Rent dispute: Takashimaya case taken to apex court

People walking past Takashimaya Shopping Centre along Orchard Road.
People walking past Takashimaya Shopping Centre along Orchard Road. PHOTO: ST FILE

Ngee Ann Development not happy that the High Court ruled in store's favour last year

Department store Takashimaya's dispute over rent with its landlord, Ngee Ann Development (NAD), has been dragging on since September 2013. Dissatisfied that the High Court ruled in the store's favour last year, the landlord has now taken its case to the Court of Appeal.

NAD's lawyer, Senior Counsel Ang Cheng Hock, argues that Takashimaya's rent is lower than what the market will bear, as it has not optimised the potential of its 56,000 sq m premises. It sublets 14,000 sq m - 25 per cent of its space - to speciality shops, which pay higher rent and in fact account for 75 per cent to 85 per cent of the total rent paid by Takashimaya to NAD, said Mr Ang.

The landlord wants the rent recalculated based on a hypothetical scenario - a department store and speciality shop configuration that would give the highest rental value, regardless of its current use. According to valuation reports, Takashimaya would pay more rent.

But Takashimaya, represented by Senior Counsel Alvin Yeo, asserted that rental value should be calculated based on the existing configuration of the space. Mr Yeo argued that the relationship between both parties was "akin to a joint venture", with the purpose of the lease for Takashimaya to operate a large department store at Ngee Ann City as the anchor tenant.

The Court of Appeal reserved judgment until a later date.

The central issue in the case is whether "prevailing market rental value" should be determined by reference to a specific configuration.

NAD is 73.7 per cent owned by charitable foundation Ngee Ann Kongsi. Takashimaya is a wholly owned subsidiary of Japanese department store chain, Takashimaya Co, which also owns 26.3 per cent of NAD. In 1993, both parties signed a lease for 20 years, with Takashimaya given six options to renew for 10 years each. The rental rate is to be reviewed every five years.

In 2013, Takashimaya exercised the first option, and NAD proposed to revise the rent to $19.83 per sq ft (psf) a month, more than double the existing rate of $8.78 psf. This was based on a valuation report that reconfigured the layout in a way that reduced department store space and increased speciality shop area.

Takashimaya rejected the offer.

In 2014, they agreed to each nominate one valuer and take the average of the two valuations. But NAD sent a letter to the valuers to say they did not have to be constrained by the existing space use, without notifying Takashimaya it had done so.

Takashimaya found out after the two reports - based on hypothetical configurations that reduced department store space - were issued.

NAD said it made an "administrative error" and offered to bear the cost of a revaluation. But Takashimaya insisted that the revaluation must be based on the existing configuration, to which NAD disagreed, leading to the deadlock.

A version of this article appeared in the print edition of The Straits Times on April 18, 2017, with the headline 'Takashimaya case taken to apex court'. Print Edition | Subscribe