Lloyd's Maritime and Commercial Law Quarterly
CONTRACTUAL INTERPRETATION OF LONG-TERM LEASES – AN INTUITIVE "HOP" TO JOINT VENTURES
Ngee Ann Development v Takashimaya
Y.E.S. F&B Group v Soup Restaurant
Samantha S Tang* and Alan K Koh†
Renegotiation of long-term contracts is fraught with dangers. Consider a common quandary in commercial leases: rent negotiations. Suppose a landlord presses for a dramatically increased rent quantum based on the maximum value that can be extracted from the property. The tenant opposes the rent increase, arguing that the parties should continue to operate in accordance with their shared understanding of the past 20 years—but which was never expressly written down in the lease contract. Who should prevail? In the Singapore High Court decision of Ngee Ann Development Pte Ltd v Takashimaya Singapore Ltd,1 the court drew upon the concept of a joint venture to break this deadlock. What appeared at first blush to be a rent dispute over commercial property was in reality a disagreement over the very foundation of a long-term collaborative relationship. By intuitively finding that the parties’ relationship was akin to a joint venture, the High Court constrained the landlord from opportunistically altering the basis of the parties’ longstanding relationship through rent negotiations.
The facts and procedural history
Ngee Ann City is a landmark mall in Singapore’s renowned Orchard Road shopping district. Its anchor tenant is Takashimaya Singapore Ltd (“Takashimaya”), a high-end Japanese department store, which since 1993 has leased its premises from the owner of Ngee Ann City, Ngee Ann Development Pte Ltd (“NAD”). The terms, as set out in a written agreement (the “Lease”), provided for an initial lease period of 20 years with five consecutive options to renew, each of which was for 10 years, ending on 30 March 2072. As the initial 20-year lease period drew to a close in January 2013, Takashimaya gave notice of its intention to exercise the first option to renew, but the parties were unable to agree on the rent quantum.2
At the heart of the parties’ dispute was the interpretation of the phrase “prevailing market rental value” in the Lease. NAD claimed that the rent should be determined based on the highest potential of the property (the “Highest and Best Use” principle).3 During negotiations over the renewal rent quantum, NAD had proposed the figure of S$19.83 per square foot per month, a significant increase from the existing S$8.78 per square foot per month.4 Takashimaya rejected NAD’s proposal, arguing that the rent should be determined with reference to the existing layout and configuration as applied to the premises (the “Existing Configuration” principle), to which the parties had previously agreed.5 The Lease did not include stipulations as to any particular configuration, save for
* National University of Singapore, Centre for Asian Legal Studies. We thank Lee Pey Woan for her comments on earlier drafts.
† Goethe University Frankfurt; Trident Law Corporation, Singapore.
1. [2016] SGHC 194.
2. Ibid, [1].
3. Ibid, [2].
4. Ibid, [26].
5. Ibid, [2].
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