Takashimaya Singapore rent dispute resolved

Department store Takashimaya Singapore has won its legal tussle with landlord Ngee Ann Development (NAD) over calculation of rent.

In a written judgment, the Singapore High Court agrees with Takashimaya’s contention that rental rate for the next five years should be assessed on the existing space configuration. NAD had sued Takashimaya after both sides became deadlocked on how “prevailing market rental value” in the lease agreement should be interpreted, as reported by Inside Retail Singapore in April.

Takashimaya has been the anchor tenant at the Ngee Ann City building since 1993, occupying about 56,000 sqm, of which 38,000 sqm is used for its department store and 13,900 sqm sublet to speciality shops. In 2013, NAD proposed a revision of the rent to S$19.83 (US$14.55) a square foot (psf) a month, more than double the existing rate of $8.78 psf. This was based on a valuation report that reconfigured the layout to reduce department store space and increase speciality shop space, which commands higher rent.

After Takashimaya rejected the report, both parties agreed to each nominate one valuer and take the average of the two valuations. They also agreed that any correspondence to the valuers had to be copied to the other side.

“Oversight”

However, in a letter NAD told the valuers to use a hypothetical configuration. This was not copied to Takashimaya, NAD later blaming “an administrative oversight”.

Takashimaya, represented by senior counsel Alvin Yeo and Lim Wei Lee, insisted that both sides first agree that valuation has to be based on the existing configuration, as had been the case in previous valuation exercises.

However, claiming rental value does not have to be based on any specific configuration, NAD sued Takashimaya, seeking to compel it to complete the valuation process.

In her written judgement, Judicial Commissioner Debbie Ong says the terms of the original lease and the intentions of the parties at the time they entered into the lease have foremost relevancy in interpreting the phrase “prevailing market rental value”.

She says the relationship between Ngee Ann and Takashimaya is more like a joint business partnership rather than the typical landlord-tenant relationship, and noted that while the lease started running in 1993, it was only in 1998 that both sides came to agree on the quantum of rent and the net floor area.

She also noted that Takashimaya’s parent company in Japan has a 26.3 per cent stake in NAD and four directors on NAD’s board.

“Inconsistent”

The provisions in the lease reflect the parties’ intentions for their business relationship to continue for a considerable length of time, says Ong. Takashimaya also has “extensive rights” under the lease, while NAD enjoys strong property values through having Takashimaya as anchor tenant.

“Given this somewhat symbiotic relationship, it would be inconsistent with the parties’ core understanding and agreement for NAD to obtain rent based on the highest and best hypothetical use of the premises, even while Takashimaya continues to use nearly 70 per cent of its leased space for its department store.

“The consequence of using such a basis is that Takashimaya would pay far higher rent based on a hypothetical reduced area designated for departmental store use that fails to cohere with its actual use,” she said.

Ong urged both sides to resolve their dispute amicably in the light of their long-term business relationship.

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