Wong Yip v. Commissioner of Rating & Valuation and Another

LDLA000001/1985

Property law - landlord and tenant - determination on whether premises are within Part I of the landlord and Tenant (Consolidation) Ordinance, Cap. 7 - Pre-war business premises excluded from Part I - determination based on user - definition of domestic premises recognizes mixed user - relationship of Part I and Part II determinations. Held: appeal allowed - mixed user - on balance domestic user preferred - based on use of defined areas both within and outside business hours - business use not the prime financial consideration of the occupiers. Sections 2, 3, 32 and 51 Landlord and Tenant (Consolidation) Ordinance, Cap. 7.

IN THE LANDS TRIBUNAL OF HONG KONG

(Appellate Jurisdiction)

Landlord & Tenant Appeal No. 1 of 1985

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

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DECISION

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1. The appellant Wong Yip is the tenant of pre-war premises situated at the ground floor of No. 32 Stanley Main Street in Stanley Village, Hong Kong Island. This appeal under Section 32(aa) of Part I of the Landlord and Tenant (Consolidation) Ordinance, Cap. 7 is against a determination under Section 3(2) of the Commissioner of Rating and Valuation dated 12th December 1984 that the premises are primarily used for business purposes and as such, under Section 3(1)(i), are exempted from the application of Part I of the Landlord and Tenant (Consolidation) Ordinance. Business premises ceased to be within Part I from 1st July 1984.

2. Following an application to be joined as a party, the landlord Fang Shek is listed as the second respondent. He together with his wife Kwan Kwai and his younger brother Fong Tim Yau, is the owner of the whole building at No. 32 Stanley Main Street. It is a pre-war two storey building located between newer post-war buildings, the ground floors of which are predominantly used for retail trading. Fong Shek formerly lived on the first floor but moved out in 1965. He now lives nearby in a wooden hut in Mah Hang Village. The first floor has remained vacant since his departure.

3. The appellant Wong Yip is engaged in the business of selling soft drinks and cigarettes. He also resides at the suit premises with his wife and daughter-in-law. These are the only persons employed in the business. The business is registered under the name of "Tai Lee" and is described on the registration form as a "General Store". He pays a total rent of $1,200 per month to Fong Shek who only issues a receipt for a rent of $800 per month, but acknowledges that he receives another $400 per month from Wong Yip for a rear cubicle which is let separately on what was described to me as a "licence" to store goods. This rather unusual arrangement occurred because Wong Yip originally occupied only the front part of the premises as a sub-tenant of a Chiu Fan Chai who as principal tenant occupied this rear cubicle until he moved out sometime in 1983. It as then that Wong Yip took over the occupancy under the so called "licence". Also, originally, Wong Yip was only a co-tenant sharing the front portion with a Chan Hon who was Wong Yip's partner and the instigator in establishing and registering the business. Chan Hon moved out in 1961, only one year after he commenced the business, leaving the soft drink refrigerator and with it the business and the sub-tenancy to Wong Yip.

4. I am satisfied that Wong Yip is now the tenant of the whole of the ground floor premises for which he pays a rent of $1,200 per month. Certificates of standard rent for the suit premises were issued by the Commissioner of Rating and Valuation on two separate applications by the second respondent, Fong Shek. One was issued on 15th December 1982 and the other on 12th July 1983. Both state the standard rent at $20 per month. Under the Ordinance, the last permitted rent for business premises, before they were exempted in July 1984, was 40 times the standard rent or $800 per month, which is also the amount acknowledged on the receipts issued to Wong Yip. The permitted rent for premises within Part I of the Ordinance is now 21 times the standard rent or $420 per month if applied to the suit premises. Of course from July 1984, pre-war business premises are not within Part I and, therefore arc not restricted to a permitted rent.

5. The Commissioner received applications for a determination under Section 3(2) from both the landlord's and the tenant's respective solicitors, and two officers of the Rating and Valuation Department inspected the suit premises on 16th November 1984. They prepared a sketch plan showing the demensions of the premises and the areas which have been partitioned. They also recorded the contents and articles of furniture and indicated on the sketch plan where they were positioned. Photographs were also taken. These together with other records have been submitted with the affidavit of Mr. P. K. Yuen, a Senior Rating and Valuation Surveyor who also appeared before the Tribunal on behalf of the Commissioner.

6. From their records and the areas shown on the sketch plan the Rating and Valuation officers have calculated that out of a total area of 37.9 m² , 85% is used for non-domestic purposes and the remaining 15% is used for domestic purposes. Hence the premises were determined to be primarily non-domestic. The appellant in his affidavit also produced a sketch plan and stated that the total area was 394 square feet or 36.60 m², of which 215 square feet is used for domestic purposes. Therefore the appellant is not disputing that the premises are the subject of a mixed user, but he challenges the Commissioner's contention that the areas so designated by the Commissioner are exclusively used for business. He also disputes the Commissioner's designation of mixed uses for his bed cubicle, marked A on the sketch plan, and for the kitchen area. Accordingly he does not agree that the premises come within the definition of business premises.

7. The definition of "business premises" is "premises which are not domestic premises". "Domestic premises" are defined as, "premises the subject of a separate letting (including any bed space, cubicle, room, floor, or portion of a floor or building) which are used wholly or primarily for human habitation". As this definition recognises the possible existence of more than one user, what I have to decide is whether the suit premises are used primarily for human habitation or not.

8. In the case of Mee Sun Cheong v. Sun Kee L. T. A. 8/84 this Tribunal held that the provisions for determining primary user under Section 51 of Part II of the Landlord and Tenant (Consolidation) Ordinance provided a useful basis for approaching the user question under Part I. The relevant  considerations under Section 51 were summarised in that decision, but the most relevant to this case is that the Tribunal may take into account the normal additional uses of the premises consistent with the domestic nature of the tenancy, having regard to -

9. As in that decision and more recently in the case of Fung Ling Yin v. Commissioner of Rating and Valuation and Chan Yuk L. T. A. 31/84 , I would refer to these factors being given considerable weight by the Court of Appeal in dealing with the matter of primary user under Part II in Chan Kwok-kwan v. Chan Cheong-wai trading as Chan Cheong Kee Store (1980) H. K. L. A. 450.

10. This case similarly concerned a store which was the subject of a mixed user. The business was registered as a grocery dealer, and the premises were also the residence of the proprietor and his family. An officer of the Rating and Valuation Department produced a sketch plan showing 71% of the 834 square feet premises as being for non-domestic use and 29% as being for domestic use. It was held by the Court of Appeal that it should not be mesmerized by such arithmetic and should not simply regard the position during business hours. The premises were used outside those hours as a place of residence. The Court in this case ascribed 10% domestic use to the shop area which was used as a sitting room for the family in the evenings and 50% to a passage used partly for storage purposes. In doing this the balance shifted in favour of the domestic use. The court also found that the net income for the grocery business was only roughly equivalent to the rent paid. It was held that the primary use was domestic. The registration of the premises as those of a grocery dealer, the sign reading "Chan Cheong Kee Store" over the shop front, as well as a tenancy agreement based on a non-domestic use were not fatal to the allegation that the premises were used primarily for domestic purposes. There as in this case it was necessary to consider all the facts in their totality.

11. The facts of the present case resemble those of the Chan Cheong kee Store in that the division of usage determined by the officers of the Rating and Valuation Department has been only in relation to business hours. During business hours the front part of the suit promises is used for selling soft drinks and cigarettes as well as the hiring of a mahjong table. During the evening or when the table is not being used for mahjong this room is used as a sitting room. I will deal with this aspect in more detail later.

12. While the areas calculated from the appellant's sketch plan do not agree with those calculated by the Rating and Valuation officers, I will content myself for the moment with reference to the sketch plan produced by the Commissioner and the details of the use to which each of the partitioned areas is put as recorded by his staff.

13. The area marked B on the sketch plan is the area formerly occupied by the principal tenant Chiu Fan Chai up until sometime in 1983. It is now let separately to Wong Yip at $400 per month for storage purposes. The sketch plan shows the positioning of the stored goods but also includes some items of furniture including a folding bed. Wong Yip said his daughter-in-law whose husband sleeps at his place of work in Tsuen Wan, occupies this area as her bedroom. In fact he said there were two folding beds kept there.

14. Goods were also stored in the passageway leading to the rear of the premises and adjacent to the cubicle marked A on the sketch plan. Cubicle A is occupied by Wong Yip and his wife as their bedroom. Some soft drink cartons were shown as also being stored there. Wong Yip's daughter-in-law kept her clothes in the same chest of drawers incubicle A as Wong Yip and his wife. The remainder of the premises includes the kitchen and toilet at the very rear, and two small cocklofts which do not appear to be put to any specific use.

15. The Rating and Valuation officers considered that the shop front area, the passageway and cubicle B were exclusively used for business purposes while cubicle A and the kitchen and toilet were mixed user areas. This was the basis of their percentage deductions and hence the determination that the premises were primarily used for non-domestic purposes.

16. The shop area which as well as the mahjong table and the soft drink refrigerator contains a television, some chairs, a desk and a small table, is also used as a sitting room in the evenings by the three people who reside on the promises. If the same 10% were to be applied to this area as was done in the Chan Cheong Kee Store case, based on an area of 11.7 m² as calculated by the Commissioner's staff, 1.2 m² of this area may be designated domestic and 10.5 m² non-domestic.

17. Having had the opportunity to inspect the premises, I regard the whole of cubicle A as being domestic irrespective of some goods being placed there. The area of cubicle A is 5.3m². Similarly I regard the kitchen and toilet area as being totally domestic. This area is calculated as 8.8 m².

18. Cubicle B which is also the bedroom of Wong Yip's daughter-in-law and the passageway are used for storage but also have domestic use. Again following the approach in the Chan Cheong Kee Store case, I ascribe 50% to each use for these areas. That is of the total area of 12 m², 50% or 6 m² is ascribed to each use.

19. Therefore, on this basis, an area of 21.3 m² may be designated domestic and 16.5 m² non-domestic. That is roughly 56% domestic to 44% non-domestic.

20. Cubicle B less the passageway has an area of 9.4 m². If I were to agree with the respondents that cubicle B was totally non-domestic the balance would be approximately the reverse. That is 44% domestic to 55% non-domestic. Therefore even with area B being regarded as non-domestic, on this basis I am satisfied that in all circumstances the user is more or less equally divided.

21. The Chan Cheong Kee Store decision referred to the case of Chan Yuk-tong and Others v. Chu Sun-biu 1960 D. C. L. R. 43 which dealt with a mixed user under what was then the Landlord and Tenant Ordinance but is now Part I of the Landlord and Tenant (Consolidation) Ordinance.. In this case it was held that, "Where premises are used in their entirety for both business and domestic purposes so that the two users are equally balanced the domestic user should be regarded as the primary user and the business as in the nature of a 'cottage industry'".

22. However on having inspected the premises I consider the shop front area to be more in the character of a domestic sitting room than most shops. Apart from the storage in various parts of the premises, this store is little more than a soft drink refrigerator and some shelves for displaying cigarettes. On the facts of that case, the Chan Cheong Kee Store would appear to have been a more substantial provisions store. I would prefer on the evidence of this case, to ascribe in terms of time at least 8 hours of the day to the domestic use of the shop area. That is 1/3 domestic and 2/3 non-domestic. My final analysis is that 3.9 m ²  of the shop front area is domestic and 7.8 m² is non domestic. The domestic use, if area B is ascribed 50% to each use, is then 63%. Again if area B were to be considered totally non-domestic, the domestic use would still be 51%, and in accordance with the Chan Yuk-tong decision the domestic user could have to be preferred. Therefore with respect to the relevant matters to be considered as set previously, for item (i) floor area in occupation part or full time, and item (iii) the furnishings, fittings and contents of the premises, I am unable to consider that the premises are primarily non-domestic.

23. It is also relevant to note that customers pay $5 per person for the use of the mahjong table, from which Wong Yip usually receives $20 in any one day. Wong Yip said his total monthly takings for his total business were in the region of $3,000. After paying $1,200 in rent and deducting for the purchase of stock, it is doubtful if the net profit would exceed $1,000 per month. It would appear that similar to the Chan Cheong Kee Store case, non-domestic use is not the prime financial consideration of the appellant.

24. Of the other relevant matters to be considered items (ii) and (iv) also favour the appellant in that no persons who are engaged in business on the premises live elsewhere, and income from the business cannot be regarded as the tenant's prime financial consideration.

25. The appeal is allowed. Having regard to all the relevant factors in my judgment the premises are primarily used for domestic purposes and therefore as domestic premises come within the provisions of Part I of the Landlord and Tenant (Consolidation) Ordinance.

26. There is no order as to costs.

Dated the 11th day of April, 1985.

Representation:

Mr. Francis Chaine of Francis Chaine & Co. for the appellant.

Mr. P. K. Yuen, by leave, for the 1st respondent.

Miss Catherine Yeung of Johnson, Stokes & Master for the 2nd respondent.