Ascendas Hospitality Reit loses S$6.2 million hotel refurbishment claim against Park Hotel liquidators

[SINGAPORE] The Court of Appeal has rejected S$6.2 million from Ascendas Hospitality Reit’s (AH-Reit) S$32.1 million claim against the shuttered Park Hotel Clarke Quay, finding that the income losses arising from a voluntary refurbishment exercise are not recoverable from a defaulting tenant.

AH-Reit has since been absorbed into CapitaLand Ascott Trust, following Ascendas Hospitality Trust’s merger with Ascott Residence Trust in December 2019.

AH-Reit can, however, refile the claim for its damages with monthly profit-and-loss statements showing what it would have earned had the hotel remained fully open during the refurbishment period.

The three-judge panel – comprising Justices Steven Chong, Ang Cheng Hock and Senior Judge Judith Prakash – found that AH-Reit’s decision to partially close the hotel in March 2023 for renovation works was a voluntary business decision, not one necessitated by the tenant’s breach of its lease.

“For the most part, this refurbishment exercise did not comprise necessary repairs or reinstatement works even though the respondents claim that such works were also carried out,” said the judges.

“Rather, they were chiefly undertaken as part of a rebranding exercise, so that the hotel could be relaunched under a new name,” they added.

As the hotel had been operating profitably before the works began, AH-Reit cannot pass on the resulting income losses to the defaulting tenant.

Defaulted rent

The ruling is the latest development in a protracted legal dispute surrounding the collapse of the Park Hotel Group.

Park Hotel Clarke Quay defaulted on rent in 2020 during the Covid-19 pandemic, after which AH-Reit terminated the lease and repossessed the property in August 2021. Park Hotel Clarke Quay was wound up by the court that November.

AH-Reit filed a proof of debt for S$32.1 million against Park Hotel’s liquidation estate, of which S$20.4 million represented damages for unpaid rent for the remainder of the lease period through to June 2023.

After repossessing the property, AH-Reit appointed a related entity, Ascott International Management, to manage the hotel, before leasing it to another related entity, Ascott Hospitality Business Trust, from October 2022.

The hotel was later partially closed from March 2023 for refurbishment and relaunched in October 2023 as The Robertson House by The Crest Collection.

The appeal

Park Hotel Group Management, a fellow creditor of Park Hotel Clarke Quay, challenged AH-Reit’s S$20.4 million claim on three grounds.

First, that the Reit had failed to adequately mitigate its losses by relying on related parties rather than seeking independent tenants; and, second, that the financial figures supporting the claim could not be verified.

Finally, it pushed back on the claim that losses from the voluntary refurbishment should be recoverable from Park Hotel.

The High Court rejected all three arguments, but the Court of Appeal – while upholding the lower court on the first two grounds – agreed with Park Hotel Group Management on the third.

On failure to mitigate losses, the Court of Appeal found AH-Reit had acted reasonably in appointing Ascott International Management and leasing the property to Ascott Hospitality Business Trust.

Both entities had expertise in operating hotels and so could have managed the property with more-than-sufficient competence, said the judges.

Further, it is speculative to assume that AH-Reit could have quickly found a more suitable tenant in the midst of the Covid-19 pandemic.

The Court of Appeal also rejected Park Hotel Group Management’s challenge to the profit-and-loss figures submitted by AH-Reit, noting that the Reit’s representative had affirmed on affidavit that the figures related specifically to the Clarke Quay property.

The appellant also did not produce concrete evidence to the contrary, the judges noted.