FAN CHUN KEUNG v. THE SECRETARY FOR THE ENVIRONMENT, TRANSPORT AND WORKS
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LDMR 5/2004
IN THE LANDS TRIBUNAL OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
MISCELLANEOUS REFERENCE APPLICATION NO. 5 OF 2004
________________
BETWEEN
| FAN CHUN KEUNG | Applicant | |
| and | ||
| THE SECRETARY FOR THE ENVIRONMENT, |
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Coram: Deputy Judge WONG, Presiding Officer of the Lands Tribunal and Mr. W.K. LO, Member of the Lands Tribunal
Date of Hearing: 30 September 2005
Date of Handing Down of Decision: 2 November 2005
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DECISION ON REVIEW
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Background
1. On 15 July 2005, we delivered our judgment (“the Judgment”) in this case and determined the total compensation payable to the Applicant to be in the sum of $7,980,000.
2. The Applicant filed a review application on 8 August 2005. In the notice of application to review, the Applicant stated various grounds of application for review, but they can be summarized as follows: -
(1) The common law principle of equivalence has not been recognized or applied to sufficient depth in the circumstances of this case, in particular, comparing non-Melhado land with Melhado land is not comparing “like with like”.
(2) The finding of the “existing use” of the subject lots to be “a container vehicle park” is unnecessary (if not undesirable) in the context of compensation on the subject lots.
(3) It would be desirable that the adjudication process on the alternative investment approach be proceeded with to completion.
(4) Whether there was evidence on land values of different forms of open storage?
3. The Applicant also proposed that the Tribunal should give directions that there be liberty for the parties to file and serve further expert reports “to elaborate into greater depth and detail all matters pertaining to the aforesaid grounds of review without departing from the general scope of evidence defined in the hearing which has taken place” and that the respective experts do attend the Tribunal for further testimony in a review hearing.
Adducing further evidence
4. We will firstly deal with the application for adducing further evidence. The Respondent objects to the application on the ground that the parties should not have “a second bite of the cherry”, otherwise, there could be no end to litigation. The Applicant submits that in compensation cases, the Tribunal should adopt a more liberal approach, as the nature of the cases are non-contentious, and that by adducing new evidence, the Applicant is not trying to have a new trial, but just to supplement the evidence so that the Tribunal can come to a prefect conclusion.
5. No doubt, the Tribunal has in the past acceded to requests for adducing new evidence, e.g. Secretary for Transport v Wong Bun, unreported case LDRW14 of 2001 (Review). However, we do not think that there is any justification to do so in the present case. The Applicant, his legal representatives and his expert should have known what they wanted to argue at the trial and adduced all the evidence to support their contentions. There is no suggestion that the proposed new evidence was not available at the trial. When the Applicant has chosen not to adduce such evidence that he wants to rely on now, he should not be given a second chance. The fundamental principle that there should be an end to litigation must apply here. We therefore decide not to give the directions as sought by the Applicant.
Principle of equivalence
6. The Applicant contends that he should be entitled to compensation on the basis of “best possible use”. In other words, the Applicant should, in the present case, be entitled to “Melhado-based” compensation as of right. The Applicant submits that since the Tribunal in the Judgment compared several comparables, which were “non-Melhado” land, with the subject site, which was “Melhado” land, the Tribunal was not comparing “like with like”. As a result, the fundamental concept of compensating the Applicant, being the former owner of the land resumed and the severed land, on the basis of “neither less nor more than his loss”, which was in turn founded on the notion of “comparing like with like”, has not been properly applied.
7. The Applicant seeks to re-open the case so that the important question of Melhado potential in each of the direct sale examples could be re-considered and critically assessed, in particular, the effect of enforcement notices in some comparables should be examined. This issue was in fact not properly brought to the attention of the Tribunal at the trial, but the Applicant submits that if the Tribunal disagreed with the Applicant’s expert as to the existence of “Melhado potential” or otherwise of each sale comparable, the grounds for disagreement should have been explicitly dealt with and explained in the Judgment.
8. As far as the “Melhado use” is concerned, we agree with the Respondent that the term “Melhado use” was generally taken to mean “any use to which the land may be put without the erection of a building, and is to be contrasted with pure agricultural use.” However, in so far as none of the sales comparables adopted in the Judgment were put to agricultural use, it is obvious that their “Melhado potential” had been taken into account. If what the Applicant meant and wished to say, in his stated ground of review, was that the Melhado potential of the subject site reflected the potential to use the said land for open storage of container vehicles and/or containers, we are in agreement with the Respondent that this specified Melhado potential was but only one type of Melhado use.
9. On the other hand, if what the Applicant actually complained of under this ground was that we erred in agreeing to adopt the five sale comparables (some were without the “Melhado potential” for open storage of container vehicles and / or containers) as being relevant for the purpose of assessing the open market value of the subject site (which was with the “Melhado potential” for open storage of container vehicles and / or containers), we will deal with this issue later, when we re-consider in details the relevance and appropriateness of the adopted sales comparables.
10. One other complaint of the Applicant was that the Tribunal erred in not “comparing like with like”, in terms of the likeness in size of the comparables vis-à-vis the subject site. This issue has been covered in our Judgment. In a perfect world with plenty of suitable comparables, we would of course use comparables which resemble the subject property in every aspect. Otherwise, the Tribunal is usually left with scanty evidence of sales or rental comparables when trying to reach for a most comfortable solution. Thus, in valuation exercises, we are bound to have comparables which differ in certain aspects from the subject site including size. The market’s and the Tribunal’s approach to this reality was invariably the same - to make reasonable adjustments to account for the differences.
11. The Applicant states in the notice of review that “Lots of small physical area, or lots without acquired status of existing or permitted use with Melhado potential command much lower prices and both vendors and purchasers know this in an open market.” The Respondent disagrees and submits that “this is a bare assertion without supporting evidence and is not accepted”. The Respondent would however accept that “a piece of land used for, e.g. open storage purpose without a section 16 approval and where such use was not an “existing use” back in 1991 might be subject to enforcement notice by the Town Planning Department and therefore would command a lower price than a piece of land where such use was an “existing use” back in 1991 and/or has received express approval pursuant to a section 16 application.”
12. The Respondent therefore invites the Tribunal to consider and review its decision in paragraph 45 of the Judgment in which the Tribunal expressed the view that it is unnecessary to make any adjustment on the factor of “risk of planning enforcement”. The Respondent submits that the Tribunal should consider and make such adjustments to the comparables, where appropriate, for the factor of risk of planning enforcement. We accept this approach and will deal with this issue below. Before going into that issue, we first deal with the other grounds cited by the Applicant in the notice of review application.
The finding of the “existing use” of the subject lots
13. We are surprised that the Applicant complains that we should not have attempted to find the existing use of the subject lots but should have been silent on this. During the closing submissions and from the evidence adduced by the parties’ expert surveyors, there were disputes on the “existing use” of the subject lot. Although the law requires that the “existing use” or tolerated use for the purposes of town planning zones (with certain exceptions) were to be ignored for the purpose of assessment of compensation, it was necessary for us to make a finding of fact in this regard in view of the dispute. It was also necessary for us to know and determine (if in dispute) the basic characteristics of the subject site, before we embark on the valuation exercise.
Whether therewas evidence on land values of different forms of open storage
14. The Applicant submits that the Tribunal has been misled by the Respondent into thinking that there was no evidence on whether values of land in open storage for container trucks, trailers and containers would be higher than other forms of usage such as scrap metal yard or fee paying car parks. The Applicant stresses that the Respondent or the Tribunal should not challenge the “professional” views of Mr. Lau, his expert witness, in this regard. We find this to be a strange argument. During the hearing, as was commonly the case for most compensation cases, we heard various conflicting “professional” views from two qualified and experienced expert surveyors, who professed to have good know
LDMR 5/2004 IN THE LANDS TRIBUNAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION MISCELLANEOUS REFERENCE APPLICATION NO. 5 OF 2004 ________________ BETWEEN
________________
Coram: Deputy Judge WONG, Presiding Officer of the Lands Tribunal and Mr. W.K. LO, Member of the Lands Tribunal Date of Hearing: 30 September 2005 Date of Handing Down of Decision: 2 November 2005
_________________________________ DECISION ON REVIEW _________________________________
Background 1. On 15 July 2005, we delivered our judgment (“the Judgment”) in this case and determined the total compensation payable to the Applicant to be in the sum of $7,980,000. 2. The Applicant filed a review application on 8 August 2005. In the notice of application to review, the Applicant stated various grounds of application for review, but they can be summarized as follows: -
3. The Applicant also proposed that the Tribunal should give directions that there be liberty for the parties to file and serve further expert reports “to elaborate into greater depth and detail all matters pertaining to the aforesaid grounds of review without departing from the general scope of evidence defined in the hearing which has taken place” and that the respective experts do attend the Tribunal for further testimony in a review hearing. Adducing further evidence 4. We will firstly deal with the application for adducing further evidence. The Respondent objects to the application on the ground that the parties should not have “a second bite of the cherry”, otherwise, there could be no end to litigation. The Applicant submits that in compensation cases, the Tribunal should adopt a more liberal approach, as the nature of the cases are non-contentious, and that by adducing new evidence, the Applicant is not trying to have a new trial, but just to supplement the evidence so that the Tribunal can come to a prefect conclusion. 5. No doubt, the Tribunal has in the past acceded to requests for adducing new evidence, e.g. Secretary for Transport v Wong Bun, unreported case LDRW14 of 2001 (Review). However, we do not think that there is any justification to do so in the present case. The Applicant, his legal representatives and his expert should have known what they wanted to argue at the trial and adduced all the evidence to support their contentions. There is no suggestion that the proposed new evidence was not available at the trial. When the Applicant has chosen not to adduce such evidence that he wants to rely on now, he should not be given a second chance. The fundamental principle that there should be an end to litigation must apply here. We therefore decide not to give the directions as sought by the Applicant. Principle of equivalence 6. The Applicant contends that he should be entitled to compensation on the basis of “best possible use”. In other words, the Applicant should, in the present case, be entitled to “Melhado-based” compensation as of right. The Applicant submits that since the Tribunal in the Judgment compared several comparables, which were “non-Melhado” land, with the subject site, which was “Melhado” land, the Tribunal was not comparing “like with like”. As a result, the fundamental concept of compensating the Applicant, being the former owner of the land resumed and the severed land, on the basis of “neither less nor more than his loss”, which was in turn founded on the notion of “comparing like with like”, has not been properly applied. 7. The Applicant seeks to re-open the case so that the important question of Melhado potential in each of the direct sale examples could be re-considered and critically assessed, in particular, the effect of enforcement notices in some comparables should be examined. This issue was in fact not properly brought to the attention of the Tribunal at the trial, but the Applicant submits that if the Tribunal disagreed with the Applicant’s expert as to the existence of “Melhado potential” or otherwise of each sale comparable, the grounds for disagreement should have been explicitly dealt with and explained in the Judgment. 8. As far as the “Melhado use” is concerned, we agree with the Respondent that the term “Melhado use” was generally taken to mean “any use to which the land may be put without the erection of a building, and is to be contrasted with pure agricultural use.” However, in so far as none of the sales comparables adopted in the Judgment were put to agricultural use, it is obvious that their “Melhado potential” had been taken into account. If what the Applicant meant and wished to say, in his stated ground of review, was that the Melhado potential of the subject site reflected the potential to use the said land for open storage of container vehicles and/or containers, we are in agreement with the Respondent that this specified Melhado potential was but only one type of Melhado use. 9. On the other hand, if what the Applicant actually complained of under this ground was that we erred in agreeing to adopt the five sale comparables (some were without the “Melhado potential” for open storage of container vehicles and / or containers) as being relevant for the purpose of assessing the open market value of the subject site (which was with the “Melhado potential” for open storage of container vehicles and / or containers), we will deal with this issue later, when we re-consider in details the relevance and appropriateness of the adopted sales comparables. 10. One other complaint of the Applicant was that the Tribunal erred in not “comparing like with like”, in terms of the likeness in size of the comparables vis-à-vis the subject site. This issue has been covered in our Judgment. In a perfect world with plenty of suitable comparables, we would of course use comparables which resemble the subject property in every aspect. Otherwise, the Tribunal is usually left with scanty evidence of sales or rental comparables when trying to reach for a most comfortable solution. Thus, in valuation exercises, we are bound to have comparables which differ in certain aspects from the subject site including size. The market’s and the Tribunal’s approach to this reality was invariably the same - to make reasonable adjustments to account for the differences. 11. The Applicant states in the notice of review that “Lots of small physical area, or lots without acquired status of existing or permitted use with Melhado potential command much lower prices and both vendors and purchasers know this in an open market.” The Respondent disagrees and submits that “this is a bare assertion without supporting evidence and is not accepted”. The Respondent would however accept that “a piece of land used for, e.g. open storage purpose without a section 16 approval and where such use was not an “existing use” back in 1991 might be subject to enforcement notice by the Town Planning Department and therefore would command a lower price than a piece of land where such use was an “existing use” back in 1991 and/or has received express approval pursuant to a section 16 application.” 12. The Respondent therefore invites the Tribunal to consider and review its decision in paragraph 45 of the Judgment in which the Tribunal expressed the view that it is unnecessary to make any adjustment on the factor of “risk of planning enforcement”. The Respondent submits that the Tribunal should consider and make such adjustments to the comparables, where appropriate, for the factor of risk of planning enforcement. We accept this approach and will deal with this issue below. Before going into that issue, we first deal with the other grounds cited by the Applicant in the notice of review application. The finding of the “existing use” of the subject lots 13. We are surprised that the Applicant complains that we should not have attempted to find the existing use of the subject lots but should have been silent on this. During the closing submissions and from the evidence adduced by the parties’ expert surveyors, there were disputes on the “existing use” of the subject lot. Although the law requires that the “existing use” or tolerated use for the purposes of town planning zones (with certain exceptions) were to be ignored for the purpose of assessment of compensation, it was necessary for us to make a finding of fact in this regard in view of the dispute. It was also necessary for us to know and determine (if in dispute) the basic characteristics of the subject site, before we embark on the valuation exercise. Whether therewas evidence on land values of different forms of open storage 14. The Applicant submits that the Tribunal has been misled by the Respondent into thinking that there was no evidence on whether values of land in open storage for container trucks, trailers and containers would be higher than other forms of usage such as scrap metal yard or fee paying car parks. The Applicant stresses that the Respondent or the Tribunal should not challenge the “professional” views of Mr. Lau, his expert witness, in this regard. We find this to be a strange argument. During the hearing, as was commonly the case for most compensation cases, we heard various conflicting “professional” views from two qualified and experienced expert surveyors, who professed to have good knowledge of the property market. Which view should the Tribunal take is certainly one of the judicial functions that we have to carry out. Furthermore, indeed, even in the case of only having the benefit of hearing professional views from one side, the Tribunal as a specialized tribunal has to make decisions from time to time as to whether the Tribunal should accept, with or without qualifications, all or only some of the conclusions of the professional expert giving testimony in the Tribunal. 15. As to the issue of whether values of land in open storage for container trucks, trailers and containers would necessarily be higher than other forms of usage such as scrap metal yard or fee paying car parks, we find on review that this was not supported by evidence adduced during the hearing. The Respondent’s expert, Mr. Yip, had pointed out that even based on Mr. Lau’s evidence of adjusted rents of his comparables, RC2’s effective rent per sq. m. was $319.45 (“A4”), whereas the adjusted unit rental for AWT6 and AWT7 (the two carparks close to Lok Ma Chau interchange) were $401 and $659 respectively. Even the unadjusted unit rentals, at $357 and $499, were already higher than that obtainable for RC2. So, as concluded by Mr. Yip, the Applicant’s hypothesis that use for open storage of containers is always the best and highest use, regardless of location is not supported by his own expert’s computations. Suitability of comparables used in the original valuation on direct sales approach 16. We now come to the suitability of the sale comparables. Mr. Yip opined in the original hearing that adjustments could be made to account for the factor of risk of planning enforcement. The Respondent agrees in this review that this factor should be adopted and added in the analysis and adjustments of several sales comparables for which, despite of their actual existing uses at the time of sales, there were planning enforcement notices registered against the comparable lots and/or there were evidence that these comparables did not enjoy the “Melhado potential” for open storage uses. On re-consideration, we agree with this approach. The Applicant’s present contention that the sale comparables were not suitable for comparison was based on the facts that there were enforcement notices issued and planning permission had been refused in the past. We do not agree that these factors would make the sale comparables unsuitable altogether. We agree with the Respondent that with suitable adjustments, they can still be used as comparables and we are still comparing “like with like”. We will now re-consider the 5 sales comparables, one by one. Comparable AWS1/C3 17. This comparable site is situated almost immediately adjacent to the subject site. Mr. Lau said that before the resumption, it was used to form part of larger open storage / parking ground, a usage similar to that for the subject site. It became landlocked after almost two thirds of the original lot was resumed by the same resumption exercise as the subject site. There was also an enforcement notice dated 19 December 2001 registered against this lot in the Land Registry, about 13 months after the date of sale of this comparable. For these reasons, Mr. Lau said that this site was not a suitable comparable for the subject site. On the other hand, Mr. Yip opined that this comparable site had been used and was capable of being used for open storage including storage of containers. He therefore adopted this comparable in assessing the open market value of the “non-enforcement” portion of the subject site (with Melhado Use value). He also did not find it necessary to adjust this comparable for the factor of risk of planning enforcement. 18. However, in view of the presence of enforcement notice registered against this comparable site, we hold the view that adjustment for the factor of risk of planning enforcement will be required. There was evidence that a planning enforcement notice was registered against the site after about 13 months after the date of its sale. It was not clear whether the planning enforcement notice was registered against the lot because of any change in use (nature and/or intensity) of the site subsequent to the date of sale, or before the date of sale. We are prepared to give the benefit of doubt to the Applicant in that the subject matter of the planning enforcement notice was in respect of the use of the site for the period leading up to the date of sale but not subsequent to the sale. In this respect, we agree with Mr. Yip that in the market, there are buyers who are prepared to pay for the purchase of open storage land even though there is a risk of planning enforcement. As for the suitable adjustment to reflect this risk element, we are also prepared to accept Mr. Yip’s suggested range of 20% to 30% for this factor. We will choose the upper end of this suggested range, i.e. 30%. As such, revision of the adjustment to reflect this factor, to the extent of an additional 30%, will be made to this comparable in the computation below. Comparable AWS2/C1 19. Mr. Lau said that this was sold as a piece of vacant land in August 2000 but acknowledged that this was formerly occupied for open storage use as evidenced from aerial photo. Mr. Lau dismissed this site as a suitable comparable for the subject site whereas Mr. Yip opined otherwise but he agreed that an adjustment of 30% to reflect the risk of planning enforcement was warranted. Although there was no enforcement notice registered against this comparable site, the fact that this site was vacant for a period of time around the date of transaction might suggest that there was no continuing occupation dated back since 1991; and hence the site would be subject to the risk of planning enforcement should the owner decides to use the site for open storage including storage of containers. We agree to allow an adjustment of 30% to this comparable site to reflect for this factor of risk of planning enforcement as suggested by Mr. Yip. This will be done in the computation below. Comparable AWS3/C4 20. Mr. Lau said that the small size of this site prevented it from being used as a large storage site for bulky goods, vehicles and containers. He accepted that the site was the only one out of the 5 sales comparables that could be said to possess “Melhado value” albeit that that was “Melhado value” for open storage other than container vehicles and/or containers. Therefore, although there was neither any record of planning enforcement registered against this comparable site nor any evidence of its being left vacant in the past, Mr. Lau opined that this comparable site could not be a suitable comparable for the subject site due to its small size and the encroachment by an adjacent structure. Mr. Yip opined otherwise and that the size and the encroachment factor should not make this an unsuitable comparable. He also dismissed Mr. Lau’s view on the different forms of Melhado values. After re-consideration, we maintain our view in the Judgment that this is a suitable comparable. Comparable AWS4 21. This was similar to the comparable site AWS1/C3 in that a large part of the original site had been resumed prior to the transaction of this comparable. Mr. Lau dismissed this as a suitable comparable for the subject site whilst Mr. Yip did not use this at all. A planning enforcement notice dated 13 December 2000 was registered against this comparable site in the Land Registry. Although the date of this notice was also about one month from the date of sale of this comparable site, we hold the view, similar to that for Comparable AWS1/C3, that adjustment for the factor of risk of planning enforcement will be required. Also, we decide that a revision of the additional adjustment to reflect this factor, to the extent of an additional 30%, similar to that for Comparable AWS1/C3, will be made to this comparable in the computation below. Comparable C2 22. Mr. Lau did not consider this sale comparable. On the other hand, although there was no planning enforcement notice registered against this site, Mr. Yip opined that an adjustment to reflect the risk of planning enforcement was required for this site. He suggested a lower percentage of 20% for this factor. However, we prefer an adjustment of 30% for this factor, to be in line with similar adjustment for other sale comparables except AWS3/C4. Revised unit rates 23. To conclude, we find that all the 5 sale comparables could still be used, particularly in the absence of other better sale comparables. Using the analyzed figures in paragraph 46 of the Judgment and after adding, where appropriate, the factor of risk of planning enforcement, we have the following revised adjusted unit rates for the comparables: - Table 1 - Adjustment of sale comparables - revised
(note 1) details as shown in the table at paragraph 46 of the Judgment 24. The average of the adjusted unit rates of the five sales comparables is found to be $2,098 per sq. m., which is rounded to $2,100 per sq. m. Alternative investment method for the assessment of values of the subject lots 25. We now turn to consider the assessment using an alternative investment method. The Applicant submits that we should have undertaken this alternative investment method to completion, as Mr. Lau, the Applicant’s expert surveyor had found this to be the only suitable method, in the absence of suitable sales comparables. The Applicant contends that even Mr. Yip had agreed that this would at least serve as a useful tool in cross-checking the result of the direct sales approach. The Applicant further submits that “it is possible (and perhaps probable) that the result obtained from the investment approach … is higher than the current finding on direct sale comparables by a wide margin”, in which case “there will be good reason to believe that there is some serious mistake with the current finding on the level of compensation which has to be rectified.” 26. The Respondent, on the other hand, submits that we were “entitled to ignore the investment approach when it finds that there are sufficient direct sales comparables to use.” Even if this investment approach was used, the Respondent’s case was that Comparables AWT1 and AWT2 should be rejected altogether. Also, the Respondent submits that as this method had in fact been fully canvassed during the original hearing, it would be possible for the Tribunal to complete this alternative assessment without the need to call back the experts or to permit the filing of additional expert reports. 27. The reasons for discarding the use of this alternative investment method have been set out in the Judgment. After re-consideration, we are satisfied that these reasons remain valid. However, as even the Respondent’s expert had agreed that this alternative investment method would at least serve as a check to the valuation conducted by the more direct sales comparison method, we shall carry out the valuation of the subject lots using the investment method below, using the evidence already adduced during the original hearing. Choice of rental comparables 28. Mr. Lau and Mr. Yip have between them identified a total of five rental comparables, apart from rental comparables used exclusively as fee-paying car park. We summarize below the experts’ opinion on the suitability of certain comparables, their proposed adjustments to the usable site areas of Comparables AWT2 and RC2, their proposed adjustments to Comparable RC2 regarding the costs of site formation, as well as our findings of suitable adjustments for the two comparables AWT2 and RC2 prior to the usual adjustments that are warranted in order to compare the subject site vis-à-vis the comparables. After consideration of the factual details of these lettings as well as the differing opinion of the two experts, we decide to include all the five rental comparables. Suitability of the rental comparables 29. We note that at the original hearing, Mr. Lau opined that Comparables AWT1, AWT2 and AWT3 should be used but since Comparables RC1 and RC2 were not suitable comparables, they should be discarded. On the other hand, Mr. Yip said that both Comparable RC1 and RC2 are suitable comparables. 30. For Comparable RC1, the permitted user was for open storage, excluding cement, sand, aggregates licensed vehicles and containers. It was located at the end of a cul-de-sac and next to a hospital laundry building with busy service vehicle traffic. Therefore, the Applicant submitted that Comparable RC1 was not a comparable to the subject site. 31. As for Comparable RC2, the Applicant submitted that it was not a suitable comparable mainly because it required substantial works including formation works and construction of structures. Also, the permitted user of the tenancy for Comparable RC2 includes the mix of a fee paying car park and/or storage of container boxes, and other ancillary facilities (including vehicle repair workshops and office) hence making it not a suitable comparable for the subject site. However, during the hearing, both Mr. Lau and Mr. Yip have assisted the Tribunal by carrying out an estimate of the formation costs for the comparable site. The details will be set out below. 32. We do not agree to discard Comparables RC1 and RC2 on the grounds put forward by the Applicant. Firstly, as we said in the Judgment, there is no evidence adduced to show that the values of land for open storage of containers are necessarily higher than that for other types of open storage. Secondly, we do not agree with the Applicant that the location of Comparable RC1 would render it an unsuitable comparable per se. 33. As to Comparables AWT1 and AWT2, the Respondent submitted that as they were so close to the River Trade Terminal, they should not be considered as suitable comparables. This was due to the fact that these 2 comparables enjoyed special location advantages to the River Trade Terminal for which the adjustments would be so great as to render them not suitable as comparables. We do not agree with this contention. Even though these 2 comparables are close to the River Trade Terminal, we cannot assume that the use of the comparable sites must be necessarily connected with the Terminal. Whilst there may be location advantage for being close to the Terminal, we do not find that this factor alone justifies the rejection of the 2 comparables. 34. Of the 3 comparables identified by Mr. Lau, Mr. Yip said that AWT2 was not suitable because according to the terms of the short-term tenancy, it could be used as a concrete production plant in addition to open storage use. In addition, Mr. Yip said that according to the data he obtained from the analysis of sites used as concrete batching plants, these sites invariably fetch higher unit rates than other sites used for open storage. However, Mr. Yip still assisted the Tribunal by giving his opinion of the adjustments that should be applied to AWT2 in the event that the Tribunal did not agree with him and decided to use AWT2 as well. 35. We do not agree with Mr. Yip that the difference in the user clause of AWT2 would make it an unsuitable comparable. The actual history of use of the comparable site shows that it was used for open storage rather than concrete production. This suggests that the value for the alternative use of the site for concrete production would not be higher than that for open storage. 36. As for AWT3, it was a site in Fanling let out by Government on short term tenancy basis, same as for other rental comparables we consider in this case. It was included by Mr. Lau in his evidence of rental valuation adduced in the hearing. Mr. Yip did not challenge this as an unsuitable comparable per se. We agree to include this as one of the rental comparables. 37. To conclude, assuming there was no sale comparables available and we have to rely on rental comparables, we find that all five rental comparables identified and analyzed by either Mr. Lau or Mr. Yip are not of the types that are so unsuitable as to merit a outright rejection, for the purpose of estimating the open market rental value of the subject site for open storage use. We therefore include them all in our analysis below. Before that, we will consider the issues of the adjustment for Comparable AWT2 to arrive at its net usable site area, as well as the adjustments for Comparable RC2 Adjustment to the net usable site area of Comparable AWT2 38. For Comparable AWT2, Mr. Lau suggested that since under the conditions of the tenancy governing the use of the site, the entire perimeter area (skirting area) as shown in the tenancy plan was strictly prohibited for use, apparently for the protection of the slopes that formed the site. Mr. Lau therefore sought to compute the reduction in area due to this prohibition. He found that the site was effectively reduced to a usable area of some 7,550 sq. m. Mr. Lau opined that this reduced area should be used for the calculation of the unit rental value for the site. This he calculated to be $554 per sq. m. 39. On the other hand, Mr. Yip did not agree that the entire perimeter of the site would be unusable at all. It could be used as the access road to the storage area next to the perimeter. Nevertheless, Mr. Yip noted that another elongated shaped, non-building and non-storage area at the northwest of the site appeared to have no beneficial use. He scaled off the area to be about 980 sq. m. He was prepared to reduce the area of the site (12,700 sq. m.) by this area before arriving at its usable area, at 11,720 sq. m., instead of 7,550 sq. m. as suggested by Mr. Lau. We find the reasoning of Mr. Yip to be much more reasonable than that of Mr. Lau. We therefore accept his estimate of the usable area of this comparable site. Adjustments for Comparable RC2 40. During the hearing, both experts carried out more refined analyses of this Comparable. Although Mr. Lau did not find this to be a suitable comparable, he assisted the Tribunal by making an assessment of the formation costs of the site, the details of which was set out in his computation sheet at Exhibit A4. He estimated that the equivalent annual rent to the tenant would amount to $6,187,813, on the basis that a minimum period of 6 months was required for obtaining approvals and completion of the formation and necessary construction works. Mr. Lau also opined that since there was a condition in the tenancy agreement stipulating that not more than 12,910 sq. m. (equivalent to 33.3% or 1/3 of the site area) might be used for storage of containers, he analyzed the rental transaction of this site using an equivalent storage area of 19,370 sq. m. (which was the summation of the permitted storage area of 12, 910 sq. m. and the remaining ancillary area of 25,840 sq. m. estimated to be worth 1/4 of the value of storage area, or an equivalent storage area of 6,460 sq. m.). He therefore arrived at an effective unit rental rate (before any further adjustment) of about $319 per sq. m. 41. Mr. Yip carried out similar analysis at Exhibit R13, R13a and R13b, using different scenario of assuming constructing the permitted structure, etc. Using the analysis which gave the highest effective unit rate (i.e. Exhibit R13b assuming without structure), his estimated equivalent annual rent was $5,587,503. This differed from Mr. Lau’s estimate of $6,187,813 by only about 10%. However, Mr. Yip disagreed with Mr. Lau in the latter’s computation of the equivalent storage area. Basically, Mr. Yip said that the restriction on site coverage was in line with the actual optimum utilization of a site used for open storage of containers. He adduced the Code of Practice for Container Depots (Exhibit R8) which show that the area dedicated to container storage would not normally exceed above 31%. Therefore, the restriction stipulated in the tenancy agreement for the site was not a real restriction at all. 42. On balance, we agree with the opinion of Mr. Yip in his understanding of the effect of the restriction stipulated under the tenancy. Also, we adopt his estimated equivalent annual rent in the analysis of this Comparable. Summary of rental comparables 43. We set out in the table below a summary of these comparables,including the unadjusted unit rates of these comparables. Table 2 -A table showing the summary of rental comparables
(note 1) after adjustments excluding the non-building, non-storage area stipulated under the lease (per AW’s computations) (note 2) after adjustment excluding the non-building area stipulated under the lease (per RW’s computations) (note 3) after adjustments reflecting the costs of site formation etc. and site coverage restriction under the lease (per AW’s computations) (note 4) after adjustments reflecting the costs of site formation etc. (per RW’s computations) Adjustments of rental comparables 44. Before adjustments, the rental comparables show a high range of between $97 and $390 but it is not uncommon that comparables do vary a lot in terms of unit rates. Besides, it is not correct to compare unadjusted unit rates before deciding whether to discard one comparable or another. The only conclusion we could draw at this stage is that the rental comparables that we got from the investment approach vary more than the sales comparables that we analyzed earlier on. In the table below, we summarize our adopted adjustments for the five rental comparables. Table 3 -Adjustments of adopted rental comparables (for open storage use)
* unit rate computed by RW after excluding the non-building area stipulated under the lease ** unit rate computed by RW after making adjustments reflecting the costs of site formation 45. We discuss the adjustment factors for these comparables one by one as follows: - (1) Location Mr. Lau suggested nil adjustment for Comparables AWT1, AWT2 and AWT3 whilst Mr. Yip suggested modest adjustments of –3% for AWT1 and AWT2 to reflect their closeness to the River Trade Terminal. We accept Mr. Yip’s suggested adjustments for these 2 comparables as well as adjustments of –3% and –5% for RC1 and RC2 respectively. (2) Accessibility Mr. Lau did not account for this factor. We agree to Mr. Yip’s suggested allowance of –5% each for AWT1 and AWT3, as well as for RC1. (3) Size There was little difference between the 2 experts on the size adjustments for AWT1, AWT2 and AWT3. (4) Layout/shape We agree with both that nil adjustment is warranted for this factor. (5) Time Similarly, we adopt the same adjustments proposed by the 2 experts for Comparables AWT1, AWT2 and AWT3, and those proposed by Mr. Yip for RC1 and RC2. (6) Design Flexibility Mr. Lau suggested no adjustment for this factor while Mr. Yip suggested that for AWT2, the restriction on the use of its perimeter area would affect the design flexibility of the internal layout of the site; hence, a +10% adjustment would be warranted. We find this to be unnecessary as the site, with an area of 12,700 sq. m., could easily make use of the perimeter area for access purpose without affecting the design flexibility. (7) User Flexibility Mr. Lau suggested that adjustments of +5%, +3% and +10% were warranted for Comparables AWT1, AWT2 and AWT3 respectively. On the other hand, Mr. Yip suggested nil, -30% and +5% respectively for these 3 comparables, and +10% for RC1. We find that there would be no need for adjustment for AWT1, AWT2, RC2 whilst a +10% is warranted for each of AWT3 and RC1 as the user condition. Reconciliation of adjusted unit rates derived from the rental comparables 46. The range of adjusted unit rates of these five comparables is very big, with the lowest one (Comparable RC1 at $108 per sq. m.) being less than one third of the highest one (Comparable AWT2 at $365 per sq. m.) The average of all five is about $248 per sq. m., close to Comparable AWT3, one of the three comparables originally identified by Mr. Lau to be suitable comparables. The total adjustments adopted by the Tribunal for these five comparables range only between +24% for Comparable RC2 and -17.2% for Comparable AWT1. In the end, we decide to adopt the average adjusted unit rate as the unit rental for the purpose of assessment of the subject lots in the investment approach. Appropriate yield to be adopted in the capitalization of the unit rental 47. In the original hearing, the two experts in adducing their evidence held different views as to the appropriate yield that should be adopted. Mr. Lau reported that according to the Rating & Valuation Department’s Property Review, the market investment yields for September 2000 for office (Grade B) stood at 7.4%, retail properties at 7.8% and flatted factories (upper floors only) in the N.T. at 13.1%. Mr. Lau admitted that that the market yield for open storage land was less secure than that for residential and commercial properties. However, as there was only a limited supply of land that could be put to open storage use, he considered that an appropriate yield for the subject site should fall between the respective yields for office and factory units. Nevertheless, Mr. Lau opined that in view of the differences in the vacancy rate of office and private storage space, it would not be unreasonable to assume that a margin of about 1.5% over and above the office yield would provide a sufficient and safe hedge against the risk associated with the return expected of open storage and parking land in the New Territories (Bundle AR-1 page 54 refers). Therefore, Mr. Lau opined that a rate of 9% should be applied (which would be in line with the yield used by the Lands Tribunal in the case of Yuen Long Fish Merchant’s Association Limited v. Secretary for Transport,unreported case, LDMR No. 44 of 2000). 48. Mr. Yip cited a section of Hong Kong Property Review 2004 and commented that the “Private Storage” properties in the Property Review referred to premises designed or adapted for use as godowns, or cold stores, and includes ancillary offices. As such, they are different from the open storage sites such as the subject site and the comparables. Therefore, it was incorrect to quote the vacancy rate of “Private Storage” premises in the Property Review as an indication of the vacancy rate of open storage land in the N.T. 49. Mr. Yip also quoted the case of Yuen Long Fish Merchant’s Association Limited in which the Lands Tribunal considered that the yield of agricultural land for an open car park use should fall within the yields for office and flatted factories. Mr. Yip opined that the yield of agricultural land for open storage use should also fall within this range. Using the said Hong Kong Property Review figures, Mr. Yip calculated that the average yield for office and flatted factories was 10.03%. 50. However, Mr. Yip opined that with the future improvement of road network to the Mainland China (e.g. the Shenzhen Western Corridor), the future demand for open storage sites, especially in the northwestern part of New Territories, would be quite uncertain. Having regard to this factor, Mr. Yip opined that it would be reasonable to add a 2% risk premium on the average yield for office and flatted factories. This gave a yield of about 12% as to be the appropriate investment yield for the subject site for open storage use. 51. Also, we note the Respondent’s submission that “although land which can be used for container storage without planning permission became fewer since 1991, this does not imply that supply of land for container storage must necessarily decline.” Whilst the Respondent pointed out that RC2 is just one example where Government grants out new land to be used for the purpose of container storage so that the bare assertion of shortage of supply is not made out, we note that all the rental comparables that we are considering in this case are all but Government land let out on short term basis for storage and/or other commercial uses commonly associated with bare land in the New Territories. 52. As said before, the difficulties in choosing an appropriate yield, in the absence of actual direct empirical evidence from the market on the yield of open storage land, is one of the reasons that the investment approach was not to be preferred to the direct sales approach. For instance, although the differences in the suggested yields from Mr. Lau (9%) and Mr. Yip (12%) was a mere 3%, the resulting difference in the multipliers to be applied to the estimated rental values amounts to 33.33%, (being the differences in the multipliers of 11.11 and 8.33 respectively). 53. Having regard to the opinion of the two experts and the market evidence as shown in the Property Review, we adopt an estimated investment yield of say 10% (a multiplier of 10) in this case. Hence, the estimated unit value of the subject lots would be determined as follows: -
Reconciliation of values from (i) direct sales comparison approach and (ii) investment approach 54. Using the direct sales comparison approach, we find the estimated value for the subject site at $2,100 per sq. m. On the other hand, when the investment approach is used, the estimated value is $2,480 per sq. m. The unit value based on the latter approach is only 118% of that from the former approach. We can say that this is within the reasonable range of values that any valuer may find when employing different approaches of valuation for the same piece of land such as the subject site. This is certainly not the case, as suggested by the Applicant in his submission, that if the value obtained on cross check by investment approach was so substantially higher from the value obtained on direct sales comparison approach, one may conclude that the value arrived at by direct sales comparison was not reliable and should be abandoned. On the contrary, this narrow margin confirms that the check valuation using the investment approach supports our valuation of the subject site using the direct sales comparison approach. 55. For reasons stated in the Judgment, the Tribunal, as always the case in the past, prefers the use of direct sales comparison approach. This remains true here. We also find that the value obtained from the direct sales comparison approach is supported by the value obtained from the alternative investment approach. Therefore, we conclude that our revised valuation in this review show that the unit value of the subject site, for the purpose of this resumption valuation, should be the value obtained using the direct sales comparison approach, i.e., $2,100 per sq. m. Summary of revised total compensation payable to the Applicant 56. Thus, following the valuation methodology adopted in the Judgment, we apply the revised assessed unit rate of the resumed lots and re-estimate the open market value of the resumed lots and the diminution in value of the southern portion of the subject site due to the resumption, as follows:
Conclusion 57. Accordingly, we hereby order that the amount of compensation as ordered in the Judgment be varied to the sum of $9,570,000. As to the costs of the review application, it is adjourned to a date to be fixed together with the other consequential matters.
Mr. Thomas Lai, instructed by Messrs. Ko & Chow, for the Applicant Mr. Nelson Miu, instructed by the Department of Justice, for the Respondent
45764-EN-2005-07-15 FAN CHUN KEUNG v. THE SECRETARY FOR THE ENVIRONMENT, TRANSPORT AND WORKS HTML content LDMR 5/2004 IN THE LANDS TRIBUNAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION MISCELLANEOUS REFERENCE APPLICATION NO. 5 OF 2004 ________________ BETWEEN
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Coram: Deputy Judge WONG, Presiding Officer of the Lands Tribunal and Mr. W.K. LO, Member of the Lands Tribunal Dates of Hearing: 15 – 18 & 21 March 2005, 12, 13 & 19 May 2005 and 15 & 16 June 2005 Date of Handing Down of Judgment: 15 July 2005
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Background 1. This is an application by the Applicant for determination of compensation pursuant to section 29(7) of the Roads (Works, Use and Compensation) Ordinance, Cap. 370 (“the Ordinance”). The Applicant also applies for professional fees, interest and costs, but the parties have agreed that these matters can be adjourned to another date after the determination of the compensation. 2. The Applicant was the registered owner of Lot No. 3250 Section A Sub-section 2 Section A in D.D. 104 (“Lot 3250A2A”) and Lot No. 3250 Section B Sub-section 32 in D.D. 104 (“Lot 3250B32”). They were held under a Block Government Lease originally for a term of 75 years commencing from 1 July 1898, renewable for 24 years less 3 days, but the lease was extended to 30 June 2047 without payment of any additional premium by virtue of section 6 of the New Territories Leases (Extension) Ordinance, Cap. 150. 3. Lot 3250A2A had an area of about 930.7 sq. m. and Lot 3250B32 had an area of about 20,194 sq. m. They were contiguous to each other and together formed a rectangular site. They were located to the north of Fairview Park Boulevard, near Sheung San Wai Tsuen and Man Yuen Chuen, Yuen Long. According to the Applicant, Lot 3250A2A and Lot 3250B32, together with another adjoining lot also held by the Applicant, namely, Lot 3250A16RP, were occupied as an open storage compound. However, according to the Respondent, the “Existing Use” of Lot 3250A2A and Lot 3250B32 was a “container vehicle park”. 4. By Government Notice No. 4076 dated 29 June 2000, which was published in the Gazette on 30 June 2000, the Government gave notice that portion of Lot 3250A2A and portion of Lot 3250B32, as well as some other lots, were to be resumed pursuant to section 13(1) of the Ordinance. The resumption was to facilitate the implementation of ancillary roads for the Village Flood Protection Works. The effective date of the resumption was on 30 September 2000. At the date of reversion, Lot 3250A2A and Lot 3250B32 were zoned “Village Type Development” on the Mai Po and Fairview Park Outline Zoning Plan No. S/YL-MP/1 dated 3 June 1994. 5. The areas resumed in Lot 3250A2A and Lot 3250B32 are 26.9 sq. m. and 3,808.1 sq. m. respectively. The resumed portion of Lot 3250A2A is trapezoidal in shape and located at the northeastern corner of Lot 3250A2A. The resumed portion of Lot 3250B32 is elongated in shape and bisects Lot 3250B32 into two portions, northern and southern portions. The northern portion is rectangular in shape and has an area of 14,876.9 sq. m. The southern portion has the shape of an elongated triangle and has an area of 1,509 sq. m. The resumed portions of Lot 3250A2A and Lot 3250B32 are not contiguous to each other, but the remaining southern portion of Lot 3250B32 is contiguous to the remaining portion of Lot 3250A2A. 6. The Applicant’s claim for compensation is based on the value of the land taken and the loss suffered due to severance of the land. The Applicant’s expert, Mr. Alain Lau (“Mr. Lau”) of Fotton Surveyors Limited, has complied information on recent sales of some other lots but finds none of them suitable for direct comparison. Mr. Lau therefore resorts to the alternative investment approach by using the capitalization of market rental of lands let for open storage/fee paying car park use to determine the amount of compensation. This approach was adopted in Yuen Long Fish Merchant’s Association Limited v. Secretary for Transport, LDMR 44 of 2000. According to Mr. Lau’s assessment, the compensation should be in the sum of $26,000,000. In a revised calculation sheet filed during the hearing (Bundle AR-1, page 56A), Mr. Lau’s estimate of the compensation payable to the Applicant for the open market value of the land resumed is $18,446,350 (based on the resumed area of 3,835 sq. m. and an estimated unit rate of $4,810 per sq. m.) and the compensation for the severance of the remaining southern portion of the subject site is $7,624,448 (based on an area of 2,412.8 sq. m. remaining at the southern portion and an estimated diminution in value of $3,160 per sq. m.). 7. The Respondent’s expert, Mr. Yip Ho Chuen (“Mr. Yip”) of LCH (Asia-Pacific) Surveyors Limited, however, finds that there are suitable sale comparables to be used for the direct comparison approach in assessing the amount of compensation. The Respondent therefore disagrees with the Applicant on the use of the alternative investment approach. Mr. Yip has pointed out that a portion of Lot 3250A2A and Lot 32250B32 (“the Enforcement Portion”) was subject to enforcement notice and planning approval would be required to use the Enforcement Portion for open storage use, i.e. Melhado Use (see Attorney General v. Melhado Investment Co. Ltd. [1983] HKLR 422). He therefore assesses the compensation on two approaches, one based on the assumption that no planning approval could be obtained for the Enforcement Portion and the other on the assumption that planning approval could be obtained. The amounts of compensation assessed by him on these two approaches are $6,004,600 and $7,032,600 respectively. 8. Nevertheless, the Respondent has conceded that, given the characteristics and attributes of the subject site, use of the site for the purpose of open storage would have been permitted and hence there should not be any distinction between the Enforcement Portion and the other portion of Lot 3250A2A and Lot 3250B32. Thus, the Respondent relies only on the latter approach now in assessing the amount of compensation. That is, the Respondent’s estimate of compensation is $7,032,600, which includes (i) open market value of the land resumed at $6,519,500 (based on the resumed area of 3,835 sq. m. and an estimated unit rate of $1,700 per sq. m.) and (ii) severance loss of $513,100 for the remaining southern portion of the site (based on an area of 1,509 sq. m. at the southern portion and an estimated diminution in value of $340 per sq. m.) The law 9. Section 27 of the Ordinance stipulates that the compensation is to be assessed on the basis specified in Part II of the Schedule of the Ordinance. For resumption of land, Part II of the Schedule specifies that the compensation is to be assessed as if the claim were made under the Lands Resumption Ordinance, Cap. 124 (“the LRO”). Section 10(2)(a) of the LRO provides that the Tribunal shall determine the compensation on the basis of “the value of the land resumed and any buildings erected thereon at the date of resumption”. As to the claim for severance, section 10(2)(c) of the LRO provides that the Tribunal shall determine the compensation on the basis of “the amount of loss or damage suffered by any claimant due to the severance of the land resumed or any building erected thereon from any other land of the claimant, or building erected thereon, contiguous or adjacent thereto”. 10. Sections 11 and 12 of the LRO set out the principles and additional rules for determining compensation, in particular, section 12(d) states that “the value of the land resumed shall be taken to be the amount which the land if sold by a willing seller in the open market might be expected to realize”. On the other hand, section 12(aa) stipulates that “no account shall be taken of the fact that the land lies within or is affected by any area, zone or district reserved or set apart for the purposes specified in section 4(1)(a), (c), (d), (e), (f), (g), (h) or (i) of the Town Planning Ordinance (Cap. 131)”. 11. Section 12(aa) has been considered by the Court of Appeal in View Point Development Ltd & Anor v. Secretary for Transport [2004] 2 HKC 52 and Delight World Limited v. The Secretary for Transport, CACV 167 of 2004 (Judgment delivered on 12 May 2005). Both parties agree that the law as it stands now is that where zoning is to be ignored, any restriction or need for permission associated with the zoning also has to be ignored. In other words, when assessing compensation payable on resumption of land, all planning restrictions are assumed to be non-existent. Although the Respondent has reserved its position on the construction of section 12(aa) in view of the pending appeal of Delight World to the Court of Final Appeal, we are bound by the present judgments of the Court of Appeal and see no basis to depart from them at this stage. 12. In the case of severance loss, the Respondent submits that the same assumption must be made for both the “Before” and “After” situations, as it would be wrong to assume that before resumption, all affected lots are assumed to be capable of being put to Melhado Use without regard to any planning restrictions, whereas after resumption, the remaining land shall be regarded as being subject to planning restrictions. We agree with the Respondent’s submission in this regard, as it is the only logical conclusion that can be made. 13. The Applicant has made reference to section 12(c) of the LRO and the judgment of the Court of Final Appeal in Director of Lands v. Yin Shuen Enterprises Ltd., [2003]6 HKCFAR 1, which decided that hope value for lease extension or modification should be ignored under section 12(c). The Applicant submits that the Court of Final Appeal did not rule that section 12(c) requires all prospects of development to be ignored. The Respondent disagrees with this contention and submits that the Court of Appeal in View Point, supra. and in Nam Chun Investment Co. Ltd. v. The Director of Lands, CACV 335 of 2003has refuted this contention. Nevertheless, as submitted by the Respondent, we do not find this contention relevant to the present case, as neither side’s expert has sought to use comparables with development potential. 14. Apart from the aforesaid statutory principles, there are two basic guiding principles at common law: the principle of equivalence and the Pointe Gourde principle. The principle of equivalence means that the owner shall be paid “neither less nor more than his loss”: Horn v. Sunderland Corporation [1941] 2 K.B. 26. The Pointe Gourde principle means that no account is to be taken of the effect on value of a scheme underlying the resumption: Pointe Gourde Quarrying and Transport Co. v. Sub-Intendent of Crown Lands [1947] AC 565 and Director of Buildings and Lands v. Shun Fung Ironworks Ltd. [1995] 2 AC 111. The issues 15. Subject to the aforesaid, the parties have no dispute on the legal principles relevant to the present case. The outstanding issues are: -
16. In addition, the Applicant submits that the case of Delight World is factually similar to the present case in a number of important areas: both are agricultural lots with Melhado potential, similar in area, both have ready access to major road networks which is important for open storage use on a large scale, both are large integral sites severed by resumption with remaining portions suffering significant loss of value and both are in Yuen Long area reasonably close to the border. The Applicant contends that it is important to consider Delight World as persuasive authority in view of judicial consistency. In Delight World, the Lands Tribunal assessed the unit rate at $3,174 per sq. m. In the present case, according to Mr. Yip’s assessment, the unit rate is $1,700 per sq. m. The Applicant is of the view that such a huge discrepancy in the unit rates cannot be right. Nevertheless, it is not the Applicant’s contention that Delight World should enjoy any status as a comparable. The Respondent disagrees with the Applicant’s contention. It is therefore necessary for us to deal with this issue too. Existing Use 17. Section 1A of the Town Planning Ordinance, Cap. 131, defines “Existing Use” in relation to a development permission area to mean “a use of a building or land that was in existence immediately before the publication in the Gazette of notice of the draft plan of the development permission area”. Mr. Yip’s evidence is that when the Mai Po and Fairview Park Interim Development Permission Area Plan No. IDPA/YL-MP/1 was gazetted on 17 August 1990, the resumed portions of Lot 3250A2A and Lot 3250B32 were mainly vegetated and vacant land. Five trailer-like objects were found on the southwestern part of Lot 3250B32 whilst an unidentified object was found in portion of Lot 3250A2A. Mr. Yip therefore opined that the “Existing Use” for portion of Lot 3250A2A and Lot 3250B32 was not for open storage uses. 18. According to the Statement of Expert Report of Mr. Liu Wai-kwok produced by the Respondent, the survey sheet prepared in 2000 and aerial photo taken on 1 June 2000 show that the Enforcement Portion was used for open storage purpose (including containers and container vehicles among others), which was a suspected unauthorized development and subject to enforcement. However, a container vehicle park was located to its north, which was identified as an “Existing Use” tolerated under the Town Planning Ordinance. 19. We accept the evidence produced by the Respondent in this regard and find that the “Existing Use” of Lot 3250A2A and Lot 3250B32 was “container vehicle park”. Investment approach or direct sale comparison approach 20. Mr. Lau’s investment approach is no doubt an alternative means of ascertaining the market value of a property, but it is not the best method in valuation. As pointed out by Mr. Yip, the best method in valuation is the direct sale comparison approach, and the Lands Tribunal has repeatedly expressed its preference for the comparative method: Director of Lands and Survey v. Fung Ping Chung [1977] HKLTR 37. Mr. Lau has in fact identified 4 sale comparables, but for certain reasons, he finds that these comparables were not suitable for comparison and hence adopts the investment approach. It is clear that if there were suitable sale comparables, Mr. Lau would not have used the investment approach. Therefore, we can conclude that both surveyors giving evidence in this case agree in principle that the best method is the direct sale comparison method. 21. Under this method, suitable sale comparables were analyzed and adjusted, to reflect the differences between the comparables and the resumed lots, arriving at an appropriate adjusted unit rate for the valuation of the resumed lots. As discussed later in this judgment, we find that there are in fact suitable sale comparables in the present case and hence there is no need to resort to the investment approach at all. 22. Moreover, Mr. Yip points out that the investment approach involves summation of all the future income generated from the property and then discounting the income at an appropriate discount rate. There are 3 elements in this approach: rental income, capitalization rate and holding period. The capitalization rate and holding period will work out a multiplier, i.e. Years’ Purchase. A minor change in the capitalization rate will greatly affect the capital value of the property. It goes without saying that with one more set of variable, there is a less certain chance of arriving at a value that equals to the market value of the subject land, which is the subject matter of valuation. More importantly, it is commonly known, and acknowledged by both surveyors in this case, that mainly because the sales of land demised for agricultural land were scarce, there was no market evidence at all as to their yield. Therefore, the yield adopted in Delight World case, as in other cases when the agricultural land in question were valued on the basis of investment approach, was simply a figure that had to be adopted in the absence of any other evidence. In view of the forgoing, we find that the investment approach is not as reliable or accurate as the direct comparison approach. 23. Since there are suitable sale comparables in the present case and the investment approach is not as reliable or accurate as the direct comparison approach, we find that we should adopt the direct comparison approach. There are many matters concerning the letting comparables disputed by the parties, but as we adopt the direct comparison approach, these matters become irrelevant and we shall not deal with them in the judgment. Delight World 24. Even in the case of Delight World, the Lands Tribunal stated in the Judgment on Review dated 21May 2004 (unreported case LDMR 2 of 2002, paragraph 24), “Summing up, we agree in principle with Mr. Ng in his valuation approach, in the absence of suitable direct sales comparables of land having the same characteristics and permitted uses as to what we were required to assume, for the Affected Lots, which were the subject matter of the resumption, …”. It is obvious from the reading of the above extract of the Judgment that if the Tribunal had found that there were suitable direct sales comparables, the Lands Tribunal would not agree with Mr. Ng in his choice of the investment approach. 25. The Respondent submits that a decision of a tribunal is not to be treated as having the status of a comparable: Land Securities Plc v. Westminster City Council [1993] 4 All ER 124. Although the Applicant is not contending that Delight World should be treated as a comparable, by asking us to consider the similarities between the two cases and the unit rate decided in Delight World, it is tantamount to asking us to compare the two cases. 26. However, we accept the Respondent’s submission that the assessment in each case must depend on the evidence presented to the Tribunal in each case. When the evidence presented in each of the cases are different, the Tribunal would come to different conclusions. So the unit rate decided in Delight World is based on the evidence available in that case, and the evidence there would not be the same as the evidence in the present case. We cannot simply compare the unit rates as suggested by the Applicant. The Applicant uses the term “judicial consistency” to justify his argument, but we agree with the Respondent that “judicial consistency” simply means that the Tribunal should apply principles of law consistently. It does not mean that the Tribunal has to compare the unit rate assessed in one case based on the evidence available in that case with an earlier decision based on a different set of evidence. 27. We therefore find that it is unnecessary to consider the unit rate decided in Delight World in the present assessment. Availability of suitable sale comparables 28. We shall therefore consider below the different views of the two surveyors and also the grounds for holding their views before deciding on whether there is sufficient number of suitable comparables to warrant the employment of sale comparison method in the valuation of the resumed lots, including the assessment of any loss in value of the remaining land due to severance. 29. Mr. Lau stated in para. 15.1.2 and 15.1.3 of his valuation report dated 18 October 2004 (Bundle AR-1, page 37) the following: -
30. He went on to analyze his 4 comparables and concluded, “None of the transactions recorded can be regarded as a suitable comparable evidence to the subject lots which was used as a large storage/parking compound at the time of and before the resumption”. As a result, he considered that it would be more appropriate to value the resumed lots by the “investment approach” involving the capitalization of market rental values of land let for either open storage or fee-paying open car parking use, even though most of these sites were located far away from the subject lots in the northwestern part of the New Territories, or in other parts of the New Territories. 31. Mr. Lau also commented in his supplementary valuation report dated 18 November 2004 (Bundle AR-1, page 151) that none of the sale comparables adopted by Mr. Yip could be said to be relevant or suitable comparables. 32. During the hearing, Mr. Lau elaborated and reiterated his earlier view as stated in his valuation reports dated 18 October 2004 and 18 November 2005 that there was no suitable sale comparable for the purpose of valuing the subject lots by direct sale comparison method. As such, he opined that there was no other alternative but to value the subject lots by the “investment approach”. Therefore, much of his written evidence, and his oral evidence in chief and in cross examination concentrated on the letting comparables, their adjustments as well as the adoption of the appropriate yield in the investment approach. He also chose not to give any evidence or opinion as to the adjustments that should be applied to any of the sale comparables identified by him and Mr. Yip. 33. On the other hand, Mr. Yip held an entirely opposite view from that of Mr. Lau. Mr. Yip in his first valuation report dated 21 October 2004 (Bundle AR-1, page 174) opined that the subject lots should be valued depending on whether they were subject to enforcement or not subject to enforcement. Mr. Yip identified and opined that in the former situation, two sale comparables (i.e. Comparable Nos. C1 & C2) were considered relevant because their physical attributes were similar to that of the subject lots whilst in the latter situation, two other sale comparables (i.e. Comparable Nos. AWS1/C3 and AWS3/C4) were relevant. 34. Mr. Yip in his supplementary valuation report dated 22 November 2004 (Bundle AR-1, page 252) commented on the four comparables cited by Mr. Lau in his first valuation report. He opined that contrary to what Mr. Lau said, these comparables were suitable comparables. 35. Before the hearing commenced on 15 March 2005, counsel for the Respondent conceded with the Applicant that a distinction in the different areas of the subject lots, i.e., between the planning enforcement portion and the non-enforcement portion, would not be made. Following this, both parties’ expert surveyors agreed to value the subject lots on the basis of the same assumption in the users (i.e. open storage) that would be permitted for the lots in both the Before and After situation. 36. We note the Applicant’s contention, as supported by Mr. Lau’s opinion, that whilst the resumed lots were actually used and were suitable for use for the purpose of open storage of container trucks, trailers and containers, some of the sale comparables were not actually put to the same said uses around the dates of their transactions, and/or were not physically large enough or otherwise capable for being put to the same said uses. However, we agree with the submission of the Respondent that the Applicant has adduced no evidence to show that the values of agricultural land such as the resumed lots and the sale comparables for open storage of container trucks, trailers and containers would necessarily be higher than the values of the similar lands put to other open storage uses. 37. In addition, we are not aware of the above assertion as something known to and agreed upon by valuation surveyors and market players in the land market in Hong Kong. Therefore, we do not agree with Mr. Lau’s inference that because of the differences in the areas of the subject lots before the resumption and the sale comparable sites and also, the differences in the actual or possible types of commodities or vehicles that could be stored in the subject lots before the resumption and the comparable sites, all the sale comparables are not suitable comparables for the valuation of the resumed lots. 38. Conversely, we agree with the opinion of Mr. Yip that the values of agricultural land for open storage purposes should be dependent on the different factors of location and demand etc. at the relevant valuation dates. There is no basis, for instance, to conclude that the unit rate market value of land demised for agricultural purpose but used for open storage of container vehicles must be necessarily higher than that of other similarly demised land used for open storage of other commodities or scrap metal yard, or as fee-paying car parking lots. 39. For Comparables AWS1/C3 and AWS4, Mr. Lau said that they should not be admitted as suitable comparables because they were part of larger sites, which were subject to resumptions before the dates of their transactions. For Comparable AWS1/C3, Mr. Lau said that “with a very reduced area, this lot was no longer a suitable site in its own right for large open storage use but it does provide a useful reference for the assessment of the market value that reflects the effect of resumption.” For the reason stated in the previous paragraph, we do not agree with this assertion of Mr. Lau. For Comparable AWS4, Mr. Lau said that it formed part of a larger site of which portions were resumed about 3 months before the sale of this comparable. In addition, Mr. Lau stated that a large part of the site was found vacant at the time of transaction. Also, he argued that since these comparables were much affected by various resumptions and public infrastructure works in the region, they could not be accepted as suitable comparables. 40. Overall, we do not agree these to be valid grounds for rejecting these 2 comparables. The sales of Comparables AWS1/C3 and AWS4 were made some time after the said resumption was carried out as a result of which even the Applicant agreed that it could not be said that they were affected by the “threats” of the said resumption. 41. For Comparable AWS2/C1, Mr. Lau said that this should be rejected as it had been sold to the mortgagor bank on 29 March 2000 before re-selling again to the present owner on 30 October 2000. The Applicant also submitted that there was a difference between the price of $4,608,510 stated in the agreement for sale and purchase dated 23 August 2000 and the price of $4,428,510 the subsequent assignment dated 30 October 2000, which makes this transaction not reliable. We find that the difference between the price stated in the agreement is only about 5% different from that stated in the assignment. Although it is not very common to have a difference in price stated in these documents, we think that this is insufficient to justify the rejection of the comparable. We agree with the Respondent that this comparable should not be discarded just for these reasons. 42. For Comparable AWS3/C4, Mr. Lau said that with a small site area of only 404 sq. m., it was not a suitable site for comparison purpose as its size rendered it incapable of being used as “a large storage compound for bulky good/vehicles/containers”. Again, for the reason stated in paragraphs 36 to 38 above, we do not agree with Mr. Lau that we should discard this comparable on this ground. Mr. Lau also added that this sale suffered from an uncertainty as it was partly encroached by a structure the major part which rested on an adjacent lot. However, we agree with Mr. Yip that this defect could be dealt with by reducing the original site area of the lot by the encroached area. 43. Finally, for Comparable C2, the comparable at Pok Oi, Mr. Lau said that the site, being close to the West Rail Viaduct and the Pok Oi Hospital, would unlikely to have any Melhado potential. He added that since it could not be used for the storage of container vehicles and containers, it should be rejected. For the same reason as for Comparable AWS3/C4, we do not agree with Mr. Lau to reject this comparable. 44. To conclude, after reviewing the evidence and opinion of both expert surveyors, we do not agree with Mr. Lau that there was no sufficient number of suitable comparables for the valuation of the subject site. We find that as far as the assumption of user is concerned, use of the subject site for the purpose of open storage would be permitted in both the Before and After situation whilst for the comparables, we note that they were all used for and/or capable of being used for open storage around the dates of transactions. Also, we find that for the factors of location and time, the two other important parameters affecting values of land in general, the five sale comparables identified by both surveyors were close to that of the subject lots. Therefore, we do not find at the outset that we should exclude any of these five comparables. In the following section, we would analyze these comparables. Analysis and adjustments of the sale comparables 45. Mr. Lau chose not to analyze any of the sale comparables identified either by him in the first instance or by Mr. Yip. We only had the benefit of the evidence of Mr. Yip who opined that the sale comparables should be adjusted under the different factors of adjustments of location, accessibility, size, layout/shape, time, right of way and risk of planning enforcement. Since the Respondent already conceded on the users that would be permitted for the subject lots and since we are bound to follow the decisions of the Court of Final Appeal in Director of Land v Yin Shuen & anor (supra.) and the Court of Appeal in the case of View Point (supra.) and the case of Nam Chun (supra.), as regards the users that could be assumed to be permitted, we do not find it necessary to make any adjustment on the factor of “risk of planning enforcement”. 46. In the table below, we summarize our adopted adjustments for the five sale comparables (using the reference numbers adopted by Mr. Lau and Mr. Yip respectively). Table 1 - Adjustment of sale comparables
* Based on Mr. Yip’s computation – excluding the area of the encroached structure of 17.4 sq. m. (i.e. site area of 404.7 sq. m. less 17.4 sq. m. = 387.3 sq. m.) 47. We will discuss the adjustment factors one by one as below: - Location We compute from the site plan produced by the two surveyors that apart from Comparable C2, the other 4 comparables are all less than 1 km. away from the subject lots. Comparable AWS1/C3 is located almost immediately adjacent to the subject lots whilst Comparable AWS4 is located to the west, in the very close vicinity of the subject lots. The other 2 comparables, AWS2/C1 and AWS3/C4 are located to the south of Fairview Park Boulevard but are still very close to the subject lots. Comparable C2, located at Pok Oi, is farthest away but is located in the same part of New Territories. Therefore, we are of the view that as far as location is concerned, these sale comparables, apart from Comparable C2, are so closely located to the subject lots that no adjustment or a small adjustment of +5% is warranted. For Comparable C2, we disagree with Mr. Yip that it has a better location than the subject lots and we adopt an adjustment factor of +10% instead of –20% as suggested by Mr. Yip. Accessibility Mr. Yip opined that no adjustment is required for Comparables AWS2/C1, AWS3/C4 and C2, and +3% for Comparable AWS1/C3. Based on the evidence shown on the site plans and our site inspection with the parties, we hold different view and adopt different adjustment percentages for the comparables, varying from 0% to +15%, as shown in the above table. Size Mr. Yip opined that no adjustment for size is warranted at all. We instead adopt the traditional approach of adjusting the value downwards as the size increases and the lump sum price increases. Layout / Shape We agree with Mr. Yip that a discount should be given to Comparable C2 as it has an irregular shape. But we adopt a higher adjustment of +10%. Time In the absence of any other basis, we follow with Mr. Yip in his adjustments for time, after making reference to the private flatted factories’ price indices of the Hong Kong Property Review published by the Rating & Valuation Department. Right of Way Mr. Yip researched the lands status plan for Comparable AWS2/C1 and suggested an adjustment of +5%, based on the reduction in the area of the land of the comparable due to the existence of the mutual right of way shared by adjoining lots. We agree and adopt the same percentage of adjustment. Risk of Planning Enforcement As stated before, we do not find this factor of adjustment adopted by Mr. Yip to be necessary. Reconciliation of estimated market value 48. Based on the comparables, and after making the various adjustments as stated above, we estimate the market value of the subject lots to be between the lowest unit rate of $1,439 per sq. m. (Comparable AWS2/C1) and the highest unit rate of $2,253 per sq. m. (Comparable C2), with an average of $1,730 per sq. m. The differences between the adjusted unit rates derived from all five comparables are within a range of between +30% and –17% from the mean. Hence, we do not find it necessary to discard a certain comparable on the ground that it is obviously out of line with the rest of the comparables. For reasons stated before, we also do not find it appropriate to discard a certain comparable on the ground, as suggested by Mr. Lau that it was not capable of being used for the open storage of container vehicles, trailers and containers. In concluding, we decide to adopt all as relevant comparables and use the average figure as the appropriate market value for the subject lots. Conclusion of unit value based on direct sales comparison 49. From the above table, we arrive at a figure of $1,730 per sq. m. We round this to $1,750 per sq. m. and adopt this as the unit market value of the subject lots, based on the transaction prices of the five sale comparables, and after making adjustments reflecting the differences between the said comparables and the subject lots. Valuation of the resumed lots 50. In estimating the value of the resumed lots at the relevant valuation date, we apply the assessed unit rate of the resumed lots to the total site area of the said land, as follows:
Valuation of the loss to the Applicant due to the severance of land 51. The resumption has bisected the subject site into two parts, the northern portion and the southern portion. After the resumption, the northern portion of the subject site remaining in the ownership of the Applicant extends to about 14,885 sq. m. It is also of regular shape and is still accessible to the Fairview Park Boulevard via the local access road at about the same position as before. Both Mr. Lau and Mr. Yip shared the same view that no compensation for the severance of the remaining northern portion of the subject site should be payable to the Applicant. However, Mr. Lau gave evidence that he agreed that there was no severance for the remaining northern portion of the subject site because he assumed that the Applicant still maintained the access through the unresumed portion of Lot 3250A2A (i.e., the trapezoidal shaped lot in between the public access road and the unresumed portion of Lot 3250B32 (i.e., the remaining triangular shaped portion of the site). 52. They also both agreed that after the resumption, the southern portion of the subject site suffered loss due to the severance of that portion from the other land. However, they held different views as to the quantum of severance loss that should be applicable to the southern portion of the subject site. They disagreed on both the areas of the remaining southern portion of the site that suffered from the severance loss as well as on the extent of the loss per sq. m. of the remaining site. Mr. Lau said that both the triangular, un-resumed portion of Lot 3250B32 (1,509 sq. m.) and the trapezoidal, un-resumed portion of Lot 3250A2A (903.8 sq. m.), or a total area of 2,412.8 sq. m. of land suffered severance loss whilst Mr. Yip said only the former suffered any loss. 53. In the valuation report dated 18 October 2004, Mr. Lau estimated that the unit market value applicable to the southern portion in the Before and After situations were $4,810 per sq. m. and $1,650 per sq. m. respectively, or a difference of value of $3,160 per sq. m. This is equivalent to a reduction in value of over 65% assuming an estimated market value of the land of $4,810 per sq. m. On this basis, he estimated the loss in value to be 2,412.8 sq. m. times $3,160 per sq. m., or $7,624,448. On the other hand, Mr. Yip estimated in his valuation report dated 21 October 2004 that the southern portion of the subject site, on the higher basis of assuming Melhado use, would suffer a 20% of the diminution of the land value after the resumption. He estimated it to be 1,509 sq. m. times $340 per sq. m. (estimated market value of $1,700 per sq. m. x diminution in value of 20%), or $513,060. 54. The two surveyors maintained their views during the hearing when they gave evidence in chief and cross-examination. There was also much debate on the possible use of an area of the subject site, which had been used as part of the main access road leading to the subject site before and after the resumption. 55. After taking into account the opinion of the two surveyors, the configuration of the subject site in both the before and after situation, and in particular the shape and size of the southern portion of the subject site, we are of the view that a reasonable diminution in value of the southern portion of the site is about 30% of the total area of 2,412.8 sq. m. (i.e. the total area of the remaining portion of both Lot 3250B32 and Lot 3250A2A). Based on our estimated market value of the resumed lots of $1,750 per sq. m., we estimate the diminution in market value of the remaining southern portion of the subject site to be $1,750 x 30%, or $525 per sq. m. Applying this to the area of the remaining southern portion of the subject site of 2,412.8 sq. m., we calculate the diminution in value of the remaining southern portion of the subject site due to severance to be 2,412.8 sq. m. times $525 per sq. m., which is equal to $1,266,720. Summary of total compensation payable to the Applicant 56. From the foregoing, we estimate the open market value of the resumed lots and the diminution in value of the southern portion of the subject site due to the resumption to be as follows:
Orders 57. Accordingly, we order that the Respondent do pay the Applicant compensation for the affected lots, including compensation for the severance of remaining land owned by the Applicant, in the sum of $7,980,000. The matters of professional fees, interest and costs are adjourned to a date to be fixed.
Mr. Thomas Lai, instructed by Messrs. Ko & Chow, for the Applicant Mr. Nelson Miu, instructed by Department of Justice, for the Respondent
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