The Hongkong Canton Export Co Ltd v. Commissioner of Rating & Valuation

LDRA000222/1984

IN THE LANDS TRIBUNAL OF HONG KONG

(Appellate Jurisdiction)

Rating Appeal No. 222 of 1984

TRIBUNAL: M. W. Phillips Esq., Member

Date of Judgment: 21st January 1986

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DECISION

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1. This is an appeal against the assessment of the rateable value of a 9 storey purpose built go-down building situated at the corner of the Praya Kennedy Town and Sands Street on Hong Kong Island. The Praya adjoins the waterfront of Hong Kong Harbour. The building which was completed in 1967 is owned and occupied by the appellant. The Commissioner's assessment of the rateable value under the provisions of sections 7 and 7A of the Rating Ordinance is $960,000 and within its definition is the amount equal to the rent at which the tenement might reasonably be expected to let from year to year. The assessment of $960,000 equates to $80,000 per month exclusive of rates. The designated date of assessment is 1st July 1983 (The Hong Kong Government Gazette GN 2412 of 1983).

2. The subject premises is situated in what has been essentially a go-down area having ready access to the lighters which tie up alongside the Praya, sea wall. In recent years redevelopment has tended towards large buildings comprising both buildings comprising both commercial and residential units as progressive reclamation has gradually out off the go-downs from the harbour. There is a loading and unloading area within the ground floor of the subject premises but on inspection this appeared to be inadequate to the needs of the business carried on there. I was able to witness loading and unloading activity from parked lorries on the street outside. The premises are mostly used for grain storage while the eighth floor is being used for the storage of tyres. The building is fitted with a spiral chute from the second floor down to the ground floor. There are two cargo lifts serving all floors.

3. The ground floor ceiling height is 3.96 metres and the upper floors have ceiling heights of 3.81 metres for the first to fourth floors and 3.66 metres for the 5th to 8th floors. There are caretaker's quarters on the roof which are being used for storing tyres. The Tribunal's inspection revealed that since the revaluation a staff canteen, which is not included in the assessment, has been constructed on the roof. While the existence of the canteen has been noted, it is not considered appropriate for the Tribunal to make any adjustment to the assessment in respect of it. It is expected that the Commissioner will ultimately decide whether any adjustment is deemed to be necessary.

4. The appellant company was represented by Mr. Gary Sam, who is its managing director. He disputed the Commissioner's assessment on the grounds that, at the relevant date of the assessment, rental values of go-downs were extremely low due to an over supply of available space. Accordingly the Commissioner's valuation should have been well below the assessment of $960,000. He said his three main points of contention were :

5. Counsel for the respondent called Mr. Cheung Hing Lam, who is a Rating and Valuation Surveyor in the Rating & Valuation Department. He said the ground floor was more valuable due to the added convenience of handling goods without having to use the lifts. Also the floor loading capacity should be far larger than that of the upper floors. He said he was unable to produce what he considered would be suitable comparables, on or about the relevant date, to show by how much the ground floor value should exceed that of the upper floors. In order to obtain a percentage of relativity in value between ground floors and upper floors it should only be necessary to obtain comparables which show this relativity. That is, rents of ground and upper floors of similar buildings which were negotiated over a similar period. They do not necessarily have to be near to the relevant date, but obviously it would be of some advantage if they were.

6. As to Mr. Kam's second point, Mr. Cheung said the value of the loading and unloading area had not been separately valued but was inherent in the upper floor rental values. With respect to added value for the open roof, which was Mr. Kam's third point, Mr. Cheung produced no comparables to support his assessment of $2,50 per square metre. He said he relied on his experience to lead him to this conclusion. He said most of the roof areas in the Western District were used for drying sea food or Chinese medicine but he could give no specific case as an example. Generally he felt the roof should reflect an added value of between 5% to 10% of the upper floor value. He said he applied about 7% when using $2.50 per square metre. Counsel drew attention to the additional value for the open roof being only $500 per month which was an insignificant amount compared to the total assessment of about $80,000 per month. More particularly, in this case, Mr. Cheung had also applied a bulk discount of 10% to the total rental value of the individual floors on the premise that the whole building is let to a single hypothetical tenant. Comparison had been made with rents obtained for individual upper floors of go-down buildings in the locality. The 10% allowed is equivalent to about $9,000 per month.

7. In the recent decision Lee Edith (Edith Lo) v. Commissioner of Rating and Valuation Rating Appeal No. 69 of 1984, this Tribunal commented on having only the valuer's declared experience given as the reason for certain percentage deductions, saying that, "although the onus may be 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".

8. In the case of Chan Kwai Sim v. Commissioner of Rating and Valuation Rating Appeal No. 1 of 1983, it was emphasised that, "the valuer is 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". Although Mr. Cheung claimed insufficient comparable evidence at or about the relevant date, as his reason for making unsupported adjustments, this Tribunal finds it difficult to accept that the wealth of rental information apparently available to his Department should be insufficient to support his contention that ground floors are more valuable than upper floors, added value should be attributed to open roof tops on go-down buildings, and that single tenants for complete go-down buildings which are capable of being let out as individual floors would derive some benefit from a bulk letting. Any analysis might also reasonably be expected to show what degree of adjustment would be appropriate to the case in hand.

9. Mr. Kam, representing the appellant, gave evidence of detrimental factors which he believed made the subject premises unique compared to the comparables used by Mr. Cheung. Although the building occupied a corner site, the entire length of Sands St. was taken up by bus stations, thereby preventing any parking or any vehicular access to and from this street. Also, he said, there was insufficient depth of the water by the harbour wall opposite his premises for lighters or barges to tie up there. Mr. Cheung had noted on his inspection of the property that lighters were in fact tied up opposite the subject premises. Perhaps mooring in this area is dependent on the tide height. Mr. Kam said that because the lighters had to tie up some quarter of a mile to the East, motor vehicles were the only feasible means of transporting goods to and from his godown. In any case Mr. Cheung did not consider the matter of the availability of mooring facilities for lighters to be a very significant factor in this valuation exercise and he accepted that trucks are the main means of transport. Although parking was not allowed outside the premises, Mr. Kam said it was tolerated by the authorities to some extent.

10. Two of the comparables cited by Mr. Cheung were of rents of single floors in a similar fourteen storey go-down building in Connaught Road West. This building was also provided with a spiral chute. Another was for a single floor in an eleven storey go-down building with a greater floor loading capacity.These buildings have better parking facilities outside the premises, a factor of some importance in the instant case as the subject premises! parking arrangements were noticeably congested with trams passing by the entrance adding to the traffic problems associated with this section of roadway. The first two comparable rents were between $44.2 and $47.5 per square metre and about $50.00 per square metre for the third which had the larger floor loading capacity. To the upper floors of the subject premises, Mr. Cheung applied the equivalent of $42 per square metre if allowance is made for the provision of lift lobbies, as is the case with the comparables. In this respect Mr. Cheung has treated the subject premises as being capable of, being let out floor by floor. This of course is the only approach available if there is no evidence of any building being let as a single entity. However, when it comes to the question of the additional value which might be placed on the open roof or the caretaker's quarters it is necessary at this stage to consider if this is appropriate to the case of the building being let floor by floor. The top floor tenant may perhaps be offered the use of the roof in addition to the top floor but it is difficult to imagine the caretaker's quarters being let separately. Nor is it likely that the open roof would attract a separate tenant. Mr. Kam considered the open roof to be of no value as there are very few goods which can both be stored in the open and also reasonably be handled in this go-down. He did not consider the drying of sea food or Chinese medicine a likely uses, and as new tyres are wrapped in paper they could be excluded as being suitable for open storage. I tend to agree that open storage is more likely only on open land where such things as containers or construction material may be stored. As to this and the use of the caretakers quarters I am reminded by the decision of the Court of Appeal in the case of Lai Kit Lau Mutual Aid Committee and Another v. Commissioner of Rating and Valuation. (1984) Appeals numbers 160 and 161 (Civil)  that the hypothetical rent for the purposes of section 7(2) is to be calculated with reference both to the existing physical condition of the tenement and by reason of section 7A(2) to factors affecting the mode in which it is actually used. Also, statutory restrictions which affect the use of the premises must be taken into account, as must the possibilities of waiver by the Crown or the willingness of potential occupiers to risk breaking the law.

11. The open roof has not been used by the appellant for any type of storage and it seems unlikely that it would. However, the caretaker's quarters is actually being used for the storage of tyres contrary to the occupation permit which allows domestic use only. At this point of the exercise it would be wrong, when applying hypothetical rents to each of the individual floors as if they were let separately, also to consider to what use the ancillary areas might be put by a single occupier of the whole building. It is, therefore, irrelevant with respect to a multiple letting basis that these quarters are used for storage. The question is whether such quarters in a building let floor by floor would similarly be used. Having no other evidence except that of the subject premises I find no reason why the caretaker's quarters should be regarded any differently from those caretaker's quarters which are provided in domestic developments. It would be inappropriate to assess them, and it is my understanding that no separate assessment is made. They may be properly regarded as plant or ancillary areas adding value which, as with the loading and unloading bay in the present case, is inherent in the value of the rest of the premises. If the premises were being compared with the rents obtained for similar buildings which were subject to single occupation, the actual use would be very relevant as the same mode or character would have to be observed. It is the same mode or character of the comparables compared to the subject property which is relevant in any valuation exercise and it is necessary to be careful that it is actually a comparison of like with like which is being relied on.

12. Having regard to what appears to be insufficient allowance given by Mr. Cheung for the inferior parking arrangements of the subject premises, I would apply a rate of $35 per square metre per month to the upper floors on the basis that each of the upper floors is similarly provided with lift lobbies as are the comparables.

13. With no evidence to the contrary, I accept that the ground floor is more valuable and I adopt a similar relativity to that adopted by Mr. Cheung and apply $45 per square metre.

14. Having established that the total monthly rent, if each of the floors were separately let, is $75,000 it is now necessary to consider what might be expected if the promises were to be let to a single hypothetical tenant, and that each upper floor in fact has no lift lobby. The lack of partitioned lift lobbies should not deter him. In fact it would allow more space and be of some minimal benefit. The single tenant may well see some potential use for the caretaker's quarters and roof as he will have possession of the whole building. Against this, any benefit to the hypothetical landlord of having only one tenant has to be considered. The landlord's costs associated with rent collection and administration would be reduced. Also the risk of having periodic vacancies would be eliminated. Mr. Cheung has allowed a 10% reduction after adding, what he considers to be the value of the quarters and the open roof. However a potential single tenant while recognising the advantages he may derive from these areas, has only to bid against the possibility of a multiple letting. Any bid a potential single tenant moves needs only to be marginally more than that of the total rent for multiple letting after deducting for the costs which the hypothetical landlord might save by letting to the single tenant. Mr. Cheung's adoption of a 10% allowance for the single tonancy does not materially alter the valuation as 10% is an acceptable margin of error in most valuations. A reduction of 10% would therefore simply put the figure at or near the bottom of an acceptable range. This is particulary so when evidence is scarce, as it is in this case. Although no analysis has been produced to support the 10% deduction made by Mr. Cheung, I consider that a 10% reduction. for the single letting is appropriate in this case, bearing in mind the advantages the single tenant may realise, but aware of the advantages to the landlord in having only a single tenant for the whole building. 

15. This gives a figure of $67,500 per month or about $800,000 per annum. I therefore determine the rateable value at $800,000.

16. The appeal is therefore upheld and the Collector of Rates is ordered to amend the valuation list effective from 1st April 1984 by reducing the rateable value of the subject tenement, being 51 Praya, Kennedy Town, go-down, Hong Kong, from $960,000 to $800,000 and to make any refund of rates which may be necessary. Liberty to apply is reserved to both parties.

17. Dated this 21st day of January 1986.

Representation:

Mr. Kam Chi Sing, by leave, for the appellant

Mr. Eric Lau, Crown Counsel, for the respondent