Sunday, October 17, 2021

Mall owner wants to replace us with Spar ÔÇô Pick n Pay directors

Spar Supermarket has been named as the third party in the matrimonial disharmony that has taken the Molapo Crossing shopping mall and its anchor tenant before the Lobatse High Court.

The relationship between Molapo and Pick n Pay goes back to February 2002 when Horn of Africa, which owns Pick n Pay, signed a 10-year lease agreement with Sphinx Associates, the company that owns the mall. In terms of this agreement, Horn of Africa leased supermarket space for a 10-year period beginning May 2003. The agreement granted Horn of Africa an option to renew the lease for a further five-year period. When the lease came up for renewal, the parties couldn’t agree on the rental and the matter went for arbitration. The arbitrator was Rita Keevil who, at the time, was working for Bernard Bolele Attorneys.

“During arbitration, it became apparent (through documents presented in the arbitration by the landlord) that the landlord wanted to terminate the lease agreement with our client in order for the landlord to lease the premises to Spar, which had offered a higher rental,” reads a letter written by John Carr-Hartley of Armstrongs, the law firm that represents Horn of Africa.

That letter is now part of the court record.

In her determination, Keevil determined that Horn of Africa had properly exercised its option to renew the lease, that the rental of P70 per square metre that the company was offering was above the market average as well as “fair and reasonable” and that the turnover rental of 1.75 percent should remain in effect. Carr-Hartley’s letter says that “immediately” following this award, the landlord “commenced a salvo of correspondences addressed to our client demanding that our client attend to various perceived issues which had never been of concern or were raised by the landlord prior to the exercise of the option and the arbitration.”

In response to one letter from Sphinx Associates, Horn of Africa wrote back: “We can only assume that your current actions are a consequence of the fact that the arbitrator made an award in our favour in the arbitration regarding the option and that your actions are designed to try and remove Horn of Africa as the supermarket tenant in Molapo Crossing.” Notwithstanding, the arbitration award, Horn of Africa increased the rent to P80 per square metre and the turnover rental to 2 percent. Carr-Hartley’s letter says that despite this good-faith gesture, the landlord continued to complain, “accusing our client of breach of the lease.’ The lawyer interpreted the latter as having been “a thinly-veiled attempt to manufacture a reason for termination of the lease.”

The letter goes farther to state that when the second phase of construction started, Pick n Pay was asked to reduce the size of its receiving yard and waste disposal area. This is said to have caused “considerable inconvenience and prejudice.”

While he denies that he acted in bad faith, Luc Vandecasteele, the Managing Director of Sphinx Associates, has not made his preference of Spar as a replacement tenant a secret. In February 2015, Vandecasteele wrote a now problematic email to the Pick n Pay franchisor and brand owner, Christopher Reed, who is based in Johannesburg, South Africa. In the email, Vandecasteele raises a number of issues, one being that the 2012 arbitration sold his company short because it could make a lot more money from other tenants.

“We are offered rentals that are consistently 25 percent higher than what your franchisee is paying, and the arbitrator, totally against any logic, refused to accept the rental paid by the competition. We are of the opinion that the arbitration was manipulated but chose not to react. Rentals are market-related and the definition of correct market rental is what the market is prepared to pay. We had to accept P70 with Spar offer of P85 plus 14 percent for recurring cost, or a total rental of P97/M2. The offer was thus 38.4 percent higher! We would have had a brand new Super Spar with the owner in the supermarket,” wrote Vandecasteele, rendering “Super Spar” and “owner” in caps lock. 

As a result of that email, Mark Barnard, Pick n Pay’s General Manager (Franchise), came to Gaborone to conduct his own investigation. In a letter he wrote subsequently, Barnard stated that “the lease is held by the franchisee and not the franchisor which entitles the franchisee to negotiate the rental without corporate intervention.” He further pointed out that the arbitrator has ruled on the matter of the rental and that the franchisor was not able to comment on the outcome.

On account of the clause on turnover rental, Sphinx Associates has direct and substantial interest in the quality of customer service at the supermarket. During a November 2011 meeting with three Horn of Africa directors, Vandecasteele expressed concern that while Molapo Pick n Pay used to be voted “the best supermarket in Botswana by consumer groups”, that was no longer the case. He complained that the directors, who at that point operated eight other stores, were no longer as hands-on as they used to be. He also raised this concern with the franchisor and in response, Barnard suggested that the mall should lease to marquee-name tenants.

His response in full is as follows: “After my visit and applying what I have learnt in my years of retailing, I would like to suggest a few ways of increasing the turnover and foot count of the centre which would in turn increase your rental. The tenant mix in the centre has no real draw card. It is a mix of local unknown and not very well run stores. It would be beneficial to have some tenants who would, like PnP, draw people into the centre i.e. Clicks or Pep Stores. I am aware that you are revamping the centre, however, the general standard of the centre is poor and there are many areas which are not conducive to good shopping experience. There are many [Occupational Health and Safety] issues and the house-keeping is not up to standard. (I have attached a few photos which were taken during my visit to illustrate my point). I believe that with the right tenant mix and a ‘clean-up’ of the centre, you would be able to increase the turnover of the PnP which would be mutually beneficial.”

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