Radha Properties Pte Ltd v Lim Poh Suan

• Jurisdiction: Singapore
• Judge: Chan Seng Onn SJ
• Judgment Date: 14 June 2022
• Docket Number: Originating Summons No 311 of 2022
• Court: High Court (Singapore)

Radha Properties Pte Ltd

and

Lim Poh Suan and others

[2022] SGHC 139

Chan Seng Onn SJ

Originating Summons No 311 of 2022

General Division of the High Court

Contract — Contractual terms — Tenant exercising option to renew with monthly rental referable to prevailing market rate to be mutually agreed upon with landlord — Whether mutual agreement required to determine prevailing market rate — Whether alternative machinery for determining prevailing market rate could be implied

Contract — Formation — Certainty of terms — Landlord and tenant agreeing on option to renew with monthly rental referable to prevailing market rate to be mutually agreed upon — Whether option valid and enforceable if no mutual agreement on prevailing market rate reached

Held, dismissing the application:

(1) The phrase “prevailing market rate” was not a term of art with only one specific and precise meaning accepted by professional property valuers. There were many possible valuation methodologies and reference points, which could affect a valuer's view of what the prevailing market rate was: at [8].

(2) The option clause in Masa-Katsu Japanese Restaurant Pte Ltd v Amara Hotel Properties Pte Ltd[1998] 2 SLR(R) 662, which provided for renewal “at the prevailing market rental or at the current rental plus 30% whichever is the lower upon the terms and conditions to be agreed”, was distinguishable. Rental was simply to be fixed at the “prevailing market rental” or “the current rental plus 30%”, whichever was the lower. Unlike the present case, party agreement was not specified as an essential requirement or agreed process for determining the prevailing market rental: at [14] to [16].

(3) The option clause in Brown v Gould[1972] Ch 53, which provided for renewal “at a rent to be fixed having regard to the market value of the premises at the time of exercising th[e] option”, was also distinguishable. Unlike the present case, there was no explicit requirement for the rent to be fixed by mutual agreement. For the court to provide the machinery for fixing rent, it would not have had to rewrite the bargain between the parties: at [17] and [18].

(4) In the present case, parties clearly intended mutual agreement to be their chosen methodology for determining the “prevailing market rate”. This was clear from how the words “to be mutually agreed upon” immediately followed and qualified the phrase “the prevailing market rate” in the Option Clause. The monthly rental was possibly one of the most essential elements of the clause, and until mutual agreement could be reached on this, the Option Clause was incomplete. Consequently, the parties had not intended it to come into existence as yet as a valid and enforceable option exercisable by the plaintiff. This was akin to the parties having an agreement to agree on the final essential element of the Option Clause, namely, the “prevailing market rate”: at [19], [20] and [23] to [25].

(5) Parties had not contemplated any alternative machinery for fixing the prevailing market rate. An alternative machinery of judicial determination could not be implied for business efficacy, on the footing that if the parties had thought about it, they would have obviously intended a relatively tedious, expensive and slow judicial process to determining the prevailing market rate. Time would usually be of the essence in situations of lease renewals, and there were many other simpler, faster and more efficient machineries available. What the parties likely intended was that if the prevailing market rate could not be agreed upon after negotiations, both would simply walk away from the lease renewal and quickly move on: at [21], [22] and [24].

Case(s) referred to

British & Malayan Trustees Ltd v Sindo Realty Pte Ltd[1999] 1 SLR(R) 61; [1999] 1 SLR 623 (refd)

Brown v Gould[1972] Ch 53 (distd)

Climax Manufacturing Co Ltd v Colles Paragon Converters (S) Pte Ltd[1998] 3 SLR(R) 540; [2000] 1 SLR 245 (refd)

Masa-Katsu Japanese Restaurant Pte Ltd v Amara Hotel Properties Pte Ltd[1998] 2 SLR(R) 662; [1999] 2 SLR 332 (distd)

Rudhra Minerals Pte Ltd v MRI Trading Pte Ltd[2013] 4 SLR 1023 (refd)

Facts

The plaintiff was a tenant of the defendants. The tenancy agreement contained an option clause (the “Option Clause”) that specified, other among things, that “the Landlord shall grant to the Tenant a tenancy of the … Premises for a further period of five (5) years … at a revised monthly rent payable to the prevailing market rate to be mutually agreed upon”.

Three months before its lease expired, the plaintiff exercised the Option Clause. Parties exchanged correspondence stating their positions on what the “prevailing market rate” was. The plaintiff also obtained a valuation report, which stated that the “gross monthly rental value of the Property, on standard lease terms and conditions, is in the region of $9,500/-”. The defendants claimed that they had received an expression of interest of a monthly rental of $16,000 from their agent's client. Despite their negotiations, parties could not agree on the “prevailing market rate”, or even the method or process for determining this. No agreement was reached on the revised monthly rent for renewing the lease.

By way of this originating summons, the plaintiff applied for an order of specific performance of the Option Clause to renew its lease for a further five years at $9,500 per month. It also sought a declaration that the Option Clause was valid and binding upon the defendants. It contended that the parties' intention for the revised monthly rent to be fixed to the prevailing market should be given effect to, and that the court should provide the machinery to determine the prevailing market rate if this was not provided in the Option Clause.

Lee Jun Yong Daniel (Tan Peng Chin LLC) for the plaintiff;

Joel Raj Moosa (Quahe Woo & Palmer LLC) for the defendants.

14 June 2022

Chan Seng Onn SJ:

Introduction

1 The tenant, Radha Properties Pte Ltd (the “plaintiff”), applied for an order for specific performance by the landlords, Lim Poh Suan, Ong Chin Tiong and Chong Sian Cheen (collectively the “defendants”) of an option clause in their tenancy agreement to renew the lease of the property at 727 Clementi West Street 2 #01-256 Singapore 120727 (the “premises”) for a further term of five years at S$9,500 per month from 1 May 2022. The plaintiff also sought a declaration that the option clause was valid and binding upon the defendants.

2 I determined that the option clause was not enforceable as parties had not mutually agreed on what the “prevailing market rate” was to be for the monthly rent for the purpose of renewing the lease pursuant to the option clause.

3 The plaintiff appealed and I now give my reasons.

The Option Clause

4 Clause 12 of the tenancy agreement (the “Option Clause”) provided as follows:

If the Tenant desires to have a further tenancy of the said Premises for a further period of five (5) years after the expiration of the said term hereby demised and gives to the Landlord three (3) months' notice in writing to that effect prior to the expiration of the said term hereby demised then (provided that at the date of the exercise of this Option and at the date of the expiration of the term hereby demised there is no subsisting breach by the Tenant of the covenants and conditions herein contained), the Landlord shall grant to the Tenant a tenancy of the said Premises for a further period of five (5) years commencing on the day following the expiration of the term hereby demised upon the same terms and conditions contained herein (but with the exception of this provision for renewal) at a revised monthly rent payable to the prevailing market rate to be mutually agreed upon. [emphasis added in bold italics]

5 On 28 January 2022, more than three months prior to the expiration of the lease on 30 April 2022, the plaintiff gave written notice of its exercise of the Option Clause to renew the lease. It was not disputed that there was no subsisting breach by the plaintiff of the covenants and conditions contained in the lease.

No agreement reached for the monthly rent

6 After an exchange of correspondence in relation to the parties' respective positions on the “prevailing market rate”, the plaintiff engaged Colliers International...