BCH Retail Investment Pte Ltd v Chief Assessor

• Court: High Court (Singapore)
• Judge: Lee Seiu Kin JC
• Judgment Date: 02 September 2002
• Neutral Citation: [2002] SGHC 205
• Citation: [2002] SGHC 205
• Defendant Counsel: Leung Yew Kwong And Liu Hern Kuan (Inland Revenue Authority of Singapore, Law Division)
• Plaintiff Counsel: David De Souza and Jeanette Lee ( De Souza Tay & Goh )
• Published date: 19 September 2003
• Docket Number: Originating Motion No 8 of 2000
• Date: 02 September 2002
• Subject Matter: Whether landlord under obligation to use such contributions for such activities,Concept of rent,Whether tenant's contribution of advertising and promotion fees forms part of shop unitÂ’s annual value,Revenue Law,ss 2 & 35 Property Tax Act (Cap 254, 1997 Ed),Whether such contributions bona fide,Onus on landlord to satisfy Chief Assessor,Annual value,Property tax,Whether expenditure on advertising and promotion activities reasonable

Judgment Cur Adv Vult

GROUNDS OF DECISION

1 This is an appeal pursuant to s 35 of the Property Tax Act ("the Act") against the decisions of the Valuation Review Board in VRB Appeal Nos 252-255 and 282-304 of 1999. All the decisions turn on the same issue and they have been dealt with collectively by the Board in its Grounds of Decision dated 16 May 2002. They turn on the same facts and I shall also deal with them together.

2 The Appellant is the owner, operator and landlord of the shopping centre known as Parco Bugis Junction ("the Shopping Centre"). It has approximately 203 shop units which are let out to 168 tenants under written leases. The anchor tenants are Seiyu, a department store, and United Artists, a multi-screen cinema complex. The subject matter of the present appeals pertain to 27 of the non-anchor shop units.

3 The Shopping Centre opened for business in 1995. From then until sometime in 1997, the Appellant signed leases with its tenants in a form that I shall term the Old Lease and after 1997, in a new form that I shall call the New Lease. The New Lease comprised a lease agreement (the "Agreement") and a Memorandum of Supplemental Lease Terms (the "Memorandum") which was made applicable to the Agreement by clause 2.2 of the Agreement.

4 The payments by each of the Appellant’s tenants under its lease comprise four components, viz.:

(i) "Basic Rent" which is a fixed sum payable monthly computed on a per square metre basis as negotiated and agreed between the Appellant and the tenant.

(ii) "Additional Rent" which is the agreed percentage of the tenant’s gross sales from the retail unit and which is negotiated and agreed between the Appellant and the tenant.

(iii) "Tenant’s Contribution" being the tenant’s contribution towards the expenses for cleaning and maintenance services provided by the Appellant to the common areas of the Shopping Centre. Unlike the Basic Rent and Additional Rent, it is a fixed rate of $16.15 per square metre for all tenants (subject to increase).

(iv) "A&P Contribution", expressed in the lease as "the fees payable by the Tenant to the Landlord for advertising and promotion as provided in the Lease". Like the Tenant’s Contribution it is a fixed rate and is set at $3.23 per square metre (subject to a minimum of $100.00 and subject to increase).

5 The provisions relating to A&P Contributions in both the Old Lease and the New Lease are almost identical. In the Old Lease, these provisions are set out in Schedule 6. In the Agreement, they are found in clause 6. There are minor differences in the A&P Contribution provisions in the two leases. The principal difference is that 1.1 of Schedule 6 of the Old Lease mentions that the payment of the A&P Contribution is "by way of additional rent" but this statement is not found in clause 6.1 of the Agreement. However, clause 6.5.2 of the Memorandum provides that all monies payable under the New Lease shall be deemed to be rent in law. Nothing turns on the differences.

6 The Chief Assessor’s assessments of the Annual Value of each of the 27 shop units were based on the actual rates paid of Basic Rent, Additional Rent and A&P Contribution, and did not include the Tenant’s Contribution. The Appellant was dissatisfied with the inclusion of the A&P Contribution, and before the Board submitted that it ought to be excluded. The Board dismissed the appeals and the Appellant now appeals before me.

7 The following facts were disclosed in the Appellant’s affidavits which were not challenged by the Chief Assessor:

(a) The A&P Contribution payments were utilised by the Appellant to help defray its costs in carrying out advertising and promotion ("A&P") activities for the Shopping Centre. For such purposes, the Appellant incurred about $2 million each year. However the total collection in respect of A&P Contributions amounted to approximately $500,000, about a quarter of the actual A&P expenses.

(b) The A&P Contributions were paid by all tenants except the two anchor tenants, Seiyu and United Artists.

(c) The Appellant has an A&P Team who work with an advertising agency. The team’s role is to co-ordinate the promotional activities for the benefit of the tenants. These activities included staging events, conducting lucky draws and running media advertisements. As many as five promotional programmes are conducted annually in the Shopping Centre to draw shoppers to it. There are also numerous activities, events and promotions organised throughout the year in the Shopping Centre.

8 The appeal turns on the interpretation of the term "annual value" in the Act. Section 2 thereof defines it as follows:

"annual value" —

(a) in relation to a house or building or land or tenement … means the gross amount at which the same can reasonably be expected to be let from year to year, the landlord paying the expenses of repair, insurance, maintenance or upkeep and all taxes (other than goods and services tax); …

The question is whether the A&P Contribution is a part of the gross amount that a shop unit can reasonably be expected to be let. I turn to consider the relevant authorities on this question.

9 In Chartered Bank v The City Council of Singapore (1959) SPTC 1 the High Court dealt with an appeal against assessments made by the City Council of certain premises owned by the bank. The assessment for each unit was based on the gross rent received. The High Court allowed deductions to be made from the gross rent of expenses incurred by the landlord for watchmen, cleaning, lifts, air-conditioning and supervision. In addition the Court allowed a deduction of a 15% loading over those costs, being a reasonable return on the landlord’s outlay to provide such services. The Court also allowed the deduction of the depreciation of the lifts, air-conditioner and fire extinguishers. This case is authority for the proposition that the costs of providing services of watching, cleaning, lifts, air-conditioning and supervision are deductible from the gross rent to compute the annual value under the Act. Also deductible is a reasonable return on the landlord’s outlay to provide such services.

10 In Bell Property Trust, Limited v Assessment Committee for the Borough of Hampstead [1940] 2 KB 543, the landlords of a block of flats let to tenants under agreements providing for payment by the tenants of a comprehensive sum, described as rent, for the occupation of the flats and the benefit of services and amenities such as hot water, central heating and other services usually provided in high class service flats. The English Court of Appeal held that the cost to the landlords of providing those services was deductible from the gross rent before arriving at the gross value of each flat for insertion in the valuation list. The court also held that such deductions might properly include (i) an allowance for a reasonable profit to the landlords on the provisions of such services, and (ii) the cost of repair to and maintenance of the part of the building not demised to tenants, such as passages, stairs, lifts and staff rooms. The statutory provision considered was s 4 of the Valuation (Metropolis) Act 1869 which is similar in all respects with the corresponding provision in the Act, and which provides as follows:

The term ‘gross value’ means the annual rent which a tenant might reasonably be expected, taking one year with another, to pay for an hereditament, if the tenant undertook to pay all usual tenant’s rates and taxes, and tithe commutation rent charge, if any, and if the landlord undertook to bear the cost of the repairs and insurance, and the other expenses, if any, necessary to maintain the hereditament in a state to command that rent.

11 The judgment of the English Court of Appeal was read by Goddard LJ. After referring to the statutory definition of "gross value" he set out the historical context at p 551:

Now the difficulty, if difficulty there be, is one which is familiar to every one of experience in rating law. The definition is in substance taken from the Parochial Assessment Act 1836, which in turn gave statutory authority to the method of valuation which had been generally adopted for many years before that Act was passed. When rateable hereditaments consisted only of houses, mills, shops, farms, and such like properties, the ascertainment of annual value was...