The court fight between Takashimaya and its landlord Ngee Ann Development (NAD) over calculation of rent has concluded in favour of the department store.
The High Court, in a written judgment on Wednesday (Sept 14), agreed with Takashimaya’s contention that rental rate for the next five years should be valued based on the existing space configuration.
NAD had sued Takashimaya last year after both sides reached a deadlock on how “prevailing market rental value” in the lease agreement was to be interpreted.
Since 1993, Takashimaya has been the anchor tenant at the Ngee Ann City building, occupying about 56,000 sq m, of which 38,000 sq m is used for its department store and 13,900 sq m is sublet to speciality shops.
In 2013, NAD proposed to revise the rent to $19.83 per 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. The latter commands higher rent.
After Takashimaya rejected the report, they 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.
But NAD sent a letter to the valuers, telling them to use a hypothetical configuration, without copying it to Takashimaya, in what it later said was an “administrative oversight”.
Takashimaya, represented by Senior Counsel Alvin Yeo and Ms Lim Wei Lee, insisted that both sides first agree that valuation has to be based on the existing configuration, like how it had been done in previous valuation exercises.
NAD, however, said that rental value is not required to be based on any specific configuration. It sued Takashimaya, seeking to compel it to complete the valuation process.
In her written judgement, Judicial Commissioner Debbie Ong said 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 relationship between Ngee Ann and Takashimaya is more like a joint business partnership rather than the typical landlord-tenant relationship.
She 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 Japan parent company has a 26.3 per cent stake in NAD and has four directors on NAD’s board.
The provisions in the lease reflected the parties’ intentions for their business relationship to continue for a considerable length of time, she said. Takashimaya also had “extensive rights” under the lease.
She found that the intention of both parties at the time they entered into the contract was to have a long-term relationship in which Takashimaya would operate its department store as Ngee Ann City’s anchor tenant and NAD would enjoy strong property values as a result of that.
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.
She also urged both sides to “resolve their disputes amicably” in the light of their long-term business relationship.