Lee Yu Fong v. Cheung Wing Ming

LDLA000015B/1983

landlord and tenant -Part II - Certificate of Increase of Rent - appeal from review of Certificate by Commissioner of Rating & Valuation - proper date for valuation is date of Certificate - preferable for valuation to be made on basis of analysed comparables - undesirable to rely alternatively on averaging - Sections 57, 58, 59, 60 Landlord and Tenant (Consolidation) Ordinance, Cap. 7.

IN THE LANDS TRIBUNAL OF HONG KONG

(Appellate Jurisdiction)

Coram: TRIBUNAL: His Honour Judge Cruden, Presiding Officer and M.W. Phillips, Esq., Member.

Date: 13th day of September, 1983

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JUDGMENT

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1. The appellant occupies, as a sub-tenant, part of the domestic premises known as Flat A3, Mirador Mansion, 14th Floor, 58 Nathan Road, Kowloon of which the respondent is the principal tenant. On the 2nd day of July, 1982 the respondent applied to the Commissioner of Rating and Valuation pursuant to Section 57 of the Landlord and Tenant (Consolidation) Ordinance, Cap. 7 for a Certificate of Increase in Rent. The existing rent was then $1,350 per month inclusive of rates. The rent when, in terms of Part II, rates are excluded, was, rounded down to the nearest dollar, $1,284 per month.

2. On the 21st day of October 1982 the Commissioner, pursuant to Section 58, issued a Certificate of Increase in Rent certifying that the existing rent might be increased by $385. The appellant in November 1982 applied to the Commissioner pursuant to Section 59, for a review of the Certificate of Increase of Rent. On the 24th day of May 1983 the Commissioner, having reviewed the Certificate, confirmed the increase of $385.

3. From that decision of the Commissioner confirming the increase, the appellant has now appealed, pursuant to Section 60, to this Tribunal. In support of her appeal the appellant, who was unrepresented, gave evidence. After dwelling on her husband's small and uncertain income, which was not relevant to the matters we are obliged to consider on an appeal of this nature, she described certain alleged physical defects of the premises. In her view because of these defects, the Commissioner should not have certified any increase in rent. These defects included problems with the water supply but she conceded that these had recently been rectified. In addition, she claimed that the electricity supply was often interrupted due to overloading and the other sub-tenants left her to repair the fuses. The sub-tenant occupying the adjoining balcony had also, she alleged, partitioned his area in such a manner as to reduce the natural light which entered the area she occupied. The promises in her view were poorly maintained. Finally, she complained that the principal tenant did not reside on the premises.

4. The water supply problems having been resolved are not matters we can take into account nor would any increase in rent be affected by the respondent electing not to reside on the premises. The poor maintenance, the affect of the partitioning on the natural light and the apparently inadequate electrical wiring of the premises are matters which we may take into account. However, in, turning to determine the weight they should be given, we must remind ourselves that they are factors which are commonly and almost invariably faced by sub-tenants of premises of this kind partitioned by a principal tenant.

5. The respondent although present in court, was an invalid and was represented, by leave, pursuant to Rule 24(1) of the Lands Tribunal Rules, by Madam Cheng Yun-lee who also gave evidence disputing all of the appellant's allegations of fact.

6. The Commissioner had caused Mr Yuen Ping -Kwong, Senior Rating and Valuation Surveyor, to file an affidavit which exhibited his Valuation Report which the Commissioner had adopted in reviewing, under Section 59, his prior Certificate of Increase.

7. The Commissioner valued the property as at the 2nd day of July 1982 being the date of the application for a Certificate of Increase in Rent. Any doubt as to the proper valuation date has since been removed by Section 10 of the Landlord and Tenant (Consolidation) (Amendment) Ordinance, No. 29/83 which amended Section 49 of the principal Ordinance. As a consequence of that amendment and also a, further amendment under Section 46 of the same amending Ordinance, the definition in Section 49 of the principal Ordinance of "prevailing market rent" is now as follows:

8. On an appeal under Section 60 the Tribunal has a very wide discretion:

"60. Any person aggrieved by a decision of the Commissioner under section 59 may, within 1 month of the decision, appeal to the Tribunal which may make such order thereon as it thinks fit."

9. Our primary appellate function is to consider whether the Certificate of Increase has been calculated on the basis of the prevailing market rent in accordance with the statutory formula set out in Section 58. It is now clear that the prevailing market rent is to be assessed thereunder as at the date of the issue of the Commissioner's certificate. That same date remains the proper date of valuation both on a review under Section 59 and on an appeal to the Tribunal under Section 60. In this appeal the relevant date of valuation is therefore the 21st day of October 1962.

10. In arriving at what was then the "fair market rent" and has now under the Amendment been renamed, but without any change in definition, as the "prevailing market rent" of $2,100 per month exclusive of rates, the Commissioner took into account the fact that part of the total premises were occupied by two other sub-tenants with consequential lack of privacy including the sharing of common areas. The Commissioner also took into account the defective water supply and the poor state of repair and environment of the premises.

11. The Commissioner went on to record that there were very few sub - lettings of similar premises available for comparison. He therefore relied on new lettings of small flats of approximately the same size in other neighbouring Kowloon areas. Those small flat lettings varied between $100 per square metre to $140 per square metre. After averaging those rentals, the Commissioner arrived at a figure of $120 per square metre. He then adjusted that figure down by 30% to allow for the various disadvantages of the sub-let premises compared with the exclusive possession enjoyed by a sole tenant of a self-contained small flat. By this process he arrived at a rent of $84 per square metre for the subject premises which produces a monthly rent of $2,100 exclusive of rates.

12. We are again disappointed that averaging was principally relied upon in arriving at the prevailing, market rent. On more than one occasion, at least in respect of Part IV applications, we have criticised this practice - R.J. Rhoades v. Lee Wai Lee L. T. No 42/83 citing The Commonwealth v. Milledge (1953) 90 C.L.R. 157. Generally averaging is an inaccurate and unacceptable method of valuation. There were no exceptional circumstances which compelled its use in this application. The proper course would have been to give appropriate weight to the available comparables.

13. As to the comparables referred to by the Commissioner, the small flats in Austin Avenue and Hillwood Road were in localities which are generally regarded as better residential areas than the subject premises. On the other hand, the Wai Ching, Street comparable in Yaumatei, while similar to the subject premises in some respects, was conversely in an inferior locality. We are surprised that no comparables were available from other lettings in Mirador Mansion or nearby Chung King Mansion, both of which have numerous similar tenancies. No explanation was given why the particulars of such more valuable comparables were not available.

14. In these circumstances, the best comparable, on the evidence, was at No. 16 Mody Road. This property was sublet. The evidence indicated that one sub-tenant, who had the exclusive use of a bedroom but shared the kitchen and bathroom facilities, paid $94 per square metre for the bedroom which is about one-third of the area of the subject premises sub-let to the applicant.

15. However, rather than give greater weight to this comparable and attempt to make appropriate adjustments thereto, the Commissioner contented himself with making the already referred to 30% reduction to the average rent for quite dissimilar self-contained flats. No real attempt at analysis appears to have been made. In addition, no comparable rental evidence was obtained after July 1982. No doubt that decision was deliberately made in accordance with The Hong Kong Land Co. Ltd. v. Esso Standard Oil (H.K.) Ltd. Landlord & Tenant Appeal No. 6/74. In that case it was held that the relevant date for ascertaining what was then the fair market rent, was the date of the application under Section 57 for a Certificate of Increase in Rent. In the instant case, that application was made on the 2nd day of July 1982.

16. That judgment has now been overtaken by the provisions of the new Section 49 which expressly provides that the relevant date for ascertaining the prevailing market rent is the date upon which the Commissioner issues his Certificate of Increase in Rent. So under the old law the relevant date was held to be the date of the application for the Certificate. Under the new law the Ordinance provides that the relevant date is the date of the issue of the Certificate. In passing we would point out that even under the old law details of rents after the 2nd day of July 1982 would have still have been relevant, in ascertaining the fair market rent, subject to the Commissioner making a retrospective time adjustment.

17. The Commissioner's valuation has therefore also been adversely affected by the 1983 Amendment. Both the Certificate of Increase and the Commissioner's decision on review were issued and made before the Amendment came into force on the 10th day of July 1983. The rent for the purposes of both the Certificate and the review was ascertained as at the date of the application for the Certificate of Increase, namely the 2nd day of July 1982. The Notice of Appeal herein was signed and filed on the 22nd day of June 1983. The present proceedings were therefore commenced after the amended Section 49 came into effect. We are in no doubt, after considering the amending provisions, that the amended Section 49 applies to the present appeal. We are reinforced in this view by the very detailed transitional provisions contained in Section 49 of the Amendment which, in many instances, expressly apply various sections of the Amendment to proceedings that were already pending before the Tribunal when the Amendment came into force.

18. The present appeal was not a pending application on the coming into force of the Amendment. The appeal was only initiated after the Amendment came into force. We hold that irrespective of the date of an application, the date of the issue of` a Certificate or the date of a review, that in the case of all applications which come before the Tribunal for hearing on or after the 10th day of July 1983 the new law applies. The proper date for ascertaining the prevailing market rent is therefore that stipulated in Section 49, namely:

"... the date upon which the Commissioner issues his Certificate under Section 58."

19. Accordingly the date on which we have to determine the prevailing market rent is therefore the 21st day of October 1982 being the date the Commissioner's Certificate was issued.

20. After having considered the whole of the evidence adduced, it seems to us that a self-contained flat otherwise directly comparable to the subject premises might, during July 1982, reasonably have been expected to let at the rate of a little over $100 per square metre. To that figure some adjustment down has to be made, in view of the fact that the appellant has exclusive possession of only the rear of the premises and shares parts of the premises with other sub-tenants. In addition, a further adjustment down is necessary to allow for the fall in prevailing market rents between July 1982 and the 21st day of October 1982.

21. The poor quality of the evidence, to which we have already adverted, prevents us from calculating these two downward adjustments with the precision we would prefer. However, doing the best we can on the available evidence, particularly the evidence provided by the Mody Road comparable, we are prepared to accept the Commissioner's adjustment of 30% as the difference between a self-contained flat and sub-let premises such as the subject premises. Without any analysis for the time factor having been placed before us we can but accept the lower level of value as at July 1982, which was in evidence, as probably being more or less the norm for October 1982. On this basis the rate of $100 per square foot would be reduced to $70 per square foot producing, a rent of $1,750 per month exclusive of rates. We fix that rent as the prevailing market rent as at the 21st day of October 1982. Having determined the prevailing market rent we now turn to apply the statutory formula, prescribed by Section 58, to determine the permitted increase in rent:

The Certificate of Increase of Rent of $385 which was confirmed on review, was to take effect from the 1st day of December 1982.

22. The appeal must be allowed. The certified increase of rent of $385 is therefore reduced to $233 producing a total rent of $1,517 exclusive of rates. The increase is to take effect from the 1st day of December 1982. There will be no order as to costs.

DATED this 13th day of September, 1983.

Representation:

Applicant in person.

Madam Cheng Yun-Iee, by leave, for the respondent.