A dispute over rent calculation
Takashimaya and Ngee Ann Development (NAD) had a dispute over rent calculation. It is now resolved and the department store was declared winner. The high court agreed with Takashimaya that the rental rate for the next five years should be according to the configuration of the space. The court gave written judgment last month, on Wednesday, September 14th.
NAD sued Takshimaya last year after both of them approached a deadlock about prevailing market rental value. They had a lease agreement interpretation.
Takashimaya has been the anchor tenant at Ngee Ann City Building since 1993. They have occupied around 56,000 sq m of which it used 38,000 sq m for its department store. It has sublet 13,900 sq m to specialty shops.
In 2013, NAD proposed revision of the rent to $19.83 per square foot (psf) a month. It was more than double the current rate of $8.78 psf.
It was based on a valuation report. The report reconfigured the layout to minimize department store space and increase specialty shop space.
Takashimaya rejected the report and agreed to each nominate one value and take the average of the two valuations. They also made an agreement that any correspondence to the valuers should be copied to the other side. But, NAD sent a letter to the valuers. It told them to use hypothetical configuration. It did not copy it to Takashimaya.
Takashimaya’s representative Ms Lim Wei Lee and Senior Counsel Alvin Yeo insisted that both sides should agree that the valuation should be based on existing configuration.
NAD said that rental value is not necessary to be based on any specific configuration. It sued Takashimaya and asked to complete the valuation process.
Judicial Commissioner, Debbie Ong, said in her written judgement, “The terms of the original lease and the intentions of the parties at the time they entered into the lease are the most relevant in interpreting the phrase’ prevailing market rental value.”
The judicial commissioner said that the relation between Takashimaya and Ngee Ann is like joint business collaboration rather than the typical landlord-tenant relation. She noted that the lease started running in 1993. It was only in 1998 that both parties agreed on the quantum of rent and the net floor area. She noted that Takashimaya’s parent company has a 26.3 percent stake in NAD and has four directors on NAD’s board.
Provisions in the lease showed intentions of the parties for business relationships to continue for a long time. Takashimaya had extensive rights under the lease. It would be inconsistent with the core understanding and agreement of the parties for NAD to get rent based on the highest hypothetical use of premises. Takashimaya keeps on using nearly 70 percent of its lease area for a department store.
The result of using such bases is that Takashimaya will pay for higher rent based on hypothetical reduced area that is assigned to departmental store.
She asked both parties to resolve their dispute in a friendly manner according to long-term business relationship.
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