Union Carbide Asia Ltd v. The Hong Kong Land Co Ltd
Read the full judgment text of LDLA 17/1982 on BabelCite. This LDLA judgment was delivered on 19 July 1982.
1. This is the first application for the grant of a new domestic tenancy to be heard by the Tribunal under that new Part IV of the Landlord and Tenant (Consolidation) Ordinance, Cap. 7. The applicant is the tenant and the respondent the landlord of the post-war domestic suit premises being Flat B5, Woodland Heights situate at No. 2 Wongneichong Gap Road, Hong Kong. The parties agreed that the rateable value of the premises was not less than $80,000. Part IV therefore applies.
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LDLA000017/1982 Landlord and Tenant - new Part IV - grant of new tenancy - statutory notices - provisions as to duration, rent and other terms of new tenancy - general procedure - expert evidence - principles fixing duration and new fair market rent - Section 115, 117, 119I, 119J, 119K of Landlord and Tenant (Consolidation) Ordinance, Cap. 7 IN THE LANDS TRIBUNAL OF HONG KONG
____________ BEWEEN
_____________ Coram: TRIBUNAL: His Honour Judge Cruden, President and M. W. Phillips, Esq., Member. DATE OF HEARING: 9 July 1982 DATE OF JUDGMENT: 19 July 1982 INDEX 1. Preliminary matters:
2. The New Part IV:
3. The new tenancy for the suit premises:
IN THE LANDS TRIBUNAL OF HONG KONG
_____________
Coram: TRIBUNAL: His Honour Judge Cruden, President and M.W. Phillips, Esq., Member. ------------------------- JUDGMENT ------------------------- PRELIMINARY MATTERS (a) Pre-hearing steps 1. This is the first application for the grant of a new domestic tenancy to be heard by the Tribunal under that new Part IV of the Landlord and Tenant (Consolidation) Ordinance, Cap. 7. The applicant is the tenant and the respondent the landlord of the post-war domestic suit premises being Flat B5, Woodland Heights situate at No. 2 Wongneichong Gap Road, Hong Kong. The parties agreed that the rateable value of the premises was not less than $80,000. Part IV therefore applies. 2. The tenant was in possession of the premises by virtue of a tenancy agreement for a period of 3 years from the 1st day of January, 1979 at a rental of $10,500 per calendar month. That agreement therefore expired on the 31st day of December, 1981 since when the tenant has remained in possession under Part IV. On the 29th day of December 1981 the respondent served the landlord's specified statutory notice being Form CR101 on the applicant as tenant, pursuant to Section 119(1) of the Ordinance, terminating the tenancy. On the 25th day of February, 1982 the applicant served on the respondent the counter-notice under Section 119(4) being Form CR102. Under that latter notice the tenant informed the landlord that it would not give possession and intended to apply to the Tribunal for the grant of a new tenancy. 3. We were told from the Bar by the applicant that at that stage it understood the landlord was prepared to grant a new tenancy but the parties were unable to agree on the new rent. On the 14th day of May, 1982 the tenant filed the present application, purportedly under Sections 119C(2) and 119K, with the Tribunal to fix the new rent. 4. Strictly the application should have been made pursuant to section 117(1) for that is the provision under which a tenant may apply to the Tribunal for a new tenancy after the preliminary notices have been given under Section 119 or 119A but no agreement reached. In this case the preliminary notices were given under Section 119. As to the two other sections under which the tenant purported to act, Section 119C(2) relates to disagreement as to rent only, while Section 119K provides, where there is a dispute as to rent, how that dispute is to be resolved. However, it was clear enough what the tenant sought and no point was taken on this by the landlord. In any event, as we shall shortly see, the landlord itself encountered a similar procedural problem. We therefore propose to consider the present application as if it were made under Section 117(1). 5. The time limited for the landlord to file a Notice of Opposition with the Tribunal expired on the 28th day of May, 1982 by which time no Notice had been filed. The applicant therefore applied ex parte to set the application down for hearing. Subsequently, by consent, on the 8th day of July, 1982, the landlord filed a Notice of Opposition, purportedly pursuant to Section 119E, which stated that no agreement had been reached on the terms of the new tenancy. However, Section 119E is not concerned with the present position where the parties are in agreement that a new tenancy should be granted but merely dispute some of the terms. Section 119E is a different and important Section which sets out the statutory grounds on which a landlord who does not wish to grant a new tenancy, may recover possession for his own use, or the use of his statutory relatives, or to rebuild or because of the tenant's default. As we will see in a moment, the Notice of Opposition should have been entituled as being pursuant to sections 119I and 119K. We will adopt the same approach as we did to the applicant's Notice of Application and deal with the Notice of Opposition as if it were filed pursuant to the latter sections. (b) Extent of the present dispute 6. At the commencement of the hearing Counsel for both parties helpfully informed the Tribunal that the issues between the parties had been narrowed. The parties were prepared to enter into a new tenancy agreement corresponding with the provisions of the prior agreement, subject to he following qualifications:
THE NEW PART IV 7. Before proceeding to deal with the two disputes as to duration and rent, as this is the first application heard under the new Part IV, we will make some general observations on procedure and related matters. 8. The new Part IV was enacted on the 10th day of December, 1981 under the Landlord and Tenant (Consolidation) (Amendment )(No.2) Ordinance No.76/81. Part IV generally applies to post-war domestic tenancies at the upper rental end of the property market subject to the exemptions under Section 116. The major exemption relates to tenancies in writing created after the l8th day of December 1981 for a fixed term of 5 years or longer which contain no provision for earlier determination by the landlords, otherwise than by forfeiture, nor for any premium, fine or increase in rent. Where the parties enter into such a 5 year or longer tenancy agreement, Part IV does not apply. Since the 19th day of December 1981 Part IV has applied to domestic premises having a rateable value of $80,000 or more. From the 19th day of December, 1982 jurisdiction will extend down to domestic premises having a rateable value of $60,000 or more. In short, a tenant occupying premises of or over the prescribed statutory rateable value is entitled to remain in possession under a new tenancy for a further period not exceeding 3 years provided he is willing to pay the fair market rent. Part IV therefore only provides this new security of tenure if the tenant is willing to pay the fair market rent. The position of a tenant who does not want to pay the fair market rent, after it is fixed by the Tribunal, is protected by Section 119M(2) under which he is given the right to reject the new tenancy on filing Form CR106. The tenant who has rejected a new tenancy may stay on for a statutory maximum of 2 months, subject to paying the new rent. Under the proviso to Section 119M(4) a partly may instead apply for a "reasonable rent" rather than the "fair market rent" for this holding over period. If English practice is followed, the Tribunal's discretion under the proviso may, in appropriate cases, be used to provide a "cushion" for the departing tenant by fixing an interim rent somewhere between the old rent and the new fair market rent. The new security of tenure, where a tenant is willing to pay the new fair market rent, is also subject to the landlord's statutory rights to recover possession in the circumstances set out in Sections 119E and 119F. (a) The statutory notices 9. Before an application under Part IV can be made to the Tribunal for a new tenancy, a series of notices and counter-notices have to be served by the parties pursuant to either Sections 119(1), (4), 119A(l),(6) or 119(3)(a)(ii). These notices, while statutory, are not approved by, or issued by or filed with the Tribunal. Instead they have been specified by the Commissioner of Rating and Valuation pursuant to Sections 71 and 120 of the Landlord and Tenant (Consolidation) Ordinance, Cap. 7. They were gazetted under G. N 39I9 in The Hong Kong Gazette published on the 31st day of December, 1981 as Forms CR101, CR102, CR103, CR104, CR105, CR106 and CRl07. They are significant for at least three reasons. First, they represent the statutory scheme to provide for a "cooling off" period for landlords and tenants before either elects to apply to the Lands Tribunal. Apparently the legislative hope is, that during this preliminary period, many landlords and tenants will come to some settlement as to the future of their premises so that only the remaining cases, which are not settled, will have to be litigated. Secondly, as these notices are issued and served before any application is made to the Lands Tribunal they are not notices which have to be filed with the Tribunal nor do they have to be pleaded. In some cases that come before the Tribunal it may be that the contents of those notices and the dates when they were served may be material. As they are not documents which are required to be filed with the Tribunal it would be helpful, where they are material, if they could be available to be tendered by the parties, as an agreed bundle, at the commencement of the hearing. Thirdly, as these statutory notices are not part of the pleadings the requirements as to time of service and the like are not within the jurisdiction of the Tribunal and may not be abridged, enlarged or extended by the Tribunal. The Tribunal's general powers under Rule 30 to extend and abridge time do not apply to these notices. In fact there is no provision even elsewhere for these statutory times to be enlarged or abridged. Therefore there has to be strict compliance with these time limits. Failure to comply may be fatal to a party. Neither the Tribunal nor any Court has the power to give relief where there is non-compliance. 10. The procedural severity of these perhaps draconian time limits is not unique. An analogous position, exists in England, but for business premises, under their Landlord and Tenant Act 1954, upon which our new Part IV is largely based. This latter fact does have the incidental advantage of providing an existing developed body of English case law to refer to on their statutory provisions. The importance of complying with these time limits is emphasised in Woodfall 'Landlord and Tenant' (28th Edn.) at paragraph 2-0685 in these words:
11. No doubt the strict, formal procedure under that Act in England can be justified on the ground that it deals not with the homes of domestic tenants and their families but solely with business premises where the parties are businessmen of at least some commercial experience. Further, it may be noted from the references to "court" in woodfall that in England the legislature has directed that the operation of this involved and very technical legislation should fall within the jurisdiction of a court and not of a Tribunal. Fortunately, no doubt because of the present limitation on Part IV to properties having a rateable value of $80,000 or more tenants involved so far probably have had more experience of technical matters than the average Hong Kong tenant. However, on the 19th day of December 1982 our jurisdiction is being extended to premises having, rateable values of $60,000 or more. This creates the possibility that some of the tenants of those less valuable premises will be less experienced or aware of the dangers of not complying with strict time limits than tenants of current Part IV premises, many of whom are in fact companies. 12. Even under our current jurisdiction, it may be thought surprising that when one of the purposes of transferring landlord and tenant disputes from the District Court to the Lands Tribunal was to provide for increased informality, the new legislation should have introduced an intricate series of notices, with far more strict requirements as to time, than generally exist in the District Court. It is clear that even where the Tribunal might be minded to give relief against inadvertent non-compliance with the time limits relating to these statutory notices it is powerless to do so. For as we have seen the statutory notices are not part of the pleadings filed with the Tribunal. The usual powers of a court or Tribunal to abridge or enlarge time limits to avoid injustice do not apply to these pre-application notices. The Tribunal can give no relief. 13. If in the future consideration is given to extending the jurisdiction of Part IV even further, then it may be relevant to consider whether these very technical provisions, applying only to business premises in England, should in justice be extended to the homes of the average domestic tenant in Hong Kong. (b) The new tenancy 14. After the required notices have been served and the statutory periods thereunder have elapsed, it is only here the landlord seeks to recover possession or where he agrees to the grant of a new tenancy but cannot obtain agreement upon terms that application is made to the Tribunal. 15. The present application falls into the latter category, namely the parties are in agreement that a new tenancy should be granted, but cannot agree upon terms. Where this position arises the Tribunal's power to fix particular terms is contained in the following provisions:
16. In this case, the dispute being limited to the duration of the new term and the new rent, the Notice of Opposition should have been entituled as being pursuant to Sections 1191 and 119K. It is desirable, no matter how limited the dispute, that Notices of Opposition should be filed by landlords expressly entituled pursuant to the appropriate section or sections so, that, on the pleadings, the issues in dispute are narrowed and as a matter of record clearly set out before trial. If to the contrary the Tribunal were unduly to encourage procedural informality, we are satisfied that it would create far more problems than it would solve. In this area informality is rarely a touchstone for justice. Too often it leads to the reverse. We are fortified in making these observations by the stringent formal requirements as to notices during the pre-Tribunal cooling off period where the Legislature was clearly not in favour of informality being allowed at that stage. (c) The duration of a new tenancy 17. Section 119I provides that where the parties cannot agree on the duration of the new tenancy then it shall be for such length:
18. The Tribunal must therefore look at "all the circumstances" and fix a reasonable term not exceeding 3 years. While the Section does not expressly direct the Tribunal - as it does for other terms under Section 119J - to have regard to the prior tenancy the duration of a previous tenancy may properly be taken into account as one of the circumstances. 19. In the absence of other factors or where those other factors are evenly balanced the duration of the prior tenancy may be decisive. On the other hand, in different circumstances, it may only be a minor factor. For example, if a different term is common for similar new tenancies at the date of the hearing that factor must be given weight. when rents are generally falling, but landlords still retain a strong negotiating position, then freely negotiated agreements in the market, will no doubt tend to be for shorter rather than longer periods. 20. We appreciate that other factors might also lead the Tribunal to grant a new tenancy for a different duration than the prior tenancy. Examples in England where very short new terms have been granted, because of such factors, include London and Provincial Millinery Stores Ltd v. Barclays Bank Ltd (1962) 1 W.L.R. 510. In that case the prior lease was for 7 years; the parties negotiated for more than 4 years over the new lease; in the absence of agreement the Court of first instance ordered a new term of 9 years. The Court of Appeal held that as the premises were badly dilapidated and genuine redevelopment was imminent only a short new term should be granted. The term of 9 years was reduced to 1 year. Upsons Ltd v. E. Robins Ltd (1956) 1 Q.B. 131 C.A. is another example. The prior lease was for 14 years and the tenant wanted a new lease for 7 years. The landlord had newly acquired the premises with the intention of obtaining possession at the expiration of the prior term of 14 years and occupying the premises for his own business. He opposed the request for a new tenancy on that ground which is analogous to our Section 119E(b). His opposition was unsuccessful. 21. In fixing the new term the lower Court held that if the evidence which was unsuccessful to enable the landlord to recover possession was, however, also relevant to the duration of the new tenancy, it would order a new tenancy for 1 year. If the evidence was not relevant on the latter issue then it would order a new tenancy for 7 years. 22. On appeal it was held that evidence adduced by the landlord which may have been insufficient to enable him to recover possession, was proper evidence to be considered when the Court carne to determine the duration of the new tenancy. 23. The Court of Appeal not only considered it was relevant but agreed that it was of sufficient weight to reduce the new term from 7 years down to 1 year. (d) The new rent 24. Section 119K is specifically concerned with how the new rent is to be fixed. If the new rent is fixed by order of the Tribunal then it may be either:
In the absence of agreement the rent otherwise determined shall be the "fair market rent" which is defined by Section 115(1). 25. So where the rent is not agreed, the Tribunal may either itself fix the new rent, after hearing evidence, or may delegate that task to a valuation surveyor. After consideration the Tribunal has decided that at least for the time being, it will not delegate that task, but will itself fix the new rent. Until the new legislation has been in effect for some months, it considers the better practice is for new rents to be judicially determined after hearing formal representations from both parties. It may well be that both landlord and tenant will wish to call their own valuation surveyors or other expert witnesses to give evidence before the Tribunal. In that event each expert will be subject to cross-examination by the other party and the Tribunal will also have the benefit of submissions on the new rent from Counsel. After a number of hearings perhaps a pattern will emerge and then it may be appropriate for the Tribunal to delegate the rent fixing responsibility. It seems preferable, however, not to adapt that practice initially. We are also mindful of the fact that where the task is delegated to a valuation surveyor then on the lodging of a copy of his valuation with the Tribunals, it becomes, in effect, an order of the Court. That valuation is neither reviewable by the Tribunal nor appealable to a Court. Nor is there any formal provision for the parties to make representations to the valuation surveyor before he completes his valuation. 26. The usually powerful and non-reviewable position of the valuation surveyor in these circumstances is another factor which has discouraged us from delegating the task of fixing the new rent at this stage. (e) Other terms of a new tenancy 27. Again the terms, other than duration and rent, may also be agreed upon by the parties, in which case under Section 119J they are similarly incorporated in an order of the Tribunal. In the absence of agreement the Tribunal itself determines those terms. The legislature has directed the Tribunal when fixing those terms under Section 119J to:
28. In the exercise of the Tribunal's discretion under Section 119J, the existing terms of current tenancy are therefore of importance as are all the relevant other circumstances. 29. In the majority of cases no doubt one of the parties will produce in the evidence prior or current tenancy agreement, where it is in writing. That course was followed in this case and was most helpful. 30. Where the dispute as to terms is not limited to rent, then it will generally be necessary first to fix he other new terms before finally turning to fix the rent. For the new rent can only properly be determined once all the other terms are known. We note this is also the practice followed in England in relation to business premises under their Landlord and Tenant Act 1954 upon which our Part IV is largely based. This is adverted to by Hill & Redman's Law of Landlord and Tenant (16th Edn.) 675 in referring to the procedure for fixing rents for new tenancies under that Act:
31. Subject to changing the reference from "business" tenants to "domestic'' tenants, that cited statement equally applies in Hong Kong to Part IV. The purpose of the new Part IV provisions is to give the tenant "some" security of tenure, and not to have his rent subsidised by his landlord. For the reasons given therein where the terms are in dispute, the Tribunal must determine all the other terms before proceeding finally to fix the new rent. We propose to follow that practice. (f) Disclosure of documents 32. As far as disclosure of documents is concerned this Tribunal is not bound by the same rules as the High Court under the Supreme Court Ordinance, Cap. 4 or the District Court under the District Court Ordinance, Cap. 336 . Similarly, in considering English decisions we remind ourselves that applications under the Landlord and Tenant Act 1954 are within the jurisdiction of either the High Court or the County Courts and are not made to the English Lands Tribunal. The general procedural rules affecting the Hong Kong and English courts include provision for mutual disclosure of valuations, reports and other documents. In the High Court the number of expert witnesses are fixed before trial. These provisions help to avoid a party being taken by surprise at the hearing and tend to ensure that each party knows the basis of the other party's expert evidence before the hearing. 33. Our jurisdiction comes from the Lands Tribunal Ordinance, Cap. 17 and the rules thereunder. Under Section 10 we have, it is true, for certain matters the same powers listed therein, as are vested in the High Court in the exercise of its civil jurisdiction. In addition, under Section 10 we have our own power to order the production of documents which would include valuation reports. Under Section 10(4) the President is given a general power, after consultation with other members of the Tribunal to determine any matter of practice not elsewhere provided. 34. There has apparently been some doubt as to the extent to which the Lands Tribunal Rules Cap. 17 apply to applications under Part IV. This was one of the issues raised on the summons for directions which the applicant filed in respect of the present application. In particular, concern was expressed whether Rule 18, which relates to expert witnesses and pre-trial disclosure of their reports and plans, applies. Under Rule 18 there has to be disclosure before setting down for hearing. 35. It seems to us that in Part IV cases a balance should be struck between an attempt to achieve reasonable informality and at the same time to ensure that parties have adequate pre-hearing knowledge of the other parties case. Rule 18 forms part of Part II of our Rules so has general application. By virtue of Rule 3, however, it is subject to the provisions of other specific Ordinances. Does it apply to Part IV applications and, if not, should the President, as a matter of practice, under Section 10(4) of the Lands Tribunal Ordinance, Cap. 17, order that Rule 18 should apply to part IV applications? 36. After considering this question we are of the opinion that the new landlord and tenant jurisdiction of the Tribunal is different not merely in degree but in kind to our other jurisdiction. We are equally satisfied that it would be contrary to the Legislature's intention that this new jurisdiction is to be more informal than hitherto, if we were to apply Rule 18 to applications under Part IV of the Landlord and Tenant (Consolidation) Ordinance. We therefore will direct the Registrar, prior to setting down Part IV applications, not to issue any notices under Rule 18. At the same time we would nevertheless encourage parties to exchange valuation reports before a hearing in ample time for the other party to give them proper consideration. At the hearing where a valuation surveyor or other expert is called we would prefer that at the beginning of his evidence he should produce his written valuation report. Counsel calling him may then, if appropriate, ask him to add to, elaborate or clarify his report. He can thereafter be available for cross-examination forthwith, without the other party having to seek an adjournment due to lack of prior knowledge of the contents of a report. No doubt solicitors for parties will also ensure that their own experts have been supplied, before trial with copies of the other expert's report. However, this must always be a matter for the parties and their professional advisers to decide. Generally however, we would hope that on valuation issues there will the maximum mutual disclosure before trial without recourse to Rule 18. If satisfactory mutual disclosure does not take place and hearings as a result are affected, the Tribunal would then have to give the matter further consideration. In that event one alternative open to the Tribunal would be to order that henceforth mandatory pre-hearing disclosure before setting down would have to take place under Rule 18. (g) The evidence of the valuation surveyor 37. Where the rent is seriously in dispute no doubt normally each party would call its own valuation surveyor to give expert evidence. Where a party does not call an expert that will not, of course, be fatal to his position. However we want to make it clear that while this Tribunal includes normally a valuation surveyor, it is not his role to carry out his own independent valuation. As a member of the Tribunal, he will with the rest of the Tribunal listen to the evidence and participate in the collective consideration the Tribunal will give to the evidence before arriving at its decision. During that process his expertise and experience will be invaluable, but it will be applied not unilaterally or spontaneously but only to the evidence adduced, together with such other material as the Tribunal may properly take notice. The evidence of the parties own valuation surveyor will therefore normally be of considerable importance. 38. The general desirability of hearing oral evidence given by experts on the basis of tendered valuation reports is emphasised by Woodfall 'Landlord and Tenant' (supra) 2-0695:
39. Earlier editions of Woodfall expressed the view that an expert witness might support his opinion with hearsay evidence of the comparables relied upon by him in his valuation. That statement was criticised by Megarry, J., as he then was, in English Exporters (London) v. Eldonwall (1973) Ch. 415 but those criticisms, it is important to note for our purposes, were made in the context of the English Rules of the Supreme Court and the general principles of evidence in a civil Court. Subject to those qualifications, the comments on the evidence of an expert valuer are still of import. Megarry J., stated:
40. The whole of the judgment of Megarry J., could be read with advantage by all lawyers and valuation surveyors involved in litigation particularly as Megarry J. was led to deal with the position of the expert valuation surveyor witness because he had not found the matter dealt with else where, This is explained by him at page 423:-
41. We also consider that the observations of Megarry, J. are useful guidelines to the matters on which an expert valuation surveyor before us may give evidence, with the exception of the reference to comparables. 42. We are entitled under our Section 10 to come to a less strict conclusion in relation to evidence of comparables. We also take into account the general legislative intent of Part IV encouraging informality. we too are aware of the provisions of the new Lands Tribunal (Amendment) Bill 1982. The proposed new Section(10)(5) and (6) contain liberalising provisions both as to the informality of proceedings and the admissibility of evidence. These provisions are not of course, yet law and we only refer to them in passing and they in no way affect our conclusions in this judgment. 43. However, in the meantime we propose to allow an expert, notwithstanding the contrary English practice, to put in a list of comparables without being obliged to prove their contents as he would have to in a court. We would, of course, expect an expert valuer to take normal professional care to ensure that the comparables he uses are accurate. Notwithstanding that such comparables are admitted in evidence, it is always open to the other party to attack their accuracy. 44. Where an attack casts doubt on the accuracy of an expert's comparables that will affect the weight the Tribunal will give to them. It is always open to a Party to prove that acertain list of comparables is inaccurate. The best way of doing so would be by strictly admissible evidence. Similarly, where a party's comparables are attacked it is always open to that party to defend them by adducing strictly admissible evidence as to their accuracy. We would emphasise that an attack on the other party's comparables can still be made, but such an attack will go to the issue of weight and not, as in England, to the different issue admissibility. 45. The techniques of rent valuations are well settled and professionally are often a far simpler task than other areas of land valuation. However, there are certain steps that, in our view, should be taken. First, a valuation surveyor before he prepares his valuation report and gives evidence should have personally inspected the suit premises. If he does not personally inspect the premises then, no matter how great his experience and impressive his qualifications, it is unlikely that his opinion will be given as much weight as another valuation surveyor who has personally carried out an inspection. 46. In the present case the landlord's valuation surveyor, who gave evidence, did not personally inspect the interior of the the premises. Although in fairness it should be added that he viewed the exterior of the premise and also the exterior of the three other premises which he selected as comparables. This witness informed us that his assistant inspected the interior of the premises and prepared the primary data relating to the premises. The valuation surveyor then completed his report on the basis of that primary data. This procedure may perhaps have been adopted because of the relative simplicity of rent calculations. 47. A valuation surveyor, called to give expert evidence on rent, who has not inspected the interior and exterior of the premises, fails to do so at his peril. All the premises liable to have their new rents determined under Part IV are at the top end of the domestic property market. They therefore comprise the more expensive domestic rental properties in Hong Kong where the whole range of domestic rentals is in any event high. The potential increased rent to the landlord or rental savings to the tenant will usually involve large sums, at least when spread over the duration of the new tenancy. The importance of a soundly based valuation and the desirability of the valuation surveyor personally inspecting the premises upon which he is to give expert evidence, itself liable to cross-examination, would seem to be self-evident. 48. Secondly most valuation surveyors will refer to and rely on comparables before reaching their valuation. The desirability of obtaining a reasonable number of comparables with as close a similarity to the suit premises as possible, is again self-evident. We realise that a valuation surveyor, may at times face difficulties in obtaining a suitable list of comparables. Because tenancy agreements for domestic premises are generally not registered, their details are not matters of public record. The Tribunal must very much rely on the experts experience, initiative, private access and no doubt, at times, sheer good luck as to the quality and accuracy of the comparables adduced in evidence. Perhaps this is an area where the services of the Commissioner of Rating and Valuation may in the future be of assistance, to the extent that he may properly disclose rental statistics and other information, he may have in his possession. 49. Thirdly, we were told by this witness that it is his practice to prepare the valuation report to be tendered in evidence showing only his final calculations. Where he has considered the rents of comparable properties before reaching that final valuation, his practice is to list the comparables on a separate document. This latter document is also frequently produced at the hearing. Where valuation reports are prepared for submitting to the Tribunal, we hope valuers will include the list of comparables in their reports or as an appendix. All this written material would then be included in one document which he could produce as his sole exhibit at the hearing. THE NEW TENANCY FOR THE SUIT PREMISES 50. We now turn to apply the foregoing principles to the facts of the domestic premises which are the subject of the present application. The two terms in dispute are duration and rent. We will consider each of these in turn. (a) Duration 51. The tenant asks for a new term of 3 years duration. The landlord submits that because of the present state of the domestic rental market a term of only 2 years should be granted. The Tribunal has power under Section 119K to grant a 3 or 2 year term The prior tenancy agreement between the parties provided for a 3 year term. 52. The landlord points out that with the present falling rental market, it would be to the tenant's advantage to obtain a 2 rather than a 3 year term and that as the tenant may always apply for a new tenancy at the end of 2 years, its security of tenure would be preserved. The tenant is prepared to accept whatever financial risk is involved in the longer term. The landlord's submission on this point is, in any event, two-edged and speculative. 53. A more powerful factor in favour of a shorter term would be if, because of the current falling market, 2 year terms rather than longer terms are at present more commonly being negotiated between parties who have not had to have recourse to this Tribunal. If there were strong evidence supporting this trend then the Tribunal might well determine that in those circumstances a 2 year rather than a 3 year term would be reasonable. However, the evidence before us on this application does not quite go that far. 54. In this case there are no other special factors we have to consider as to duration. In the circumstances we have decided that it would be reasonable to uphold the tenant's request as to duration which also corresponds with the term agreed upon by the same parties in the prior tenancy agreement. The new term will therefore be for 3 years. 55. The prior tenancy agreement expired on the 31st day of December 1981. However, the parties are agreed that the new tenancy shall not commence until the 1st day of July, 1982. We note that Section 119I provides that in default of agreement the new term shall not exceed 3 years ''and shall begin on the coming to an end of the current tenancy". We appreciate that if that provision were narrowly construed, where the parties do not agree upon the duration of the new tenancy, then they cannot have a limited agreement as to commencement. We consider that we should interpret the Section broadly so that even where the Tribunal is left to fix the duration, the commencement date may be separately agreed upon by the parties. Failing agreement the commencement date will, of course, clearly be when the current tenancy ends. 56. Not to accept the parties limited agreement as to the date of commencement would be contrary to the underlying purpose of the new Part IV, which is to encourage the parties to agree to new tenancies, without having to have recourse to litigation. 57. Our conclusion on this question also corresponds with the practice followed in England which is summarised by Woodfall 'Landlord and Tenant' (supra) at paragraph 2-0659 as follows:-
58. The new tenancy will therefore be for a period of 3 years commencing on the 1st day of July, 1982 and ending on the 30th day of June 1985. (b) Rent 59. The only remaining dispute which we have to resolve is the rent to be payable during the 3 year term. Under Section 119K we have to determine the "fair market rent" of the premises which under Section 115 is defined as:
60. This definition may be compared with the definition under Section 34 of the English Landlord and Tenant Act 1954:
61. On the present application it was not necessary for us to give consideration to the effect of any differences between these two definitions. 62. The present rent is $10,500 per month fixed by agreement in 1979. The landlord submits that the current fair market rent is $35,000. The tenant does not suggest any particular figure and is content to rely upon this Tribunal fixing the fair market rent. 63. The tenant called no expert evidence on rent. The occupants of the premises were overseas, but their amah who has lived at the premises for the past 8 years was called to give evidence as to the poor state of repair of the wall of the lower bath room and that some of the bathrooms suffered from inferior hot water supply both as to temperature and pressure. After the evidence was completed we visited the premises and inspected both the exterior and interior. We found the condition of the bathroom wall as described. 64. The landlord called Mr. Chung Ping Keung, a Chartered Surveyor who is a partner of Collier Petty, Chatered Surveyors, to give expert evidence of the fair market rent. Mr. Chung produced a Valuation Report which was marked as Exhibit R1 and a List of Comparables which was marked as Exhibit R2. Mr. Chung's Report supported a rent of $420,000 per annum or $35,000 per month. This rent was exclusive of rates and management charges based on a 2 year lease of the promises assuming them to be in good tenantable repair. 65. This assessment relied on three comparable recent lettings each of which was for a tenancy period of 2 years. One was in the same block of Woodland Heights two levels above the suit premises and of the others one was located at Shiu Far Terrace, overlooking Stubbs Road, in a residential block known as Greenville Garden and the other, on the higher side of Kennedy Road, in a residential block known as Amber Garden. 66. The Valuation Report contained little information concerning the comparables. It would be of assistance to the Tribunal if, in addition to details of the comparables being included in valuation reports, an explanation is also given as to how the information obtained in relation to such comparables is interpreted and applied in the assessment. Unfortunately this witness did not compile the Valuation Report himself; nor did he inspect the interior of the suit premises or the comparables his was done by an asistant who was not called on to give evidence. The witness stated that his firm regarded the valuation as a minor case. The firm's policy was to have an assistant assemble the information and after discussion with a. chartered surveyor, the assistant would write a draft report. After improving the draft the chartered surveyor would sign the report. This may be an appropriate procedure where a client seeks a valuation for his own purposes. However where such a Valuation Report is produced before the Tribunal by the chartered surveyor, it does little to assure us that it is the chartered surveyor's expert opinion as to the value of the premises. Rather it is at least in part his assistant's opinion. Normally far less weight can be given to such evidence. 67. This witness described the valuation as being a determination of the best rent at which the premises could be expected to let on the assumption that the premises were in a "good tenantable condition". 68. As to the term "good tenantable condition", we accept that the definition of fair market rent must assume good tenantable condition. If not in such repair the owner can be expected to have to make good any defects before agreeing to a rent with a prospective tenant. Mr. Chung drew the Tribunal's attention to the fact that almost without exception in Hong Kong tenants sign tenancy agreements which oblige them to be responsible for the maintenance of the interior of the flats they rent. The owner is only responsible for the maintenance of the exterior and common areas. Further as the landlord submitted, it would be wrong in principle if a tenant who allowed a flat to become delapitated, could then, because of its poor condition, obtain a lower rent determination. The landlord submitted that it was the tenant's and not the landlord's obligation to ensure that the flat was kept in good tenantable condition. 69. On the other hand if the obligation to repair the wall of the lower bathroom is the landlord's, the tenant might have recourse to Clause 6 of the former tenancy agreement. In either event the rent valuation would not be affected. 70. During his evidence Mr. Chung explained how in respect of each of the comparables, he had made adjustments to the rent paid per square metre of the net area, in order to bring them into line with the suit premises. He agreed these adjustments were made on experience rather than analysis. In this case the experiance applied has to be regarded, at least in part, as that of his assistant rather than his own. It is well established that comparision should be made between premises. Which are reasonably alike and even analysis should be avoided if more direct evidence is available. 71. Mr. Chung explained that he had made adjustments for location, basic facilities, age, size, and the time at which the agreement for each of the comparable tenancies had been reached. He said that the adjustments made for location were confined to the proximity to Central and took no account of any other factors which may have enhanced or detracted from the particular location. Although the remarks column on the List of Comparables did refer to the degree of harbour view available to each of the comparable premises. In his evidence he described the suit premises as being 15% better than the Greenville Garden comparable flat but then 3% was deducted for age as Greenville Garden is only some 3 years old while Woodland Heights is 18 years old. A deduction of 5% was made to allow for the Woodland Heights premises having a net area of 295.8m2 and Greenville Garden having a net area of only 120.77m2. No analysis to support any adjustments was produced. We consider that the flats are too dissimilar and the adjustments, without supporting analysis, too great, to be of real assistance in determining the rent appropriate to the suit premises. 72. The Amber Garden flat, which was the second comparable submitted, is also considerably smaller and newer than the suit premises. No analysis accompanies the various adjustments. As with the first comparable, we consider the second comparable flat to be too dissimilar to be of much assistance in determining the fair market rent of the suit premises. In our view each of them is really in a different market bracket from that of the suit premises. 73. We are left then with only the third comparable which is reasonably similar and that is the flat two levels above the suit premises. It is of the same size and design; likewise does not have any glassed-in verandah; and enjoys the same outlook and views as the suit premises although two levels higher. We consider that it is reasonable to expect this third comparable to be let on similar terms to the suit premises. We also accept that it would be most unusual for a flat in this section of the market to be let furnished contrary to the suggestion on behalf of the tenant. 74. This third comparable was let at $37,000 per month exclusive of rates and management charges from 1st of April 1982 for a period of 2 years. Mr. Chung allowed 3% for the falling market since the date of the letting and 2% for the suit premises being lower in the same block. 75. These are minor deductions and we consider them to be not unreasonable. However, only one comparable is particularly unsafe for the purposes of making a determination and. we would have preferred somewhat better evidence on which to base our decision. It is equally unfortunate that the applicant decided not to call any expert evidence but relied on evidence of the interior condition of the suit premises and on cross-examination of the respondent's expert witness. 76. Mr. Chung recorded in the Valuation Report that the landlord's instructions were to prepare a report and "current market rental" and ''open market rental valuation". He recorded that in his firm's opinion the "current market rental" was:
77. We first observe that it is a pity that the landlord in his instructions, did not ask for a valuation of the "fair market rental" in accordance with the terminology of the definition in Section 115(1). Not to do so can cause confusion. Secondly, although the Valuation Report is undated, Mr.. Chung did state in evidence when questioned that the rental assessed therein was the current rent at the date of the hearing, and we consider his evidence on that basis. Thirdly, Mr. Chung under cross-examination described the "best" rent as being synonymous with a "reasonable" rent. In our opinion, Mr. Chung on his firm's written understanding of the landlord's instructions, has calculated what is in his opinion the "best rent the landlord could reasonably expect, rather than the rent on which both parties might be reasonably expected to agree in free voluntary bargaining between landlord and tenant. In order to arrive at a determination of the "fair market rent", it will usually be necessary to assume a degree of bargaining. 78. We must now decide on the basis of the evidence of one expert witness, including the Valuation Report, our own inspection of the premises and such matters of which we may take judicial notice, the "fair market rent" of the premises. In arriving at that rant we confirm that we do take into account that if the rent were fixed voluntarily, without reference to this Tribunal, a degree of bargaining between the parties would have taken place. We make due allowance for bargaining as a relevant factor. 79. After taking all these factors into account we fix the fair market rent of the premises is $32,000 per month exclusive of rates and management charges. 80. We therefore determine that the new tenancy will be for a period of 3 years commencing on the 1st day of July, 1982 at a rent of $32,000 per month together with the remaining agreed upon covenants adopted from the prior tenancy agreement but excluding Clause 32 thereof. 81. Liberty to apply is reserved for any consequential matters which may remain to be determined. DATED this 19th day of July, 1982.
Representation: Mrs. M. Lui of Ronald Wong & Co. solicitors for applicant. Mr. Radcliffe of Deacons solicitors for respondent. |
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