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LDCS 48000 / 2012
IN THE LANDS TRIBUNAL OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
LAND COMPULSORY SALE APPLICATION NO. 48000 OF 2012
__________________
BETWEEN
PINE HARVEST LIMITED
1st Applicant
JUMBO TIME DEVELOPMENT LIMITED
2nd Applicant
and
HUI CHE SHING as the Executor of the estate of HOI CHEUNG YOK SUM (Deceased）
1st Respondent (discontinued)
The personal representative of SIK CHI
SHEUNG (formerly known as TSUI SAU YUNG) (Deceased)
2nd Respondent
___________________
Before: Mr. Lawrence PANG, Member, Lands Tribunal
Dates of Hearing: 13 August 2013
Date of Judgment: 22 August 2013
_________________
J U D G M E N T
_________________
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Background
1. This is an application for compulsory sale of all the
undivided shares in Section A of Inland Lot No. 2155 (“the 1st Lot”), with
a building erected thereon known as No. 307 Des Voeux Road West,
Hong Kong, Section E of Inland Lot No. 2155 (“the 2nd Lot”), with a
building erected thereon known as No. 309 Des Voeux Road West, Hong
Kong and Section B of Inland Lot No. 2155 (“the 3rd Lot”), with a
building erected thereon known as No. 311 Des Voeux Road West, Hong
Kong, for the purposes of the redevelopment pursuant to Section 3(1) of
the Land (Compulsory Sale for Redevelopment) Ordinance, Cap. 545
(“the Ordinance”). The 1st Lot, the 2nd Lot and the 3rd Lot are hereinafter
collectively referred to as “the Lots”
2. There is erected on each of the Lots a 6-storey composite
building with a ground floor shop, a mezzanine floor (or cockloft) and
upper floor domestic units. These buildings, hereinafter collectively
referred to as “the Buildings”, are connected to each other by staircases
intended for common use by occupiers of the Buildings.
3. The undivided interests of the respective units of the
Buildings sharing each of the Lots as well as their corresponding
ownerships when the Applicants commenced the present proceedings on
30 August 2012 are shown in the table below:
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Floor No. 307 Des Voeux
Road West
(Ownership)
No. 309 Des Voeux
Road West
(Ownership)
No. 311 Des Voeux
Road West
(Ownership)
Ground Floor 31
(1st Applicant)
2
(1st Applicant)
2
(1st Applicant)
Mezzanine
Floor
1
(2nd Applicant)
1
(2nd Applicant)
1st Floor 2
(1st Respondent)
2
(1st Applicant)
2
(1st Applicant)
2nd Floor 2
(1st Applicant)
2
(1st Applicant)
2
(1st Applicant)
3rd Floor 2
(1st Applicant)
2
(2nd Applicant)
2
(1st Applicant)
4th Floor 2
(2nd Respondent)
2
(1st Applicant)
2
(1st Applicant)
Penthouse &
Roof
1
(1st Applicant)
1
(1st Applicant)
1
(1st Applicant)
Total 12 12 12
4. Thus as at the date of the captioned application, the 1st
Applicant and the 2nd Applicant (hereinafter collectively referred to as
“the Applicants”) together owned 66.67% equal undivided parts or
shares in the 1st Lot, 100% equal undivided parts or shares in the 2nd Lot
and 100% equal undivided parts or shares in the 3rd Lot. The average of
the percentage of the undivided shares owned was 88.89% pursuant to
Section 3(2) of the Ordinance. They then owned not less than 80% of the
undivided shares in the Lots and were entitled to make the present
application by virtue of the Land (Compulsory Sale for Redevelopment
(Specification of Lower Percentage) Notice under Section 3(5) of the
1 The Ground Floor and Mezzanine floor of No. 307 Des Voeux Road West are registered as a single unit in the Land Registry.
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Ordinance (“the Notice”).
5. On 5 August 2013, the 1st Applicant also acquired the
interest of the 1st Respondent. The Applicants have re-amended the
Notice of Application and have discontinued the application against the
1st Respondent. 2 As at the commencement of the trial, only the 2nd
Respondent remained, that being the registered owner of 2 shares in the
1st Lot and 4th Floor of No. 307 Des Voeux Road West, Hong Kong. The
average of the percentage of the undivided shares owned by the
Applicants is 94.44%.
6. In respect of the 2nd Respondent, Mr MOK Yeuk Chi (“Mr.
Mok”), Counsel for the Applicants, submits that the 2nd Respondent has
deceased. Although the solicitors for the Applicants have received a letter
from Messrs. Peter Mo & Co., Solicitors & Notaries, dated 7 August
2013 that an application by the intended administratrix to the estate of the
2nd Respondent for Letters of Administration had been lodged with the
Probate Registry of the High Court on 6 August 2013, no Probate or
Letters of Administration has been granted. Mr. Mok also submits that
the Applicants have duly served all the papers on the 2nd Respondent,
including but not limited to entering into a Provisional Agreement for
Sale and Purchase with the former intended administrator to the estate of
the 2nd Respondent dated 28 May 2010, Agreement and a Supplemental
Agreement dated 19 August 2010 for the purchase of the 2nd
Respondent’s interest which was nevertheless cancelled on 16 March
2012 for want of representation. In any event, no Notice of Opposition or
any other evidence on behalf of the 2nd Respondent has been filed; the 2nd 2 The parties have formally applied for discontinuance by a consent summons dated 7 August 2013.
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Respondent was unrepresented at the trial.
7. In view of the above, Mr Mok simply called the witnesses to
prove the Applicants’ case. The Applicants contend that all the
requirements of the Ordinance have been satisfied and ask for an order
for sale in terms of the draft order submitted.
Section 3 of the Ordinance – Ownership of the Applicants
8. Section 3(1) of the Ordinance requires the Applicants to
have not less than 90% of the undivided shares in a lot before it can make
an application.
9. Section 3(5) of the Ordinance also states that the Chief
Executive in Council may, by notice in the Gazette, specify a percentage
lower than the percentage mentioned in subsection (1) in respect of a lot
belonging to a class of lots specified in the notice.
10. Pursuant to Section 3(5) of the Ordinance, the Notice was
gazetted on 22 January 2010 and tabled at the Legislative Council
meeting on 27 January 2010. It came into operation on 1 April 2010.
Section 3 of the Notice lowered the threshold for compulsory sale, insofar
as it is applicable, from 90% to 80%. Section 4(1)(b) of the Notice
specified one of the classes for the purposes of Section 3 as “a lot with
each of the building erected on the lot issued with an occupation permit at
least 50 years before the relevant date (which is the date of the
application)”. The occupation permit of the Buildings was issued on 19
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July 1955, which is more than 50 years as at the date of application. The
Buildings are therefore covered by the Notice and the applicable
percentage is 80%.
Determination of the existing use values (“EUV”) of all units in the
Buildings
11. Pursuant to section 3 of the Ordinance, the Application was
accompanied by a valuation report (“Application Report”) prepared by
Mr. Alnwick Chan of Knight Frank Petty Ltd. (“Mr. A. Chan”), the
Applicants’ valuation expert witness, containing the assessments of the
values of all units (which are conveniently termed as the existing use
values, the “EUV” of all units) in the Buildings on the Lots as at 1 June
2012.
12. Under section 4(1)(a)(i), if there is a dispute between the
parties on the EUV of the units in the Buildings on the Lots, the Tribunal
has to determine the values. Section 4(1)(a)(ii) further provides that, in
the case of any minority owner of the Lots who cannot be found, for
instance, the 2nd Respondent as submitted by the Mr. Mok, the majority
owner of the Lots is required to satisfy the Tribunal that the value of the
minority owner’s property as assessed in the application is “(A) not less
than fair and reasonable; and (B) not less than fair and reasonable when
compared with the value of the majority owner’s property as assessed in
the application.”
13. In the Application Report of 29 August 2012, Mr. A. Chan
explained the method of valuation and the process of his assessment to
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arrive at the EUV of each unit of the Buildings.
14. In his valuation of the EUV of the domestic units of the
Buildings, Mr A. Chan adopted the following methodology :
(a) He selected 3rd Floor, No. 307 Des Voeux Road West
(“the Reference Domestic Unit”), which was situated on the
middle floor of the domestic portion as the reference unit for
the purpose of valuing its unit price.
(b) The unit price of the Reference Domestic Unit was
first assessed by making reference to market comparables.
He took into account 4 comparable transactions all in
different buildings nearby. After making what he regarded
as the necessary adjustments (for time, location/accessibility,
age, lift service, floor, size, building condition, internal
condition and view) for all these comparable transactions, he
took the average of the adjusted unit rate of the comparables
to come to the unit price of the Reference Domestic Unit.
(c) He further considered the floor difference, view, size
and internal conditions of the Reference Domestic Unit and
the remaining domestic units within the Buildings and made
adjustments to arrive at the EUV of all the domestic units.
15. For the Penthouses & Roofs of the Buildings, Mr A. Chan
converted their saleable areas of the Roofs as domestic by using a
conversion factor of 1:8 and valued the Penthouses as domestic.
16. In assessing the EUV of all Ground Floor units, Mr A. Chan
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noted the Ground Floor and Mezzanine Floor of No. 307 Des Voeux
Road West are registered as a single property in the Land Registry.
Whilst Ground Floor and Mezzanine Floor of either No. 309 or 311 Des
Voeux Road West are registered separately, according to the approved
building plans, units on those respective Mezzanine Floors are provided
with separate access independent of the units on Ground Floor. He
adopted the following methodology:-
(a) Zoning Method was adopted, due to the elongated
layout of the ground floor units.
(b) Mr A. Chan adopted Ground Floor, No. 307 Des
Voeux Road West, No. 309 Des Voeux Road West and No.
311 Des Voeux Road West respectively as the reference unit
(“the Reference Shop Unit”). He then took into account 4
comparable transactions in 3 different buildings nearby.
After making what he regarded as the necessary adjustments
(for time, location, building age, internal condition, frontage,
return frontage, headroom, quantum) for all these
comparable transactions, he took the average of the adjusted
unit rate of the comparables to come to the unit price of the
Reference Shop Unit.
(c) To facilitate the assessment of whole ground floor
unit, including shop portion and ancillary portion (i.e. yard
and mezzanine floor, if appropriate), such unit rates in terms
of Zone A (“ITZA”) were then converted into unit rate on
saleable area.
17. The Applicants have noted from the occupation permit
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issued on 19 July 1955 that the Buildings and other adjacent buildings not
being the subject of the Application (i.e. Nos. 307-317 Des Voeux Road
West altogether) were for “domestic purposes” whereas the approved
building plans dated 30 November 1954 and 17 March 1955 provided for
the ground floor shop accommodation. Mr. Mok submits that the
domestic permit referred to stating that the architect had certified that the
new building complied in all respects with the provisions of the Buildings
Ordinance (Chapter 123 of the Revised Edition, 1950) could only mean
that the new building was constructed in accordance with the approved
building plans with ground floor shops, cocklofts and upper floor
domestic units. Under the then Buildings Ordinance, 1950 Edition, there
were the following significant differences to the current issue of the
Buildings Ordinance (“BO”):
(a) Section 2 defines ‘domestic building’ to mean “any
building constructed, used or adapted to be used, wholly or
partly, for human habitation, but does not include any
building where caretakers only, not exceeding two in number,
pass the night” (underline added) whereas the current
version of the BO defines ‘domestic building’ to mean “a
building constructed or intended to be used for habitation
and the expression domestic purposes shall be construed
accordingly” In other words, submits Mr. Mok, unlike
under the 1950 BO, a domestic building under the current
BO has to be wholly for human habitation and cannot be
partly for non-domestic use.
(b) There is no provision prohibiting material change of
use as found in section 25 of the current BO.
(c) Whereas section 137(1) provided for the need of a
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written permit from the Building Authority to occupy a new
building, the first sentence of section 137(2) provided: “In
issuing permits the Building Authority shall have regard to
the nature of the building and its fitness for occupation or
use as a domestic or as a non-domestic building and shall
accordingly issue permits appropriate to such occupation or
use”. Mr. Mok submits, a domestic permit issued to a new
building could be partly (such as Ground Floors and
cocklofts) for non-domestic use and were not inconsistent
with the approved building plans providing for Ground Floor
shops and cocklofts.
(d) The second sentence of section 137(2) provided:
“And no person shall wilfully use or knowingly permit to be
used any building with respect to which a non-domestic
permit has been issued as a domestic building”. Mr. Mok
submits that unlike the current BO, the prohibition went only
one way to prohibit non-domestic buildings to be used as
domestic buildings but not the other way round.
18. Accordingly, submits Mr. Mok, under the 1950 BO, the
domestic permit issued to cover the Buildings was consistent with what
was expressly provided in the approved building plans for the non-
domestic use of the ground floor and cockloft units and such non-
domestic use was/is the permitted use.
19. Indeed, recently in Tsuen Wan Trade Association Education
Foundation Ltd. v. Chui Kam Ying [2012] 2 HKLRD 1163, Jeremy Poon
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J., deciding on a similar provision under the old Buildings Ordinance
No 18 of 1935, ruled that “even if two domestic permits had in fact been
issued, it does not necessarily follow that the Property can be used for
residential purpose only. ….. This inferentially but strongly shows that
the Property can in fact be used for non-residential purposes legally.”
(underline added). I therefore accept Mr. Mok’s submission as regards the
ground floor shop and cockloft usage.
20. Mr. A. Chan updated the Application Report by a
supplemental report dated 28 May 2013 (“Supplemental Report”) in
which he revised the EUV of all the units in the Buildings after taking
into account the inspection of more units in the Buildings and the updated
property index prepared by the Rating and Valuation Department. In the
Supplemental Report, Mr. A. Chan repeated the exercise he did in the
Application Report with the new information and set out his revised
assessments of the EUV of each unit as at 1 June 2012. In this exercise,
however, Mr. A. Chan carried out his valuation based on two different
scenarios. In scenario 1, as in the Application Report, the EUV of the 3
Penthouse & Roof Units were assessed as Penthouses and Roof as stated
in the Deed of Mutual Covenants and the First Assignments of these units
whereby higher valuers were obtained. For scenario 2, the EUV of the 3
Penthouse & Roof Units were however assessed as Drying Shelter as
provided in the approved building plans. As in the Application Report,
Mr A. Chan converted their saleable areas of the Roofs as domestic by
using a conversion factor of 1:8 but assigned 1.5 times the value of the
open roof for the Penthouses to arrive at lower values.
21. Mr. Mok submits that there may be a legitimate argument
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that the 3 Penthouse & Roof Units are entitled to be valued at the higher
EUV as Penthouses and Roofs because of the following:
(a) The 1950 BO did not contain any provision against
the material change of user, in this case from Drying Shelters
to Penthouses and Roofs.
(b) The First Assignments of the 3 Penthouse & Roof
Units and the 3 Deed of Mutual Covenants of 1956 and 1957
all identified the 3 Penthouse & Roof Units as Penthouses
and Roofs.
(c) The 3 Penthouse & Roof Units have been sold and
used as Penthouses and Roofs right from the beginning since
1956 and 1957 for about 57 years and it might be fair and
reasonable that their EUV should be assessed on this basis.
22. Mr. Mok submits however that to avoid impression that the
Applicants may be taking advantage of the missing and deceased 2nd
Respondent without any grant of administration3, the Applicants agree
that the Tribunal shall assess the EUV of the 3 Penthouse & Roof Units
as Drying Shelters, i.e. scenario 2 in accordance with the approved
building plans. In this regard, I accept Mr Mok’s submission and hold
that the EUV of the 3 Penthouse & Roof Units should be determined on
the assumption that all the units are for Drying Shelters only.
23. Notwithstanding my agreement in paragraph 19 above with
Mr. Mok’s submission as regards the ground floor shop and cockloft
usage, I note in the meantime, there was a dispute between the 2
3 a minority owner whose whereabouts are unknown for the purpose of s.4(2)(b) of the Ordinance
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valuation experts4 on whether the Zoning Method was applicable in the
EUV assessment for shops in Good Faith Properties Limited and Others
v. Cibean Development Company Limited, LDCS 42000 of 2011, dated
31 May 2013 (“the Good Faith Properties case”). When I drew this to the
Applicants’ attention, Mr. A. Chan conceded that the direct comparison
method (instead of the zoning method) should be adopted for the
Application and revised his assessments for the shops accordingly. For
the sake of comparison, the relevant portion of Mr. A. Chan’s assessment
for the shop, for instance, on Ground Floor, No. 307 Des Voeux Road
West in the Supplemental Report and his revised assessment are
reproduced below:
Assessment in the Supplemental Report based on Zoning Method
Comparable
No.
Effective Area (m2)
Effective Area
(ITZA) for shop portion
(m2)
Effective Unit Rate
(ITZA) for shop portion (/m2)
Adjustments Total Adjustment
Adjusted Unit Rate
(ITZA) for shop portion (/m2)
Quantum Others
Reference Unit
61.19 36.67
1 44.85 29.36 $190,722 -2.0% 39.0% 37.0% $261,289
2 57.25 36.25 $276,260 0.0% 8.1% 8.1% $298,637
3 26.31 25.91 $203,782 -3.0% 49.5% 46.5% $298,541
4 37.66 23.83 $272,765 -2.0% 34.8% 32.8% $362,232
Average $305,175
Adopted Unit Rate on saleable area $210,707
4 Mr. A. Chan was also the valuation expert called by the Applicants in this Good Faith Properties Limited case.
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Assessment after Revision based on Direct Comparison Method Comparable
No.
Effective Area (m2)
Effective Unit Rate
(/m2)
Adjustments Total Adjustment
Adjusted Unit Rate for shop portion (/m2) Quantum Others
Reference Unit
61.19
1 44.85 $125,975 -2.0% 39.0% 37.0% $172,586
2 57.25 $196,786 0.0% 8.1% 8.1% $212,726
3 26.31 $200,684 -3.0% 49.5% 46.5% $294,002
4 37.66 $172,597 -2.0% 34.8% 32.8% $229,209
Average $227,131
24. I note from the above that after revision based on the direct
comparison method, Mr. A. Chan has arrived at his assessment about 8%
upwards without changing any of his adjustments. Mr. Mok for the
Applicants submits that as the original assessments for the shops in the
Supplemental Report appear to yield lower values which are more
favourable to the missing and deceased 2nd Respondent, the Applicants
are happy to adopt the original assessments for the shops.
25. Nevertheless, although the Zoning Method, by its application,
takes account of mainly changes in value due to depth, it does incorporate
some allowance for size. For instance, applying the Zoning Method, the
size difference between the Reference Unit being Ground Floor, No. 307
Des Voeux Road West and Comparable No. 1 is about 20% when Mr. A.
Chan made an allowance of 2%. When adopting the direct comparison
method, however, the size difference is about 27%. Thus, for the size
factor alone, it appears a higher adjustment should be adopted.
26. Indeed, in the Good Faith Properties Limited case, it was
agreed between the parties that the adjustment for size should be 1% for
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every difference in Effective Floor Area of 5 sq. m. If such “rule of
thumb” adjustment is adopted, the assessment for the shop on Ground
Floor, No. 307 Des Voeux Road West should be as follows:
Comparable
No.
Effective Area (m2)
Effective Unit Rate
(/m2)
Adjustments Total Adjustment
Adjusted Unit Rate for shop portion (/m2) Quantum Others
Reference Unit 61.19
1 44.85 $125,975 -3.0% 39.0% 36.0% $171,326
2 57.25 $196,786 -1.0% 8.1% 7.1% $210,758
3 26.31 $200,684 -7.0% 49.5% 42.5% $285,975
4 37.66 $172,597 -5.0% 34.8% 29.8% $224,031
Average $223,023
That is, the increase should be about 6% instead of 8%.
27. Also, in the Good Faith Properties Limited case, Mr. A
Chan took the liberty to adjust for the layout and depth to frontage ratio
when the Zoning Method was not applied5 but here, in answer to my
query, he replied such adjustment(s) was not necessary.
28. Whilst property valuation is not an exact science,
mathematical precision is neither a feature of valuation for retail
properties for the imperfection in the market where even between skill
valuers the margin of opinion may be surprisingly wide. In Tsang Ling
Chu trading as Wrench Engineering Co. v. Director of Lands, LDLR No.
23 of 1994, dated 20 May 1996, the Lands Tribunal was even hesitant to
make an adjustment that is within the discrepancy range of 10%. I accept
therefore Mr Mok’s submission that the original assessments for the 5 Mr. A. Chan’s position was, in the Good Faith Properties Limited case, at para. 118 of the judgment: “if RZM is not to be used for the common comparable, it should be given a downward adjustment, say -10% on layout to reflect its low depth to frontage ratio which is desirous for retail properties” though in the end, he only applied an additional downward adjustment of -5% for the layout and depth ratio difference to the common comparable but not to the other comparables.
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shops as contained in the Supplemental Report be adopted for the purpose
of determining the EUV in this Application.
29. The EUV of all units in the Buildings, including the 2nd
Respondent’s unit, as at the relevant date of valuation of 1 June 2012 are
as shown under scenario 2 in the Supplemental Report of Mr. A. Chan:
see the table at Bundle C(4)/ 1268 which is reproduced below:
Floor No. 307
Des Voeux Road West
No. 309 Des Voeux Road
West
No. 311 Des Voeux Road
West Ground Floor
$12,911,090 $10,568,680 $10,568,680
Mezzanine Floor $1,013,733 $1,013,733 1st Floor $3,748,214 $3,704,518 $3,704,518 2nd Floor $3,748,214 $3,631,880 $3,631,880 3rd Floor $3,674,720 $3,559,242 $3,559,242 4th Floor $3,527,731 $3,486,605 $3,486,605 Penthouse & Roof $448,310 $447,821 $441,456 Total $80,876,872
30. I am satisfied, insofar as it is necessary, that the value of the
2nd Respondent’s unit as assessed by Mr. A. Chan is not less than fair and
reasonable and not less than fair and reasonable when compared with the
value of the Applicant’s properties:
(a) the 2nd Respondent’s unit - assessed at $3,527,731
(representing 4.3619% of the total EUV of all units); and
(b) the total EUV of all units - assessed at $80,876,872.
Section 4(2) of the Ordinance - Justification and Reasonable Steps 31. The second determination under Section 4(1)(b) of the
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Ordinance is whether an order of sale should be made. According to
Section 4(2) of the Ordinance, this would involve 2 considerations,
namely :-
(a) is the redevelopment justified due to age or state of
repair of the Buildings; and
(b) has the Applicant taken reasonable steps to acquire all
the undivided shares in the Lot.
32. The Applicants have to satisfy this Tribunal that the above
statutory requirements were met, otherwise, an order of compulsory sale
ought not be granted.
33. Firstly, for the requirement under (a) above, I have taken
into consideration the expert evidence of Mr. Benson Wong (“Mr.
Wong”), the building surveyor and Mr. So Kin Shing (“Mr. So”), the
structural engineer adduced by the applicants.
34. Mr. So had conducted a structural assessment of the
Buildings and prepared a report dated 27 May 2013. He found the
following defects in the Buildings:
(a) visual inspections showed many defects in the form of
spallings and cracks in the structural members of the
Buildings;
(b) covermeter survey revealed that the concrete covers of
the concerned columns are not sufficient to (1) protect
the embedded steel reinforcement bars against
corrosion, (2) protect the bars against fire, and (3)
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provide sufficient depth of concrete for the safe
transmission of bond forces;
(c) carbonation depth test results revealed that carbonation
has penetrated pass the concrete cover of beam
samples and slab samples; this means the alkaline
environment in many of the concrete covers which
gives protection to the reinforcement bars in the
structural members against corrosion has been
destroyed and steel bars in these structural members
must have caused to corrode;
(d) chloride content tests showed an increased risk of
corrosion of the embedded steel reinforcement bars in
the reinforced concrete structural members;
(e) corrosion (open up) surveys revealed columns, beams
and slabs exhibit rust of various magnitudes and
suffered from reduction in their cross-sectional areas
due to corrosion;
(f) the structural frames of the Buildings are deteriorating
and they need to be repaired, the deterioration will
continue steadily due to extensive carbonation of the
reinforced concrete structural members;
(g) the design and construction of the structural frames
were based on an obsolete design, there are at least 10
structural design and construction aspects where the
Buildings cannot meet the current structural
engineering design requirements and the Buildings
may not process adequate robustness to prevent it from
damages arising from accidents or misuse.
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(h) The design and use of timber pile foundation for the
Buildings is obsolete.
35. Based on the above findings, Mr. So concluded that the
structural frames of the Buildings are in need of repair and the Buildings,
completed 57 years ago, have exhibited signs that the structural frames
have deteriorated to the final stages of its design working life. The
deterioration will continue steadily due to extensive carbonation of the
concrete. It is inevitable that new defects will occur and previous defects
though repaired will recur readily, requiring substantial repairs or even
partial demolition and re-construction of some defective structural
members in the future. Repair works will need to be carried out regularly
in the future and such repairs will be more and more extensive. Although
the cost of repair may be relatively modest, such costs will escalate in the
future as the extent and seriousness of the deterioration of the structural
members increases with age. He recommended that hammer tapping
works be carried out to all structural members and any defects as a matter
of urgency.
36. Mr. Wong, in his Condition Survey Report dated 28 May
2013 stated that :
(a) the Buildings are in a poor state of repair due to
general wear and tear;
(b) infrared thermographic survey carried out on the
external rendering has revealed hollow spots scattered
throughout the external walls on all elevations and are
potentially dangerous;
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(c) the building envelope is not external seepage resistant
as evidenced by damp penetrations through the
external walls and the main roof coverings;
(d) the staircases are unsatisfactory means of fire escape
for the upper floors because no improvement was
made to the fire resisting construction and fire service
installation in the Buildings;
(e) unauthorized building works of enclosed balcony
structures and internal flat sub-divisions adversely
affected the structural safety and fire safety standards
of the Buildings;
(f) the conditions of the internal doors, finishes,
bathrooms and kitchens fitments are poor, the most
common defects in the flats are missing or defective
bedroom, bathroom and kitchen doors, dampness and
spalling to the internal floors, walls and ceilings;
(g) sanitary fitments in the bathrooms and cooking
facilities in the kitchens generally are broken or
otherwise defective requiring replacement;
(h) original mild steel windows have generally corroded
and should be replaced with new aluminum units;
(i) internal electrical installations inside 9 flats have been
haphazardly altered and are in poor condition;
(j) internal inspection of flats found equipotential bonding
connections are not provided for exposed and
extraneous conductive parts;
(k) flushing water supply system for the Buildings have
been put out of use with the flushing water tanks
demolished;
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(l) condensate drainage system with drain inlets provided
for all AC units needs to be installed in order to avoid
creating water dripping nuisance;
(m) closed circuit television survey carried out to the
underground drainage has revealed defective
drainpipes and manholes requiring replacements;
(n) defects in electrical installation that require repair and
maintenance;
(o) fire service systems required to be added in
compliance with the requirements of the Fire Safety
(Buildings) Ordinance.
37. Mr. Wong assessed the total cost of repair works at
$7,929,249 which amounts to 53% of the construction cost of a new
similar superstructure. He came to the conclusion that the Buildings have
deteriorated to a state which is beyond reasonable economic repair as
signified by the high repair cost. As more rapid deterioration will occur
in the future, the necessary maintenance and repairs will inevitably be
more frequent and extensive, making the continued occupation of the
Buildings not economical and even unsafe, to both occupants and third
party. He recommended the owners to redevelop rather than repair given
the Buildings do not possess any historical value or architectural merit.
38. The Applicants also rely upon two economic tests, i.e. the
age test and the repair test, conducted by Mr. A. Chan in his
Supplemental Report.
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39. For the repair test, Mr. A. Chan adopted the findings by Mr.
Wong that the total estimated cost to restore the Buildings to tenantable
standard is $7,929,249. The enhancement by the repairs (the difference
between the After EUV and the Before EUV) under scenario 1 is
$3,169,839 and under scenario 2 is $3,000,741; it is not economically
justified to carry out the proposed repair works. Another important
consideration is the expected time required and the complication involved
with unit owners suffering disturbance and loss of rental during the repair
period. On top of this, Mr. Chan found that since the total cost of
immediate repair works is about 53% of the construction cost of a new
building similar to the Buildings, it is not worthwhile to spend repair cost
in a sum over 50% of total construction cost for a new similar building to
merely restore it to tenantable standard.
40. For the age test, Mr. A. Chan assessed the total existing use
value (“EUV”) as at 2 April 2013 at $101,941,904 whilst the
redevelopment value (“RDV”) is $165,460,000 as at 2 April 2013. Given
the RDV is much higher than the EUV, Mr. A. Chan opined that the
redevelopment of the Lots is warranted.
41. There is no contrary expert evidence and I accept the
applicants’ evidence in whole. In particular, I am satisfied that based on
the evidence of Mr. So and Mr. Wong, redevelopment of the Lots is
justified due to the age and the state of repair of the Buildings which are
in a very poor state of repair and indeed in dangerous condition.
Reasonable Steps to Acquire All the Undivided Shares in the Lots
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42. The Applicants are under an obligation to negotiate on terms
that are fair and reasonable in a situation when the whereabouts of a
minority owner are known. The fact that all the Respondents except the
2nd Respondent have accepted the Applicants’ offers to acquire their
interest is telltale of the reasonableness of the steps taken.
43. Where the 2nd Respondent is deceased without any grant of
letter of administration, the Applicants submit that there is no obligation
to negotiate as imposed by section 4(2)(b) of the Ordinance for the
purchase of her interest. Further. It is legally impossible for the
Applicants to acquire the 2nd Respondent’s interest until there is either
probate or letters of administration granted in respect of her estate.
44. In spite of the above, the Applicants did manage to enter into
a Provisional Sale and Purchase Agreement and other agreements in 2010
with a Chui Mee Yun (“Miss Chui”) who claimed to be the daughter and
intended administrator of the 2nd Respondent as stated in paragraph 6
above.
45. The Applicants submit that reasonable efforts have been
made to ascertain and contact all interested parties that the Applicants can
find and to bring to their notice the Application and the Applicants’
interest to purchase the 2nd Respondent’s interest, including an offer made
via Messrs. Woo, Kwan, Lee & Lo dated 1 August 2012 at $6,870,000
based on the advice on EUV and redevelopment value (“RDV”) given by
Mr. A. Chan. The offer was sent to (i) the named executrix of the Will of
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the 2nd Respondent, (ii) Miss Chui and (iii) the Tung Wah Group of
hospital, the named beneficiary under the Will though conditional upon
the grant of probate or letters of administration.
46. The Applicants also refer to the recent acquisition of the 1st
Respondent’s interest on 5 August 2013 in support.
47. In those circumstances, I am satisfied that the Applicants
have taken reasonable steps to acquire all the undivided shares in the Lots
including the 2nd Respondent’s interest.
Reserved Price for the Auction
48. The Applicants submit that the reserve price for the auction
of the Lots should be fixed at $163,970,000, based on the assessment by
Mr. A. Chan of the RDV of the Lots as at 2 July 2013 in his valuation
report of 26 July 2013.
49. I have considered Mr. A. Chan’s valuation. I agree with
him that the residual method has to be employed as the method of
assessment of the RDV of the Lots. This is done by deducting
development costs (including construction costs, professional fees,
finance costs etc) and developer’s profit from the estimated gross
development value of the completed development.
50. Mr. A. Chan opined that the optimum development on the
Lots comprised a block of 28-storey composite development with shops,
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entrance lobby and transformer room on the G/F, pump room and
machine room on the 1/F, recreation facilities on the 2/F, podium garden
on the 3/F and domestic units on the 4/F to 27/F with 2 flats per floor.
The details of the hypothetical development and residual valuation were
set out in Appendix 4 of his RDV valuation report (Bundle C(4)/1410).
The details of the comparables with adjustments were set out in Appendix
1 (for shop comparable at Bundle C(4)/1391) and Appendix 2 (for
residential comparable at Bundle C(4)/1400). I have gone through his
valuation in details. I am satisfied with his valuation, including the
valuation assumptions he has adopted, the values and the costs
parameters that he has used in his valuation.
51. Based on Mr. A. Chan’s valuation, I decide that the reserve
price for the auction of the Lots should be HK$163,970,000.
Trustees
52. The Applicants proposed to appoint Mr. Ho Hing Choi Peter
and Ms. Hong Tin Yee Yeda who are both senior lawyers of Messrs.
Mayer Brown JSM, Solicitors, as the sale trustees. Based on the
information on their background and experience as set out in the letter
dated 22 July 2013 from their firm, I am satisfied that they are proper
persons to be appointed. I also approve the remuneration package
proposed in the said letter.
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Particulars and conditions of sale of the Lots
53. Mr Mok has submitted a set of draft particulars and
conditions of sale by public auction for my consideration. I understand
these are the usual terms used for compulsory sale and I approve them.
Costs
54. There be no order as to costs as no one has asked for costs.
Conclusion
55. For the above reasons, I am satisfied that the redevelopment
of the Lots is justified due to the age and the state of repair of the existing
buildings on the Lots and that the Applicants (as the majority owner)
have taken reasonable steps to acquire all the undivided shares in the Lots.
I therefore make an order that all the undivided shares in the Lots, the
subject of this application, be sold by the way of public auction for the
purposes of redevelopment. I appoint Mr. Ho Hing Choi Peter and Ms.
Hong Tin Yee Yeda as the sale trustees to discharge the duties imposed
on them under the Ordinance in relation to the Lots and authorized their
remuneration for their service as trustees as provided in their letter dated
22 July 2013. I approve the particulars and conditions of sale of the Lots
placed before me and grant liberty to the parties and to the trustees to
apply for further directions if necessary.
(Lawrence Pang)
Member
Lands Tribunal
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Mr. MOK Yeuk Chi, instructed by M/S Woo, Kwan, Lee & Lo, for the
Applicants
The 2nd Respondent, absent
