Worldman Development Ltd v. The Personal Representatives of Chan Chau Ling, Deceased
Read the full judgment text of LDCS 8000/2013 on BabelCite. This LDCS judgment.
1. This is an application for compulsory sale of all the undivided shares in Inland Lot No. 7514 and Inland Lot No. 7513 (hereinafter collectively referred to as “the Lots”) with a pair of buildings erected thereon known as Nos. 1-3 Yuet Yuen Street, Hong Kong (“the Buildings”), for the purposes of redevelopment pursuant to Section 3(1) of the Land (Compulsory Sale for Redevelopment) Ordinance, Cap. 545 (“the Ordinance”).
Cited by 4 cases · Cites 2 cases
IN THE LANDS TRIBUNAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION LAND COMPULSORY SALE APPLICATION NO. 8000 OF 2013 BETWEEN ________________________
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______________ J U D G M E N T ______________ Background 1.This is an application for compulsory sale of all the undivided shares in Inland Lot No. 7514 and Inland Lot No. 7513 (hereinafter collectively referred to as “the Lots”) with a pair of buildings erected thereon known as Nos. 1-3 Yuet Yuen Street, Hong Kong (“the Buildings”), for the purposes of redevelopment pursuant to Section 3(1) of the Land (Compulsory Sale for Redevelopment) Ordinance, Cap. 545 (“the Ordinance”). 2.The Buildings consist of a pair of 4-storey tenement buildings each with one unit on each floor, being served by a single common staircase. According to an occupation permit issued on 16 August 1954, the Buildings were permitted for domestic purposes. The 8 units are each assigned one equal and undivided share of the corresponding lots by their respective Deeds of Covenant. THE APPLICATION 3.The applicant commenced the present proceedings on 6 May 2013 (“the Application”). At that time, it owned 3 undivided 4th parts or shares (ie 75%) of Inland Lot No. 7514 and all 4 undivided 4th parts or shares (ie 100%) of Inland Lot No. 7513. This is equivalent to 87.5% of the undivided shares in the Lots on average. The only remaining interest was held by the estate of Chan Chau Ling, deceased who owned the 1 undivided share allotted to 2nd Floor of No. 1 Yuet Yuen Street otherwise than as a mortgagee[1]. 4.The respondent is missing. Substituted service of the Application on the respondent was effected on 22 October 2013 pursuant to the Order of this Tribunal dated 3 October 2013 under section 3(4) of the Ordinance. The respondent has not shown up after the expiration of the 1-month period (ie 21 November 2013) and therefore all persons claiming to be minority owners of the Lots shall be bound by the proceedings herein as if they have been served with the Amended Notice of Application in accordance with section 3(3)(a) of the Ordinance. 5.The applicant contends that it was entitled to make the Application by virtue of the Land (Compulsory Sale for Redevelopment (Specification of Lower Percentage) Notice under section 3(5) of the Ordinance (“the Notice”). 6.The applicant contends that all the requirements of the Ordinance have been satisfied and asks for an order for sale in terms of the draft order submitted. Ms Nancy Ngai, counsel for the applicant, just called the witnesses to prove the applicant’s case. Section 3 of the Ordinance – Ownership of the Applicant 7.Section 3(1) of the Ordinance requires the applicant to have not less than 90% of the undivided shares in a lot before it can make an application. 8.Section 3(2) of the Ordinance also states that an application under subsection (1) may cover-
9.Section 3(5) of the Ordinance states that the Chief Executive in Council may, by notice in the Gazette, specify a percentage lower than the percentage mentioned in subsection (1) in respect of a lot belonging to a class of lots specified in the notice. 10.Pursuant to Section 3(5) of the Ordinance, the Notice was gazetted on 22 January 2010 and tabled at the Legislative Council meeting on 27 January 2010. It came into operation on 1 April 2010. Section 3 of the Notice lowered the threshold for compulsory sale, insofar as it is applicable, from 90% to 80%. Section 4(1)(b) of the Notice specified one of the classes for the purposes of Section 3 as “a lot with each of the building erected on the lot issued with an occupation permit at least 50 years before the relevant date (which is the date of the Application)”. The occupation permit in respect of the Buildings was issued on 16 August 1954, which is more than 50 years as at the date of the Application. The Buildings are therefore covered by the Notice and the applicable percentage is 80%. 11.When the applicant commenced the present proceedings on 6 May 2013, it owned on average 87.5% of the undivided shares in the Lots which share a common staircase. The applicant was therefore entitled to make the Application under section 3(2)(b) of the Ordinance. Determination of the existing use values (“EUV”) of all units in the BuildingS 12.The Application was accompanied by a valuation report dated 30 April 2013 (“Application Report”) prepared by Mr Charles C K Chan of Savills Valuation and Professional Services Limited (“Mr C Chan”), the applicant’s valuation expert witness, containing assessments of the values of all units (which are conveniently termed as the existing use values, the “EUV” of all units) in the Buildings on the Lots as at 16 April 2013. The Application Report was prepared not earlier than 3 months before the date of the Application, ie 6 May 2013 and is therefore, in my view, in compliance with section 3 of the Ordinance. 13.Under section 4(1)(a)(i), if there is a dispute between the parties on the EUV of the units in the Buildings on the Lots, the Tribunal has to determine the values. 14.Section 4(1)(a)(ii) further provides that, in the case of any minority owner of the Lots who cannot be found, the majority owner of the Lots is required 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.” 15.In the Application Report of 30 April 2013, Mr C Chan explained the method of valuation and the process of his assessment to arrive at the EUV of each unit of the Buildings. 16.In his valuation of the EUV of the domestic units on the upper floors of the Buildings, Mr C Chan adopted the following methodology:
17.In assessing the EUV of the ground floor units, Mr C Chan adopted the following methodology:
18.Mr C Chan updated the Application Report by another report dated 5 March 2014 (“Supplemental Report”) in which he revised the EUV of all the units in the Buildings after taking into account the inspection of more units in the Buildings and the updated property index prepared by the Rating and Valuation Department. In this report, Mr C Chan repeated the exercise he did in the Application Report. 19.I note that Mr C Chan had assessed the 2 units on ground floor on the basis of shop uses despite the occupation permit in respect of the Buildings was issued for domestic purposes. He considers that retail use was the optimum use for the ground floor units of the Buildings. He was advised by the applicant that obtaining all necessary approvals for the change of use from domestic to retail use for the ground floor units of the Buildings are highly practical according to the Authorised Person acting on behalf of the applicant. This is confirmed in trial by Mr Benson Wong (“Mr B Wong”), an Authorised Person and a qualified building surveyor, who is another expert appearing on behalf of the applicant. 20.Mr B Wong says the ground floor units of the Buildings can be legally converted into shop uses relatively easily subject to the submission of necessary plans for alterations and additions building works (commonly known as the A & A plans in the industry) to the Buildings Department. The process would only take a few months subject to a cost of about $800,000. Mr B Wong also gave evidence that for his professional practice of about 30 years, he had not been aware of any such enforcement action, if any, taken by the Building Authority, 21.In the absence of evidence to the contrary, I agree the approach of Mr C Chan as regards the assessment of EUV of the ground floor units of the Buildings, following what I did in Many Gain Investment Limited v. Chan Fai Ho and the Others, LDCS 28000 of 2012 dated 18 June 2014 (unreported)[2]. Nevertheless, in light of this latter judgment, Mr Chan revises his assessment of the EUV of the ground floor units of the Buildings by applying a discount of 4% to reflect the fact that they were designated for domestic use under the occupation permit[3]. 22.Therefore, the EUV of all units in the Buildings assessed by Mr C Chan, as at the relevant date of valuation of 16 April 2013, are reproduced below:
23.I am satisfied that the value of the respondent unit as assessed by Mr C Chan is not less than fair and reasonable; and not less than fair and reasonable when compared with the value of the applicant’s properties:
24.Under Section 4(1)(b) of the Ordinance the second determination is whether an order of sale should be made. Section 4(2) of the Ordinance provides that there are basically 2 considerations, namely :-
25.The applicant has to satisfy this Tribunal that the above statutory requirements were met; otherwise, an order for compulsory sale would not be granted. 26.For the age and state of repair requirements, I have taken into consideration the expert evidence of Mr B Wong, an Authorised Person and the building surveyor and Mr Wong Chi Ming (“Mr CM Wong”), the structural engineer adduced by the applicant. 27.Mr CM Wong conducted a structural assessment and prepared a report dated 6 March 2014. He identified the following defects in the Buildings:
28.Based on his findings, Mr CM Wong concluded that the structural elements of the Buildings were in a poor condition. He opined that the structural elements had passed their design working life of 50 years and were inferior to the current standard. The corrosion of the reinforcement bars had entered the propagation phase and extensive maintenance and repair works are required in the near future. He said that the design and construction of the structural frames had become obsolete over time and the structure failed the current safety standard. He recommended that hammer tapping works be carried out to all the structural members and all revealed cracks and spalling should be patch repaired. 29.Mr CM Wong estimated the cost of repair to the Buildings in its current state is $126,020 but this estimated repair cost did not include the repair of problems such as severe carbonation and high chloride content because they were both technically and financially impractical and would cause extensive disturbance during the works. 30.Mr B Wong, in his condition survey report dated 7 March 2014, stated that:
31.Mr B Wong estimated that the total costs of immediate repair works to restore the Buildings to tenantable standard came to $4,623,180 which was about 65% of the cost of constructing new similar buildings. He concluded that the Buildings have deteriorated to a state which is beyond reasonable economic repair. As more rapid deterioration would occur in the future, the necessary maintenance and repairs would inevitably be more frequent and extensive making the continued occupation of the Buildings uneconomical and even unsafe, to both occupants and third parties. He recommended the owners to redevelop rather than repair given that the Buildings do not possess any historical value or architectural merit. 32.There is no contrary evidence and I accept the expert evidence of Mr B Wong and Mr CM Wong. Having considered the evidence, I am satisfied that redevelopment of the Buildings is justified due to its age and state of repair. Reasonable Steps to Acquire All the Undivided Shares in the LotS 33.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. 34.According to the applicant’s witness Lui Wing Yan, a manager of the applicant, the applicant had made the following offers to the respondent for the purchase of her unit, all (save for the first one) based on the valuation of Savills Valuation and Professional Services Limited:
35.None of the above offers were accepted and according to a Death Certificate produced in Bundle F/128, Chan Chau Ling died on 2 April 1992. No grant of probate or letters of administration had been aware of. 36.Substituted service of the Application on the respondent was effected on 22 October2013 pursuant to the Order of this Tribunal dated 3 October 2013 under section 3(4) of the Ordinance. The respondent has not shown up after the expiration of the 1-month period specified in the publication of the substituted service of the notices of the Application. 37.The applicant submits that it is reasonable in not making any further offer to the respondent after 21 November 2013 because any attempt to do so would not be fruitful if the respondent is missing. Ms Ngai also submits that, since the respondent is a missing owner, no offer could have reached her and the applicant could never be successful in acquiring her unit by negotiation. 38.Ms Ngai further submits that, in any event, all the offer prices made to the respondent were fair and reasonable and the Tribunal is not required to conduct a valuation exercise in assessing whether the offers were fair and reasonable, bearing in mind the following guidance from the remarks made by Mr Justice Ribeiro PJ in Capital Well Ltd v Bond Star Development Ltd (2005) 8 HKCFAR 578 at §33:
39.In the circumstances of this particular case, I am satisfied that the applicant has taken reasonable steps to acquire all the undivided shares in the Lots including the respondent’s unit. Reserve Price for the Auction 40.Mr C Chan has prepared another supplemental report dated 23 June 2014 (“the Further Supplemental Report”) for the purpose of assessing the RDV of the Lots as at 18 June 2014. The total site area of the Lots as determined by Mr C Chan is 153. 29 sq m. 41.The applicant submits that the reserve price for the auction of the Lots should be fixed at $105,000,000 according to the Further Supplemental Report. 42.I have considered Mr C Chan’s valuation of the RDV of the Lots. I note Mr C Chan had considered two land sale transactions in the past years, ie the sale of the site at North Point Estate Lane and Shu Kuk Street in North Point in March 2013 and another at 14-20 Merlin Street, Tin Hau in August 2011. I agree with him that they are all not suitable for direct comparison purpose because of the substantial disparity in development potential due to different attributes on time, location and development scale between the Lots and the land sale comparables. 43.I also agree with Mr C Chan that as a last resort, the residual method has to be employed as the method of assessment of the RDV of the Lots. This is done by deducting development costs (including construction costs, professional fees, finance costs etc) and developer’s profit from the estimated gross development value of the completed optimum development. 44.Mr C Chan opined that the optimal development on the Lots would be a 28-storey hotel with a retail shop on ground floor. Details of the hypothetical development and residual valuation were set out in Appendix III of the Further Supplemental Report (Bundle C/121). Details of retail and hotel comparables with adjustments were set out in Appendix V (Bundle C/131) and Appendix VII (Bundle C/135) respectively. In respect of the latter, the comparable which is of particular relevance is the sale of Printemp Hotel Apartment at 110-112 Chun Yeung Street in May 2014 for $305,000,000 which Mr C Chan analysed at a unit rate of $100,150/sq m for the hotel portion. Mr C Chan also adopted the Development Cost Pro-forma promulgated by the Hong Kong Institute of Surveyors to facilitate consideration of construction costs in land value assessments in Appendix IV (Bundle B2/123-129). The valuation arrived at by Mr C Chan was $105,000,000, representing an overall accommodation value of $45,665/sq m. 45.I have gone through Mr C Chan’s valuations. In the absence of evidence to the contrary, I am satisfied with his valuation, including the valuation assumptions he has adopted, the values and the costs parameters he has used in his valuation. 46.Based on Mr C Chan’s valuation, I decide that the reserve price for the auction of the Lots should be HK$105,000,000. TRUSTEES 47.The applicant proposes to appoint Mr Ma Ho Fai (馬豪輝) and Ms Tsang May Ping (曾美萍) who are respectively senior partner and partner of Messrs Woo Kwan Lee & Lo as the sale trustees. Based on the information on their letter dated 28 February 2014, the proposed trustees also intend to appoint Messrs Michael Cheuk, Wong & Kee to act as the solicitors of the trustees/vendors in the sale of the Lots for handling the sale and discharging the duties imposed on the trustees under the Ordinance. I am satisfied that Mr Ma Ho Fai (馬豪輝) and Ms Tsang May Ping (曾美萍) are proper persons to be appointed. Their proposed remuneration at the rate of $5,500 per hour (exclusive of disbursements and fees payable to consultants) as mentioned in the letter dated 28 February 2014 is also reasonable and hereby allowed. PARTICULARS AND CONDITIONS OF SALE OF THE LOTS 48.Ms Ngai has submitted a set of draft particulars and conditions of sale by public auction for my consideration. While I understand these are the usual terms used for compulsory sale, I approve the draft particulars and conditions of sale accordingly. Conclusion AND ORDERS 49.By reasons of the aforesaid, I am satisfied that the redevelopment of the Lots is justified due to the age and state of repair of the Buildings; and the applicant has taken reasonable steps to acquire the undivided shares of the Lots. This Tribunal is also satisfied that the value of the single minority owner’s unit as assessed in the Application is not less than fair and reasonable, and not less than fair and reasonable when compared with the value of the applicant’s property as assessed in the Application. This Tribunal now makes the following orders:
Costs 50.The applicant does not ask for costs. I make a costs order nisi that there be no order as to costs between the parties, such order be made absolute after 14 days if no application is made to vary the said costs order.
Ms Ngai Nancy, instructed by Messrs Vincent T K Cheung, Yap & Co, for the Applicant Respondent, unrepresented and did not appear | ||||||||||||||||||||||||||||||||||||||||||||||||||
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