Soup Restaurant Singapore Pte Ltd (formerly known as Soup Restaurant (Causeway Point) Pte Ltd) v Y.E.S. F&B Group Pte Ltd [2014] SGHC 246

In Soup Restaurant Singapore Pte Ltd (formerly known as Soup Restaurant (Causeway Point) Pte Ltd) v Y.E.S. F&B Group Pte Ltd, the Singapore High Court considered two diametrically opposed interpretations of a lease agreement in a dispute between a landlord and a tenant which had refused to vacate certain sub-leased premises in a shopping mall. In doing so, the court reiterated the essential legal requirements for a valid lease to exist at law, considered the law on termination of leases, and clarified the legal effect of the termination of a head lease on any sub lease(s) derived out of that head lease.

Facts

The plaintiff was a subsidiary of Soup Restaurant Group Limited (“SRGL”). SRGL runs a chain of restaurants known as “Soup Restaurant” while the defendant operates a chain of restaurants known as “Dian Xiao Er”.

In October 2006, the defendant started to operate one of its “Dian Xiao Er” restaurants at a unit (the “Neighbouring Unit”) at VivoCity (the “Head Landlord”). At the time, the defendant was a subsidiary of the plaintiff.

On 19 October 2009, the plaintiff leased an adjacent unit (the “Unit”) from the Head Landlord for a three-year term starting from 19 October 2009 (the “Head Lease”) to operate one of its “Soup Restaurant” branches. By way of a sub-lease agreement dated the same day (the “Sub-Lease Agreement”), the plaintiff agreed to sub-let a part of the Unit (the “Sub-Lease Area”) to the defendant.

In June 2012, the defendant ceased to be a subsidiary of the plaintiff. In August 2012, the defendant wrote to the Head Landlord proposing to merge the Sub-Lease Area and the Neighbouring Unit. The Head Landlord did not agree to the defendant’s proposal. A few days later, the Head Landlord offered to renew the Head Lease with the plaintiff, which the plaintiff accepted and confirmed in a lease agreement (the “2nd Head Lease”).

In October 2012, the plaintiff informed the defendant to deliver vacant possession of the Sub-Lease Area by 6 October 2012. However, the defendant refused to vacate the Sub-Lease Area. Shortly after, the plaintiff brought the present action against the defendant claiming for possession of the Sub-Lease Area and damages in relation to the defendant’s wrongful occupation of the Sub-Lease Area.

Around two years later, shortly before the trial of the matter in October 2014, the defendant handed over possession of the Sub-Lease Area to the plaintiff, on the basis that it would be without prejudice to its rights. However, the defendant continued to argue at trial that the Sub-Lease Agreement had not been terminated because it had been either automatically renewed or renewed at the option of the defendant.

Issue

The sole question in the case was whether the Sub-Lease Agreement was terminated by effluxion of time on 18 October 2012.

Judgment

In considering the parties’ respective cases, the court reiterated the legal requirements for, and essential terms of, a lease:

  • the premises to be leased;
  • the identity of the landlord and tenant;
  • the commencement and duration of the term; and
  • the rent and other consideration.

Based on the above legal framework, the court ruled in favour of the plaintiff, and held that the Sub-Lease Agreement was terminated by effluxion of time on 18 October 2012. The court held that the Head Lease commenced on 19 October 2009 and terminated by effluxion of time on 18 October 2012 when its three-year term came to an end. It followed that the Sub-Lease Agreement also terminated on 18 October 2012.

The court’s key reasons in arriving at the above conclusion included the following:

  • The court observed that the Head Lease stated that the term of the Head Lease was for three years and expired on 18 October 2012. The court noted that, in law, the existence of a sub-lease is premised on the subsistence of the head lease from which it is derived. When the head lease comes to an end, any sub-lease derived out of it automatically comes to an end.
  • The court noted that the Sub-Lease Agreement provided that the Sub-Lease Agreement would survive as long as the Head Lease was not terminated. Accordingly, the Sub-Lease Agreement acknowledged that the Sub-Lease Agreement would end upon the termination of the Head Lease.
  • The court also noted that the 2nd Head Lease was concluded on terms that were materially different from those found in the Head Lease, and which were the result of substantial negotiations between the Head Landlord and the plaintiff over the course of a few months. The 2nd Head Lease stipulated a higher rent and provided for rent escalation under which the rent payable automatically increased every year. The term of the 2nd Head Lease was for three years six months, instead of three years.
  • The court held that the defendant’s interpretation of the terms in the Sub-Lease Agreement was “one sided” and “commercially unreal”. The court observed that the testimony of the defendant’s witness “kept shifting” and that the defendant’s witness was “caught between a position that was inconsistent with the sub-lease agreement and one that did not accord with commercial realities”.
  • The court rejected the defendant’s argument that the Sub-Lease Agreement had been renewed and found that the terms of the “renewed” sub-lease that purportedly came into effect after the termination of the initial sub-lease on 18 October 2012 were unclear. In particular, the court found that there was no agreement as to the monthly rent payable. The duration of the renewed sub-lease was also uncertain. Accordingly, the court held that the above ingredients which are necessary for a lease to exist at law were “glaringly absent” on the evidence before the court.

In the premises, the court held that the defendant was in wrongful possession of the Sub-Lease Area following the termination of the Sub-Lease Agreement on 18 October 2012 and was liable in damages to the plaintiff