John H Lee v. The Hongkong and Shanghai Hotels Ltd

LDLA000015A/1983

Landlord and tenant - Part IV - market rent - analysis of offers to rent is not conclusive evidence of rental value - discretion to vary terms of current tenancy - Sections 115, 119J and 119k landlord and Tenant (Consolidation) Ordinance, Cap.7.

IN THE LANDS TRIBUNAL OF HONG KONG

Coram: TRIBUNAL: M.W. Phillips, Esq., Member

Date: 3rd day of August 1983

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JUDGMENT

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1. The applicant entered a lease with the respondent on 24th August 1979 for a tenancy of 2 years commencing on 1st August 1979 at a monthly rent of $10,000 per month exclusive of rates and management charges for premises known as Flat B51, Repulse Bay Apartments, 101 Repulse Day Road. The tenancy was thereafter continued in force under Part II of the Landlord and Tenant (Consolidation) Ordinance, Cap. 7 until 19th December 1982 when it came within Part Iv of Cap. 7 by reason of the rateable value being in excess of $60,000.

2. The tenant has applied for a new 2 year tenancy en 19th April 1983 under section 117(1) and suggested a rent of $18,150 per month. The respondent served a notice of opposition proposing a new tenancy commencing on 1st July 1983 for 2 years at a rent of $22,500 per month exclusive of rates and maintenance charges, but sought, and was granted leave by the Tribunal to amend this rent to $22,000 per month exclusive of rates and maintenance charges.

3. The respondent seeks determination by the Tribunal of a new rent under section 119K. Also under section 119J, the respondent seeks to vary the terms of the previous tenancy to allow for a deposit of 2 months' rent instead of the previous deposit of one month's rent plus one month's management fee, which amount was stated in clause 36 of the tenancy agreement dated 24th August 1979.

4. The parties agree that the premises are subject to Part IV of Cap. 7, having a rateable value of $66,000, and that the duration of the new tenancy should be 2 years commencing on 1st July 1983.

Deposit

5. The respondent has referred me to a previous Lands Tribunal Judgment, L.T. 32-38, 41-45 and 52-54/82 Nordic Asia Limited and Others v. Strawberry Hill Development Limited and Another, in which the Tribunal ordered that a deposit of 2 months' rent was reasonable. In this case, all but one of the applicants applying for a now tenancy had agreed to such a deposit.

6. The applicant submitted that a deposit based on an amount equal to one month's rent plus one month's management fee in line with the previous agreement should be retained for the new tenancy. Clause 36 only stated an amount but it is agreed that this amount was the equivalent of the sum of the fee and one month's rent.

7. Section 119J provides, in the absence of agreement for the Tribunal in determining any terms to, "... have regard to the terms of the current tenancy and to all relevant circumstances". The terms of the current tenancy are therefore one of the circumstances to be considered, but not decisive. Regard must also be given to "... all relevant circumstances".

8. Mrs. Karen Wong, the Estate Manager employed by the respondent company, said that all new tenancy agreements for Repulse Bay Apartments with the exception of flats let to the Hong Kong Government, have been subject to a deposit of two moths' rent for the last 2 years and all renewals included such a clause to replace the earlier clause requiring the equivalent of one month plus the monthly management fee.

9. In view of the continued agreements which have had the effect of phasing out the previous deposit clause, it would be a departure from these usual agreements to order anything other than a 2 months' rent deposit. Therefore, I consider it would be reasonable to order the new tenancy to similarly include provision for a deposit equal to 2 months' rent.

Rent

10. The suite premises are on the 24th floor of Block B of Repulse Bay Apartments which is a large high-rise development comprising some 212 flats. It was completed in 1977 and is situated at 101 Repulse Bay Road on the western side of and overlooking the site of the former Repulse Bay Hotel. It enjoys an excellent view over Repulse Bay and beyond. The net area is about 207.2 m² (2,230 sq. feet).

11. Mrs. Lillian Wag the wife of the applicant, gave evidence and sought to support a rent of $18,000 per month exclusive of rates and management charges, referring the Tribunal to a number of recent advertisements for similar flats in the locality. She submitted a prepared schedule showing the appropriate rate per square foot for each of a number of these premises as well as other particulars (Exhibit Al).

12. The respondent relied on the evidence of Mr. Francis Choy, a chartered surveyor, who submitted a report (Exhibit R1) which supported a rental value of $22,000 per month exclusive of rates and management charges.

13. I have had the benefit of inspecting the suite premises and viewing most of the comparables cited by each of the parties.

14. Since last April Mrs. Lee has kept herself informed as to asking rents in the locality and has inspected a number of the flats which were included in Exhibit A1. She compared them in respect of age, view and facilities. Attention was drawn to the suite promises having no swimming pool while a number of the comparable premises did.

15. Mrs. Lee's calculations and comparisons led her to consider a rate of a little under $8 per square foot or $18,000 per month being appropriate for the suite premises. Mrs. Lee worked on gross areas, as advertised, to arrive at her analysed asking rents. She calculated the gross area of the suite premises at 2,118 square feet, but stated that she was quoted an area of 2,465 square feet when she moved into the premises and has since noted in an advertisement for another flat in Repulse Bay Apartments the area stated as 2,346 square feet.

16. Mr. Choy has given the gross floor area as 2,465 square feet (229 m²) and the net area as 2,230 square feet (207.2 m²). It would appear that Mrs. Lee has adopted the advertised area of 2,346 square feet as this shows about $7.7 per square foot gives a figure of $18,000.

17. Mr. Choy based his assessment on recent renewal agreements for similar flats in Blocks B and C which are the same building, but have different entrances and lift lobbies. Two flats in Block B were each let at $23,000 per month exclusive of rates and maintenance charges effective from 1st July 1983, while the two flats in Block C were each let at $21,500 on the same terms and also from the same effective date. Mr. Choy said he did not consider Block B superior to Block C, but rather the comparables showed a range between $21,500 and $23,000.He adopted $22,000 as the rental value of the suite premises after checking with recent lettings for the nearby Repulse Bay Towers and Repulse Bay Mansions. Repulse Bay Towers was completed in 1963 and has a communal swimming pool, while Repulse Bay Mansions was completed in 1950 and, as with Repulse Bay Apartments, has no pool. Both these comparables are older and larger and show an analyzed rate of about $9.25 per square foot on net area which is comparatively in line with the rents obtained for Repulse Bay Mansions. The best evidence of value must be that for premises within the same development provided it is supported by similar evidence for comparable premises.

18. I have been made aware of the unreliability of the areas quoted in the advertisements.   Also evidence of asking prices is hardly conclusive evidence of value. Often it may merely be an estimate by the offeror of the value of tae property to him. Depending on the circumstances it may not even be evidence of that fact. For an offer may also reflect the financial position of the offeror and his estimate of his bargaining position against the other party, rather than his estimate of the real rental value of the particular premises. A variety of ether factors, not directly related to value, may also influence the calculation of the offer. Generally little or no weight should be given to evidence of this kind as was emphasised by the High Court of Australia in McDonald v. The Deputy Federal Commissioner of Land Tax for New South Wales (1915) 20 C.L. R. 231, 237, where in a taxation appeal Issacs J., pointed out :-

"... it is plain that the mere fact of a statement by an owner to a stranger that he would be willing to sell at a given figure, and that offer was not accepted, for some reason undisclosed, is not evidence of what the Statute requires, namely the price which a willing buyer would give, supposing the seller announced reasonable conditions. At most, it is evidence of the owner's bona fide belief at the time as to the value of his land. Nor is the refusal of the parson to whom the offer was made to accept it, even if specifically on the ground of excessive amount, any more than an expression of his opinion on the point... When the matter has reached the point of a concluded contract; there has been a definite concrete fact established, which not only evidences value, but to some extent helps to create or modify it. Where an owner has actually parted with his land for a fixed sum and a buyer has parted with his money for the land, a clear event has arisen, which, based on the ordinary instincts and impulses of human nature, indicates a consensus of opinion between two adverse parties in the community respecting the value of similar lands. Some advantage to justice is therefore manifestly possible from considering it, and the law presumes that up to that point the disadvantages of having to undertake the collateral inquiries as to comparison do not outweigh the possible advantages.

But if the negotiations do not end in a concluded bargain, the field is at once open to a multitude of other considerations before the same point of opinion is reached. Excursions into the realm of collateral circumstances would be endless."

19. Even, should Mrs. Lee's analysis be considered as coming to a reasonable conclusion, her $8 per square foot calculated on the more reliable gross area of 2,465 square feet would be equivalent to about $19,700 par month exclusive, rather than $18,000.

20. All the comparables cited by Mr. Choy are renewals and all the evidence of Mrs. Lee concerns asking prices in respect of new lettings. The Tribunal is required to determine the rent at which the premises might reasonably be expected to let assuming that the premises is be let to a prospective incoming tenant rather than a renewal with a sitting tenant. There is no evidence that the rent would not be the same, but I believe that a new tenant would be in a better bargaining position than a sitting tenant who would consider the renewal in relation to the costs associated with the proving of removing to other promises.

21. Given also that it is presently something of a "buyer's market", I am inclined to suppose the incoming tenant would be more likely to reach agreement at the lower end of range than the higher. It would appear that Mr. Choy shares this view to a certain extent, in that he has adopted a rent of $22,000 within the rangy between $21,500 and $23,000

22. However, I propose, after considering the whole of the evidence, to give weight to the lower end of the range and determine the rent at $21,500 per month exclusive of rates and maintenance charges for the now tenancy to commence on 1st July 1983. There will be no order as to costs.

DATED this 3rd day of August 1983.

Representation:

Mrs. Lillian Lee on behalf of the applicant John H. Lee.

Mr. Hilbert has of Lo and Lo for the respondent.