Best Insight Ltd v. Lo Kwong Pui Appointed By Order Dated 23rd March 2011 To Represent the Estate of Tin Hing Lin (Deceased) and Others

LDCS 5000 / 2011

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE APPLICATION NO. 5000 OF 2011

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Coram : Deputy Judge KOT, Presiding Officer and Mr. W.K. LO, Member of the Lands Tribunal

Date of Hearing : 1 September 2011

Date of Judgment : 1 September 2011

Date of Reasons for Judgment : 5 September 2011

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REASONS FOR JUDGMENT

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1.This is an application made under the Land (Compulsory Sale for Redevelopment) Ordinance, Cap. 545 (“the Ordinance”) for an order of compulsory sale of all the undivided shares in Inland Lot No. 2912 (collectively referred to as “the Lot”).

2.After hearing evidence and submissions before us, judgment was granted in favour of the Applicant on 1 September 2011 with an order for sale made under the Ordinance accordingly.  This is the written reasons for the judgment. 

The Application

3.The existing building on the Lot is a 14 storey residential building consisting of 12 levels of residential units and an Upper Ground and Lower Ground Floor, known as No. 7C, 7D, 7E and 7F Shan Kwong Road, Hong Kong (collectively referred to as “the Building”).  There are 2 garages, one located on the Lower Ground Floor and the other on the Upper Ground Floor; and 4 residential units on each of the upper floors, namely G/F to 11/F.  The two garages accommodate 22 twin car parking spaces and 3 individual car parking spaces.  According to the Occupation Permit, the Building was completed on 12 April 1961 and is served by two passenger lifts and two common staircases.

4.There are 54 undivided shares in the Lot.  There is 1 share for each residential unit and 5 shares for Lower Garages and Upper Garages of 7C and 7D and Garages of 7E and 7F Shan Kwong Road.  The remaining 1 share is assigned to the portion of area located at the Lower Garage of 7C, 7D, 7E and 7F Shan Kwong Road, as highlighted in yellow on the plan attached to the Assignment No. UB366454 (“the Yellow Portion”) which the first owners reserved unto themselves the sole use, enjoyment and exclusive possession. 

5.The Applicant was the registered owner of 52 out of 54 undivided shares in the Lot, i.e. owning 96.2963% of all the undivided shares.  The Tribunal is satisfied that the Applicant is entitled to make this Application pursuant to Section 3(1) of the Ordinance.  The outstanding shares are 7^th Floor of No. 7E Shan Kwong Road (“the R1’s Unit”) and the Yellow Portion.

6.The R1’s Unit was registered in the sole name of Mr. Tin Hing Lin (“the Deceased”) who passed away on 27 August 2007.  There was no grant of probate or letters of administration being granted in respect of the Deceased’s estate.  By an order dated 23 March 2011, the 1^st Respondent was appointed by the Tribunal to represent the estate for the purpose of these proceedings and it was ordered that these proceedings be carried on against the 1^st Respondent.  The 1^st Respondent’s stance in this trial is that he agrees to the order sought by the Applicant.  The Applicant had entered into an agreement to buy the R1’s Unit conditional upon the 1^st Respondent obtaining the Letters of Administration of the Deceased’s estate.

7.The 2^nd and 3^rd Respondents are the first owners of the Lot and they remained the owner of 1 undivided share assigned to the Yellow Portion.  The Applicant had sent offers to the last known addresses of the 2^nd and 3^rd Respondents for the purchase of the Yellow Portion but the offers were returned marked “address unknown”.  Since the 2^nd and 3^rd Respondents could not be located, by an order of the Lands Tribunal dated 16 February 2011, it was ordered that service of the Notice of Application on the 2^nd and 3^rd Respondents be dispensed with and a notice to be published once in a Chinese newspaper circulating in Hong Kong within 14 days and upon expiry of  21 days after the notice was published, the 2^nd and 3^rd Respondents shall be bound by the proceedings as if they had been duly served in accordance with S. 3(3)(a) of the Ordinance.  A notice was published on 23 December 2011 in Sing Tao Daily.  No claim or notice of opposition has been filed by the 2^nd and 3^rd Respondents.

Determination of the existing use values (“EUV”) of all units in theBuilding

8.Under section 3 of the Ordinance, the Applicant may make an application accompanied by a valuation report as specified in Part 1 of Schedule 1, prepared not earlier than 3 months before the date of the Application, containing the assessments of the EUV of all units in the Building on the Lot.

9.Under section 4(1)(a), if there is a dispute between the parties on the EUV of the units in the Building on the Lot, the Tribunal has to determine the values.

10.Section 4(1)(a) further provides that, “(ii), in the case of any minority owner of the lot who cannot be found, requiring the majority owner of the lot to satisfy the Tribunal that the value of the minority owner’s property as assessed in the application is- (A) not less than fair and reasonable; and (B) not less than fair and reasonable when compared with the value of the majority owner’s property as assessed in the application.”

11.The present Application made on 1 February 2011 and amended on 27 May 2011 was accompanied by a valuation report dated 31 January 2011 prepared by Mr. Charles Chan of Savills (“Mr. Chan”).  In the valuation report, the date of valuation was stated to be 24 January 2011.  Mr. Chan estimated the EUV of the R1’s Unit at $7,760,000 and the EUV of the Yellow Portion at $480,000 with the total EUV of all units in the Building on the Lot at $439,710,000.

12.Mr. Chan revised the valuation in his supplemental report dated 27 July 2011 since updated property index had become available after the report dated 31 January 2011 was prepared.  Yet, the valuation referred to the same date, i.e. 24 January 2011. 

13.The following schedule shows the EUV of all units in the Building as at 24 January 2011, assessed by Mr. Chan and accepted by this Tribunal:

Flat	Market Value for Domestic Portion as at 24 January 2011 (HK$) (Revised)
	7C	7D	7E	7F
G/F	$10,640,000	$7,170,000	$7,390,000	$10,640,000
1/F	$10,700,000	$7,430,000	$7,210,000	$10,700,000
2/F	$10,750,000	$7,240,000	$7,470,000	$10,750,000
3/F	$10,800,000	$7,510,000	$7,280,000	$10,800,000
4/F	$10,530,000	$7,540,000	$7,540,000	$10,860,000
5/F	$10,910,000	$7,350,000	$7,580,000	$10,910,000
6/F	$10,970,000	$7,390,000	$8,000,000	$10,970,000
7/F	$11,020,000	$7,650,000	$8,040,000	$11,020,000
8/F	$11,080,000	$7,690,000	$7,840,000	$11,080,000
9/F	$11,130,000	$7,740,000	$7,880,000	$11,130,000
10/F	$11,190,000	$7,770,000	$8,160,000	$11,190,000
11/F and Roof	$11,680,000	$8,590,000	$8,120,000	$11,680,000
Domestic Portion Sub-total :				$446,710,000

Market Value of Garage Portion	HK$7,420,000
Market Value of the Yellow Portion	HK$510,000
Total Market Value of Domestic Portion	HK$446,710,000
Total Market Value of the Building as at 24 January 2011	HK$454,640,000

This shows that the EUV of the R1’s Unit, the Yellow Portion and the total EUV of the Lot to be $8,040,000, $510,000 and $454,640,000 respectively.  This gives the R1’s Unit and the Yellow Portion a higher figure when compared with the previous assessment as shown in the Application’s valuation report.

14.We note that the 1^st Respondent has not raised any dispute on the EUV as shown in the valuation reports.  However, as the probate of the Deceased’s estate has not been completed, we take the view that it falls within the provision of section 4(1)(a) of the Ordinance, where if “the minority owner cannot be found” , the Tribunal could determine the EUV to ensure that the EUV of the minority owner’s unit is “not less than fair and reasonable”.  We accept, for the purpose of this Application, the EUV of all units in the Building, including the R1’s Unit and the Yellow Portion are as stated in the schedule shown above.

15.Under section 10 of the Ordinance, the apportionment between the majority owner and the minority owners of the Lot shall be on the basis as specified in Part 3 of Schedule 1 of the Ordinance.  Under the said Schedule, the proceeds are to be apportioned on the basis of the EUV as determined by this Tribunal above.

Reserved Price for the Auction

16.The Applicant submitted that the Reserve Price for the auction of the Lots should be fixed at $1,038,000,000, which was assessed by Mr. Chan as the redevelopment value (“RDV”) of the Lot as at 15 July 2011 in his supplement valuation report.  No opposition had been raised towards this assessment by the Respondents.

17.We have gone through the valuation in details.  We agree with Mr. Chan in the valuation assumptions he has adopted, the values and the costs parameters that he has used in his valuation.  We accept that the open market value of the Lot reflecting its redevelopment potential, i.e. the RDV of the Lot, as at 15 July 2011 is $1,038,000,000, which should be the reserve price for the auction of the Lot.

Justification for Redevelopment

18.The second determination under Section 4(1)(b) of the Ordinance is whether the order of compulsory sale should be made.  According to Section 4(2) of the Ordinance, this would involve 2 statutory requirements, namely :-

(a)     is the redevelopment justified due to age or state of repair of the Building; and

(b)     had the Applicant taken reasonable steps to acquire all the undivided shares in the Lots.

19.The Applicant has to satisfy this Tribunal that the above statutory requirements were met, otherwise, an order of compulsory sale ought not be granted. 

20.As for the requirement under (a) above, the Tribunal has taken into consideration the expert opinion of Mr. Richard Cheung (“Mr. Cheung”), the Building Surveyor, Dr. James Lau (“Dr. Lau”), the structural engineer and Mr. Chan, the valuation surveyor.

21.Dr. Lau had conducted a structural assessment of the Building and prepared a report dated 25 July 2011.  He concluded that the Building was in poor conditions.  The main problem was the water seepage and leakages causing corrosion of reinforcements in some locations, for example the Ground Floor and Lower Ground Floor, the roof, the external walls etc.  By conducting the concrete compression tests, Dr. Lau found that there was a wide variation in the strength of the concrete and the concrete strengths in a number of columns show very low values.  He opined that the Building had to be repaired and his estimate of the repair costs was at $16.8 million which was not worthwhile when it was more cost effective to demolish and rebuild the Building.  

22.Mr. Cheung in his report dated 26 July 2011 stated that the basic structure of the Building was not in a fair or good condition.  The Building was not up to tenantable standard and substantial repair works were necessary.  The Building had not been provided with sufficient and up-to-date provisions and service installations including the means of escape, means of access for fire firefighting, fire resisting construction, barrier free access and fire service installation.  Such provisions and installations should be provided to protect the building users in case of emergency and meet the current standard of fire safety.  However, the works would require substantial alteration and addition.  Mr. Cheung estimated that the total initial costs to restore the Building to a tenantable condition for domestic use was $35,683,208.  The unit cost of initial repairs was about 45% of the unit cost of building a new building.  Subsequent maintenance cost would be higher and more frequent repair works were expected.

23.In his Supplemental Report dated ay 2011, Mr. Chan conducted the “Repair Test” to ascertain the enhancement of the value of the Building that the recommended repairs would bring.  He found the enhancement in value to the Building due to the repair works to be 5% for the domestic portion of the Building and 3% for the garage portion.  Applying the enhancement percentage to the market value of the Building, he estimated that the enhancement in EUV after completion of all remedial works recommended by Mr. Cheung, was about HK$24,147,600. After comparing the repair cost estimated by Mr. Cheung with the estimated enhancement in value, he opined that the repair works were not economically viable and not economically justified in that the estimated cost of repair exceeded the additional value that such cost would create.

24.By way of the “Age Test”, Mr. Chan assessed the EUV of the Building and the RDV of the Lot and examined the various forms of obsolescence of the Building.  He concluded that the substantial difference in the 2 valuations reflected that redevelopment of the Lot was justified from the economic perspective.

25.This Tribunal accepts the evidence of the experts which are sound and supported by facts.  Having considered the opinion of the experts, this Tribunal accepts that the condition of the Building is not up to tenantable standard and is substantially below the usual standard for human habitation and it has already reached its expected 50 year design life. Without extensive repair at unreasonable high costs, the Building is unfit for habitation.  This Tribunal is satisfied that the redevelopment of the Lot is justified due to the age and state of repair of the Building.

26.Since this Tribunal is satisfied with the facts and expert opinions adduced before us that the redevelopment is justified due to the age and repair of the Building, it is no longer necessary for the Tribunal to apply the tests formulated in Intelligent House for disposal of this Application.

Reasonable Steps Taken

27.The Applicant is under an obligation to negotiate on terms that are fair and reasonable in a situation when the whereabouts of a minority owner are known.  Because of the death of the Deceased and no grant of probate or letters of administration has been granted in respect of his estate, no offer can be accepted on behalf of the deceased due to a lack of the required legal status.  This Tribunal accepts that the position of the 1^st Respondent is effectively the same as the 2^nd and 3^rd Respondent where their whereabouts are unknown and the Applicant is not duty bound to make an offer.    

Conclusion

28.Having considered the above, this Tribunal is satisfied that the requirements and conditions as laid down in the Ordinance have been met and an order for compulsory sale sought by the Applicant should be granted.  We made the order accordingly. 

Ms. Yvonne Cheng, instructed by Messrs Mayer Brown JSM for the Applicant

Mr. Derek T L Hu, instructed by Messrs K. B. Chau & Co for the 1^st Respondent

2^nd Respondent absent

3^rd Respondent absent