StarHill Global – BT

Judge denies Starhill’s request to set new rental

Existing rent review mechanism ‘still operable’, she says

A SINGAPORE High Court judge has denied an application by Starhill Global Reit for the court to set new retail rental rates with its master tenant, Toshin Development Singapore, in Ngee Ann City mall, saying that an existing rent review mechanism is ‘still operable’.

Starhill wanted the court to determine the prevailing market rent of the Toshin lease after a dispute erupted between the parties over the rent review process.

Toshin, a unit of Takashimaya, leases more than 225,000 square feet in Ngee Ann City, which it then sub-leases to luxury brands such as Chanel, Louis Vuitton, Burberry and Tiffany & Co.

But in a grounds of decision issued last Friday and made public yesterday, High Court Justice Lai Siu Chiu declined to order an inquiry into the market rental rate of the premises, saying she ‘had (her) reservations about the legitimacy of this remedy’.

‘In substance, the latter remedy would amount to the court substituting its own terms for those in the lease agreement, which was a contract made between the parties,’ Justice Lai wrote.

Starhill claimed that the review mechanism was no longer workable because Toshin had allegedly breached its lease when it ‘unilaterally’ hired seven valuers from July 2010 to February 2011 prior to a joint conduct of the rent review exercise for a new rental term starting on June 8, 2011.

Starhill alleged that if any of the seven valuers that had been engaged by Toshin were to participate in the rent review process, then their findings would be ‘tainted by conflicts of interest’.

But Justice Lai found ‘that the valuers were not involved in a conflict of interest, and . . . (Toshin) had not obtained any unfair advantage by engaging seven of the eight valuers in 2010’.

‘(Toshin’s) objectives in engaging valuers for the 2010 valuation included the need to plan (its) business operations for the future, including negotiations with its sub-tenants on rental rates; and also the need for the Takashimaya group . . . to prepare reports for its shareholders,’ Justice Lai wrote.

‘I’m hard pressed to discern any apparent bias. I had opined . . . that conflicts of interest in the sense of the valuer being conflicted between (Starhill’s) and (Toshin’s) interests are not an issue in this case. Further, the possibility of financial interest in future remuneration from (Toshin) to the valuers was not alleged in this case,’ she wrote. ‘To my mind, there was no justification for the independence of the valuers to be compromised by an allegation of bias.’

Starhill has appealed against Justice Lai’s decision to the Court of Appeal, which is scheduled to hear the case next month. Toshin is represented by senior counsel Cavinder Bull of Drew & Napier LLC.

Sealed in 2008, the lease agreement between Starhill and Toshin will expire in 2013 and rental renewals are due every three years.

Under the rent review mechanism, both parties will agree on the new rental rate, which has a cap of not more than 25 per cent from current rates.

If no consensus is reached, both parties will jointly nominate three valuers. Should there be no agreement on the nomination, they could jointly request that the three valuers be nominated by the president of the Singapore Institute of Surveyors and Valuers.