Pfizer Corporation v. The Hong Kong Land Co Ltd
Read the full judgment text of LDLA 8/1982 on BabelCite. This LDLA judgment.
1. The applicant entered a lease with the respondent on 10th July, 1979 for a term of 2 years as from 1st July, 1979, at a monthly rental of $14,000 "exclusive" - i.e. the tenant to pay rates but the landlord to bear management charges. The premises concerned are known as Flat A6 Bowen Hill Apartments, 10-12 Peak Road ("the premises").
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LDLA000008/1982 Landlord and tenant - Part IV - fair market rent - effect of the Ordinance to be disregarded - Sec. 115 of Landlord and Tenant (Consolidation) Ordinance, Cap. 7 IN THE LANDS TRIBUNAL OF HONG KONG
BETWEEN:
Coram: Tribunal: Sir Denys Roberts, President, M.W. Phillips, Esq., Member Date: 25th day of March, 1983 ---------------- JUDGMENT ---------------- Preliminary 1. The applicant entered a lease with the respondent on 10th July, 1979 for a term of 2 years as from 1st July, 1979, at a monthly rental of $14,000 "exclusive" - i.e. the tenant to pay rates but the landlord to bear management charges. The premises concerned are known as Flat A6 Bowen Hill Apartments, 10-12 Peak Road ("the premises"). 2. The tenancy was thereafter continued in force by reason of Part II of the Landlord and Tenant (Consolidation) Ordinance ("Cap. 7"). 3. Notice of termination of the tenancy was served by the respondent on 29th December, 1981, to end the tenancy on 30th June, 1982. 4. On 11th February, 1982, the applicant entered a response to the notice of termination, informing the respondent that it did not intend to give up possession on the date of termination and would apply to the Lands Tribunal for the grant of a new tenancy. 5. On 1st March, the respondent served on the applicant notice requiring it to apply to the Lands Tribunal for a new tenancy within 2 months. 6. The applicant duly applied, suggesting a lease of two years at a rent of $28,000 p.m., or such other sum as the Lands Tribunal might determine to be the fair market rent ("F.M.R."). 7. It is agreed by the parties that the rateable value of the premises is $87,000 per annum and that they are therefore subject to Part IV of Cap.7. 8. At the outset of the hearing before us, the parties informed us that they had agreed that -
9. The substantial remaining issue is therefore the assessment of the F.M.R. for the premises as at the date of the hearing. We informed the parties, early in the hearing, that we had adopted this date in the recent case of Chase Manhattan Bank Ltd. v. Claret Land Company Limited (L.T. No. 71 of 1982) and that we proposed to do so in this application also, subject to any arguments which the parties might care to advance. They did not argue against such a date being taken and the matter proceeded on the basis that the F.M.R. should be calculated by reference to the current market rent at the date of hearing. Meaning of "fair market rent" 10. Apart from the mathematical calculation of the F.M.R., we have to decide one aspect of the meaning of the term "fair market rent" which is defined in section 115 of Cap. 7 as follows, for the purposes of Part IV of that Ordinance -
11. In L.T. No. 32/82, Nordic Asia Limited and Others v. Strawberry Hill Development Limited and Anor., the Tribunal made it clear that the word "fair" is misleading, in so far as it may suggest that the Tribunal should attempt to assess a rent which is equitable as between landlord and tenant. The Legislature has merely required the Tribunal, in fixing the new rent, to ensure that it represents what could be expected to be obtained for the premises in the open market. 12. The applicant, however, has sought to persuade us that, there should be taken into account the inflationary effect which, he submitted Cap.7 had had on the current market. rents of premises falling within Part IV of Cap.7. 13. His argument was that the phrase "disregarding the effect of this Ordinance" meant that the Tribunal must assess the effect which the Ordinance has had on rents and discount this when reaching the F.M.R. 14. The applicant's valuer expressed the view that the effect of Cap.7 has been to inflate rents by about 10% and that, to reach the fair market rent, this amount ought to be deducted from the current open market rent. Thus, for example, if the current open market rent is $40,000 p.m., there should be a reduction of 10% to $36,000 p.m. which would have been the current rent if Cap.7 did not exist. 15. This seems to us to be doing exactly what the Ordinance prohibits and to interpret "disregarding the effect of this Ordinance" as if it read "taking into account the effect of this Ordinance". 16. We are satisfied that this phrase means that, in assessing the F.M.R., no account at all should be taken of any inflationary or deflationary effects on rental caused by the working of Cap.7. We must look at the reality of the market and not be influenced by how it got to where it is. Valuation 17. The valuer for the respondent, Mr. Cheung, produced a report in which he estimated a rental value of $40,400 p.m. exclusive for the premises as at 1st July, 1982. In evidence he said that, taking into account the decline in rents since that date, his assessment would be $37,000 p.m. exclusive at the date of this hearing. 18. Leaving out of account any deduction for the effect of the Ordinance, (which we have rejected), Miss Savage, the applicant's valuer, sought to support a current rental for the premises of $31,000 p.m. exclusive. She based her opinion on recent lettings in Block B, Bowen Hill Apartments, the adjoining block in the same development, which con-tains flats of somewhat smaller size but similar lay-out and view to those in Block A; and on two lettings of similar premises at Carolina Gardens and Mountain Lodge, which are in the Peak area. 19. Based on lettings in Block B, Miss Savage concluded that the premises should be let at $32,000 p.m. Based on the rents for the Carolina Gardens and Mountain Lodge flats, she thought $29,500 exclusive to be the appropriate rent for the premises.However, we consider that greater weight should be given to the Bowen Hill comparables and that the other two lettings should have been used merely to support the rents derived from other Bowen Hill premises. 20. Miss Savage does not seem to have been aware that Block B flats have only three bedrooms, whereas Block A flats (including the premises) have four.We do not think that her adjustment for the difference in area sufficiently reflected the advantage of the extra bedroom and bathroom in Block A flats. 21. Mr. Cheung used comparables in Block A itself, the latest of which, for the seventh (top) floor flat, was an agreement, dated 9th March 1983, for a two year tenancy at a rent of $37,000 p.m. exclusive, to take effect from 1st October, 1983. We were urged by the applicant to disregard this comparable, because the effective date is October 1983 and the lease contains an unusual clause which allows the tenant to terminate the tenancy after 1 year. 22. We consider this agreement to be acceptable evidence of the current market rent for A block flats, due allowance being made for its position, on the top floor, and for the provision for early termination by the tenant. This agreement was made very recently and is thus likely to reflect the current level of rents. 23. An inspection revealed that the harbour view from the premises has been partially obstructed by the new developments on the Wanchai Reclamation. The higher the flat, the better the view, so that a top floor flat would be expected to command a higher rent for this reason alone, as well as for its additional quietness. 24. If the special termination clause had not been included in the agreement for the top floor flat, it would have been reasonable to expect it to be let at $36,000 p.m. (about $122 per square metre); and, by com-parison the third floor Flat A6 at $34,000 per month. It was also noted on inspection that, while the premises are typical of those built about the same time, with adequate storage and large living areas and balcony, the bedrooms are somewhat smaller than usual in flats of this kind. 25. For a typical Block B, three-bedroom flat, Miss Savage has con-cluded from the comparables that the current market rent is in the region of $30,000 p.m. (or about $119 per square metre). We agree with this assessment for a flat at about third floor level. Accepting that the effect of unit area value diminishes gradually as the area of premises increases, but taking account of the extra bedroom and bathroom and the relative sizes of the bedrooms, a unit area rate of about $115 per square metre would be appropriate for the premises. 26. This equates to about $34,000 per month, supporting our earlier conclusion based on the evidence for the top floor of Block A. 27. We order that a new tenancy be granted for flat A6 Bowen Hill for a term of 2 years commencing on 11th March, 1983 at a rent of $34,000 per month exclusive - i.e. the tenant should pay rates but not management charges. The new rent will be payable from the 1st July, 1982. There will be no order as to costs. 28. Dated this 25th day of March, 1983.
Representation: Mr. N.P. Pearson of Baker & McKenzie for the Applicant Mrs. S.D. Brand of Deacons for the Respondent |