Bestley Investment Co Ltd v. Lau Shiu Leung Stephen
Read the full judgment text of LDLA 50/1984 on BabelCite. This LDLA judgment.
1. The principal issue on which the outcome of this application depends is whether the suit premises are subject to Part I or Part V of the Landlord and Tenant (Consolidation) Ordinance, Cap. 7.
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LDLA000050/1984 Property law - landlord and tenant - pre-war premises - prior approved tenancy agreement excluded Part I - whether exclusion from Part I merely personal to the parties for duration of tenancy agreement or whether premises permanently excluded from Part I - if permanently excluded were premises subject to Part V - exceptionally pre-war domestic premises may fall into Part IV - whether owner of mortgaged Part V premises can only issue notice to quit as agent and with the authority of mortgagee - Held: 1. The pre-war premises were subject to Part V; 2. Statutory definition of 'landlord' in Part V excludes any common law necessity for mortgagee's authority to issue notice to quit - Sections 3(1)(e), 28, 120A, 122 Landlord and Tenant (Consolidation) Ordinance, Cap. 7. IN THE LANDS TRIBUNAL OF HONG KONG Application No. L.T. 50 of 1984
TRIBUNAL: His Honour Judge Cruden, Presiding Officer and M.W. Phillips, Esq., Member. -------------------------- JUDGMENT -------------------------- 1. The principal issue on which the outcome of this application depends is whether the suit premises are subject to Part I or Part V of the Landlord and Tenant (Consolidation) Ordinance, Cap. 7. 2. The applicant landlord claims possession of that portion of the Ground Floor premises let to the respondent situate at No. 135 Kweilin Street, Kowloon. The application is founded on alternative statutory provisions. First, possession is claimed under Part V pursuant to Section 122. If Part V does not apply, the applicant applies for an exclusion order, pursuant to Section 4 of Part I, on the ground that possession is required for the purpose of rebuilding. Finally, if the premises are not subject to Part I and Part II applies, the applicant applies for possession pursuant to Section 53(2)(c), on the ground that it intends to rebuild. 3. The tenant respondent in his notice of opposition claimed that Part V does not apply and that the premises are subject to either Part I, Part II or Part IV. During the hearing the range of the dispute, which in the pleadings had canvassed 4 of the 6 parts of the Ordinance, was considerably narrowed. The applicant claimed that Part V applied. The respondent claimed Part I applied. 4. The practical consequences of the dispute relating to the classification of the premises, is that under Parts I, II and IV a landlord, recovering possession on the ground of rebuilding, is liable to pay a tenant compensation. Under Part V an application is for possession simpliciter and payment of compensation does not arise. 5. The factual background to this application may have at least indirectly affected the stance of the parties. The applicant is now the owner of No. 133 and No. 135 Kweilin Street, Kowloon. It is common ground that these are two pre-war buildings of three stories to which Part I would apply if it was not otherwise excluded. 6. On the 31st day of May 1984 exclusion orders were made under Section 4(2) of Part I in relation to 13 tenancies or sub-tenancies existing in those buildings at Nos. 133 and 135 Kweilin Street. The exclusion orders were made on the ground that the applicant intended to rebuild both premises. Compensation was granted by the Lands Tribunal to all the tenants and sub-tenants whose tenancies were thereby excluded from the protection of Part I. 7. The respondent in the present proceedings is the remaining tenant of those two buildings being the tenant of portion of the ground floor of No. 135 Kweilin Street. He claims that within the suit premises he occupies a cockloft, which he asserts, is used solely for domestic purposes. We record that he was not a party to nor was his tenancy involved in the Part I exclusion proceedings. 8. The ground floor portion of the premises to which the tenancy relates comprises 1100 square feet approximately and within that area a cockloft, comprising about 600 to 700 square feet, has been constructed. The property was formerly owned by the respondent's sister, Madam Lau Shiu Sin who recently sold the property to the applicant. Madam Lau Shiu Sin had earlier let the ground floor for a term of 5 years 2 months from the 1st day of July 1966 to Lee Wing trading as Yau Luen Metal Factory. Later a new lease to the same tenant was granted for a further period of 3 years from the 1st day of September 1975. 9. The respondent claims that the ground floor was let to him in 1978 by his sister, Madam Lau Shiu Sin. It is undisputed that the property was sold to the applicant subject to existing tenancies, including the tenancy of the suit premises to the respondent. 10. A factual dispute arose whether the respondent used the ground floor for domestic premises. The respondent is the youngest of a family of 8 children. The position was complicated by the fact that some of his relatives live in the 1st and 2nd floors of No. 135 Kweilin Street, which are clearly domestic premises. From the photographs and other evidence it was clear that the ground floor cockloft is furnished with 2 beds and the minimum of incidental bedroom furniture. The respondent agrees that there are no kitchen, dining or bathroom facilities on the ground floor and for these purposes he uses his relatives facilities on the upper floors. He further agreed that he only uses the cockloft for sleeping. 11. The evidence established that the remainder of the suit premises have, since the lease to Lee Wing expired, been used for other purposes. For a short period of about 3 weeks in 1982 before Lunar New Year, the respondent's elder brother Lau Shiu Ho used the front portion of the suit premises as a shop for selling flowers. For another period part of the suit premises was used as an annexe to a restaurant at No. 131 Kweilin Street but when the Urban Services Department intervened, the restaurant thereafter limited its use to the storage of goods and equipment. No rent was received from the restaurant. 12. The position seems to be that Lau Shiu Ho took the initiative in allowing the restaurant to use the area for storage gratuitously on the basis that the building was soon to be demolished for redevelopment purposes. This was a highly informal arrangement for Lau Shiu Ho would appear to have had no status in the matter. However, his sister had formerly owned the property and his younger brother, the respondent, now held the tenancy of the ground floor but only used the cockloft. Whether Lau Shiu Ho allowed the restaurant to use part of the ground floor with the authority of the respondent under some form of sub-tenancy or whether Lau Shiu Ho did so unilaterally is neither clear nor material. Lau Shiu Ho apparently still looked upon the premises as Lau family property. 13. The respondent stated that while the property had been registered in the name of his sister Madam Lau Shiu Sin, he had an unregistered interest in the property. On the sale of the property to the applicant for $3.8 million the respondent, who is an electronic engineer, stated he received half of the sale price from his sister. The respondent is obviously a person of intelligence and means. 14. The respondent agreed that his tenancy extended to the 1100 square feet portion of the ground floor and was not limited to the cockloft. Because of the intended demolition of the building he generally left the balance of the ground floor to which his tenancy extended unoccupied. He further stated that for some months he had allowed the restaurant to store goods and equipment on the ground floor but did not charge any rent. He stated that his brother Lau Shiu Ho had mentioned to him that, as the restauranteur was a kaifong and the building was soon to be demolished, no charge should be made. 15. The applicant asserted that the respondent did not genuinely occupy the cockloft for domestic use and had only purported to do so after the property was sold to the applicant. The applicant submitted that the respondent did so in order to acquire the status of a tenant so as to be eligible for compensation from the new owner. Certainly in relation to the respondent's income and capital the condition of the cockloft was humble in the extreme. The applicant submitted that the respondent's tenancy of the ground floor was in respect of premises the primary user of which was clearly business. 16. We must first determine into which Part of the Ordinance the premises fall. The correct classification of premises under the Ordinance is not always simple. The application sections of the Ordinance-Sections 3, 50, 116 and 121-are negatively drafted merely stating the types of tenancies to which a particular Part does not apply. None of these sections state the kind of premises to which those Parts do apply. The position is made the more complicated by the fact that many of those negative provisions are expressly subject to some of the other equally tortuous application sections. 17. However, the law is well settled that pre-war business and domestic premises fall into Part I unless otherwise excluded. But even this position will soon alter, for by virtue of Section 3(1)(i) from the 1st day of July 1984, all business premises will be excluded from Part I. This imminent change does not affect the present proceedings. 18. The applicant based its submission that the Ground Floor premises, including the cockloft, were excluded from Part I on two alternative grounds. First, it was submitted that the premises were excluded pursuant to Section 3(1)(e) which provides that:-
19. Mr. T.K. Tong was called by the applicant and confirmed the contents of his interlocutory affidavit that under a tenancy agreement registered in the Land Office by Memorial No. 538018 the then Crown lessee, Lau Shiu Sin, had let the Ground Floor premises to Lee Wing trading as Yau Luen Metal Factory for business premises for a term of 5 years and 2 months from the 1st day of July 1966. A copy of the stamped tenancy agreement, being the annexure to Memorial No. 538018, was produced. 20. Secondly, the applicant submitted that alternatively the premises were excluded from Part I pursuant to Section 28. Section 28 is the provision whereby, if the Commissioner of Rating and Valuation gives his approval to a particular tenancy agreement, the provisions of Part I are excluded. 21. The applicant submitted that if Part I was excluded under Section 3(1)(e) that was the end of the matter. Section 3(1)(c) refers to business premises and on the facts there was a dispute as to the present user of the premises. Whatever the position under Section 3(1)(e), the applicant further submitted that the premises were certainly excluded under Section 28. 22. Mr. Tong informed the Tribunal that on the 16th day of October 1975 the further tenancy agreement from Lau Shiu Sin to Lee Wing Tak for a period of 3 years from the 1st day of September 1975 was approved under Section 28. There have been several amendments to Section 28 since 1975, including the substitution of the Commissioner of Rating and Valuation as the approving authority for the former Tenancy Tribunal, but these later amendments are not material to the present dispute. 23. The respondent accepted that the second tenancy agreement had been approved under Section 28 but submitted that approvals under Section 28 are personal to the parties and do not run with the premises. Accordingly, it was submitted that approval does not permanently exclude premises from Part I or deprive subsequent tenants from the protection of Part I. 24. The history of Section 28 indicates that the Legislature has been alive to the significant difference between these two contrary approaches adopted by Counsel in this case. In its present form Section 28(6) provides:-
25. Counsel for the respondent properly recognised that the Section continues the exclusion beyond the duration of the approved tenancy agreement. However, he submitted that was not fatal to the proposition that the exclusion under Section 28 was personal to the parties. For example, he submitted, after the duration of the contractual term under a particular tenancy agreement, the tenant might remain in possession on a monthly basis or under the protection of the Ordinance's concept of statutory continuance. In either of those two circumstances it was reasonable for the prior exclusion to enure for the same parties, so long as their relationship of landlord and tenant continued. The respondent submitted this was the natural and reasonable interpretation of Section 28(6), 26. From 1953 to 1973 the equivalent to Section 28(6) was contained in Section 28(3) which during that period provided:-
That provision was clearly limited to the duration of the particular tenancy agreement and only excluded that portion of Part I relating to permitted rents. 27. Under the Landlord and Tenant (Consolidation) (Amendment) Ordinance No. 64 of 1973, Section 28(3) was repealed and the following new subsection 3 was enacted:-
28. The amended subsection was undoubtedly wider than its predecessor. For example, it expressly excluded not merely the permitted rent provisions but the whole of Part I. In the light of a subsequent amendment in 1975, the Legislature probably also intended permanently to exclude the premises from Part I and not only during the limited duration of an approved tenancy agreement. If so, the Legislature failed to achieve that object, for Hopkinson D.J. held in Cheung Hing Yip Tong Estate Ltd. v. Lee Man Tenancy Tribunal Appeals Nos. 1-3/75 that:-
29. A major factor which influenced the Court in arriving at that restricted conclusion, was that the 1973 Amendment excluded "the premises" from Part I, That apparently wide exclusion was limited by the fact that Section 2 defines "the premises" to mean "the subject matter of any tenancy". This, the Court held, related "the premises" to the duration of the tenancy agreement. The Court accepted the statutory exclusion was less extensive than would have been the position if the word "property" instead of “the premises" had been used. The Court therefore rejected the Tenancy Tribunal's finding, at first instance, that "the premises" meant a building or part of a building. 30. Judgment in Cheung Hing Yip Tong Estate Ltd. v. Lee Man was delivered on the 21st day of October 1975. The Landlord and Tenant (Consolidation) (Amendment) (No. 4) Ordinance No. 93/75 was thereupon speedily enacted under which the judgment was nullified by the enactment of a new subsection which provided:-
31. This 1975 amendment, with retrospective effect for 2 years back to the 1973 Amendment, substituted the new phrase "the building or part thereof" for the earlier reference to "the premises". The Legislature could not have spelled out in any clearer terms that where a tenancy agreement is approved under Section 28, not merely the tenancy but the buildings to which it relates, are permanently excluded from the application of Part I. The use of the word "building" avoided the confusion that can arise from the at times indiscriminate use of the terms "premises" and "tenancy" in various parts of the Ordinance. Some of these difficulties, as well as the view that the 1975 Amendment made it clear that a Section 28 exclusion is permanent, are set out in an article by Mr. Roderick O'Brien, 'Control of Pre-war Buildings' (1977) 7 H.K.L.J. 5, 37. 32. There have since 1975 been other amendments to Section 28 as a result of which the former subsection 3 has now become subsection 6. However, the provisions of the 1975 Amendment, as now contained in Section 28(6), have remained materially unchanged. Merely to recite chronologically the contents of the major statutory changes down to 1975, is to highlight the attempt by the Legislature, in the case of tenancy agreements approved under Section 28, to exclude the application of the whole of Part I as well as to provide that the premises themselves should be permanently excluded from Part I and not only for the limited duration of an approved tenancy agreement. 33. After considering those changes we are well satisfied that the 1975 Amendment, preserved in the present Section 28 (6), makes it clear that approvals thereunder permanently exclude the wholeof the buildings comprised in the tenancy agreement from Part I. We further hold that if the suit premises were not already excluded under Section 3(1)(e), they were certainly, on the 16th day of October 1975, under the second tenancy agreement, permanently excluded from Part I by virtue of Section 28(6). 34. Having held that the suit premises are excluded from Part I do they fall within Part V? In practice nearly all pre-war premises, excluded from Part I but otherwise subject to the Ordinance, fall into Part V. Certainly all of such business premises become subject to Part V. An important general exception is where pre-war premises, domestic or business, are excluded by an order under Section 4. The combined effect of Sections 3, 50, 116 and 121 is to exclude those premises entirely from the Ordinance. 35. On the other hand, Section 28 exclusions only exclude Part I. The premises remain liable to fall into such other part of the Ordinance as may be appropriate. Part II is expressly limited by Section 50, to post-war domestic premises so clearly Part II cannot apply to pre-war premises excluded from Part I. 36. Part IV, in practice, controls three principal classes of domestic tenancies. First, post-war tenancies of premises with rateable values of $50,000 or over; secondly, tenancies of buildings completed on or after the 19th day of Jane 1981; thirdly, new tenancies created on or after the 10th day of June 1983. Some indication of the complexity of the application sections, is that this division is not expressly set out in Part IV. It is necessary to proceed by reference to the application Section 50 of Part II, to find out the nature of the tenancies which are subject to Part IV. 37. However, an important distinction, relevant to the dichotomy between Parts II and IV, is that Part IV, unlike Part II, is not expressly limited to post-war domestic premises. Yet in practice Part IV is mainly concerned with post-war domestic premises. Nevertheless, as a strict matter of law, pre-war domestic premises may fall into Part IV. Among the exceptional species of pre-war domestic premises which may become subject to Part IV, are those excluded from Part I pursuant to Section 28. 38. In the instant application the suit premises, as a matter of law, having being excluded from Part I, may fall into either Part IV or Part V. If they are domestic premises they will fall into Part IV. If they are business premises they will fall into Part V. During the hearing when the issues were being narrowed, Counsel for the respondent conceded that the respondent no longer maintained that the premises might fall into Part IV. In view of the factual evidence pointing to the primary user of the suit premises being nondomestic, that was no doubt a sensible concession. 39. In the light of the evidence that was adduced and accepting the respondent's concession, we hold that the suit premises are subject to Part V. Counsel for the respondent then submitted that if the suit premises were subject to Part V, the purported 6 months notice to quit, given by the applicant pursuant to Section 122, was defective. This objection was based on the submission that where the landlord's premises are mortgaged a notice to quit may only be duly given with the authority of the mortgagee. 40. The applicant conceded that at the time the notice to quit was given the premises were mortgaged. The mortgage has since been repaid. At no time was the mortgagee ever in possession of the premises. However, counsel for the respondent submitted that at common law the mortgagor could only give notice as agent of the mortgagee. The Tribunal was referred to Miles v. Murply (1871) IR 5 CL 382 and Stacpoole v. Parkinson (1874) IR 8 CL 561 on this point. However, it was recognised, even at common law, that it was sufficient, in the absence of any express authority, if a general authority could be implied in favour of the mortgagor landlord. 41. Counsel for the respondent pointed out that the practical difficulties that could arise from this requirement, were overcome in England by the enactment of Section 98 of the English Property Law Act of 1925. However, as that Act does not apply in Hong Kong it was submitted the old common law principles still apply. This was an interesting submission and would, if correct, as we observed during the hearing, revolutionize proceedings for recovery of possession in Hong Kong. 42. Counsel for the applicant replied that while Section 98 of the Property Law Act 1925 did not apply in Hong Kong, the position was fully covered by the provisions of the Landlord and Tenant (Consolidation) Ordinance. In each Part of the Ordinance the term "landlord", it was pointed out, is defined to include the person entitled to receive the rent. In particular Part V defines "landlord" in Section 120A as follows:
43. The statutory requirement under Section 122 is that the notice to quit shall be "served by the landlord ...”. The respondent admits that he is the tenant of the premises and that the applicant purchased the premises subject to his existing tenancy. Throughout the pleadings and the proceedings the parties accepted that the applicant was the landlord and the respondent the tenant. The applicant claimed and the respondent agreed that the tenancy between the parties comprised the major portion of the ground floor and not merely the cockloft. We are satisfied that a landlord and tenant relationship exists between the parties for those particular suit premises. 44. From these facts it follows that the applicant, when notice was given, had the status of a landlord, as defined in Section 120A. The notice to quit was given by the applicant in that capacity as landlord. In those circumstances the Ordinance excludes any common law necessity for the consent of the mortgagee to be obtained. The objection of the respondent to the validity of the notice on that ground is rejected. We find that the notice was duly given and that time thereunder has expired but that the respondent has unlawfully remained in possession. 45. In these circumstances the applicant is entitled to and is hereby granted an order for vacant possession as claimed. Liberty to apply is reserved in respect of mesne profits, costs and other relief. DATED this 8th day of June 1984.
Representation: Mr. F.K. Au of Johnson Stokes & Master for the applicant. Mr. Y.W. Yung instructed by Lo, Wong & Tsui for the respondent. | ||||||||||||||||||||||||||||||||||||||||||||||