AREIF (Singapore I) Pte Ltd v NTUC Fairprice Co-operative Ltd and another matter

• Jurisdiction: Singapore
• Judge: Vinodh Coomaraswamy J
• Judgment Date: 30 January 2015
• Neutral Citation: [2015] SGHC 28
• Docket Number: Originating Summons No 244 of 2014, Originating Summons No 248 of 2014 (Summons No 1358 of 2014)
• Date: 30 January 2015
• Published date: 05 February 2015
• Plaintiff Counsel: Vergis S Abraham (Providence Law Asia LLC)
• Hearing Date: 20 March 2014
• Defendant Counsel: Pua Lee Siang and Simrin Sindhu (Tan Peng Chin LLC)
• Court: High Court (Singapore)
• Subject Matter: Waiver,Breach,Contract,Landlord and Tenant,Agreements for leases

Vinodh Coomaraswamy J: The parties

This case turns on the proper construction of an option to renew a lease. The option appears in a lease between AREIF (Singapore I) Pte Ltd (“AREIF”) and NTUC Fairprice Co-operative Ltd (“NTUC”). AREIF is the landlord under the lease. AREIF’s position is that it is under no obligation to grant NTUC a new lease pursuant to the option because AREIF and NTUC could not agree the rent that NTUC was to pay under the new lease and because NTUC failed to sign a document embodying the terms of the new lease within the period prescribed in the option. NTUC is the tenant under the lease. NTUC asserts that it is entitled to a new lease pursuant to the option because it has fulfilled all the conditions precedent to trigger AREIF’s obligation to grant it one. NTUC’s position is that the two issues upon which AREIF relies are not conditions precedent to AREIF’s obligation to grant NTUC a new lease.

For the reasons which follow, I accept AREIF’s submissions and hold that AREIF owes no obligation to grant NTUC a new lease. As a result, I dismiss NTUC’s claim for specific performance of AREIF’s obligation to grant NTUC a new lease and allow AREIF’s claim for possession of the demised premises and for a mandatory injunction requiring NTUC to deliver vacant possession upon expiry of the lease. NTUC has appealed to the Court of Appeal against my decision. I therefore now set out the grounds for my decision.

The option to renew

The lease is dated 2 August 2011. Under it, AREIF let to NTUC the premises known as 111 Somerset Road, Unit #01-04/04A/05/06/07/08/09, TripleOne Somerset, Singapore 238164 for a term of four years from 1 April 2010 to 31 March 2014 (both dates included) at $53.82 per square metre per month (“psm”) being the combined rent and service charge.¹

The option on which this case turns is found at cl 6.15(a) of the lease. The option is in the following terms:² 6.15 Option to Renew (a) If the Tenant makes a written request not less than six (6) months nor more than nine (9) months before the expiration of the Term and at the time of such request, there is no existing breach or non-observance of any of the terms and covenants on the part of the Tenant contained in this Lease, the Landlord shall grant to the Tenant a new lease of the Demised Premises at the cost and expense of the Tenant, subject to the following conditions: (i) the new lease shall be for a term of four (4) years (the “New Term”) commencing from the day following the date of expiry of the Term; (ii) the rent payable for the New Term (the “New Rent”) shall be at an aggregate Monthly Rent and Monthly Service Charge of not exceeding Singapore Dollars Eighty Seven And Cents Eighty Four Only (S$87.84) per square metre per month of the floor area; (iii) the amount payable as the monthly service charge shall be determined by the Landlord; (iv) The Tenant shall be granted a one month rent free period in the 1st month of the renewal term; (v) the new lease shall contain no option for renewal; (vi) the new lease shall contain such covenants and provisions as shall be imposed by the Landlord; and (vii) the new lease must be signed by the Tenant at a date not later than four (4) months before the expiration of the Term.

[emphasis in original in bold]

I draw attention to three features of the option: The body of cl 6.15(a) provides that AREIF “shall grant…a new lease” to NTUC if: (i) NTUC makes a written request to AREIF for a new lease between 1 July 2013 and 30 September 2013 (both dates included) and; (ii) NTUC is not, at the time of the request, in breach of the lease. Clause 6.15(a)(ii) provides that the rent under any new lease cannot exceed $87.84 psm (comprising both the rent and the service charge). Although cl 6.15(a)(ii) says nothing about how that rent is to be determined, it is common ground that the rent is to be determined by agreement between the parties. Clause 6.15(a)(vii) provides that the new lease must be signed by NTUC no later than four months before the term expires on 31 March 2014, ie on or before 30 November 2013.

It is not in dispute that the two conditions in the body of cl 6.15(a) were satisfied. It is also not in dispute that NTUC and AREIF failed to agree rent (cf cl 6.15(a)(ii)) and NTUC failed to sign a new lease (cf cl 6.15(a)(vii)) on or before 30 November 2013. The simple question on which the parties’ dispute hinges is whether, on a proper construction of cl 6.15(a), AREIF’s obligation to grant NTUC a new lease arises as soon as the two conditions in the body of cl 6.15(a) are satisfied or whether, in addition, the two conditions in cl 6.15(a)(ii) and (vii) must also to be satisfied.

Factual background

On 29 July 2013,³ NTUC made a written request to AREIF for a new lease. This request, as I have said, complied with both conditions set out in the body of cl 6.15(a).

Following NTUC’s request, the parties tried to agree the rent that NTUC was to pay AREIF under the new lease. AREIF started the discussions on 29 August 2013. It proposed that NTUC pay rent at of $87.84 psm (or $8.16 per square foot per month (“psf”)).⁴ That was the maximum rent that NTUC could be asked to pay under cl 6.15(a)(ii). NTUC responded on 4 October 2013. It counter-proposed that: (a) it pay an average of $6.98 psf (or $75.13 psm) over four years; (b) that the new lease contain an option for a further renewal of four years; and (c) that any increase in rent in that further renewal be capped at 15%.⁵ These last two requests were NTUC’s attempt to improve the terms of the new lease beyond what it was entitled to under cl 6.15(a). Clause 6.15(a)(v) expressly provides that there was to be no further renewal. Consequently, no question of a cap on rent in that further renewal could arise.

On 17 October 2013, AREIF offered NTUC an average rent of $7.40 psf (or $79.66 psm) over four years with no further option to renew and, as a consequence, no cap on any increase in the rent in that further renewal.⁶ On 30 October 2013, NTUC counter-proposed $5.35 psf (or $57.59 psm) on the basis that it had had not yet recovered its capital expenditure incurred at the outset of the existing lease and wished to do so over the term of a new lease. NTUC further reiterated that the new lease should contain both an option to renew for another four years and a cap of 15% on any rent increase.⁷

AREIF believed that its last proposal of $7.40 psf (or $79.66 psm) was already below the market rent of between $7.50 psf and $8.00 psf (between $80.73 psm and $86.11 psm).⁸ On 15 November 2013, each party asked the other by email to reconsider its position on rent. On 27 November 2013, AREIF notified NTUC that “other parties are interested in the space and that [AREIF is] seeking a minimal rental rate of the high $7+psf range”.⁹

Meanwhile, unbeknownst to NTUC, AREIF had started discussions on 6 November 2013 with Cold Storage Singapore (1983) Pte Ltd (“Cold Storage”) about the possibility of Cold Storage leasing the premises after NTUC’s lease had expired on 31 March 2014. AREIF says that it did this because the gap between the parties on rent was widening rather than narrowing and because AREIF thought it unlikely that there would be agreement on rent on or before 30 November 2013.¹⁰ AREIF’s discussions with Cold Storage eventually bore fruit. On 22 November 2013, AREIF issued a letter of offer to Cold Storage, offering it a lease of the premises for five years at an average rent of $7.74 psf (or $83.31 psm).¹¹

On 28 November 2013, NTUC offered AREIF rent at $5.50 psf (or $59.20 psm).¹² Although slightly higher than NTUC’s offer of 30 October 2013, this offer was still substantially below NTUC’s initial offer on 4 October 2013 and substantially below the maximum rent prescribed by cl 6.15(a)(ii).

On 29 November 2013, AREIF responded to NTUC as follows: “Thank you for the updated offer. We will take it up with management for consideration and get back to you”.¹³ AREIF states quite candidly that it said this to NTUC – instead of rejecting NTUC’s offer outright – so that it could come back to NTUC if the potential lease of the premises to Cold Storage fell through.¹⁴

The next day, 30 November 2013, was the deadline under cl 6.15(a)(vii) for a new lease to be signed by NTUC. Nothing was signed. NTUC sent emails on 16 December 2013, 26 December 2013, 8 January 2014 and 20 January 2014 to AREIF inquiring about AREIF’s response to NTUC’s last proposal. In response, AREIF told NTUC by emails dated 17 December 2013 and 22 January 2014 that its management was still considering NTUC’s last proposal.¹⁵

Meanwhile, on 18 December 2013,¹⁶ Cold Storage accepted AREIF’s letter of offer. AREIF and Cold Storage then began negotiating their lease. They eventually reached agreement on the terms of their lease on 4 February 2014.¹⁷ That agreement included AREIF’s commitment that it would deliver to Cold Storage vacant possession of the premises on 2 April 2014, one clear day after the expiry of the term of the lease on 31 March 2014.

So it was that on 6 February 2014, AREIF informed NTUC that it took the position that NTUC’s option to renew the lease had lapsed because there had been no agreement on rent as envisaged by cl 6.15(a)(ii) and no new lease had been signed by NTUC on or before 30 November 2013 as required by cl 6.15(a)(vii). AREIF reminded NTUC that it was obliged to reinstate the premises and deliver vacant possession to AREIF on or before 31 March 2014.¹⁸

NTUC was understandably dismayed. It responded to AREIF on 7 February 2014 asserting that, because AREIF had not responded to NTUC since AREIF’s email of 29 November 2014, the parties were still in negotiation on rent. NTUC’s position was that AREIF could not make a unilateral decision not to renew the lease.¹⁹ NTUC now volunteered to renew the lease at the maximum rent of $87.84 psm as provided in cl...