Chan Kwai Sim v. Commissioner of Rating and Valuation

LDRA000001/1983

Rating- appeal against interim valuation by ratepayer on grounds that tenement was valued above its proper rateable value and that the date the rateable value became effective was incorrect - effect of location and accessibility on value - proper application and analysis of comparable rents together with additional evidence including current rateable values of similar premises relative to actual   rents passing - relevant date for ascertaining rateable value is date the valuation list came into force, 1st April 1977 - evidence of rents passing both before and after the relevant date is acceptable, Bwllfa principle - Held: 1. appeal upheld; 2. Rateable value determined at $27,000 effective from 1st November 1981 - Sections 7, 25, 26, 28, 40, 42 and 44 Rating Ordinance Cap. 116.

IN THE LANDS TRIBUNAL OF HONG KONG

(Appellate Jurisdiction)

Date: 8th day of November, 1983

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JUDGMENT

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1. The appellant is the lessee from the crown of Lot 1132 in Demarcation District 217 on which, in 1981, a new three-storey village house was completed to replace the village house that was formerly on the same piece of land. The full description of the property is D.D.217, Lot 1132 off Hiram's Highway (104) Kuk Keng Shan, Tai Chung Hau, Sai Kung. It is in the rural area of Sai Kung located to the west of Hiram's Highway, which is the main arterial road in the district. Access in one direction is by way of a paved footpath some considerable walking distance from Hiram's Highway and from the other direction by way of a shorter route on a rough partly paved footpath which connects with a government road restricted only to vehicles associated with the Water Works Department. There is, therefore, no vehicular access.

2. The Commissioner of Rating and Valuation issued a notice of Interim Valuation on 21st February 1983 under Part VI of the Rating Ordinance, Cap. 116, notifying the appellant that the rateable value of the subject property, effective from 1st May 1981 was $39,600. On 25th February 1983 under Section 40 the appellant served a notice of objection on the Commissioner on the grounds that the tenement was valued above its proper rateable value and that the effective date was incorrect in accordance with the provisions of Section 28. The Commissioner's decision of 31st March 1983 rejecting the appellant's objection has given rise to this appeal.

3. The subject tenement is typical of the village houses which are currently being constructed in the New Territories but it is the only one in the immediate locality. As with similar premises it is a three-storey concrete building with each floor capable of being used as a separate self-contained unit. Each floor has a living room, 2 bedrooms, kitchen and bathroom. The upper floors have teak block flooring and a small balcony while the ground floor has a tiled floor and the living room opens out on to a mosaic tiled yard which surrounds the building. The covered area including balconies is 206 m² and the garden and open yard are about 200 m². The upper floors have a very pleasant view over the Hebe Haven area.

4. Rateable value under Section 7(2) is defined as,

The amount equal to the rent at which the tenement might reasonably be expected to let from year to year, if

5. The respondent has also referred me to Section 7(3), which states "For the purpose of an interim valuation of a tenement, the value to be ascribed to the tenement under subsection (2) shall not exceed the value which would have been ascribed thereto in the valuation list if the tenement had been subsisting throughout the year before that in which the valuation list came into force."

6. Additionally under Section 7(5),"For the purposes of an interim valuation of a tenement or a valuation of every tenement in a specified area for the first time, it shall be assumed that at the time by which that value would have been ascertained -

7. The respondent has relied on an amended report submitted by Mr. Murray, a Rating and Valuation Surveyor of the Rating and Valuation Department. He is responsible for the Sai Kung area. The amendments were to allow for air conditioners and some furniture being included in some of the rents listed as the comparable rents by Mr. Murray. He said that only the analysis was affected. The final assessment figure remained unaltered. Mr. Murray's report sets out the history of the case and lists the detailed grounds given by the appellant in her notice of objection.

8. These matters were argued again during the hearing where the appellant was, by leave, represented by her son Chu Lap-Keung who drew the Tribunal's attention to the footpath access which requires, in his view, a 20 minutes walk from Hiram's highway and the isolated rural locality in Which the subject premises is the only building of its type. Submissions were also made concerning the proper date from which the rateable value should take effect.

9. Dealing first with the assessment of the rateable value, the Commissioner conceded the disadvantages listed by the appellant but submitted that sufficient allowance had been made with respect the deductions made to the comparable rents relied upon in the valuation exercise.

10. These comparable properties are all located on the narrow road leading from Hiram' s Highway to the Hong Kong Marina and the Shelter Cove base of the Royal Hong Kong Yacht Club which is next door. These properties are all village houses similar to the subject premises but the locality close to the shore and adjoining the marina is very different. Although h they each have vehicular access, none of these houses has any garage or car port.

11. At the request of the Tribunal the respondent attempted to find additional comparable rents which might give a better cross section on which to determine an assessment of the subject tenement. After making a thorough search of the department' s records, Mr. Murray advised that such rents were not available for the relevant period as there were few three-storey village houses in existence at that time and also most village houses were inevitably owner occupied.

12. Mr. Murray did not extended his search beyond the records from 1974 up to and including 1976. No further evidence of 1977 rents has been sought. However, he has submitted a list of similar properties giving details as well as -the rateable values appearing in the current list. None of these rateable values have been disputed. The respondent has reminded the Tribunal, in respect of this information, of the principle enunciated in its earlier decision Yeung Ying -Kit, Bill v. Commissioner of Rating and Valuation, (1978) H.K.L.T.L.R. 242. In this case, it was held "that it was not proper when dealing with a tone of the list' valuation to value the subject tenement by working from rateable values in the previous valuation list" and further in support of only seeking information from 1974 to 1976, "such a valuation should be done by the use of comparables the values of which must be obtaining at the time when the valuations were being done for inclusion in the previous valuation list".

13. My attention has also been drawn to an earlier decision of this Tribunal in the case of Tsang Chun-biu v. Commissioner of Rating and Valuation (1978) H.K.L.T.L.R. 283. This decision sets out the method which the Tribunal, at that time, considered should be used to arrive at an interim valuation in accordance with the provisions of section 7. Statements made in this decision with respect to the interpretation of Section 7(3) have been overtaken by more recent cases; but the statement, concerning the preferred approach to making interim valuations by reference to actual rents rattier than comparing directly to existing rateable values in the list still holds. Although in his second submission Mr. Murray seems to agree that some guidance may be derived from current rateable values, he has chosen not to use them. The Tribunal was interested to know on what rental information these rateable values were based. It is unfortunate that Mr. Murray was not able to supply the Tribunal with such information, for had he been able to do this, there may have been no need to look any further than these rents. A valuer is not bound by one method in arriving at any assessment. It is always a matter of weight which one approach must have over another. Ideally, direct evidence of rents for similar premises at the appropriate date should be relied upon. When this is not available, further evidence must be sought. ultimately, it is the best evidence available which must be given the most weight. If rents of similar premises cannot be found, any deductions made for the differences between the subject and those for which comparable rents are available should, if possible, be accompanied by supporting analysis. This principle was emphasised in Cheung Lai-wan and Others v. Director of Public Works (1977) H.K.L.T.L.R. 14, p. 20:-

"The Tribunal Wishes to make it quite clear that it considers that valuations arrived at by the use of comparables are very much preferable to those arrived at by other methods. Any such comparables, however, should be fully analysed in the evidence of the valuers as the Tribunal cannot otherwise be satisfied as to their usefulness and applicability . Further we feel that where comparables in the area concerned are lacking in either numbers or suitability, then other similar areas (underlining added) should be examined and analysed in addition."

14. This is, of course sound advice, and had Mr. Murray been able to, first of all, produce comparables which were in a similar area and secondly accompany his deductions with suitable analysis, a reasonable assessment might well have resulted.

15. As mentioned previously, the principles enunciated in those cited cases concerning Section 7(3) have been overtaken by this Tribunal's recent decision Giocondo Mario Mauriello v. Commissioner of Rating and Valuation, Rating Appeal No. 9 of 1982 in which, in respect of a proposal to alter the list, the Tribunal held that the Commissioner was required to not only rely on the rents passing at the time of his valuation but also to relate his valuation to those rents available to him up to the date the list corms into force, this date being the relevant date of assessment.

16. The recent English Court of Appeal Case of K Shoe Shops Ltd. v. Hardy  (Valuation Officer)  and Another and Saxone Shoe co. Ltd. v. Hardy (valuation Officer) and Another (1983) R.A. 26, (1983) Estates Gazette Vol. 266, 119, which considered the interpretation of Section 20 of the General Rate Act 1967 having the same provisions as Sections 7(3) and (5) of cap. 116, goes further, and specifically requires that an interim assessment be made not by reference to the time that the list was being prepared, "tone date", but rather by reference to the relevant date being that date which the list comes into force. In Hong Kong the current list came into force on 1st April 1977. Further it disagreed with the statements in Ryde on Rating that the date mentioned in Section 20 was the date when the list was prepared and that the intention of the legislature was to put an end to the rule in the "Ladies Hoisery" case.

17. Mr. Murray has stated that only rents prior to the date that the list was declared, i.e. March 1977, are relevant. He did. not determine his interim valuation as at 1st April 1977. This Tribunal has recently drawn attention in Fook Hong Enterprises Company Limited v. Commissioner of Rating and Valuation. Rating Appeals Nos. 14 to 73 of 1983, to the principle of the acceptability of the use of hindsight when valuing to a relevant date, based on Bwllfa and Merthys Dare Stream Collieries (1891) v. Pontypridd Waterworks Co. (1903) A.C. 426; and McCathie and Others v. The Federal commissioner of Taxation (1944) 69 C.L.R. 15 which refers to Daandine Pastoral Co. v. Commissioner of Land Tax of the Commonwealth of Australia (unreported).

18. Any information which is of some assistance should be interpreted as best as it can with a view to arriving at a reasoned assessment. If some information can be gained from rateable values in the current list, then it should be used but any deduction should also be qualified as to how it is being interpreted. In the Tsang Chun-biu case direct evidence of rents was available and therefore had to be preferred to direct comparison with existing rateable values. To do otherwise would be to perpetuate any error, if it existed, in the list. It is when, as in this present case, no evidence appears to be available of truly comparable rents, that it becomes necessary to seek such other information as best gives a determination of value. Here, of course, it may well have been better to extend the search for rental evidence either beyond the date of valuation, i.e. 1st April 1977 or sought rents for village houses in a similar price bracket, but in another area. It appears Mr. Murray has chosen to overly restrict himself in his choice of conparables and the use of the information available to him.

19. Valuation is the art of inputing a price to property. The task is to determine points of difference and Solve valuation problems incidental to market relationships. Not only is it necessary to compare those properties which are most similar but also to determine the different characteristics which may exist. These differences may be physical such as the finish, size and type of buildings, the contour of land, the accessibility etc. They may be intangible and related factors such as risk and uncertainty of potential earning capacity as well as the factors relating to the timing of a transaction. There are also matters of title, covenants, licences zoning and the effect of statute law. At the same time the valueris required to demonstrate proof of realities and not give way to unsupported theories. His adjustments to comparables should be supported by analysis which can only be as conclusive as the facts allow. He must be able to place himself in the respective positions of the well informed purchaser and vendor, or lessor and lessee, dealing in that level of the market for the appropriate type of property, fully cognisant of the advantages and disadvantages on which such parties would place most importance. In the end, it is a matter of the degree of weight which should be placed on the each of the many facits of information available to him.

20. In this case, we have a number of open market rents for properties which are similar in design but are in a vary different location. A location which could be described as being "up market" with respect to that of the subject premises. These comparables have vehicular access, so are at once more attractive to any prospective tenant who requires the use of a car. Also, probably the most important difference is the proximity of the boating facilities of the marina and the yacht club which suggests that prospective tenants with a particular interest in boating will be most attracted. Because such people are likely to be in a higher income bracket than the usual tenant for a village type house, a higher level of rents should result. On inspection Mr. Murray became aware of the tenants in the comparable properties being mostly expatriates but being new to the district, admitted putting little store on this.

21. Mr. Murray gave, in oral evidence, details of lettings of inferior village houses together with photographs. The first was at 16 Po Lo Chek New Village which let at $400 per month from October 1976. This analysed to 6.10 per m² corresponding to a rateable value of the equivalent rate of $4.7 per m² per month. Another was described as D.D.215, Lot 790, Sec. A. and Sec. B, Nos. 88A and 88B, off Hiram's Highway. This tenement was on the inland side of Hiram's Highway about 1 Kilometre from the subject tenement and located within a typical village. The premises were let from 1st February 1976 at $400 per month which corresponds to a rate of $7.40 per m2. The rateable value shows a rate of $6.28 per m² per month.

22. No other evidence of open market rents has been placed before the Tribunal. The question before me is whether the Commissioner has made sufficient deduction for the differences between the comparables and the subject tenement. No analysis has been made to support any of the adjustments which have bean made in the respondent's valuation.

23. It does appear that, with respect to the listed comparables, there was little rental movement over the period of 1975 to 1977 for this type of property in the Sai Kung area and that the rents passing accord closely with the respective rateable values. Whether this latter factor holds for the village houses in the second list submitted is not known as Mr. Murray was unable to say on what rents these rateable values were based and no direct rental comparison can be made.

24. Aware of the danger of making unsupported assumptions but on the evidence before me, including that given orally by Mr. Murray of rents and rateable values for village houses inferior to the subject premises, I permit myself in the light of no better evidence to assume that the rateable values for the properties listed in the second submission are similarly close to, or at least a little below, the actual rents which were passing on or about the relevant date. Only in this way am I able to look at the subject premises from the view of a prospective tenant who would not be, nor would have to compete with a prospective tenant who was a likely boating enthusiast. Having no other information before me but having had the opportunity to view the subject premises and most of the listed properties I have concluded that the premises most similar to the subject is that listed as No. 1 in the second submission. This property, built in 1977, is in the small village of Tai Lam Wu. The house is 3 stories but divided into two units per floor. The total area is 240.6 m². There is vehicular access up to the village by way of a road restricted to vehicules authorised by the Water Works Authority. The view is good if not slightly better than that of the subject premises. It is also on the same side of Hiram's Highway as the subject premises. It was valued as an interim valuation at the equivalent rateable value of $2,600 per month or $10.31 per m².

25. Also on this list is a house at Tai Mong Tsai Road which was built in 1976. Its equivalent value is $2,700 per month and it was in the original valuation list. This is equivalent to $16.05 per m² for the area of 158.3 m². This house is in a superior location by the water and has direct vehicular access being on the main road.

26. Of the comparables near the marina and yacht club only the first in the list was let near to the relevant date although there does not seem to be any measurable difference in the rents listed for the other properties over the previous year. Comparable 4 on which Mr. Murray placed most reliance was let as early as 1st December 1975 at $2,500 per month including some air conditioners for which Mr. Murray allowed $100 per month. The rateable value is the equivalent of $2,400 per month which is the same as the adjusted rent.

27. Comparable 1 in the original submission was let from 15th January 1977 at $3,500 per month. This rent included four air-conditioners, a refrigerator and some furniture. After allowing $200 for these extras, Mr. Murray analysed the rent as the equivalent of $19.39 per m². The rateable value in the list is the equivalent of $3,300 per month which agrees with the adjusted rent passing.

28. The other two comparables in this locality were let in November 1974 and Januarys 1975. Although little rental movement is noticeable over the period, and irrespective of the difference in the location from the subject premises, they are too far removed from the relevant date to be of much assistance.

29. The appellant drew my attention to the rateable value for a flat in the town of Sai Kung but I am unable to draw any conclusions from any comparison with such a dissimilar property.

30. In addition to Lot 1132 an area of Crown land is enclosed within the fence surrounding the subject premises. The appellant advised that the additional land has an area of 0.07 acres and has been occupied by her since February 1962. In 1982 the Sai Kung District Office sent a letter suggesting the occupation of this land be regularised by offering a garden tenancy. To-data this offer has not been taken up. On the basis that this land is part of that occupied by the appellant in conjunction with the house, it has been correctly included in the assessment in accordance with R v. Bell, 1798 7 T.R. 598 and followed in Madam Ho Ying v. Commissioner of Rating and Valuation (1978) H.K.L.T.L.R. 273, although I am unable to relate or draw any conclusions concerning the areas given in evidence and those included in Mr. Murray's s report.

31. Unable to make any proper analysis but doing the best that I can on the evidence available, I find that the subject premises could be expected to reasonably let as at 1st April 1977 at $2,250 per month and determine the rateable value at $27,000.

32. I now turn to the evidence in relation to the date at which the rateable value becomes effective. The Commissioner has in accordance with Section 28(2A) declared that the rateable value should be effective from 1st May 1981. This date was determined on the receipt of information of workmen present when staff of the Rating and Valuation Department visited the premises on 15th May 1981. These workmen said the premises had been occupied since the beginning of 1981. The appellant claims that there must have been a misunderstanding. He agreed that, at that time, furniture had been transferred from the old house into the new premises before it was completed. This was done when the old house was demolished and the new house had reached a stage where the furniture could be satisfactorily stored. He advised that the family took up residence in October 1981 some two months before the certificate of Compliance was issued on 11th December 1981. I am prepared to accept the applicant's explanation and determine that the effective date should be 1st November 1981. This is the 1st day of the month following the date upon which the tenement was first occupied.

33. Accordingly the Collector of Rates is directed to amend the Valuation List to record a ratable value of $27,000 effective from 1st November 1981, issue an amended notification for decreased rates payable as a consequence of the rateable value being decreased, and make any refund of rates as may be appropriate.

34. There will be no order as to costs. DATED this 8th day of November, 1983.

Representation:

Mr. Chu Lap-keung, by leave, for Chan Kwai-sim, appellant.

Miss J. Plumptre, Crown Counsel, for the respondent.