Wong Tak Woon v. Commissioner of Rating & Valuation

LDRA000120A/1984

Rating - review application to vary rateable value - pre-war premises described as "reaching the end of their existence" and "standing out as long overdue for redevelopment" - "saleable area" of tenement determined at 82.68 square metres to exclude the space taken up by the staircase - the tenement includes exclusive use of an open porch and rear garden - as none of the compared premises included open areas, both the open porch and the garden are to be treated as additions to the flat proper - use of English authorities on the application of comparables limited, as there are differences in the Hong Kong legislation as well as the resulting practices which influence the market - estimated cost of repairs out of proportion with the value of the present building - original decision based on a hypothetical reasonable landlord only carrying out such basic minimal repairs to make the premises habitable held to be correct - while an expressed intention by an actual landlord to redevelop must be ignored, any likelihood of redevelopment, which might reasonably be expected to influence a hypothetical landlord, must be considered - original allowance for the lack of toilet facilities held to be reasonable - assessment varied on review to allow for the slightly larger "saleable area" and the exclusive use of the open porch and rear garden - sections 7 and 7A Rating Ordinance Cap. 116.

IN THE LANDS TRIBUNAL OF HONG KONG

(Appellate Jurisdiction)

Rating Appeal No. 120 of 1984

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

Date of Judgment: 27 August 1986

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REVIEW DECISION

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1. This is a review of my earlier decision to reduce the rateable value of a basement flat in a four storey pre-war building described as Ground Floor, 115 Caine Road on Hong Kong Island. The Commissioner assessed the rateable value under the provisions of section 7 and 7A of the Rating Ordinance Cap. 116 at $26,400. I ordered it be reduced to $12,000. The Commissioner has sought a review to amend the rateable value to $24,000

2. I am grateful for the opportunity to review as it has allowed a further inspection of the subject premises. Measurements were taken and it is now established that the area on which the assessment should be based is 82.68 square metres. This area makes allowance for the space taken up by the internal staircase. The inspection also showed that the upper floor tenants do not have access to the garden at the rear. It is only accessible to the basement flat. The garden had been accessible to the upper floor tenants in the past but a former tenant has since partitioned the basement off from the rest of the building. Unlike the kitchens for upper floor flats, which are half a flight of stairs down from the flat proper, the kitchen and open porch to the rear, are on the same level as the basement flat. Once again the extremely dilapidated state of the subject premises was noted. This is particularly so for the kitchen at the rear. The cost of renovating the kitchen was not included in the assessment by the maintenance surveyor, Mr. Mannakee, who gave evidence on behalf of the Commissioner as to likely renovation costs. Apparently, this was because an inspection could not be arranged with the appellant, Miss Wong, at that time.

3. Mr. Kat, appearing for the Commissioner, requested that the Tribunal review its decision on a number of matters. I will endeavour to deal with each of them in the order in which Mr. Kat raised them.

4. Having established the area of the premises at 82.68 square metres, Mr. Kat explained that this area fell within the accepted definition of "saleable area". When invited he argued against any distinction being made between the enclosed flat and the open porch, saying that both areas came within the rule for "saleable area", "and, that "valuation should be carried out within the rules and definitions conferred by law and practice". This is quite so; but perhaps one of the first and most important rules in valuation practice is that requiring, there possible, the comparison of like with like. As few adjustments as necessary should be made for any differences between the property compared and the subject property. For example, if each of the compared properties has an open balcony of a similar size to the subject, no adjustment should be made for this factor. But obviously should any of the compared properties not have such a balcony, then adjustment must be made.

5. Here the subject property has an open porch while the compared properties have none. Nor do any of the pre-war comparable properties have any similar open areas such as open balconies. Accordingly, adjustment for the open porch is necessary, as being open, it cannot be as valuable as the flat proper. Mr. Kat said the porch was perhaps an extension of the garden area, and with that approach, I agree, as both the garden and the open porch are additions and are peculiar only to the subject property.

6. It has to be borne in mind that the comparable properties, including the flats upstairs in the same building, are all upper floor flats and at the time of the valuation, all were in a better condition than the subject premises and had toilets which the subject premises did not. If it were not for these differences the case would probably not have come before this Tribunal as the difficulty and hence the difference of opinion lies with the degree of adjustment required for these particular factors.

7. During the hearing of the review, it was explained and it appeared to be accepted by Mr. Kat, that, the rateable values of the upper floor flats of the subject property, in good condition and with toilets, based on a rate of $30 per square metre were about right. At the time of valuation the upper floors had toilets which, incidently, were installed illegally by the tenants, and have, for that very reason, since been blocked off by the owner and appellant, Miss Wong. Mr. Kat also accepted that, in good condition, the subject basement flat should be worth about one quarter less than an upper floor flat, although he sought to confine this to the rate per unit area which could then be applied to the whole of the "saleable area" of the subject basement flat.

8. Having accepted these aspects of the valuation, I am uncertain as to why he then addressed me on the application of comparables where the rents are inclusive of rates, as this can have no bearing on the eventual valuation. I can only assume that Mr. Kat wished to establish with me what seems to be an accepted "rule" which is applied by the Rating and Valuation Department when dealing with comparable rents which are inclusive of rates. If this is not so, and it was Mr. Kat's contention that this matter might affect the valuation, I had best deal with it at this stage.

9. Mr. Kat referred me to a number of English authorities concerning the deduction for rates from comparable rents which were inclusive of rates. The assessment of rateable value is required to be on an exclusive of rates basis and the definition in the General Rate Act, 1967 in the United Kingdom is for all practical purposes, the same as that in the Rating Ordinance in Hong Kong. The assessment date and the date the new rates come into force on a revaluation, however differ. Under the U.K. act one date suffices, while in Hong Kong there is provision under section 11 for a relative date of valuation some time prior to the list coming into force. In the case of the last revaluation in Hong Kong with which we are dealing, the relative date of valuation was declared as 1st July 1983, while the list came into force on 1st April 1984. The cases mentioned by Mr. Kat deal mainly with the possible effect a revaluation might have on a rent agreed on an inclusive of rates basis, given that the date of assessment is also the date that rates become payable on that assessment. The issue does not arise either in this came, or in my earlier decision in Leung Wai Kee v The Commissioner of Rating and Valuation Rating Appeal 165 of 1984 in which I made similar observations to those in this decision.

10. One of the cases to which Mr. Kat referred me, was that of London County Council v Wand (Valuation Officer) (1957) 2 RRC 220 which, while similarly dealing with the effect a revaluation might have, was also concerned with the adoption of rent for weekly tenancies on an inclusive of rates basis as a means to fixing an annual rent exclusive of rates as required by the definition. Some tenancies in among Kong are from month to month, but most are for a fixed rent over a fixed term which is usually two years. It must be stressed that the use of comparables must be based on the facts of the market in which the valuer is dealing and he should not give way to any unsupported theories. That is what I understand the authorities cited by Mr. Kat, quite rightly reiterate. We are not then really dealing with questions of law but rather with those of fact. That is those facts which determine the use of comparables and the facts of the particular market and legislation with which the valuer is confronted in Hong Kong.

11. Hers, as in the United Kingdom, the rate is deemed to be an occupiers rate, but exceptionally in Hong Kong, the liability for payment also extends to the landlord. If the tenant fails to pay, the landlord is required to pay. To avoid this inconvenience many landlords at the lower end of the market choose not to rely on the tenant, but elect to pay the rates themselves. Naturally the landlord will endeavour to pitch the rent at a figure which will not only subsequently cover the rates but will also reimburse him for this added inconvenience. This is a practice which the appellant Miss Wong, herself a landlord of such property, agrees exists. Hence my reference to a "notional risk" element built into such inclusive rents.

12. Mr. Kat says it should be ignored, basing his argument on authorities which do not really address themselves to this particular issue and which deal with the market in another country. Realities must not be ignored and such deductions of the actual rates passing from the rents for fixed term tenancies which are inclusive of rates only gives an illusion of accuracy. What is required is the exclusive of rates equivalent or what, in the knowledge of this particular market, would have been the rent had it been agreed on an exclusive of rates basis.

13. As suggested in the Leung Wai Kee case, if all or most of the comparables are on an inclusive of rates basis, it seems to make sense to compare the subject premises on this basis before making an appropriate deduction based on the rates payable for the subject promises itself. This does not mean deducting to the actual tent from the inclusive rent the actual rates paid; but rather making a deduction based on those rates to give what could reasonably have been expected to be the rent if it were agreed on an exclusive of rates basis. I am not persuaded otherwise.

14. Returning now to the assessment. It has already been mentioned that, in the original decision, I found that the second floor flat valued on the basis of $30 per square metro at $2,400 per month was about right. Based on that I then considered the basement flat would have been worth $1,750 if it had been in good condition and had a toilet. That figure was based on roughly a quarter less the value of the upper floor. On the revised area excluding the open porch this would now give a figure of about $1,800. The garden and the open porch must now be included. The Commissioner allowed $100 for the back garden and the storage shed. I previously found that the dilapidated shed would add no value. The $100 was a nominal allowance and it would seem to me that the addition of the porch should not appreciably alter this figure. I propose to allow no more than $100 to include both the porch and the garden giving a figure of $1,900 per month.

15. Mr. Mannakee, a Senior Maintenance Surveyor in the Building Development Department produced, on behalf of the respondent, an estimate of $33,000 for a list of repairs as at August 1985 when he made the estimate. He said this should be reduced by 7% to give the 1983 equivalent, so that at the date of valuation the cost of repairs would be about $30,000.

16. I have been reminded by Miss Wong at this hearing that she challenged Mr. Mannakee's estimate. To start with, she considered the $3,000 estimated as the cost of installing a toilet was inadequate if the work were to be carried out after making a proper application to the Building Authority. Such applications require the services of an authorised person whose fees would have to be met. She also noted no figure had been included for the installation of a vent pipe. She went on the challenge most of the figures particularly that for the repair of the front door which she said would need to be replaced. She said she had received a quote of about $100,000 to repair the building but offered no further evidence on this.

17. This review has drawn cry attention to the fact that Mr. Mannakee said that his estimate, which appeared at appendix B of Exhibit R6, was only for, "minimal remedial works to put the premises into a clean and habitable condition". It seems, therefore, in Mr. Mannakee's opinion, these were only minimal repairs in order to make the place habitable and not the total cost associated with bringing the premises into a condition of good repair. I am also reminded that this estimate was revised by Mr. Hui, who appeared for the Commissioner at the original hearing, to a figure of $32,000. In his submission he allowed for some external works including a vent pipe. He also deleted from the list the provision of floor tiles which ho said constituted improvements. As I mentioned earlier, the reinspection brought the extremely delapidated condition of the kitchen to my attention. This was not included in Mr. Mannakee's list and, undoubtedly, the repair of the kitchen would increase this figure beyond the $32,000 suggested by Mr. Hui. In any case Miss Wong considered this to be an excessive amount for any landlord to spend on premises such as these.

18. The circumstances of this case are similar to those considered by the Court of Appeal in England in the case of Saunders v Maltby (Valuation Officer )1976 RA 109 to which I referred in my earlier decision. Here Lord Denning observed, "It seems to me that the Tribunal has to consider whether it is such that it would be reasonable in all the circumstances to expect a hypothetical reasonable landlord to do the repairs. If the cost of doing the repairs would be out of all proportion to the value of the house, so much so that even a reasonable landlord would not do them all, then it must not be assumed that he would do them. He would let the premises at the low rent. In those circumstances the low rent would be the basis on which to arrive at the rateable value".

19. This approach is also consistent with my decision in the case of Lee Edith (Edith Lo v the Commissioner of Rating and Valuation Rating Appeal No. 69 of 1984 and the English Lands Tribunal decision German v Gilmore (Valuation Officer) 1960 7 RRC 353, the circumstances of with case are remarkably like the present case. These cases and the others cited in my original decision distinguish themselves from Wexler v Payle (Valuation Officer) (1960) 1QB 217 and Warren Chow v Commissioner of Rating and Valuation 1977 HKLTLR 277 which followed it. I found similarly to the Saunders v Maltby case that the existing building was "reaching the end of its existence". All the other buildings which formerly made up the terrace of which it formed a part have been redeveloped many years ago. I said that it stands out as long overdue for redevelopment.

20. Mr. Kat has concluded that, because I referred to Miss Wong's statement that, "it would be pointless to repair the tenement to get a higher rent when redevelopment was likely within the next two years", as the sole reason for my finding. The likelihood of redevelopment is very different from an expressed intention to redevelop which Miss Wong has reminded me was never one of the grounds for her appeal. I therefore do not consider that this decision conflicts with the tribunal's earlier decision in Man Sai Chong Investment Co. Ltd. v Commissioner of Rating and Valuation 1978 HKLTLR 20 either in its reference to the probability of demolition and redevelopment or the relationship between the assessed rent and the cost of repairs. This was a case involving a pre-war house in Kowloon Tong watch had been purchased with the intention to redevelop and which had been allowed to fall into disrepair. It was held that a reasonable landlord could be expected to completely refurbish the house at a cost of $70,000 to command a rent of $5,500 per month and that the intention to redevelop was to be ignored. The cost was related to putting the whole of these premises into good repair and, not as in this case, the cost required for minimal repair to make the premises habitable.

21. Even if the costs related to the same thing, it is very dangerous to seek to make a rule for all cases based solely on the ratio of the cost of repairs to the expected rent for one particular case. Each, obviously, must be decided on its own merits, and factors such as the class of property and the likely market must also be considered. The words of Morris L.J. in "Wexler v Playle (Valuation Officer)" at p.235, "I think also that consideration must be given to the class of property with which they are dealing", are most relevant particularly when considering whether the carrying out of repairs is going to result in money being well spent.

22. Here we have a very different property to that of the house at Kowloon Tong. These are premises which are not only in a state of disrepair but are also outmoded and overdue for redevelopment. Other similar houses in the street were demolished many years ago and the tenement blocks which replaced them either side of the subject building could hardly be described as a recent redevelopments. In these circumstances, the present building can add little or no value to the property, such that no reasonable landlord could be expected to go to anything other than minimal expense to make the premises habitable.

23. The difference in value due to the lack of a toilet cannot be directly related to the cost of installation which, as shown in the evidence, would be very likely to exceed the $3,000 allowed by Mr. Mannakee. From a landlord's point of view, the $250 allowed would mean, that the cost, even if it were only $3,000, would be recovered over twelve months. A landlord might be willing a to extend this possible pay back period; but would a tenant letting on a year to year basis regard the difference in the rent for having or not having a toilet in the same way? I think not. In all the circumstances of this case, the allowance of $250 per month for such an inconvenience loss not seem to me to be excessive.

24. Miss Wong's former tenant who was protected under the provisions of Part I of the Landlord and Tenant (Consolidation) Ordinance, Cap. 7, moved out at the end of June 1984 without giving any notice. The premises have remained unlet since then, but the appellant had never suggested that the premises were beyond being capable of being let. I have not been persuaded to alter my conclusion in the original decision that only the very basic repairs required to make the premises lettable could be expected, as to do otherwise would not be consistent with the actions of a hypothetical prudent or reasonable landlord. Reducing the value in good condition by about one third for the state and nature of the premises seems to me to be reasonable given the lack of evidence available of any such premises actually being let.

25. Therefore considering the evidence available and making allowance for the open porch and garden and the slightly larger area, I consider that these premises could be expected to realise $1,100 per month as at the relevant date. This figure is derived as follows.

26. On review, the rateable value is therefore determined at $13,200. Accordingly the Collector of Rates is ordered to amend the list to record this rateable value effective from the 1st April 1984 and to make any refund of rates which may be necessary. Liberty to apply is reserved.

27. Dated this 27th day of August 1986.

Representation:

W0NG Tak-woon in person

Mr. Nigel KAT, Senior Crown Counsel for the respondent