Government wins latest round in row over rents
The government's grip over more than HK$1.2 billion in disputed rents appears to have solidified with the Lands Tribunal having approved its method for calculating the amount owing for development sites.
The tribunal - comprising Mr Justice Johnson Lam Man-hon, tribunal president, and member Lo Wai-kwong - yesterday passed judgment in the case of Best Origin, a wholly owned subsidiary of Sino Land, which had disputed the valuation placed on a North Point site it bought for HK$760 million in December 1996.
The firm has since completed a 35-storey office building at the site, known as 148 Electric Road.
The government charges developers an annual rent of 3 per cent of a piece of land's rateable value. And while the calculation of the rent was straightforward, the question of how to determine what the rateable value should be has taken the tribunal the best part of a decade to resolve.
In Best Origin's case that value was anywhere from HK$1 - the company's primary position - to HK$29.6 million, which was what the government was basing its claim on.
The case was being used as a test case for about 200 other firms that dispute the way the government calculated the value of the land under their developments. The firms were ordered in October 2006 to cough up more than HK$1.24 billion in outstanding rents, plus interest, pending the outcome of Best Origin's case.
It was argued that since a development site by definition cannot support paying tenants, it should have the nominal rateable valuation of HK$1. Best Origin also suggested it could be valued by reference to the way other vacant land was employed, as open storage for instance.
The Commissioner for Rating and Valuation contended that it was a nonsense to value a piece of land under development based solely on present income. It drew support from a 2001 judgment that stated the development potential must be a factor when arriving at a valuation.
The tribunal said that the correct method for valuation was that employed by the commissioner - the so-called contractor basis - whereby the value of the bare land was calculated and multiplied by a decapitalisation rate based on prevailing yields for similar developments.
In the case of 148 Electric Road that calculation came out at HK$26.88 million, which is what the tribunal determined was the correct rateable value of the site.
The tribunal ordered Best Origin to pay the government's costs.