New Vision Development Ltd and Others v. Yue Kwok Yin Edmond and Others
Read the full judgment text of LDCS 10000/2007 on BabelCite. This LDCS judgment was delivered on 13 August 2008.
1. Fortune Villa is situated at a hillside terrace above Waterloo Road and at the end of Alnwick Road, a cul-de-sac off Ede Road in Kowloon Tong – New Kowloon Inland Lot No.4782 (the Lot). It consists of 5 blocks of 6 levels each. The ground level accommodates the car parking spaces and the main entrance. The 5 upper storeys with 2 units on each storey are designated for residential purpose. There are therefore 50 residential units. Each unit was allotted a car parking space and 1 undivided
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LDCS 10000/2007 IN THE LANDS TRIBUNAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION LAND COMPULSORY SALE APPLICATION NO. 10000 OF 2007 ----------------------
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Date of hearing: 13 August 2008 Date of judgment: 13 August 2008 Date of handing down reasons for judgment: 18 August 2008 ---------------------------------------- REASONS FOR JUDGMENT --------------------------------------- 1.Fortune Villa is situated at a hillside terrace above Waterloo Road and at the end of Alnwick Road, a cul-de-sac off Ede Road in Kowloon Tong – New Kowloon Inland Lot No.4782 (the Lot). It consists of 5 blocks of 6 levels each. The ground level accommodates the car parking spaces and the main entrance. The 5 upper storeys with 2 units on each storey are designated for residential purpose. There are therefore 50 residential units. Each unit was allotted a car parking space and 1 undivided share of the existing development. 2.The occupation permit in respect of the existing development was issued on 22 May 1967. The 5 Applicants, having acquired 92% of the undivided shares as a result of a successful tender at the end of 2004, became the majority owner of the existing development. They applied to this Tribunal for a compulsory sale order pursuant to the Land (Compulsory Sale for Redevelopment) Ordinance, Cap.545. 3.Each of the 4 Respondents owned 1 undivided share or 2% of the total undivided shares. The 1st, the 3rd and the 4th Respondents are legally represented and have filed their Notices of Opposition. The 2nd Respondent is not represented and has filed no Notice of Opposition. 4.The Applicants finally reached consensus with the legally represented Respondents as to the acquisition of their undivided shares. By consent, the 1st, the 3rd and the 4th Respondents also withdrew their opposition to the present application just before this hearing. 5.This Tribunal gave leave to the Applicants to file the Amended Notice of Application essentially to reflect the consequential increment in their majority holdings in the existing development. We also gave leave to the Applicants to file the further witness statement to explain the recent development. 6.The 2nd Respondent is the only one remaining on the opposition side. If she wishes to oppose the present application, she shall file a Notice of Opposition pursuant to section 78C of the Lands Tribunal Rules, Cap. 17. As mentioned above, the 2nd Respondent has not done so. She was actually absent on the date of the hearing. 7.There is no reason why the Applicants should not be allowed to proceed. At the end of the hearing, we granted the application and made the following order:
8.As we indicated, we would hand down our reasons in writing, which we now do. THE STATUTORY REQUIREMENTS 9.The Tribunal would grant the order for compulsory sale only if the following are satisfied (sections 3(1), 4(1), 4(2) and Schedule 1 of the Ordinance):
10.There can be no doubt as to the 92% majority ownership of the Applicants as at the date of the present application. Upon acquiring the units of the 1st, the 3rd and the 4th Respondents since the present application, the percentage has risen to 98%. 11.The present application was taken out on 9 October 2007. The Application EUV Report enclosed with the application was dated 2 October 2007, which contains the compiler’s assessment of the EUVs of the existing development as at the date of the report. The assessment was therefore dated within 3 months before the date of the present application. 12.To be further determined by this Tribunal are the following issues:
THE EUV 13.The Application EUV Report enclosed with the present application was compiled by Mr Charles Chan of Savills. Mr Chan confirmed his report in court. The report (at paragraph 8) sets out the EUV of each unit of the existing development:
14.The 2nd Respondent’s unit (i.e., No.12 on the 1st Floor plus car parking space no.13) is valued at HK$2,610,000. The total EUV of all the units is HK$153,710,000. 15.If the minority owner disputes the EUV as assessed in the valuation report enclosed with the application, the Tribunal has to determine the dispute first: section 4(1)(a)(i) of the Ordinance. In the absence of Notice of Opposition by the 2nd Respondent and upon the withdrawal of the opposition by the other Respondents, the issue of the EUV is not really in dispute. 16.Nevertheless, we accept that the valuation assumptions adopted in the valuation report accord with Part 1 of Schedule 1 of the Ordinance. We also accept the valuation approach in the report, which was based on the references to comparables in the vicinity of the Lot subject to adjustments to reflect differences in the attributes of the premises under comparison. 17.The assessed EUVs shall guide the trustees appointed in the implementation of the compulsory sale order to apportion the expenses and proceeds of sale among the owners in accordance with the Ordinance: section 10(1)(b) and Part 3 of Schedule 1. We therefore made the express ruling that the EUV of each unit listed under paragraph 8 of the Application EUV Report is fair and reasonable and is so when compared with the EUVs of the other units. SECTION 4(2)(a) 18.Without limiting the considerations that the Tribunal is entitled to take into account in a particular case, the Tribunal in Intelligent House Ltd v Chan Tung Shing & Ors, LDCS 11000/2006, 23 June 2008 set out (at para.165) the essential considerations for the purpose of section 4(2)(a)(i) of the Ordinance:
The age ground 19.There is no contention that the existing development has reached the end of its physical life. It is rather the second limb of this ground that is material. The economic lifespan comes to an end when the cleared site value of the lot significantly exceeds the EUV of the building, provided it can be demonstrated that such difference is attributed to the age of the existing development as reflected by features of obsolescence. 20.The Applicants rely on the Condition Survey Report compiled by Mr Benson Wong of Multiple Surveyors Limited dated 8 July 2008. Mr Wong confirmed his report in court. Mr Wong referred to 11 other residential developments in the neighbourhood. He has the following observations and opinion:
21.Mr Chan, in his supplemental report dated 21 July 2008, referred to the academic writings on land economics, which explains the economic lifespan. As a matter of market reality, the various forms of obsolescence, physical, functional, technical and legal, suffered by the existing development would drive down its value. Making such allowance for age and downward adjustments when comparing the existing development to new developments, Mr Chan came to the following assessments:
22.In court, Mr Chan also explained his selection of the subjects of study in assessing the enhancement value due to repair. We accept the evidence of Mr Wong and Mr Chan. We are satisfied that the substantial difference between the cleared site value (or the RDV) of the Lot and the EUV of the existing development is attributable to factors of obsolescence. It follows that redevelopment of the Lot is justified on the age ground. The state of repair ground 23.There is no contention that the state of repair of the existing development is such that it has become a danger to the residents or the public. It is the second limb of this ground that is material. 24.Mr C M Wong, structural and geotechnical engineer, prepared both a Structural Assessment Report and a Geotechnical Assessment Report. In the Structural Assessment Report dated 4 July 2008, Mr C M Wong examined the findings after his visual inspection of the existing development and the conducting of various tests. He concluded that the design life of the existing development should be less than 50 years. At the age of 41, the existing development is entering into the propagation phase and extensive maintenance and repair works may be required in the near future. He formulated the necessary structural repairs to be carried out. 25.Mr C M Wong has also examined the historical records and conducted visual inspection of the 3 slope features in the Lot. He set out his findings and such recommendations in the Geotechnical Assessment Report also dated 4 July 2008. Considering the slope features to be in fair conditions, Mr C M Wong also formulated a repair and maintenance package. 26.The above 2 reports by Mr C M Wong were taken into account by Mr Wong when he compiled his Condition Survey Report mentioned above. For the purpose of assessing the necessary repair, Mr Wong has also commissioned the following reports:
27.Assisted by these reports, Mr Wong examined the condition of the various parts of the existing development. The problematic conditions and their extent are identified in the inspection forms and the photographs appended to the report. Mr Wong opined that the defects found in the structural frames, components, finishes and service installations cannot be easily made good by simple and piecemeal repairs. Substantial repairs are required to restore the development to the tenantable standard. 28.Mr Wong assessed that the estimated total cost of immediate repair works is HK$19,156,138. This gives a unit rate of repair cost at HK$4,342 (over the existing gross area of the residential portion of 4,411.55 square metres). 29.Mr C F Yim, quantity surveyor, provided the elemental cost estimates for the construction of a new medium-rise medium quality residential building similar to the existing development. In his assessment, Mr Yim has referred to the cost reference for general maintenance works in the guidebook published by the Buildings Department. He assessed that the unit cost of construction (per square metre) is HK$12,648. 30.On the basis that the unit repair cost (HK$4,342) effectively amounts to 34.3% of the unit cost of constructing a like new building (HK$12,648), Mr Wong concluded that it is not economically sound to carry out the repair. 31.Besides the cost of repair in monetary terms, Mr Wong highlighted the complications involved if such repair is proceeded with. The repair will be difficult to plan, organise and control, in view of the need for consensus among the owners. Even assuming that repair is organised under a single ownership, the process will take a minimum of 19 months. 32.Mr Wong highlighted the fact that even after the repair, the existing development will remain an old residential building with its design, components, finishes and services being outdated and below market expectation. The rental and capital value of a new building will far exceed those of that repaired in the present case. 33.As mentioned above, Mr Chan in his supplemental report assessed that the EUV, even after enhancement by the repair, will still be substantially lower than the RDV. The carrying out of repair works is not considered to be economically justified. 34.This Tribunal accepts the above evidence and is satisfied that the state of repair of the existing development has reached the end of its economic life in that it is economically unworthy to repair; and the cost of repair significantly exceeds the enhancement value arising from the repair. In the circumstances, redevelopment of the Lot is justified on the state of repair ground. SECTION 4(2)(b) 35.The question of reasonable steps to acquire the minority shares consists of the issue of communicating the offer and the issue of the terms offered to the minority owners. Regarding the terms, it is not the Tribunal’s role to adjudicate upon dispute as to the correct valuation principles to be applied to assess the offer. The Tribunal needs to be satisfied that the offer falls within the range of what may broadly be regarded as fair and reasonable compensation for the interest in question: see Capital Well Ltd v Bond Star Development Ltd [2005] 4 HKLRD 363 at paras.32-36. 36.Ms Chiu Siu Kam, Assistant Chief Manager of the Department of Property Investment and Valuation of the developer, which is the parent company of the Applicants, gave evidence. She adopted her statement that explains the steps taken to acquire the units in the existing development. Negotiation both in writing and verbally has been conducted with the alleged representatives of the 2nd Respondent. 37.The first round of offer to the 2nd Respondent began by letter in January 2005. The offer price was HK$4,348,153.17, which was calculated with reference to the tender price. In reply, the representative of the 2nd Respondent suggested HK$5,500,000. 38.In August 2005, another alleged representative of the 2nd Respondent suggested HK$6,500,000 or alternatively a unit for unit exchange. The Applicants made a new offer of HK$5,300,000 a few days later. The offer was rejected. Instead, the 2nd Respondent’s representative offered HK$6,500,000 while remaining open to a unit for unit exchange proposal. 39.When the Applicants did propose a unit for unit exchange in September 2005, the 2nd Respondent proposed HK$6,400,000 instead. This proposal was rejected by the Applicants. 40.The second and the third rounds of offers to all the Respondents were made by the solicitors for the Applicants by letters in May and September 2007 respectively. To the 2nd Respondent, offers of HK$4,362,878 and afterwards HK$4,400,000 have been made. In court, Ms Chiu confirmed that these 2 rounds of offers were put forward according to the assessments of Mr Chan and the application of the EUV formula, namely, EUV of the 2nd Respondent’s unit / EUV of all the units x RDV of the Lot. Ms Chiu added that for the 2nd round of offer, another 5% was actually added to the value so assessed. However the 2nd Respondent’s representative eventually counter-proposed HK$8-8,500,000. 41.By her supplemental statement, which she adopted, Ms Chiu explained the fourth round of offers to the Respondents. The offers were made to the solicitors for all the Respondents in July 2008. Though the 2nd Respondent was not legally represented in these proceedings, she was represented by the solicitors for the other Respondents in this round of negotiation. The same EUV formula mentioned above was applied; only that the previous offers were adjusted upwards in view of the latest RDV assessed in the supplemental report of Mr Chan. These were explained in the letters of offer. The offer to the 2nd Respondent was increased to HK$5,943,010. 42.Through their solicitors, the 1st, the 3rd and the 4th Respondents eventually accepted the offers. The 2nd Respondent did not; and the solicitors also ceased to negotiate on her behalf. Notwithstanding that, the Applicants’ solicitors extended the deadline for accepting this last offer for the benefit of the 2nd Respondent for another week. 43.We accept the above evidence. We are satisfied that the Applicants, by themselves and through their solicitors, have taken reasonable steps to communicate their offers to the Respondents. We are also satisfied that the various rounds of offers were made on the bases and assessments as well as in the terms within a fair and reasonable range. The other Respondents’ acceptance of the last round of offers, through their solicitors, is somehow indicative of the acceptability of the assessments and the terms. We are therefore satisfied that section 4(2)(b) has been complied with. RESERVE PRICE 44.The reserve price should take into account the redevelopment potential of the Lot on its own: Schedule 2, para.2(a) of the Ordinance. As mentioned above, Mr Chan assessed the RDV as at the date of his supplemental report (21 July 2008) to be HK$350,000,000. In his assessment, Mr Chan has analysed and examined some whole lot sales, lease modification to permit more intensive redevelopment in return for the payment of premium and comparables for the assessment of the unit rate of the GDV. He has conducted a residual valuation for the assessment of the RDV. Mr Mok submitted that the RDV is an appropriate figure to be adopted as the reserve price in the event that a compulsory sale order is made. We agreed with Mr Mok. CONCLUSION 45.For the above reasons, this Tribunal is satisfied that the order for compulsory sale should be granted in terms as mentioned above. COSTS 46.Mr Mok for the Applicants invited this Tribunal to make no order as to costs between the Applicants and the 2nd Respondent. We agreed.
Representation: Mr Mok Yeuk Chi instructed by Messrs Woo Kwan Lee & Lo for the 1st to the 5th Applicants 2nd Respondent, in person, absent | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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