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Case Stockmann Smolenskaja Jussi Kuutsa Stockmann International operations Development director

Case Stockmann Smolenskaja Jussi Kuutsa Stockmann International operations Development director September 4th, 2009 St Petersburg. Background Stockmann concluded 10 + 10 years lease agreement for department store premises 1997 in Smolensky Passage shopping centre

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Case Stockmann Smolenskaja Jussi Kuutsa Stockmann International operations Development director

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  1. Case Stockmann Smolenskaja Jussi Kuutsa Stockmann International operations Development director September 4th, 2009 St Petersburg

  2. Background Stockmann concluded 10 + 10 years lease agreement for department store premises 1997 in Smolensky Passage shopping centre Second 10 year term was the tenant’s option to prolong the lease Price structure of the lease for 2 stepped The first 5 years Stockmann paid high fixed rent 6-20 years turnover based rent without a minimum rent The idea was partly finance the repayment of developer’s bank loans The original lease was registered by April 30, 2008 ICAC (MKAS) was named venue to resolve possible disputes in original lease

  3. What happened in real life The first owner was pushed to sell the property. This took place 2002. Generally we were both happy during 1998-2002 before the transaction of property took place. The second owner understood that after 5 year the rental income will shrinken. They tried to squeeze more money but did not succeed. The second owner was pushed to sell the object. The third owner informed us late 2006 that they will not recognize our 10 year option term unless we agree new price terms with them. Finally the third owner used illegal methods and forced us to remain premises.

  4. What happened in court venues The second owner tried during 2001-2003 get the lease agreement nulled and void in local courts wihout any success Stockmann won the case in ICAC spring 2008 when ICAC decided that option term is legally binding and the contract is valid also for the second 10 year term The landlord refused to fulfill this decision and fourced us to leave the premises by cutting electricity Subreme court stated spring 2009 that ICAC decision spring 2008 is not valid and there are no grounds why it should be implemented! Stockmann started process in ICAC to claim back damages the illegal actions caused Stockmann won also this case but the landlord refused to fulfill the decision

  5. Financial outcome Stockmann lost the premises and wrote down 14 mill euro cost, despite of that Business unit’s lifetime result was positive app 7 mill euros Landlord fully destroyed its own business. Now the mall is empty for some renovation Estimated loss in cashflow from the beginning of June 08 till now accumulates app 30 mill USD

  6. Lessons It is extremely challenging to protect the rights of the tenant in case owner of premises changes and new owner happens to be not too friendly Business culture Court system and Law enforcement The owner of the house, or whoever, who physically controls the premises will at the end of day order the music Western practises do not always work same way in Russia as they do in west The original lease might have stronger validity if done from the beginning for 20 year term and registered for 20 years too

  7. THANK YOU!

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