INDIA BUSINESS WORLD - DECEMBER 1^st - DECEMBER 15^th - 2007

PANTALOON HAULS DLF TO COURT OVER SPACE ROW

In what could be the first sign of simmering disputes between mall developers and retailers, India's largest retailer Pantaloon Retail has taken one of the country's largest developers DLF Retail to court. The retailer successfully filed for an injunction in the Delhi High Court against DLF prohibiting it from granting possession of 110,000 sq ft of space to any third party at its South Point Mall in Gurgaon that was supposed to be leased to Pantaloon Retail.

According to people close to the development, Pantaloon and DLF had signed an agreement three years ago for 110,000 sq ft in the mall when it would be ready. However, in the interim, real estate prices shot through the roof. Perhaps feeling the pinch of leasing out a huge part of the mall at prices that weren't in sync with market rates, DLF chose not to allow the retailer to go ahead with fit-outs. A further hearing is scheduled for January 30.

Mayur Toshniwal, CEO (North), Pantaloon Retail, said, "We have taken the matter to the High court, but at this juncture we wouldn't like to say anything else." When contacted, Ajay Khanna, executive director, DLF Retail, "We have no comment to make on this issue." Anuj Puri, CEO of Jones Lang LaSalle Meghraj, which has been named a co-defendant along with DLF, could not be contacted.

For DLF, the potential loss in income from real estate rentals may have been significant. While the exact figures aren't in public domain, but in 2004, an anchor tenant like Big Bazaar would typically get space in a suburban mall for less than Rs 70-75 per sq ft, whereas other tenants would have to pay anywhere between Rs 125-Rs 150 per sq ft. Today, rentals in prime locations like Linking Road in Mumbai and Khan Market in Delhi have more than tripled in the last three years. Most suburban mall rentals have also increased by 70% in some of the larger cities, according to real estate industry experts.

It may be recalled that Pantaloon Retail was one of the early movers in grabbing a significant chunk of real estate nearly three to four years ago. Before other big players like Reliance, Bharti and AV Birla Group moved in, Pantaloon had signed up a host of properties at the development stage, which experts reckon gives it a formidable first mover advantage.

DLF's South Point Mall in Phase V, Gurgaon is expected to be about 300,000 sq ft overall, with Pantaloon occupying more than one-third of the area. Pantaloon Retail had plans to set up Home Town and Food Bazaar, besides a few of its other smaller formats. A Pantaloon executive claims that they even invested in a travelator at a huge cost for the site, and also built up merchandising and staff in line with their launch plans.

Pantaloon's dispute with the developer could potentially throw the door open for a whole host of retailers to drag developers to court. There have been a few precedents where developers have played hardball with retailers after property development is complete. For instance, in Ahmedabad, the space where Reliance Retail built its first hypermarket, Mart, was originally meant for Shoppers' Stop and its hypermarket format, Hypercity. But the developer demanded higher rentals and the K Raheja Group's retail formats, the promoters of Shoppers Stop and Hypercity, were forced to look elsewhere.

Yet despite such stray cases, industry experts say that most developers don't usually renege on agreements, even if it is in spirit and not in letter. Says Akshaya Kumar, CEO, Park Lane Property Advisors, "Often, developers don't sign a formal contract and work with letters of intent with the retailers. Certainly, some smaller developers would want to renegotiate with retailers, but it seems unlikely that a large serious player would actually renege on a contract."