Case Detail

LDLA000015B/1983

landlord and tenant -Part II - Certificate of Increase of Rent - appeal from review of Certificate by Commissioner of Rating & Valuation - proper date for valuation is date of Certificate - preferable for valuation to be made on basis of analysed comparables - undesirable to rely alternatively on averaging - Sections 57, 58, 59, 60 Landlord and Tenant (Consolidation) Ordinance, Cap. 7.

IN THE LANDS TRIBUNAL OF HONG KONG

(Appellate Jurisdiction)

Landlord and Tenant Appeal No. 15 of 1983

BETWEEN

LEE YU FONG

Appellant

A N D

CHEUNG WING MING

Respondent

Coram: TRIBUNAL: His Honour Judge Cruden, Presiding Officer and M.W. Phillips, Esq., Member.

Date: 13th day of September, 1983

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JUDGMENT

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1. The appellant occupies, as a sub-tenant, part of the domestic premises known as Flat A3, Mirador Mansion, 14th Floor, 58 Nathan Road, Kowloon of which the respondent is the principal tenant. On the 2nd day of July, 1982 the respondent applied to the Commissioner of Rating and Valuation pursuant to Section 57 of the Landlord and Tenant (Consolidation) Ordinance, Cap. 7 for a Certificate of Increase in Rent. The existing rent was then $1,350 per month inclusive of rates. The rent when, in terms of Part II, rates are excluded, was, rounded down to the nearest dollar, $1,284 per month.

2. On the 21st day of October 1982 the Commissioner, pursuant to Section 58, issued a Certificate of Increase in Rent certifying that the existing rent might be increased by $385. The appellant in November 1982 applied to the Commissioner pursuant to Section 59, for a review of the Certificate of Increase of Rent. On the 24th day of May 1983 the Commissioner, having reviewed the Certificate, confirmed the increase of $385.

3. From that decision of the Commissioner confirming the increase, the appellant has now appealed, pursuant to Section 60, to this Tribunal. In support of her appeal the appellant, who was unrepresented, gave evidence. After dwelling on her husband's small and uncertain income, which was not relevant to the matters we are obliged to consider on an appeal of this nature, she described certain alleged physical defects of the premises. In her view because of these defects, the Commissioner should not have certified any increase in rent. These defects included problems with the water supply but she conceded that these had recently been rectified. In addition, she claimed that the electricity supply was often interrupted due to overloading and the other sub-tenants left her to repair the fuses. The sub-tenant occupying the adjoining balcony had also, she alleged, partitioned his area in such a manner as to reduce the natural light which entered the area she occupied. The promises in her view were poorly maintained. Finally, she complained that the principal tenant did not reside on the premises.

4. The water supply problems having been resolved are not matters we can take into account nor would any increase in rent be affected by the respondent electing not to reside on the premises. The poor maintenance, the affect of the partitioning on the natural light and the apparently inadequate electrical wiring of the premises are matters which we may take into account. However, in, turning to determine the weight they should be given, we must remind ourselves that they are factors which are commonly and almost invariably faced by sub-tenants of premises of this kind partitioned by a principal tenant.

5. The respondent although present in court, was an invalid and was represented, by leave, pursuant to Rule 24(1) of the Lands Tribunal Rules, by Madam Cheng Yun-lee who also gave evidence disputing all of the appellant's allegations of fact.

6. The Commissioner had caused Mr Yuen Ping -Kwong, Senior Rating and Valuation Surveyor, to file an affidavit which exhibited his Valuation Report which the Commissioner had adopted in reviewing, under Section 59, his prior Certificate of Increase.

7. The Commissioner valued the property as at the 2nd day of July 1982 being the date of the application for a Certificate of Increase in Rent. Any doubt as to the proper valuation date has since been removed by Section 10 of the Landlord and Tenant (Consolidation) (Amendment) Ordinance, No. 29/83 which amended Section 49 of the principal Ordinance. As a consequence of that amendment and also a, further amendment under Section 46 of the same amending Ordinance, the definition in Section 49 of the principal Ordinance of "prevailing market rent" is now as follows:

"prevailing market rent" means the rent, exclusive of rates, at which premises the subject matter of a tenancy to which this Part applies might reasonably be expected to be let at the date upon which the Commissioner issues his certificate under section 58, on the terms of the tenancy (other than those relating to rent and duration of the tenancy) but disregarding the effect of this Part.'

8. On an appeal under Section 60 the Tribunal has a very wide discretion:

"60. Any person aggrieved by a decision of the Commissioner under section 59 may, within 1 month of the decision, appeal to the Tribunal which may make such order thereon as it thinks fit."

9. Our primary appellate function is to consider whether the Certificate of Increase has been calculated on the basis of the prevailing market rent in accordance with the statutory formula set out in Section 58. It is now clear that the prevailing market rent is to be assessed thereunder as at the date of the issue of the Commissioner's certificate. That same date remains the proper date of valuation both on a review under Section 59 and on an appeal to the Tribunal under Section 60. In this appeal the relevant date of valuation is therefore the 21st day of October 1962.

10. In arriving at what was then the "fair market rent" and has now under the Amendment been renamed, but without any change in definition, as the "prevailing market rent" of $2,100 per month exclusive of rates, the Commissioner took into account the fact that part of the total premises were occupied by two other sub-tenants with consequential lack of privacy including the sharing of common areas. The Commissioner also took into account the defective water supply and the poor state of repair and environment of the premises.

11. The Commissioner went on to record that there were very few sub - lettings of similar premises available for comparison. He therefore relied on new lettings of small flats of approximately the same size in other neighbouring Kowloon areas. Those small flat lettings varied between $100 per square metre to $140 per square metre. After averaging those rentals, the Commissioner arrived at a figure of $120 per square metre. He then adjusted that figure down by 30% to allow for the various disadvantages of the sub-let premises compared with the exclusive possession enjoyed by a sole tenant of a self-contained small flat. By this process he arrived at a rent of $84 per square metre for the subject premises which produces a monthly rent of $2,100 exclusive of rates.

12. We are again disappointed that averaging was principally relied upon in arriving at the prevailing, market rent. On more than one occasion, at least in respect of Part IV applications, we have criticised this practice - R.J. Rhoades v. Lee Wai Lee L. T. No 42/83 citing The Commonwealth v. Milledge (1953) 90 C.L.R. 157. Generally averaging is an inaccurate and unacceptable method of valuation. There were no exceptional circumstances which compelled its use in this application. The proper course would have been to give appropriate weight to the available comparables.

13. As to the comparables referred to by the Commissioner, the small flats in Austin Avenue and Hillwood Road were in localities which are generally regarded as better residential areas than the subject premises. On the other hand, the Wai Ching, Street comparable in Yaumatei, while similar to the subject premises in some respects, was conversely in an inferior locality. We are surprised that no comparables were available from other lettings in Mirador Mansion or nearby Chung King Mansion, both of which have numerous similar tenancies. No explanation was given why the particulars of such more valuable comparables were not available.

14. In these circumstances, the best comparable, on the evidence, was at No. 16 Mody Road. This property was sublet. The evidence indicated that one sub-tenant, who had the exclusive use of a bedroom but shared the kitchen and bathroom facilities, paid $94 per square metre for the bedroom which is about one-third of the area of the subject premises sub-let to the applicant.

15. However, rather than give greater weight to this comparable and attempt to make appropriate adjustments thereto, the Commissioner contented himself with making the already referred to 30% reduction to the average rent for quite dissimilar self-contained flats. No real attempt at analysis appears to have been made. In addition, no comparable rental evidence was obtained after July 1982. No doubt that decision was deliberately made in accordance with The Hong Kong Land Co. Ltd. v. Esso Standard Oil (H.K.) Ltd. Landlord & Tenant Appeal No. 6/74. In that case it was held that the relevant date for ascertaining what was then the fair market rent, was the date of the application under Section 57 for a Certificate of Increase in Rent. In the instant case, that application was made on the 2nd day of July 1982.

16. That judgment has now been overtaken by the provisions of the new Section 49 which expressly provides that the relevant date for ascertaining the prevailing market rent is the date upon which the Commissioner issues his Certificate of Increase in Rent. So under the old law the relevant date was held to be the date of the application for the Certificate. Under the new law the Ordinance provides that the relevant date is the date of the issue of the Certificate. In passing we would point out that even under the old law details of rents after the 2nd day of July 1982 would have still have been relevant, in ascertaining the fair market rent, subject to the Commissioner making a retrospective time adjustment.

17. The Commissioner's valuation has therefore also been adversely affected by the 1983 Amendment. Both the Certificate of Increase and the Commissioner's decision on review were issued and made before the Amendment came into force on the 10th day of July 1983. The rent for the purposes of both the Certificate and the review was ascertained as at the date of the application for the Certificate of Increase, namely the 2nd day of July 1982. The Notice of Appeal herein was signed and filed on the 22nd day of June 1983. The present proceedings were therefore commenced after the amended Section 49 came into effect. We are in no doubt, after considering the amending provisions, that the amended Section 49 applies to the present appeal. We are reinforced in this view by the very detailed transitional provisions contained in Section 49 of the Amendment which, in many instances, expressly apply various sections of the Amendment to proceedings that were already pending before the Tribunal when the Amendment came into force.

18. The present appeal was not a pending application on the coming into force of the Amendment. The appeal was only initiated after the Amendment came into force. We hold that irrespective of the date of an application, the date of the issue of` a Certificate or the date of a review, that in the case of all applications which come before the Tribunal for hearing on or after the 10th day of July 1983 the new law applies. The proper date for ascertaining the prevailing market rent is therefore that stipulated in Section 49, namely:

"... the date upon which the Commissioner issues his Certificate under Section 58."

19. Accordingly the date on which we have to determine the prevailing market rent is therefore the 21st day of October 1982 being the date the Commissioner's Certificate was issued.

20. After having considered the whole of the evidence adduced, it seems to us that a self-contained flat otherwise directly comparable to the subject premises might, during July 1982, reasonably have been expected to let at the rate of a little over $100 per square metre. To that figure some adjustment down has to be made, in view of the fact that the appellant has exclusive possession of only the rear of the premises and shares parts of the premises with other sub-tenants. In addition, a further adjustment down is necessary to allow for the fall in prevailing market rents between July 1982 and the 21st day of October 1982.

21. The poor quality of the evidence, to which we have already adverted, prevents us from calculating these two downward adjustments with the precision we would prefer. However, doing the best we can on the available evidence, particularly the evidence provided by the Mody Road comparable, we are prepared to accept the Commissioner's adjustment of 30% as the difference between a self-contained flat and sub-let premises such as the subject premises. Without any analysis for the time factor having been placed before us we can but accept the lower level of value as at July 1982, which was in evidence, as probably being more or less the norm for October 1982. On this basis the rate of $100 per square foot would be reduced to $70 per square foot producing, a rent of $1,750 per month exclusive of rates. We fix that rent as the prevailing market rent as at the 21st day of October 1982. Having determined the prevailing market rent we now turn to apply the statutory formula, prescribed by Section 58, to determine the permitted increase in rent:

Prevailing market rent (exclusive of rates		$1,750
Less Current rent (exclusive of rates)		$1,284
	Difference	466
	Divided by 2	= 233
30% of current rent of $1,284		= 385
Therefore increase of rent		$233 ======

The Certificate of Increase of Rent of $385 which was confirmed on review, was to take effect from the 1st day of December 1982.

22. The appeal must be allowed. The certified increase of rent of $385 is therefore reduced to $233 producing a total rent of $1,517 exclusive of rates. The increase is to take effect from the 1st day of December 1982. There will be no order as to costs.

DATED this 13th day of September, 1983.

(Judge Cruden)	(M.W. Phillips)
Presiding Officer	Member

Representation:

Applicant in person.

Madam Cheng Yun-Iee, by leave, for the respondent.

LDLA000015/1983

Landlord and Tenant (Consolidation) Ordinance Cap. 7, Part II - Measure of A (4) (a,) compensation to be awarded under section 53A(2) & (4) (a) in respect of the termination of a protected tenancy' to allow redevelopment under section 53 (2) (c)- whether basis of compensation is to be the same as that prescribed for minimum compensation or be a full measure of the tenant's actual loss. Held- only minimum compensation is to be based on the prescribed formula; compensation to be the equivalent of the tenant's loss in having to give up the tenancy before the expiration of his protected tenure, and is the value of his expected future use; past occupation or sentimental value not a measure of compensation ; the value to the tenant is the value of his particular interest in the property- plus disturbance.

VICTORIA LANDS TRIBUNAL

ACTION NOS. 6-23 Consolidated

BETWEEN	SCAIFFE LTD	Applicant
	and
	CHOW HEI CHUEN & OTHERS	Respondents

Coram: TRIBUNAL Judge Li, Presiding Officer, M.W. PHILLIPS Esq., Member

Date: 23rd day of July 1983

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AWARD

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1. On the 22nd June 1983 we made an order for repossession under Section 53(2)(c) of the Landlord and Tenant (Consolidation) Ordinance Cap.7 to allow for the redevelopment of the suit premises at Nos. 4, 6 and 8 Arbuthnot Road Hong Kong.

2. In addition to the conditions specified in the order a consent order was made for the respective agreed sums of compensation to be paid by the applicant to all but three of the respondents.

3. For these three respondents, R.13 (V.L.T. 18/83) Barbara C. Woony R.14 (V.L.T. 19/83) Hung Pak and Fung Kan (sub-tenant) , and R.15 (V.L.T.20/83) Kung Hong Koon we reserved our decision as to the amount of compensation to be awarded and allowed for an appropriate stay of possession.

4. The suit premises for these awards are

R.13	No. 6 Arbuthnot Road, 6th floor
R.14	No.8.Arbuthnot Road, Basement
R.15	No.8 Arbuthnot Road, Ground floor

5. Under Part II of the Landlord and Tenant (Consolidation) Ordinance Cap.7 an order by the Tribunal for possession to allow redevelopment pursuant to Section 53(2)(c), has included, as from 1981, under Section 53A(2) a provision for awarding compensation to tenants who are protected by this part and are dispossessed by the order.

6. Section 53A(4)(a) states that compensation "shall be that which is reasonable in all circumstances", and shall not be less than various multiples of the rateable value of the premises occupied by the tenant according to the time the particular tenant has resided there.

7. It has been agreed that, in the case of the three tenants who were unable to agree to the applicant's offers of compensation, each of them has lived in their respective premises in excess of 5 years and therefore, under Section 53A(4)(a)(iii), is entitled to compensation which is not less than twice the rateable value of these premises.

8. It is submitted by the applicant, that compensation might reasonably exceed this minimum amount but should not vary from the prescribed formula for minimum compensation. That is, it should be a multiple of the rateable value, as is the formula for compensation payments under similar orders within the Landlord and Tenant Act of 1954 in the United Kingdom, which protects only business promises and gives no provision for minimum compensation. It is further submitted that to be reasonable in all the circumstances the multiplier should reflect the increasing inflation experienced since the amendment to allow compensation was enacted.

9. The applicant submits that, by inference, the Ordinance did not intend that there should be any other approach to compensation as it is based on the United Kingdom Act as verified by reference to the Report of the Committee of Review dated 13th February 1981 when it recommended that, "As in the United Kingdom under the Landlord and Tenant Act 1954, the method of determining compensation should be based on rateable value."

10. This Report went on to say, "However we find it difficult to come to a conclusion as to how this should be applied. We feel that recognition should be given to length of occupation, although we understand that this is not usually taken into account in consent cases, nor is it a factor in determining compensation under Part I. Nevertheless we believe that a tenant who has been in occupation for say over five years is likely to have a greater attachment to his home than a tenant who has been in occupation for say only two years. While it is difficult to obtain more detailed and more indicative information, we suggest that the minimum tenant's compensation in such cases might be determined by use of the following formula."

11. The Committee then recommended that the minimum compensation to be paid to tenants should be the amount of the rateable value when a tenant had been in occupation at least two years, 11/2 times the rateable value for over three years and twice the rateable value for over five years.

12. The applicant submitted that the reference to compensation in the Ordinance did not mean that full compensation should be paid, saying that the Review committee only referred to "some contribution towards a tenant's relocation costs." It would appear that the Committee was concerned that there should be some provision for compensation in the Ordinance, as at least some provision such as minimum compensation was better than having no provision as in the past, when any payments were made only on an ex-gratia basis. The Ordinance lays down only the minimum compensation which should be paid to tenants and only this minimum compensation is based on the length of previous occupation and the relative values of the premises by reference to rateable values. The Ordinance does not specify how compensation should be assessed and, in all probability, includes the minimum provision as a protection against a lesser payment if the rent restriction provision is about to terminate, as is the case for premises with rateable values between $50,000 and $60,000, or the difference between the restricted rent and the market rent is negligible. There is clearly no stipulation that compensation shall only be paid in part or shall be based on rateable value as submitted by the applicant.

13. Compensation is not merely any arbitary sum of money payable to a dispossessed party; but rather it is recompense for loss or damage. All that is required is that it is a measure of value to the dispossessed tenant and is the equivalent of his loss. On page 1053 Paragraph (1) of "Encyclopedia of Compulsory Purchase and Compensation" there is the following passage:

"Thus in general any loss sustained by a dispossessed owner which flows from a compulsory acquisition may properly be regarded as the subject of compensation, provided, first, it is not too remote, and secondly, that it is the natural and reasonable consequence of the dispossession of the owner."

14. Over the years legislation in respect of compulsory acquisition has sought to clarify what is reasonable, compared with what is not, due to being remote or not necessarily following directly as a consequence of the taking. This has given rise to guidelines or rules which, in turn, has resulted in compensation usually being assessed under various heads of claim. These guidelines have mostly been based on the more important precedents set through a succession of case law over the years. To not have such guidelines set out in the Ordinance in no way lessens the rights of the dispossessed party, but rather in most cases increases the scope of any claim. Such legislation which sets out guidelines usually has the effect of unintentionally limiting what may be claimed. Here guidelines or heads of claim are not specified as they are in the Crown Lands Resumption Ordinance (Cap.124) or more particularly the Mass Transit Railway (Land Resumption and Related Provisions) Ordinance (Cap.276) which provides a schedule. However, this does not mean that the same applicable principles which apply in these Ordinances cannot equally apply in the case of a tenant dispossessed by an order for possession to redevelop under the provisions of Part II of Cap.7. It is the statutory restrictions limiting compensation under Cap.124 or Cap.276 which do not apply to compensation assessment under Part II of Cap.7.

15. In Lucas v. Chesterfild Gas and Water Board (1908_, 77 LJKB 1009) Fletcher Moulton L.J. said, "The principles upon which compensation is assessed when land is compulsorily taken are well established. The owner receives for the lands he has given up their equivalent , i.e. what they are worth to him in money. His property is therefore not diminished, but is compulsorily changed in form." Again, now as Lord Moulton, in Pastoral Finance Association Limited v. The Minister (Privy Council ) (AC 1914 page 1083) when referring to compensation for a compulsory acquisition, he said, "Probably the most practical form in which the matter can be put is that they were entitled to that which a prudent man in their position would have been willing to give for the land sooner than fail to obtain it." Tenants with a statutory right to compensation who are dispossessed by an order of the Court are in no way different from these, with a similar statutory provision for compensation, whose tenancy is terminated by a resumption order.

16. Tenants of controlled premises have a right of occupation which is more extensive than that enjoyed by tenants of promises which are not within the protection. Regard must be had to the value of the protection from eviction and increases in rent, other than that permitted under the Ordinance. Rents for properties at this level in the market have effectively been under rent control since mid 1970 originally under the Rent Increases (Domestic Premises) Control Ordinance, and later the Landlord and Tenant (Consolidation) Ordinance since 1973. As premises are decontrolled they come under Part N of Cap.7, which preserves security of tenure but allows for rent to be that provailing on the open market. An indeterminable security of tenure, therefore gives a greater interest in the property than that of the usual lease. Under Part II this protected interest is further increased by the restricted rent usually being much lower than that prevailing on the open market. These are the two principal factors which determine the value of the tenant's interest in the property and at the same time correspondingly reduce the value of the owner's interest. An owner cannot expect to realise the same price for a tenanted property as he would for a property in vsoant possession. Similarly premises with a protected tenancy will usually further reduce the price the premises would otherwise have been able to realise. Accordingly, the sum of the value of the tenant's and the owner's interests should equal, or at least net exceed, the vacant possession value, as a property cannot conceivably sell for more than this value.

17. The applicant referred us to Section 53A(4)(b) which provides for a sub-tenant to be entitled to receive a portion of the principal tenant's compensation_, submitting that this sub-section supported his argument that a formula based on rateable value and past occupation must be adhered to. This sub-section merely recognises that the sum of the various interests of principal tenant and sub-tenants cannot exceed the value of the tenant's interest in the same way as the sum of a landlord's and tenants' interests cannot exceed the vacant possession value. Apportionment is necessary. Similarly no basis is defined with respect to sub-tenant's compensation and the same principles therefore apply as they do for any assessment of value to a tenant.

18. A similar submission was made in respect of sub-section (e) which provides for the method of calculating compensation under sub-paragraphs (i),(ii) and (iii) of Section 53A (4)(a) to be amended by resolution by the Legislative Council. As this sub-section refers only to the assessment of minimum compensation, we do not consider that this supports the argument that any assessment of reasonable compensation must be on the same basis as that for the minimum provision.

19. It is well established that rateable value provides a basis of relative value between one premises and another and as such is a useful tool when establishing formulae required to determine a degree of relativity in value between various premises. However, value to a tenant is governed not so much by the value of the premises he occupies or by his past enjoyment of occupation, but rather by the value to him of his expected future use. This does not necessarily vary in the same proportion as the relative values of premises. Because of differing commencement dates of tenancies, as well as unrelated premitted increases, under the provisions of the Ordinance, at various dates, the difference between the rent paid and that prevailing on the market could vary considerably from flat to flat even though the flats are otherwise identical and have the same rateable value. Therefore, the value to each tenant will depend on the particular circumstances governing each tenancy, rather than the relative value of one flat with another. Also, although a protected tenant may well be less inclined to leave a place which he has lived in for many years, the value to him cannot be determined with reference to past usage. It must be the expected future use at a restricted rent, as compared with an unrestricted rent together with the prospect of having to relocate to other premises, which is the real test of worth to the tenant. The value of his past use has already been used up.

20. While the Committee did make the statement that the method of determining compensation should be based on rateable value, it would appear that the legislature had accepted this recommendation only in relation to minimum compensation, and such compensation, it is admitted by reference to the length of past occupation, is based largely on an immeasurable attachment or sentimental value which can rarely, if ever, be realised, and can never be measured in terms of money. The loss of a property with family associations may be very real to the dispossessed occupant, but he cannot find a market for his personal feelings. To extend this approach to cover compensation which is to be "reasonable in all circumstances", that is reasonable to both landlord and tenant, is therefore inappropriate.

21. The concept of value is based on the worth in the market of a particular commodity for its future use by the purchaser. In the case of a dispossessed party, it is the worth of the future use in the hands of that particular party and no other; or, quoting Lord Moulton, "That which a prudent man in their position would have been willing to give - sooner than fail to obtain it". The amount agreed or assessed for similar premises should not affect the reasonable compensation to be paid to a particular tenant as the amounts relative to each of the factors governing the value to, each tenant may be very different from case to case.

22. It is well to mention at this stage, as an example of the adoption of arbitary formulae, the applicant has referred us to the methods of assessment adopted by the former Tenancy Tribunal for the provision of tenants' compensation in respect of orders to exclude pre-war premises from Part I of the landlord 6t Tenant (consolidation) Ordinance. The methods formerly adopted by this now defunct tribunal in awarding compensation by reference to arbitary rates per unit area do not affect any of the principles governing tenants' compensation. They do not have any basis in law. Rather they were methods which were conveniently adopted due to the abaanee of any evidence which would allow better and more accurate assessments. Should there have been better evidence, then, undoubtedly, awards would have been based on such evidence.

23. No evidence on value was led for the assessment of compensation in the recent case in the District court, similarly dealing with a redevelopment order under Part II of Cap.7, of Kingears company Limited v. LEE Woo-bun and others in which Deputy Judge Y.S. Cheung who having, as he stated, "Tried in vain to obtain guidance on the quantum of compensation from previous similar cases that came before the Court", awarded compensation based on four times the rateable value of the premises.

24. The settlements on which we have made orders by consent in this present case, have, we are told by the applicant, been based roughly on this decision. However, Deputy Judge Y.S. Cheung further stated in the above judgement, "Unfortunately such cases were either settled or withdrawn so that quantum of compensation was based on agreement between the parties and not determined by the court. I am, however, informed that such agreed compensation amounted to between 4 and 6 times the rateable value. Having regard to what I have said above, the level of cost of living today and the location of the suit premises, I have come to the conclusion that in all the circumstances it is reasonable to award compensation to the defendants on the basis of an amount equal to four times the rateable value of the suit premises."

25. The level of the cost of living and the location of premises, may influence the level of prevailing values, but they are not factors on which to base any valuation, including any required for the purposes of assessing compensation. Deputy Judge Cheung simply had nothing else on which he could draw any conclusions. Similarly, the level of inflation since 1976 when the current list of rateable values (effective from April 1977) was prepared, can be nothing more than a rough guide as to the level real estate values may have reached and is of little assistance when considering compensation applicable to dispossessed tenants. There simply was no useful evidence of comparable values before the Court on which Deputy judge Cheung could base any assessment of compensation. The only course left to him was to award arbitary amounts. This judgment does not purport to set a precedent for the assessment of tenants' compensation, particularly if there is available evidence which may be used to better assess a tenant's loss.

26. In the present case, concerning the three respondents who have not reached agreement with the applicant, the following details have been recorded.

Respondent	Case No.	Address of Premises	Rateable value	Current Rent per month inclusive of rates
13	18/83	No.6, Arbuthnot Road, 6th floor	$12,300	$1,182.30
14	19/83	No.8, Arbuthnot Road, Basement	$9,000	$787.40 (plus additional rates : $19.45per month)
15	20/83	No.8, Arbuthnot Road, Ground floor	$11,400	$1,100.00 (plus additional rates : $29.20.per month)

We have also been given plans showing the typical layouts and the areas of each of the suit premises.

27. Evidence was given by Mr. K. C. Ho, a director of the Applicant company, that the total purchase price paid in 1980 and 1981 for the suit premises at Nos.4, 6 & 8 Arbuthnot Road was $24.25 million and that the rent, which has not been increased since the properties were purchased, totals $27,000 per month exclusive of rates. This shows a return of only 1.34% per annum and indicates that the rents passing are well below the prevailing market rents. Mr. Ho at first estimated the unrestricted rental value for the suit promises to be approximately $8 per square foot per month on covered area. He later amended this to rents per month exclusive of rates of about $4,000 for a basement flat, to about $5,000 for flats on the upper floors.

28. Part II of the Ordinance has only been extended to 18th December 1985, but this is only the latest of a succession of such extensions which, Mr. Ho agreed, could reasonably be expected to continue. Gradual decontrol for domestic premises has been allowed by reference to a level of rateable value as a cut off point, and at present premises are being decontrolled by reducing the appropriate rateable value by $10,000 a year. Mr. Ho agreed that it was reasonable to expect this policy to continue until complete decontrol was achieved.

29. Mr. V.A. Green, who is a friend and former business colleague of Mr. Malik, the husband of Respondent 13. Madam Barbara C. Woon, gave evidence on her behalf, saying that she and her husband had occupied the premises for over 15 years, keeping it in very good condition.

30. A week earlier, on their behalf he made enquiries concerning the rents required for similar premises next door at No.10 Arbuthnot Road (known as Arbuthnot House). These premises are newer but about the same size as the suit promises. The rents asked varied between $6,200 and $6,500 per month exclusive of rates.

31. Respondent 14, Hung Pak, considered his basement flat at No.8, Arbuthnot Road would let, on the open market, for about $4,000 per month exclusive of rates. This agrees with Mr. Ho's statement. Mr. Hung has lived in the suit premises for 14 years and has made considerable improvements. His rent was last increased in 1978. His niece, Fung Kan, occupies a room as his sub-tenant. They have agrees that the total compensation for the suit premises should be apportioned as 90% for Mr. Hung and 10% for Miss Fung.

32. Respondent 15, Kung Hong Koon, who has lived in the suit promises at No.8, Arbuthnot Road, Ground floor for about 15 years, also made enquiries concerning the rents asked for flats at No. 10-14 Arbuthnot Road some 3 weeks before. For the one flat which he visited, he was quoted $4,200 per month exclusive of rates plus management fees of $206 per month. He said that this flat only had one bedroom and was inferior to his present flat being not sufficient for his requirements. He said he would be willing to pay $6,000 per month exclusive of rates for his present flat, if there were no rent control.

33. Although the evidence available is hardly conclusive, based on all the information placed before us, we consider that the suit premises should reasonably let at the following rents.

R13	No. 6, 6th floor	$5,500 per month exclusive of rates
R14	No. 8, Basement	$4,000 per month exclusive of rates
R15	No. 8, Ground floor	$5,000 per month exclusive of rates

34. As there have been no increases within the past 2 years, each of these tenants could expect increases in accordance with the provisions of the Ordinance at any time. Had it not been the applicant's intention to redevelop, rental increases may well have occurred before now.

35. By not increasing the rents in accordance with the Ordinance, we ask ourselves if the Applicant company has not already contributed to the tenant's eventual loss as the difference between the current rents and the prevailing market rents would be less, had increases occurred every two years as is permitted under the Ordinance.

36. Mr. Ho has stated that his company purchased the property for no other purpose than to redevelop. His company was apparently not interested in the rental income which the property produced. Should the Applicant's disinterest, which has benefited the tenants to date, now be disregarded when considering the tenant's loss ? Should we look no further than the present position, basing any conclusions on the rents presently passing in relation to these prevailing on the market as if there were no restriction ?

37. We are bound to award compensation which is reasonable in all circumstances. To be reasonable we must consider the value of each tenancy to the dispossessed tenants as they stand at the time the order is made. It would be unreasonable to do otherwise as the tenant must be entitled to the value to him at the time he is obliged to give up his protected tenancy. The landlord has, by not increasing rents in accordance with the Ordinance, effectively waived his right to that income. The future loss to the tenant cannot now be decreased in any way other than for the landlord to apply for an increase in rent under the provisions of Section 58 of Part II of Cap.7. We must presume that the landlord would take such action to maximise his interest.

38. Rent increases which may be permitted at 2 year intervals, may be equal to half the difference of the prevailing market rent and the current rent of the promises or 30% of the current rent, which ever is the lesser amount.

39. The recent amendment to allow increases to exceed this amount if the restricted rent so calculated is still less than 30% of the prevailing market rent, does net come into operation until 19th December 1983. It may be that a prudent landlord would not apply for increases until this provision comes into force. However, we will leek first at the alternative of increasing the rents as seen as possible.

40. Current rent under the Ordinance means the rent exclusive of rates payable by the tenant at the date of application. As from the 1st April 1983 rates payable annually are calculated at 131/2% of the rateable value. The equivalent rents exclusive of rates for the three suit premises are therefore as follows :-

R13

No. 6, 6th floor

$1,043.93 Per month exclusive of rates

R14	No. 8, Basement	$705.60 per month exclusive of rates
R15	No. 8, Ground floor	$1,000.95 per month exclusive of rates

In each case, the permitted rental increase will not exceed 30% of the current rent and therefore the increased rents in each case will be ;

R13	No. 6, 6th floor	$1,357 per month exclusive of rates
R14	No. 8, Basement	$917 per month exclusive of rates
R15	No. 8, Ground floor	$1,301 per month exclusive of rates

41. Considering that our assessments of the prevailing market rents of the suit premises are approximations based on the limited evidence available to us, any assessment of profit rent should also be regarded as approximate. Although it may reasonably be assumed that control for premises at this level of the market may continue for another four and a half years if the Ordinance is extended and decontrol follows the present pattern, any calculations made must take account of this being only based on the best evidence available and on the assumptions of these persons, such as Mr. Ho, who are best capable of forming an opinion. The resulting calculations are at best an approximate deduction and must not presume any greater accuracy than the accuracy of the factors included in the assessment.

42. Therefore, first, we must determine for the purpose of this exercise that the appropriate profit rents, which may be expected for each of the suit premises to endure for the next 2 years. Assuming that appropriate action is now taken to increase the rent, the profit rents will be as set out below.

R13	No. 6, 6th floor	$4,150 per month
R14	No. 8, Basement	$3,100 per month
R15	No. 8, Ground floor	$3,700 per month

The rents may be further increased in 2 years, but consideration must also be given to the profit rent varying in accordance with the prevailing market together with the restrictions imposed under the Ordinance. The increase 14 in rent in 2 years' time, under the latest amendment to Section 58 (which applies after December 1983) cannot exceed 30% of the prevailing market rent that time. Therefore, for example,the profit rent could only decrease in respect of No. 6, 6th floor, provided the prevailing market rent in 2 years’ time did not exceed approximately $6,000 per month exclusive of rates. Our present assessment is $5,500. Given that the market is unlikely to remain static and that the trend is for restricted rents to fall further behind the market, even with the amended provision to allow greater rental increases after December 1983, resulting lower profit rentals in two years' time are most unlikely.

43. We therefore make no adjustment for any decrease in profit rentals after 2 years, but make our assessment based on the approximate profit rents, which we have determined should become effective within the next few months . It seems to us that to do otherwise would be to assume a degree of accuraey which can not reasonably be achieved in the circumstances of this ease.

44. The prime lending rate is currently 12½% per annum and deposit rates range between 9% and 11½%. Having regard to the likelihood of he Part II restrictions being extended for at least a further 2 years beyond the end of 1985, and the likelihood of profit rentals increasing over the next four and a half year period, we consider that the assessed profit rents should be capitalised at 13% per annum for four and a half years which is equivalent to applying a Years Purchase of 3.30.

45. The value of the tenants' interests is therefore calculated as follows :

(Profit Rent par annum x Years Purchase)

R13	$4,150 x 12 x 3.3 = say $164,300
R14	$3,100 x 12 x 3.3 = say $122,750
R15	$3,700 x 12 x 3.3 = say $146,500

46. In December 1983, rents can be increased to 30% of the prevailing market rents, provided the rent increased by 30% of the current rent is less than this amount. If the landlord waited until December before taking any action to increase the rents, then it would be reasonable to expect the increased rents to become effective in about 6 months time.

47. The profits rents in 6 months will then be as follows :

R13	No.6, 6th floor	$3,850 per month
R14	No. 8, Basement	$2,800 per month
R15	No. 8, Ground floor	$3,500 per month

48. For the same reasons as stated previously, adopting the expected profit rents in 6 months' time as the norm over the remaining 4 years capitalised at 13% per annum but deferred 6 months at 12%, each of the tenants interests for this period is calculated as follows :

R13

NO. 6, 6th floor

$129,000

R14

No. 8, Basement

$93,800

R15

No. 8, Ground floor

$117,250

49. The profit rents for the next 6 months will be approximately ;

R13	No. 6, 6th floor	$4,450 x 6 = $26,700
R14	No. 8, Basement	$3,300 x 6 = $19,800
R15	No. 8, Ground floor	$4,000 x 6 = $24,000

50. Therefore by adding the first 6 months profit rent to the value for the remaining 4 years, the various tenants' interests are determined as set out below :

R13	No. 6, 6th floor	$155,700
R14	No. 8, Basement	$113,600
R15	No. 8, Ground floor	$141,250

51. As it would be more likely for a prudent landlord to wait 6 months before applying to increase the rents, the above amounts are awarded as the value of each of the tenants' interests.

52. The dispossessed tenants will incur removal expenses in having to shift to and set up new premises.

53. In the case of Harvey v. Grawley Development Corporation (1 Q.B.1957) Denning L.J. said, "The principles of compensation have been developed over the years in cases decided on the lands clauses Consolidation Act 1845, but specific rules are now stated in section 2 of the Acquisition of land (Assessment of Compensation) Act 1919. Under those Acts the law is settled, both in this country and in Scotland, by two cases. The Scottish case is Venables v. Department of Agriculture of Scotland, (1932 S.C. 573) and the English case is Horn v. Sunderland Corporation (1941 2KB 26; 57 T.L.R. 404) in this court. Those cases show that, in addition to the actual market value of the house when sold with vacant possession, Mrs Harvey is entitled to " compensation for disturbance", which is specifically preserved by section 2, rule (6) of the Act of 1919, and includes all damage directly consequent on the taking of the house under statutory powers."

54. In this case, getting another house was fairsly regarded as a direct consequence of the compulsory acquisition. However, it was pointed out the dispossessed owner could only get the market value of their former home.

"	If he pays a. higher price for the new house, he would not. get compensation on that account, because he would be presumed to have got value for his money, but he does get the costs which he has to pay a surveyor and lawyer to get it."
"	New" for "old" is not usually a measure of compensation.

55. Also reference was made by Denning L.J. in this case to items such as the cost of moving furniture and altering curtains and carpets to fit new windows and floors.

56. Rower L.J. in agreeing to Denning L.J. stated, "It is had enough in itself for a person to be compulsorily dispossessed of his home, but it is worse still if he has himself to bear expenses of the kind which are in issue in the present case in finding another house in which to live."

57. In the present case, the tenants have not yet moved but it would be unreasonable not to allow for the disturbance which they will undoubtedly incur. As well as transportation costs, the cost of shifting to new premises will reasonably involve some decoration, the altering of soft furnishings, installation of a new telephone and other sundry expenses.

58. The evidence we have before us in this matter is vague and unsupported by quotes or detailed estimates of any kind.

	Mr. Kung Hong Koon (R15) said it would cost him about $30,000 in all, but admitted that this included the provision of new air-conditioners. No evidence as to the necessity for this provision was given. Nor were told how the amount of $30,000 was calculated.
	Mr. Hung Pak (R14) estimated that transport would probably cost him $5,000 and setting up the new flat a further $5,000. These estimates were not challenged by the applicant.

59. It is clear since the decision of the Ontario court of Appeal in Frankel Steel Construction Ltd v Metropolitan Toronto (1966,58 DLR) that a tenant must anticipate that he will have to pay the cost of moving at some time, usually at the conclusion of the term of his tenancy, or, in this case, when the Ordinance no longer provides for his security of tenure. Therefore compensation for a tenant's disturbance is not so much a measure of the expenses he must meet by being forced to move but rather "... what a prudent man would have been prepared to pay rather than have to meet such expenses at the date of expropriation rather than at the expiration of the leasehold term. In other words the compensation must be related to the acceleration of the expense rather than to the expense itself."

60. In this case we consider that the requirement to move has been brought forward by some four and a half years, or perhaps longer if the provisions of Part Iv of Cap. 7 continue to apply. Although we have little in the way of evidence available to us, we consider the sum of $10,000 roughly represents a reasonable allowance for disturbance in respect of each flat. Accordingly we make the various awards for disturbance in the 18 region of this figure to make up a total rounded off figure. Compensation is determines as follows;

R13	No. 6, 6th floor	Tenants Interest	$155,700
		Disturbance	$10,300
		Total	$166,000
R14	No. 8, Basement	Tenants Interest	$113,600
		Disturbance	$10,400
		Total	$124,000

61. This award has to be apportioned between the principal tenant Hung Pak,(90%) and the sub-tenant Fung Kan,(10%)as agreed by both parties. Award by consent is therefore:

	R14 Hung Pak	$111,600
	R14(1) Fung Kan	$ 12,400

R15	No. 8, Ground floor	Tenants Interest	$141,250
		Disturbance	$ 9,750
		Total	$151,000

62. Accordingly we order that compensation in the sums as set out above be paid by the applicant to each of the respondents, one half of such compensation to be paid within fourteen days of the date of this award and the balance on the 31st October 1983 or on delivery of vacant possession by any of the respondents which ever is the sooner.

63. The applicant shall not be obliged to pay the balance of the compensation to arty of the above respondents who fails to surrender possession of the suit premises on or before the 31st October 1983.

64. There shall be no order as to costs.

65. Although this is not strictly speaking a matter that we must consider, we have contemplated whether, in this case, the increase in compensation awarded to tenants over and above the amounts at which claims have been settled with landlords in the past few months would, as a disincentive to developers, adversely affect property development in Hong Kong. We are of the opinion that it would not. Notwithstanding that future awards may well vary considerably depending on the particulars of each case, we believe entrepreneurs normally invest for substantial profit yields, and are reluctant during this general economic depression and sluggishness in the property market, to embark on major projects even when they are able to obtain vacant possession without having to pay any compensation. When the market improves, any negligible increase in the overall costs is unlikely to have the effect of disincentive as the developers would not normally undertake development unless the profit return is attractive. On the other hand, compensation according to fiction short of re-compensating, actual loss in reality would probably not only cause hardship generally but also disturb security of tenure hence living conditions and family life with_,, perhaps, undesirable social re-percussions.

DATED this 23rd day of July 1983

(Judge E. Li)	(M.W. PHILLIPS)
Presiding Officer	Member

Representation:

Mr. B .T. Lam of Bernard Wong & Co. for the Applicant

Mr. Derry Wong instructed by Stevenson & Co. for Respondent 13 (VLT 18/83)

Respondent 14 (VLT 19/83) in person

Respondent 15 (VLT 20/83) in person

JOHN H LEE v. THE HONGKONG AND SHANGHAI HOTELS LTD

Related cases with same parties

Files (3)

BETWEEN	JOHN H. LEE	Applicant
AND	THE HONGKONG & SHANCHAI HOTELS LTD.	Respondent