Wong Tak Woon v. Commissioner of Rating & Vawation

IN THE COURT OF APPEAL

1986, No. 127
(Civil)

Headnote

Rating Ordinance S.7(2) - Rating and valuation - assessment of - premises in a bad state of repair - cost of repairs whether out of all proportion to value of premises - premises long overdue for redevelopment - meaning of "readily remediable" - landlord's intention to demolish.

IN THE COURT OF APPEAL

1986, No. 127
(Civil)

BETWEEN

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Coram: Hon. Cons, V.-P., Yang & Kempster, JJ.A.

Date of hearing: 7th January, 1987.

Date of delivery of judgment: 12th February, 1987.

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JUDGMENT

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Yang, J.A. :

1. This is an appeal from the review decision of Mr. M.W. Phillips, Member of the Lands Tribunal, rendered in an appeal against the assessment of rateable value of a basement flat in a pre-war four-storeyed building, described as Ground Floor, 115, Caine Road, Hong Kong.

2. The assessment of the Commissioner of Rating and Valuation under "Sections 7 and 7A of the Rating Ordinance, Cap. 116, in respect of the basement flat was $26,400, an amount equal to the rent at which the tenement might reasonably be expected to let from year to year. In other words, the expected rental was $2,200 per month exclusive of rates. The designated date of assessment was 1st July, 1983 (vide the Hong Kong Government Gazette G.N. 2412 of 1983).

3. At the review, the Commissioner sought to amend the rateable value to $24,000. On further inspection of the flat, the area on which assessment should be based was found to be 82.68 square meters. It is not in dispute that Mr. Phillips' valuation of the second floor flat in the same building on the basis of $30 per square meter at $2,400 per month was about right. On this basis, and noting "the extremely dilapidated state of the subject premises", he had considered that the flat would have been worth $1,750 per month 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 of 82.68 square meters excluding the open porch, Mr. Phillips on review arrived at a sum of about $1,800 (¼ of 82.68 square meters x $30 = $1,860.30). The garden and the open porch were then included, for which he added a nominal sum of $100 to the $1,800, making a total of $1,900 per month. Again there is no challenge to this figure.

4. However, Mr. Phillips made an error. He thought the assessment of the upper floor took into account a toilet when it did not. In the circumstances he would not be entitled to deduct (as he did) $250 from the $1,900 to allow for the absence of a toilet in the basement flat. Having deducted $250 from the $1,900 to arrive at a figure of $1,650 he made a further deduction of $550, being a third of $1,650, "for the condition of the premises allowing only for minimal repairs to make the premises habitable". The net rental he thus arrived at was therefore $1,100 per month. On this basis, he determined the rateable value at $13,200. It is against this determination of rateable value that the Commissioner appeals to this Court.

5. The subject tenement had been left unlet by the owner of the whole building, Madame Wong Tak Woon, since 1983. Mr. Phillips found that it was actually let in 1983. It was therefore "lettable" on the designated date, viz., 1st July, 1983. Mr. Mannakee, a Senior Maintenance Surveyor of the Building Development Department submitted a list of estimated costs of the work necessary to bring the interior of the subject tenement "to a minimum habitable condition". The list contained the following items:

“a)	Clear away rubbish internally and externally.	$ 3,000.
b)	Minor repairs to walls & floor.	$ 5,000
c)	Internal redecoration.	$ 10,000
d)	Repair front door.	$1,000
e)	Provide 4 No. metal windows & 1 No. fanlight to front.	$ 7,000
f)	Provide toilet compartment with W.C. connected to drain outlet.	$3,000
g)	Provide new door & frame to rear entrance.	$ 1,000
h)	Lay PVC floor tiles to floor	$ 3,000
	Total:	$33 000" =======

6. These costs were stated to be at 1985 prices, "the 1983 costs would be 7% less".

7. Though Madame Wong challenged the correctness of Mr. Mannakee's estimate, she has not appealed against Mr. Phillips' acceptance of it.

8. Mr. Phillips found that Mr. Mannakee's estimate did not include the cost of renovating the kitchen. With respect, it is a little difficult to see how he arrived at that conclusion on the basis of Mr. Mannakee's list of estimated costs. As I understand it, the kitchen is a kind of open plan cooking area separated from the rest of the flat by a small porch. Mr. Mannakee's list does not show which part or parts of the flat required repairs. The list appears to apply to the whole flat including the kitchen.

9. If I understood Madame Wong correctly, she did not seek to argue that the subject tenement was no longer suitable for letting or that the cost of doing the repairs would be out of all proportion to the value of the flat. Her position was that the whole building was reaching the end of its existence, it would therefore be "pointless to repair the tenement to get a higher rent when redevelopment was likely within the next two years". Mr. Phillips appeared to agree with her, for in his review decision he said (at p.8), "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". He also said (at p.9), "These are premises which are not only in a state of disrepair but are also outmoded and overdue for redevelopment". This is the stance Madame Wong continues to adopt in this Court. She argues that for some years now she has intended to redevelop the property.

10. Before examining the authorities, it is necessary to refer to S.7(2) of the Rating Ordinance, Cap. 116, which provides -

“(2) The rateable value of a tenement shall be an amount equal to the rent at which the tenement might reasonably be expected to let, from year to year, if -

(a) the tenant undertook to pay all usual tenant's rates and taxes; and

(b) the landlord undertook to pay the Crown rent, the costs of repairs and insurance and any other expenses necessary to maintain the tenement in a state to command that rent.”

11. For the purpose of this appeal, the phrase which is of particular importance is "any other expenses necessary to maintain the tenement in a state to command that rent". It is therefore in the light of those words that the state of the property in question and the valuation should be considered.

12. It is common ground that the basement flat was in a very poor state of repair when visited by Mr. Mannakee in 1985. Following Warren Chow v. Commissioner of Rating and Valuation (1977) L.T.L.R. 277, Mr. Phillips held that the hypothetical landlord is obliged to repair defects which are "readily remediable" and that ordinary lack of repairs is to be disregarded for rating purposes.

13. In Wexler v. Playle (1960) 1 Q.B. 217, Morris L.J. said (at p.236):

"The state of disrepair was something that was easily remediable, as the case finds. In those circumstances it seems to me that what would reasonably be expected would be that the tenant would require the landlord to put right those remediable defects."

14. Willmer L.J. said (at p.239):

"……… one would expect a reasonable landlord and a reasonable tenant, when contracting for a tenancy, if it appeared that there were readily remediable defects such as those we have in this case, to proceed on the basis that the landlord's covenant to repair would include an obligation not only to keep the premises in repair but to put the premises in repair."

15. Harman L.J. said (at p.240):

"It seems to me that where there is a landlord under a repairing covenant and a tenant about to take a house on a year's tenancy, the tenant must naturally be supposed to have a landlord whom he can oblige to observe his repairing covenant, and therefore the fact that there are, at the moment when the bargain is made, reparable and temporary defects in the property ought not to be taken into account in arriving at the hypothetical rent which is the basis of the rateable value."

16. Wexler v. Playle was followed in Saunders v. Maltby (1976) R.A. 109. The headnote reads:

“HELD: The case stated must be remitted to the Lands Tribunal for consideration in the light of the principles laid down by the court, and to consider what extent of liability to repair it would be economically reasonable to attribute to the hypothetical landlord in the particular circumstances having regard to the extent and nature of the disrepair and the likelihood of demolition for the following reasons:

(1) The tribunal had fallen into error by asking itself only whether the defects were capable of remedy and not going on to inquire how much the repairs would cost.

(2) Whether or not the disrepair should be taken into account depended on whether or not it would be reasonable to execute the repairs and on what repairs, the tenant would reasonably expect the landlord to carry out.

Wexler v. Playle (VO) explained and applied.

(3) If the necessary expenditure was such that it would be out of all sense to do the repairs, the hypothetical landlord would not do them but would let the house at the low rent which it would command in its state of disrepair.

(4) The hypothetical landlord's-repairing responsibility was not restricted to maintaining the premises in their actual state but, though not unqualified, extended to putting the premises into such a state as accorded with the ambit of his liability, in particular to do such repairs as would make the premises reasonably habitable and to remedy remediable and temporary defects (Wexler v. Playle (VO) followed).

(5) In determining whether and to what extent it was economic for the hypothetical landlord to do all the extensive repairs that were necessary, regard should be had to the probability that the area would be cleared in the near future.

Dawkins (VO) v. Ash Brothers & Heaton Ltd. applied.

(6) The lack of financial resources of the ratepayer could not be taken into account because the repairing liability rested on the hypothetical landlord and not on an actual one."

17. Thus, it would appear from the authorities that if there are readily remediable defects which it would be economic sense for the landlord to repair, then such repairs are disregarded for rating purposes. If the defects are not readily remediable, or if the repairs are out of all economic sense, then it must not be assumed that the landlord would do them. Having put it inhabitable condition so as to command some rent he would let the flat at such rent as might be negotiated having regard to its state of disrepair.

18. There are additionally two other decisions on a different but relevant issue which does not appear to have been considered by Mr. Phillips.

19. In Burley v. Birch Ltd. (1959) 5 R.R.C. 147 the Lands Tribunal held that the question the Tribunal had to determine was what rent might reasonably have been obtained for the hereditament, if vacant and to let, for a tenancy from year to year with a reasonable prospect of continuance, and the fact that the landlord might have in mind to demolish it was immaterial. The decision went on to say (at p.149) that if there was an enforceable re-development scheme in existence it might well be as relevant as any other statutory provision affecting the use of the hereditament, since it might affect the mind of the hypothetical tenant. And (at p.150), "The, fact, that the landlord may have it in mind to demolish the building is quite immaterial. He is under no obligation to do so, he may change his mind, he may decide to sell the building to someone else with different ideas, and it seems to me that it is contrary to the whole conception of the hypothetical tenancy that its terms should be regarded as capable of amendment at the whim of a private individual."

20. In Dawkins v. Ash Brothers & Heaton Ltd. (1969) 2 A.C. 366, Lord Pearce said (at pp. 383H-384A):

“It is conceded, as I think it must be, that if the state or construction of some hereditament was such that it must predictably collapse in a year, its impermanence would be a relevant fact in estimating the rent, i.e. there could not be imputed to a hypothetical tenant the advantage of contemplating an indefinite continuance of tenancy. If this be right, I find it difficult to see why there should be a difference in principle between demolition by force of gravity (and the elements) and demolition by force of government. Both are superior forces which bear alike on a hereditament. Either may turn out to bear less hardly than was anticipated; but this is no more than saying that any prediction may be falsified by events.”

21. So it is clear from those two decisions that the landlord's intention to redevelop the property must be disregarded.

22. In my view Mr. Mannakee's list, once item (f) is deleted and the total reduced to $30,000, covers remediable and temporary defects which would do no more than render the flat habitable and be proportionate to the value of the house as a whole. On the evidence the hypothetical landlord would let this flat in no more than habitable condition and at the rent such condition might command. The deduction from the figure of $1,900 of $550 was made by Mr. Phillips on the footing that the condition of the premises were long overdue for redevelopment and would remain particularly poor.

23. Whilst he was perfectly entitled to make a deduction on account of the very poor condition of the subject tenement, he was not, on the authorities cited, entitled to take account of the possible redevelopment. In deducting a sum of $550, he made no apportionment in respect of the poor condition and redevelopment. As both parties are mainly interested in the principles involved and have urged us not to refer the case back to the Tribunal, it behoves us to settle on a notional figure to indicate that the correct principles are followed. I therefore pick $50 and apportion this sum to the redevelopment. It follows that Mr. Phillips has made a proper deduction of $500. The net rental should thus be $1,400 per month and the rateable value $16,800.

24. Finally, by the fourth ground of appeal, Crown Counsel submitted that Mr. Phillips had failed "to apply the proper test in law and practice in considering and analysing comparable rents for the purposes of ascertaining the hypothetical rent exclusive of landlord's rates and taxes when such comparables have been inclusive of landlord's rates and taxes”. Whilst Mr. Phillips devoted some pages to a discussion of this issue, in the end he decided that this question "can have no bearing on the eventual valuation". The matter is therefore of academic interest only and forms no part of his ratio. In the event it is not necessary to say anything further on this ground of appeal.

25. All these legal technicalities may seem a little strange to the ordinary citizen, but as Lord Summer pointed out in Poplar Metropolitan Borough Assessment Committee v. Roberts (1922) 2 A.C. 93 (at p.116), “Rating is a process between an occupier and a rating authority, to the determination of which the landlord and the lessee are strangers”.

26. I would allow the appeal and order the Collector of Rates to amend the valuation list to record the rateable value of the subject tenement as $16,800 and accordingly make any refund of rates that may be necessary.

Cons, V.-P.:

27. I agree with the judgment of my Lord and the order which he has proposed.

Kempster, J.A.:

28. I agree and have nothing to add.

Nigel Kat (Legal Department) for Appellant

Wong Tak Woon, Respondent in person