stated by Mr. Cheung. Indeed, Mr. Leung assessed the effect of the shoring at a very much lower figure, namely $374.60 per month. In arriving at that figure he first took into account that, in his opinion, the other premises in the locality were mainly used as wholesale stores and workshops. Those types of use place greater emphasis on usable floor area, than the appeal the premises may have for retail trading. Retail trading conversely tends to place greater emphasis on shop frontage, rather than actual usable area. 18. From the shoring plans, Mr. Leung calculated the area affected by the shoring as being 47 square feet on the ground floor and 21 square feet in the cockloft. He did not consider the loss of visible shop frontage, caused by the shoring on the footpath in front of the premises, as being of any significance. On this basis - after weighting his analysed overall rental of $6.40 per square foot for the lost area in the more valuable front portion of the premises - he allowed a loss in value on the ground floor of $7.30 per square foot. So there was some concession in Mr. Leung’ s calculation to there being a retail element in the value of the premises. For the cockloft he assessed a unit rate of $1.50 per square foot. We have checked these calculations and find that the affected area is larger. In particular we find that the shoring affected 52 square feet of the ground floor and 22 square feet of the cockloft. After some discrepancies had appeared in evidence, the parties agreed that the area of the suit premises comprises 801 square feet for the ground floor and 500 square feet for the cockloft. Accepting Mr. Leung's cockloft unit rates, being approximately one-quarter of the value of the ground floor, the rent of $7,500 per month equates to $8 approximately for the ground floor and $2 per square foot for the cockloft. 19. As to the locality's character we find that there is no clearly established predominant user. Rather the locality is an amalgam of retail, wholesale, wharehouse and light industry uses. Certainly retailing is not the predominant uses. At most it occurs in conjunction or ancillary to non-retailing uses. In view of the retailing element this is a proper case where an allowance should be made not only for the more valuable front area of the premises but also for the detrimental effect the shoring on the footpath would have by obstructing and diverting passing pedestrain traffic. In the absence of any evidence of analysis, we have first approached the assessment from the two alternatives of loss of area only and then loss of frontage. The former alternative gives the minimum assessment for loss on a wholesale, storage or workshop basis. The latter produces the maximum on a retail basis. 20. The frontage of the shop is about 10.5 feet. The rent of $7,500 therefore equates to $715 per foot of frontage. The loss of 2 feet of frontage would effect wholly retail premises by $1,430 per month being $715 x 2 per month. This sum amounts to about 19% of the total monthly rent. If the whole of the premises were, on the other hand, used entirely for storage or other non-retailing purposes, the loss would be the lesser sum of $460 per month calculated as follows:
21. Having found that in fact the locality represents an amalgam of uses, with the retail element not being the predominate use, we have arrived at the following determination:
22. We would round that sum of $668 up to $670 for calculating purposes. The sum of $670 is closer to the earlier mentioned minimum assessment than the maximum by the ratio of 1 to 4. On the available evidence this result appears reasonable. 23. Normally the loss in value to an applicant is not a simple addition of the total loss in rent but rather an assessment of the loss in value over the period of the loss, calculated to allow for the investment return on such properties in the market. However, for the short period of 8 months in this claim the difference would be minimal. 24. The applicant claims 8 months loss of rent being the time required to find a new tenant. We consider that period is excessive. A substantial portion of that period arose from the fact that the applicant at first offered the property at what, even on its own valuer’s report, was a rental very much higher than the market rent. The applicant would have had at least one month’s notice of the previous tenant vacating. So even before that tenant vacated it had the opportunity to commence to look for a new tenant. A reasonable landlord in those circumstances would have done so in an attempt to mitigate any future loss. In the present circumstances a very reasonable period within which the applicant should have been able to find a new tenant and finalise a new tenancy would be 2 months. In reaching that figure we take into account the necessity to advertise the suit premises, obtain a new tenant, negotiate a new rent and other terms followed by a reasonable time for the new tenant physically to move into the suit premises. The applicant would also be entitled to the balance of 6 months rent at $670 in accordance with our earlier calculations. 25. The remaining issue relates to the claim of $1,768 for advertising. At least some of those advertisements were published at a time when the applicant’s asking rent was far in excess of its own valuer’s opinion of $7,500. On the other hand, we recognise that the advertised rental was merely an asking price and in the circumstances of Hong Kong would always be subject to negotiation. However, to the extent that the initial asking price was unreasonably in excess of the market price, we propose to allow only $1,000 of the advertising charges claimed. 26. The applicant has also claimed his valuer's fee of $1,600. 27. If the valuation fee was solely incurred because of these proceedings then the law is well settled that such an expense is properly to be included in any party costs awarded on the present application - Director of Lands and Survey v. Fung Ping -chung and Anor. (1977) H.K.L.T.R. 37, 41. Here the costs of the valuation were, however, incurred not because of this impending claim but because of the applicant’s genuine desire to ascertain the current market value of the suit premises with a view to letting. We consider that the applicant reasonably obtained that valuation quite independently of this application to the Tribunal and the valuation fee is allowable as part of the applicant’s substantive claim. We allow it accordingly. 28. In assessing compensation we remind ourselves that because of our wide discretion under Section 18(5)(a) the tenant potentially, may have had, on the instant facts, a separate claim for compensation. However, for reasons it is not for us to speculate upon, the tenant has made no claim. Our statutory role is simply to determine applications on the evidence adduced. We are not an investigatory tribunal. We are solely concerned with the terms of the application before us which is limited to the owner's alleged loss in this particular application. 29. In accordance with those principles and on the basis of the evidence adduced, we calculate the compensation payable to the applicant as follows:-
30. We accordingly determine the compensation payable under Section 18(5) as $21,620. The respondent will also pay the applicant’s costs on the upper District Court scale to be taxed if net agreed. DATED this 20th day of September, 1982.
Representation: Mr. C.K.C. Lo of Helen Lo & Co. for the applicant. Mr. Raymond Leung of Yung, Yu, Yuen & Co. for the respondent. |