Woolworths’ struggling hardware chain Masters is locked in a dispute over a deal to build a store in Strathdale on which it ultimately pulled the pin.

A property development company owned by Maxi Foods founder Brendan Blake is suing Masters and Woolworths for a breach of contract over an agreement to build the Masters store.

In a directions hearing on Friday in the Victorian Supreme Court, lawyers for North East Solution said Mr Blake’s company was seeking damages from loss of rental income as well as appreciation of the property if the store had been built, as well as other costs.

According to the statement of claim, NES had agreed to lease the premises to Masters for 12 years, at a rate of $1.26 million a year with an option to extend for six five-year terms. It also alleged that it signed an agreement with Masters to build the store at a cost of almost $12 million, to which Masters would contribute almost $3 million.

The board of Woolworths approved the first agreement for the lease and notified NES in August 2009, and a second, less formal, agreement for a lease was approved by letter on 24 February 2010, NES claimed. 

But it also alleged that Masters and Woolworths employed a surveyor and advised in April 2010 that the landlord’s works costs were unacceptable.

Masters said its contribution would not be paid by a lump sum as previously agreed but 95 per cent thereof payable within 10 business days, NES alleged.

NES alleged Masters did not act “reasonably or in good faith attempt to resolve differences it had with NES”.

Mr Blake refused to comment outside the court. 

A spokesperson for Woolworths also would not make a statement.

Masters, designed to compete in the $42 billion home improvement market dominated by Wesfarmers-owned Bunnings, has been struggling, losing $139 million last year.

Analysts expect Masters to post even greater losses in the 2014 and 2015 financial years.

In February Woolworths appointed European-hardware industry veteran Matt Tyson to turn around Masters’ fortunes. Masters has 47 stores in Australia.

The next directions hearing has been set for March 27 and trial for May 11.

The Saturday Age