Wong Tak Woon v. Commissioner of Rating & Valuation

LDRA000120/1984

Rating - rateable value of pre-war premises described as "reaching the end of their existence" and overdue for redevelopment - state of disrepair such that it would be unreasonable to regard the expense of putting the premises into good repair as being practicable - assessment based on substantial unsupported deductions unacceptable - comparisons should be made with similar pre-war properties - value of upper floor flats supported by comparable rents for pre-war properties - insufficient allowance for detracting factors relatitive to upper floor assessments - doubt as to any true exclusive use of garden - no added value attributable to delapidated shed - uniformity of basis of measurement essential to preserve relativity - 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: 7th April 1986

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DECISION

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1. This is an appeal against the rateable value of premises described as Ground Floor, 115 Caine Road on Hong Kong Island. The subject tenement is perhaps best described as the basement flat in a four storey pre-war building. Originally the building would have been a single residence but even before the war, it seems it was converted into separate flats on each of the four floors. The Commissioner's assessment of the rateable value within the provisions of sections 7 and 7A of the Rating Ordinance, Cap. 116, is $26,400, and is the amount equal to the rent at which the tenement might reasonably be expected to let from year to year. This equates to $2,200 per month exclusive of rates. The designated date of assessment is 1st July 1983. (The Hong Kong Government Gazette G.N. 2412 of 1983).

2. The subject tenement is divided into two rooms by a brick partition wall. There is a light timber cockloft above part of the rear living area, and light plywood partitions divide the front room into a number of bed spaces. The tenement has no bathroom or toilet facilities, The kitchen is separated from the rest of the flat by a small porch which also leads to a rear yard which in n turn has access to a rear lane. At the front, the subject tenement faces onto abasement level courtyard over which access from street level to the building is by a short bridge. The courtyard is Crown land and was formerly part of a below street level lane serving similar houses which have since been redeveloped. The bridge is held on licence from the Crown. Access to the tenement from the first floor entrance is by way of a common hall and a set of steps to a porch. A further internal set of stairs is provided to the basement level. The tenement was inspected by the Tribunal and found to be in a poor state of repair. It had not been occupied since June 1984, being previously let at a rent restricted under the provisions of Part I of the Landlord and Tenant (Consolidation) Ordinance Cap. 7.

3. The appellant Miss WONG Tak-woon, who owns the whole building, considered the Commissioner's assessment to be excessive and out of line with the assessments of the tenements on the other floors in the building. The first floor was assessed at $24,000 or the equivalent of $2,000 per month exclusive of rates while, the second floor was $28,800 or $2,400 per month exclusive of rates and the top floor was $27,600 or $2,300 per month exclusive of rates. She had no argument with these other assessments but pointed out that the relativity of "the standard rents" determined for each of the floors showed what she considered to be the true relativity between each of the flats. Standard rents are used as a base for rent control of pre-war properties under the provisions of Part I of the Landlord and Tenant (Consolidation) Ordinance Cap. 7. They are either r the rents which were actually passing on or immediately before 25th December 1941, or the rents assessed as likely to have been passing if the rents are not known or the premises were let at a later date. Miss Wong based her argument on the standard rent for the first floor being $68.00, while that for the subject tenement was only $32.00. Mr. John Duggan, a Rating and Valuation Surveyor in the Rating and Valuation Department, who gave evidence for the Commissioner, pointed out that the first floor being at street level had been let as a shop in December 1941 and the standard rent of $68.00 was the rent passing for that purpose. Mr. Hui appearing for the Commissioner drew attention to the standard rents being relative to rents passing in December 1941 and therefore completely irrelevant to today's situation.

4. Miss Wong also criticised the relativity of the other assessments in the building particularly the rateable value assessment for the top floor equivalent to $2,300 per month. This flat had the exclusive use of the roof as well as better light and air, yet, as she said, it was valued at about the same as the basement flat. However Mr. Duggan admitted that the use of the roof had been overlooked and the assessment made no provision for this factor.

5. The appellant also produced the rateable value assessments for flats in two other properties owned by her at 19 Cross Street, Hong Kong and 52 Third Street, Hong Kong. The Cross Street property is pre-war while the Third Street property is post-war. She compared the rateable values with the controlled rents and produced figures demonstrating the assessed rateable values being about 2 to 2.5 times the annual controlled rents. This was also similar for the flats on the other floors in the subject building, the top floor being the Highest showing a factor of 2.86. But even this did not compare with the factor of 3.9 shown for the subject basement flat, demonstrating in Miss Wong's opinion, that there was something very wrong with that assessment. The relativity would only be retained if the assessment of the subject tenement were to be based on an exclusive rent of about $1,400 per month. That is a rateable value of $16,800. (The permitted rent at July 1983 was $564 per month or $6,768 per annum. $6,768 multipled by a factor of 2,5 gives about $16,900 or $1,410 per month.)

6. However, out of a total of thirteen examples, Miss Wong's somewhat novel approach showed remarkable consistency in all but the subject assessment. Her theory really failed clue to the flats at 52 Third Street coming under the very different rent control provisions of Part II, compared to those of the subject building and 19 Cross Street which are subject to Part I rent restrictions.

7. Miss Wong's case stands on the relative values between the upper floors in her building and the subject basement flat which, as she explained, is prone to dampness, being below street level and adjacent to a courtyard which floods in heavy rain. The flooding is aggravated by drains being blocked by the litter left by passers by. The courtyard is Crown land and was formerly held by the appellant on a permit or licence from the Crown. Miss Wong, in response to a notice from the Urban Council, has recently been able to persuade that body that the responsibility for keeping the courtyard area clean lies with the Council and not herself. She also pointed out that the upper floors, being the main part of the original house, were far superior to the basement which was originally the servant's quarters.

8. Mr. Duggan sought to support his valuation by reference to a number of nearby comparable lettings in middle to late 1983. Most of these were for early post-war premises which showed, in his opinion, a unit rate in the vicinity of $48.00 per square metre for Caine Road. It was noted that the range of these unit rates was from $48.00 per square metre to $64.00 per square metre and, but for one ground floor premises, all were upper floors in buildings which had no lifts. The areas of these tenements were mostly from 50 square metres to 60 square metres. The subject tenement has an area of about 84 square metres if the porch area and stairs are included. The main area of the subject tenement is about 75 square metres and the kitchen area is about 7.5 square metres. Three lettings of pre-war premises were submitted by Mr. Duggan, but, as he explained in his written submission under Rule 18 of Lands Tribunal Rules, could not be "considered as substantive evidence due to the nature of the letting or lack of documentary proof". He preferred to rely on the post-war evidence and went on to make a 50% deduction to the rate derived from these early post-war lettings to allow for the detracting factors associated with the subject pre-war basement flat. He used the pre-war rental evidence as a check. The unit rates for these pre-war premises were between $36.7 and $45.2 per square metre but all had toilet facilities. The rate applied to the subject tenement by Mr. Duggan was $25.00 per square metre, as follows.

This results in a Rateable Value of $26,400.

9. Mr. Duggan's approach is similar to that used by the Commissioner's valuer in the case of Lee Edith (Edith Lo) v Commissioner of Rating and Valuation Rating Appeal No. 69 of 1984, in which case, coincidently, a 50% unsupported deduction was also made to a rate derived from evidence of early post-war lettings. This Tribunal pointed out that such an approach was unsatisfactory, stating as follows.

"Mr. Lam obviously considered the assessment to be reasonable on the evidence he was able to find when dealing with the proposal, but there was no basis for the 50% deduction he made. He made no analysis of the comparative value between early post-war premises and pre-war village houses. He said no such analysis had been made within the Rating and Valuation Department. With so much rental evidence available to the Department, it would seem reasonable for some sort of analysis to have been attempted. An arbitary deduction of as much as 50% is hardly conclusive, particularly when no rents of inferior premises can be cited to show what the lower rental limit might be. Too often has the Tribunal been left in this predicament. While there is no doubt that the onus is on the appellant to show the Commissioner's assessment is wrong, it is still, as a matter of valuation practice, necessary to base any assessment on supporting analysis of valuation evidence." It is recognised that the present case is perhaps exceptional, and that few, if any similar properties actually exist. However, the comments made in the cited case are still, by and large, pertinent to this case. In fact in his oral evidence, Mr. Duggan agreed that the deduction of 50% was arbitary and defended its application by advising that he had sought evidence of inferior properties but was unable to find any.

10. I dismiss Mr. Duggan's earlier statement concerning the pre-war comparables as these properties must be regarded as most similar to the subject building. The nearest comparable produced by Mr. Duggan was for a pre-war premises at 9 Old Bailey Street 3rd floor which let from 1st July 1983 (The relevant date )at $2,344 per month. The area of these premises which have since been demolished was 51.8 square metres and reflected a rate of $45.25 per square metre. The Commissioner's Department had recorded that the premises had a kitchen and toilet. His other two comparables were the 1st floor and 2nd floor of 114A Jervois Street in Central. Both these premises were used as staff quarters. They had toilets and let at $2,250 for an area of 55.2 square metres in one case, and $2,346 for 64 square metros in the other. The rents listed in two of these oases suggest that the actual rates per month have been deducted from rents, inclusive of rates, in order to arrive at rents, exclusive of rates. This practice is not always as accurate as it might appear. In Leung Wai Kee v The Commissioner of Rating and Valuation Rating Appeal 165 of 1984, it was pointed out that analysis is best done on an inclusive of rates basis if that is the way the premises are usually let. Due to the, risk element built into such inclusive rents, deduction of the actual rates does not really give the equivalent rent which might be expected, if the premises were 1et exclusive of rates. It therefore seems that these premises were let at rents reflecting unit rates equivalent to $35 to 545 per square metre exclusive of rates. In the cited case, it was also suggested that sometime it is easier to obtain a better picture of the marker by merely looking at each flat as a whole and considering what the typical hypothetical landlord and tenant, at that level in the market, might agree. It is very easy to become mesmerised by the figures and lose sight of the exercise of determining a hypothetical rent at a given date. I will come back to these comparables.

11. Miss Wong had challenged the accuracy of the area calculation for the subject premises resulting in some minor differences being detected and a new plan being submitted. The new area was given as 84.2 square metres but this did no alter Mr. Duggan's assessment of $26,400. The upper floors were also measured and plans were submitted for each of them. Where comparable rents are compared on a unit rate basis it is obviously essential that the same mode of measurement is used. Provided there is consistency it matters little what approach is taken. Similarly if relativity is to be maintained all tenements must be measured on the same basis. A standard of measurement has now been adopted by the The Royal Institution of Chartered Surveyors and the Hong Kong Institute of Surveyors in conjunction with the Consumer Council. It has been termed "saleable area" and, it is now the basis usually adopted by, surveyors in Hong Kong. Basicly it is the same approach adopted by the Commissioner with respect to his assessments for the Valuation List. The saleable area eliminates the common areas such as staircases and common hallways as well as such unusable areas as under staircases. This has been done in this case concerning the upper floors of the subject building. However the whole of the area below the first floor has been included in the area attributable to the basement unit. On inspection it was revealed that the kitchen was removed from the main area of the flat not only by a porch and the stairs leading to the first floor but also by the substantial difference in level between the two areas. Although Mr. Duggan seemed to have assumed that the exclusive use of the whole the area beneath the first floor justified inclusion of the whole area in the assessment, I can not help but feel that the porch and the stairs arc so laid out as not to preclude common use of the passageway by any of the upper floor tenants if it were required. Also the level of the basement proper is such that a further set of internal stairs is required to reach that level. If such stairs were common to other compared premises, then inclusion of this area in any analysis or mathematical calculation leading to a valuation would be quite proper. However, similar staircase areas have been deducted from the upper floors and it would seem appropriate for the sake of uniformity to do the same in the case of the basement. The fact that the comparables do not appear to be affected by stairs, reinforces my decision to delete these areas from any calculation which is made on a unit rate basis. On my calculation the appropriate area of the subject tenement should be about 78.3 square metres.

12. I would agree with Mr. Duggan that any added value the front courtyard might have, was compensated by its detracting factors due to litter, a tendency to flood and being overlooked from street level. I also consider that had there been no court in the front of the premises the tenement would have been completely unfit for any sort of habitation. Its absence would completely erase any value for domestic use. Bearing in mind this courtyard is Crown property, it is perhaps best to consider it for its detracting factors only.

13. The garden at the rear may add some value but I am not convinced that the basement tenant could claim exclusive use of this garden area due to the layout providing access to the tenement. For the same reason, I would place no added value on the night-soil shed which was originally intended for use by all the occupants of the building. Now, it is not only not used for any purpose, but is also extremely delapidated. If anyone were to take any interest in the premises it most likely world be removed. While evidence of comparable properties is scarce, the pre-war comparable rents at 9 old Bailey Street and 114A Jervois Street support unit rates of between $45 per square metre and $35 per square metre for premises having areas of between 50 and 65 square metres. These properties it was conceded, have an element of commercial value being used in two cases as staff quarters and being located very close to the superior Hollywood Road retail area in the other. These comparables, therefore support the unit rate of roughly $30.00 adopted for the upper floors of the subject building which flats have larger areas of about 65 to 80 square metres and do not have any element of commercial value. The question now is whether the subject basement flat could command $25.00 per square metre, as applied by Mr. Duggan, compared to the $30.00 for the upper floors if it were to be let in good or similar condition to that of the upper floors. This is merely a 16% reduction on the upper floor value. The detracting factors of being overlooked from the street, the front courtyard's susceptibility to flooding and litter, the dampness and lack of ventilation as well as the inconvenience in access to the kitchen, could be expected to depreciate the value to a larger degree than 16%. As in the Leung Wai Kee case, it is better, perhaps when no analysis is possible, to look at each of the flats as a whole. If the second floor lets at $2,400 per month, it would seem appropriate for the basement to let at say $1,750 per month. This based on the area of 78.3 square metres, as adopted by me, reflects a rate of about $22,50 per square metre, or a reduction in the region of one quarter. The lack of a toilet would further reduce this figure by about $250 per month giving a rent in reasonable condition of say $1,500 per month. As to this allowance I have obtained some guidance by reference to a comparable given by Mr. Duggan as supplementary evidence of rents for pre-war premises in the Central area. Comparing the rent for premises with no toilet at 43 Second Street with those at Jervois Street suggests that after making allowance for the difference in area, the amount attributable to the lack of toilet facilities might well be in the region of $250 per month.

14. Argument was invited by the Tribunal as to whether the state of disrepair of the subject premises should be disregarded or not. The respondent called Mr. G.J. Mannakee, Senior Maintenance Surveyor in the Building Development Department. His responsibility lay with building maintenance and his experience led him to estimate that the cost of putting the subject promises into reasonable repair would be about $30,000 at 1983 prices. Of this the sum of $3,000 represented the cost of the installation of a toilet.

15. Mr. Hui drew my attention to the case of Warren Chow v Commissioner of Rating and Valuation 1977 HKLTLR 277 which largely followed the principles enunciated in Wexler v Payle (Valuation Officer) (1960) IQB 217 as, for all practical purposes, the definition of "rateable value" in the Hong Kong Rating Ordinance is identical to that of "gross value" in the General Rate Act of 1967 in the United Kingdom. Both definitions include the same provisions that the value means the "rent at which the tenement might reasonably be expected to let from year to year, if -

16. The U.K. Act differs only in the use of the term "hereditament" instead of "tenement" and the Hong Kong Ordinance acknowledges the existence of the Crown lease system by including the landlord's requirement to pay the Crown rent.

17. In the Warren Chow case it was held that the hypothetical landlord is obliged to repair those defects which are "readily remediable" and that ordinary lack of repair is to be disregarded. Otherwise, the onus is on the appellant to show that the cost of remedying any such defects is so high that a reasonable landlord would let the premises in their defective condition.

18. In the Wexler v Payle case, Morris L.J. said, "It seems to me that the section is contemplating that the landlord will do the repairs", and later he refers to the hypothetical rent as, "such rent as would be payable on the basis that the landlord would then do the necessary repairs to make the flat reasonably habitable and would do such later repairs as would be reasonable in all circumstances."

19. Lord Donning in the Court of Appeal Judgment of Saunders v Maltby (Valuation Officer) 1976 RA 109 drew attention to the statement by Morris L.J. at p. 236 in the Wexler case that "state of disrepair was something that was "easily remediable". He also referred to Willmer L.J. at p. 239 in the same case where he said that there were "readily remediable defects", and also Harman L.J. at p. 240 said that they were "repairable and temporary defects". He then went on to say, "these statements give the explanation of Wexler v Payle. In that case the defects were such that a reasonable landlord would remedy as being economically a sensible thing for him to do." The circumstances of the Warren Chow case were similar to the Wexler case in that not only were the defects of the industrial promises regarded as "readily remediable", it was also stated that, "It has not been shown that it could not be remedied or that it would be uneconomical to carry out remediable work".

20. The Saunders v Maltby case involved as here what was described by the appellant as a house, "reaching the end of its existence. " Miss Wong described her building as "the only old building in that section of Caine Road". She said the Housing Society has expressed interest in purchasing if for redevelopment. She also felt it, "pointless to repair the tenement to get a higher rent when redevelopment was likely within the next two years". All the other buildings similar to the subject property have been redeveloped long ago and it stands out as long overdue for similar redevelopment.

21. Lord Denning, in the Saunders case, also referred to a number of oases on this subject such as Fowler v Lloyd (Valuation Officer) (1958)3 R.R.C. 65 and Mitchell v Cleaver (Valuation Officer) (1958)3 R.R.C. 69 where it was held that the state of disrepair was such that it would be unreasonable to regard the expense of putting the premises into good repair as being practicable in view of the particular circumstances of the case. In Lee Edith (Edith Lo) v Commissioner of Rating and Valuation Rating Appeal 69 of 1984 similarly this Tribunal held that for the particular type of property in this case, being a pre-war village house, only such minimal repairs to make taro premises habitable could be expected.

22. The appellant, Miss Wong, has not sought to argue that the tenement is beyond being lettable but only that it would be unreasonable and uneconomical, in the circumstances of this case, to spend something of the order of $27,000, excluding a W.C., as estimated by Mr. Mannakee to put the premises into reasonable condition.

23. As the subject premises were actually let in 1983, they must be assumed to be lettable, but on the basis that it would be unreasonable to expect that the hypothetical landlord would undertake anything other than minimal expense to put the premises into a condition to command that rent. It is on that basis I consider that as at 1st July 1983, the subject tenement could be expected to realise no more than $1,000 per month, and I accordingly determine the rateable value at $12,000.

24. The Collector of Rates is ordered to amend the valuation list to record the rateable value of 115 Caine Road, Ground Floor as $12,000 effective from 1st April 1984 and accordingly make any refund of rates that may be necessary. Liberty to apply is reserved to both parties.

25. Dated this 7th day of April 1986.

Representation:

Miss WONG Tak-woon in person

Mr. Davis Hui, Crown Counsel for the respondent