Greatwin Development Ltd v. Hip Hair Culture Ltd

DCCJ3534/2005

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3534 OF 2005

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BETWEEN

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Coram : His Honour Judge Chow in Chambers

Date of Hearing : 23^rd February 2006

Date of Handing Down Decision : 25^th May 2006

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Decision

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1.This is the application by the Plaintiff for the Order of Master Chan to be set aside, and for judgment against the Defendant be entered for damages to be assessed. 

2.In respect of the Order 14 application made by the Plaintiff on 1 September 2005, Master T. Chan ordered that partial judgment be entered against the Plaintiff for the sum of $56,600.00, being provisional rent and rates for the period from 7 June 2005 to 6 July 2005, and that unconditional leave be granted to the Defendant to defend for the balance of the Plaintiff’s claims in this action.  The Plaintiff now appeals against this order. 

3.The Plaintiff is a registered owner of the premises known as 1^st Floor, Nos. 52-54, Yun Ping Road, Hong Kong.  By a tenancy agreement dated 7 December 2001, the Plaintiff let to the Defendant the premises for a term of 3 years from 7 December 2001 to 6 December 2004 at the rent of $55,000 per month exclusive of rates.  The terms of the tenancy agreement provide to the Defendant an option to renew the tenancy for a further term of 1 year (“the further term”), provided that (1) the tenancy for the further term shall be subject to the same terms and conditions except the option to renew, and (2) the rent thereof shall be the current market rent at the commencement of the said further term.

4.On or about 1 June 2004, the Defendant served on the Plaintiff a letter ,which reads:-

“Pursuant to Part IV of The First Schedule of the Tenancy Agreement, we give you a formal notice that we intend to exercise our option to renew the Tenancy Agreement for a further term of one year at prevailing market rent.

You should appreciate that if the demolition and reinstatement works of the unauthorised alterations/additions of the captioned Property as required by the Building Department of HKSAR (“the said Works”) is completed, the usable area of the captioned Property will be drastically reduced.

We take the view that for the assessment of the prevailing market rent for the renewal term, we should take into account the reduction of the usable area of the captioned Property or otherwise as a result of the said Works.

In view of above, we shall be most grateful if you could let us have your proposed rent for the renewal term for our consideration.”

(Underlines provided)

5.On 14 December 2004, the Plaintiff’s solicitors wrote to the Defendant, saying, inter alis:-

“We regret to note again that we have not yet received any reply from you to our letter.  Since the new term of the tenancy has commenced for a week, we take the view that the dispute should be resolved without further delay.

Besides, we are instructed that your client has not paid to our client any rent for the first month of the new term.  We are therefore instructed to demand your client through your goodselves to pay our client a sum of HK$55,000.00 as provisional rent (subject to final determination in due course) for the period from 7^th December 2004 to 6^th January 2005.

Please note that unless we have your favourable reply relating to the determination of the market rent for the new term and the said sum of HK$55,000.00 within the next 3 days, our client will unilaterally instructs a surveyor to assess the market rent without further notice to your client.  After the assessment, our client will demand your client accordingly for the new rent.  If your client still fails to pay the new rent as assessed, our client will have no alternative but to commence proceedings against your client for breach of the Tenancy Agreement.  However, in order to save time and costs, our client sincerely hopes that the dispute can be resolved amicably.”

6.On 17 December 2004, the Defendant’s solicitors wrote back to the Plaintiff, saying:-

“We refer to your letter dated 14^th December 2004 upon which we have taken our client’s instructions.

In order to reserve our client’s right to exercise its option, we send herewith our client’s cheque in the sum of HK$56,600.00 as the provisional rent and rates for our client’s occupation pending the final determination.  Please acknowledge receipt.

Regarding the appointment of the surveyor for the assessment of the prevailing market rent, we are instructed that the assessment of the rent by your client’s surveyor shall not bind our client and there is no valid reason why our client should not seek another surveyor or otherwise to challenge your client’s assessment.”

(Underlines provided)

7.On 7 December 2004, the “market rent” of the premises was assessed to be $70,000 per month by DTL Debenham Tie Leung Limited (instructed by the Plaintiff) in its Valuation Report.  The said Report was sent to the Defendant’s solicitors on 1 March 2005.

8.On 7 July 2005, the Defendant’s solicitors wrote to the Plaintiff’s solicitors, stating that as the value of the prevailing market rent cannot be agreed, the Defendant was not prepared to exercise the option of renewal.

9.The Plaintiff submits that there was a binding agreement for the letting of the said premises by the Plaintiff for the further term; Part IV of the Tenancy Agreement has already clearly provided for (a) the manner of the exercise of the option, (b) the terms and conditions for the further term, and (c) the market rent to be the new rent.  The binding agreement was formed once the Defendant duly exercised its option by serving the letter informing the Plaintiff of its intention on or about 1 June 2004. 

10.It is not correct to say that the Defendant duly exercised its option by its letter dated 1 June 2004.  In that letter the Defendant only said, “we give you a formal notice that we intend to exercise” the option to renew the tenancy agreement.  It did not say, “we give you a formal notice that we hereby exercise the option to renew the tenancy”.  By the letter dated 1 June 2004, it seems that the Defendant only evinced an intention to exercise the option to renew the tenancy agreement.  It has yet to implement this intention, before it can be said that it committed an act which constituted exercising the option to renew the tenancy.  This is fortified by the fact that the proposed rent for the renewal term is to be agreed.  The fact that it only evinced an intention to exercise the option to new the tenancy agreement is clearly echoed in its letter dated 17 December 2004 in which it states, “In order to reserve our client’s right to exercise its option, we send you ……”.  This sentence demonstrates very clearly that the Defendant had not yet exercised its option to renew the tenancy agreement.  Secondly, in order for the new tenancy agreement relating to the further period to be valid, the current market rent at the commencement of the said for the term must also have been ascertained by the time the further term commenced.  In the tenancy agreement there is no reference to how and by what means the market rent is to be determined.  The Plaintiff submits that, in default of agreement, the court can always determine the market rent for the parties.  If that had been the intention of the parties, that should have been included in the relevant part of the tenancy agreement, and the current market rent should have been determined before, or at the latest, by the time the further term commenced.  This was not the situation here. The Court can of course determine the market rent, for the purpose of resolving the dispute between the parties, but not for the purpose of determining such a rent, so that the parties could comply with the terms of the tenancy agreement.  Therefore it is wrong for the Plaintiff to say that there is a binding agreement for the letting of the said premises by the Plaintiff to the Defendant for the further term of one year at the market rent due to the exercising of the option on the part of the Defendant by serving the letter informing the Plaintiff of its intention on or about 1 June 2004.

11.Due to the reasons referred to above, it cannot be said that the decision of Master T. Chan is incorrect.  I therefore dismiss the appeal.

Costs

12.I make an order nisi, to be made absolute in 14 days’ time, that the Plaintiff is to pay costs of this application to the Defendant (without certificate for Counsel), to be taxed, if not agreed. 

The Plaintiff: represented by Mr. S. Luk, of Messrs. Leung, Chan & Pang, Solicitors.

The Defendant: represented by Mr. Stephen Fong, instructed by Messrs. Damien Shea & Co., Solicitors.