In recent months, the COVID-19 pandemic has disrupted almost every business, some much more than others. In the immediate term, the Singapore government intervened with the COVID-19 (Temporary Measures) Act, among others measures, to help provide relief for local businesses.
Some measures in the COVID-19 (Temporary Measures) Act pertain to leases and rental relief, as well as legal protection against their inability to execute contractual agreements.
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Beyond this, the spotlight was once again cast on the relationship between landlords and tenants, mainly due to the lack of legislation to mandate the passing of government tax rebates to tenants in the form of rental rebates in a timely manner.
This led to the formation of the Fair Tenancy Framework Industry Committee (FTFIC) to relook the Fair Tenancy Framework that has already been in place.
Fair Tenancy Framework In Place Since 2015
Initially launched in 2015, the Fair Tenancy Framework outlines a three-pronged initiative to improve the relationship between tenants and landlords in Singapore.
#1 Rental Data Transparency
The Fair Tenancy Framework recommends that authoritative rental data for business premises be published and made readily available on a regular basis.
This recognises the need for access to credible market information on rental rates to help tenants make comparisons and provide a base for negotiations over rates quoted by landlords.
The hope is that the transparency of this information will help level the playing field for tenants and landlords in the negotiation process, and act as a stabilising effect on the market.
The Rental Practices Working Group worked closely with the Ministry of Trade and Industry (MTI) and relevant government agencies to determine the parameters for the release of meaningful rental data for business premises to be published.
| Type Of Business Space | Website |
| Retail | www.ura.gov.sg |
| Commercial | www.ura.gov.sg |
| Industrial | www.jtc.gov.sg |
#2 Education and Awareness
The need for education and awareness for business owners to manage leases was another important component. To this end, a Business Leasing Guide and a Basic Reference Lease Agreement for Business Space was developed to help small businesses understand typical lease terms and conditions. This can act as a checklist for tenants to review in their leases to better understand as well as recognise certain restrictive practices that may be included.
The Business Leasing Guide – covering negotiations, financial and contractual areas of a lease – aims to. Help tenants and landlords understand their respective roles and responsibilities in a fair and transparent lease agreement.
A reference lease agreement is also included to help tenants reviewing their own leases to understand what may be common clauses.
#3 Preferred Dispute Resolution Channel
The Fair Tenancy Framework also recommends dispute resolution through mediation. To encourage this, an initiative to facilitate partnerships between trade associations and chambers (TACs) and the Singapore Mediation Centre (SMC) to serve as the preferred dispute resolution channel to resolve issues between tenants and landlords.
It details that a mediator, who is a respected lawyer or industry figure, can facilitate parties to come together to identify issues, explore options and negotiate a constructive settlement. This saves time and money, preserve working relationships and ensure private and confidential settlements which are beneficial to both parties.
Any type of civil dispute can be mediated at SMC, with no upper limit on the quantum in dispute. The common types of tenancy disputes that are mediated include breach of agreement, termination of tenancy agreement and rental increase.
Formation Of The Fair Tenancy Framework Industry Committee (FTFIC) To Relook Existing Framework
For tenants, the impacts of COVID-19 has continued to tilt the power balance in the hands of landlords. Tenants inability to keep up with rents and the perceived lack of legislation that allowed landlords to avoid or delay passing on government property tax rebates as part of the COVID-19 (Temporary Measures) Act led to the formation of the Fair Tenancy Framework Industry Committee (FTFIC).
The FTFIC included representation from the Singapore Business Federation SME Committee (SBF SMEC), Association of Small & Medium Enterprises (ASME), Restaurant Association of Singapore (RAS), Singapore Retailers Association (SRA) and Singapore Tenants United for Fairness (SGTUFF).
The FTFIC made a total of 15 key recommendations, which was separated into three different parts.
Part A points to the information asymmetry between landlords and tenants. Tenants are required to divulge sales information while there is limited reciprocal information sharing from landlords. With the power in the landlords hands, there is perceived notion that it could result in the abuse of market power increase rents.
Part B covers various examples of unconscionable or unfair practices between landlords and tenants pertaining to restraints of trade, payment of a landlord’s outgoings, termination of leases and forfeiture, and renewal of leases.
Finally, Part C details the issue of enforcement of the provisions of the Fair Tenancy Legislation, as small SME tenants typically do not have the resources to do so.
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Details On The 15 Recommendations Put Forward By The FTFIC
Part A – Transparent Access to Information
Recommendation 1.1: If a retail shop lease requires the tenant to provide the tenant’s sales or turnover information to the landlord, the landlord must make specified mall-level information available to the tenant in a written report on a quarterly basis.
Recommendation 1.2: The confidentiality of information exchanged between landlords and tenants should be a mandatory covenant for both parties to a retail shop lease, with disclosure permitted only in specified circumstances.
Recommendation 1.3: Landlords should publish anonymised lease data for each retail lease, by submitting the prescribed information in the format set out in Annex A for each lease to a publicly accessible site administered by an appropriate governmental authority. For the purpose of confidentiality, the FTC may exclude prescribed leases from disclosure, such as anchor tenants who fall within only one trade category.
Part B – Regulation of Conduct
Recommendation 2.1: A retail shop lease must not contain a provision which has the effect of preventing or restricting the tenant from carrying on business outside the retail shopping centre, either during the term of or after the expiry of the lease.
Recommendation 2.2: Where a tenant is liable to pay any amount (other than rent) to the landlord including other expenses incurred by the landlord in connection with the preparation, stamping and registration of a retail shop lease (preparatory costs), the tenant is not required to make the payment until it is provided with a copy of any account given to the landlord for the expenses. The tenant’s liability for the preparatory costs cannot exceed:
(a) the actual amount of the stamp duty payable on the lease and the government fees for registration of the lease; and
(b) one-half of the other preparatory costs.
Recommendation 2.3: Where the tenant is required under the leasing agreement to enter into contract with a third-party, or to make payment to the landlord or any other third-party for services (excluding utilities and its associated charges) or equipment (including set-up and maintenance costs) that is incurred ancillary to the rent paid to the landlord. And in each case:
(a) the landlord and tenant shall agree prior to the commencement of the lease term on the ancillary services and the proportion of the expenses that each party shall be obliged to pay; and
(b) the tenant shall not be obliged to make payment of more than one-half of each of the expenses incurred for the ancillary services.
Recommendation 2.4: Advertising and Promotion charges shall not be adjusted during the term of the tenancy and the landlord be required to produce an account of the fund clearly detailing the expenses incurred by the landlord and the identity of the receiving third-party on a quarterly basis.The landlord shall not be allowed to charge a mark-up greater than three percent (3%) of the price provided by the third-party for such services.
Recommendation 2.5: FTFIC proposes that pre-termination of a retail shop lease due to actions within a landlord’s control should not be permitted, except where the landlord is electing to have a part of the premises under that retail shop lease renovated, retrofitted, refurbished, reconfigured and/or altered, provided that such a right of pre-termination can only be exercised in compliance with the following conditions:
(a) the right of pre-termination may only be exercised after the first year of the retail shop lease;
(b) at least 6 months’ prior written notice must be provided to the tenant;
(c) the landlord must pay to the tenant compensation in the sum of the aggregate of the tenant’s (i) capital expenditure incurred for the retail space (including design fees), and (ii) costs incurred for installation and removal of furniture and fixtures, pro-rated based on a 6-year depreciation formula to be prescribed by the FTC.
(d) The termination notice period may be shortened by a lump sum payment by the landlord to the tenant of the amount of base rent that would have been payable by the tenant for the shortened notice period.
Recommendation 2.6: FTFIC proposes that pre-termination of a retail shop lease by a tenant must always be permitted, provided that such a right of pre-termination can only be exercised in compliance with the following conditions:
(a) the right of pre-termination may only be exercised after the first year of the retail shop lease;
(b) at least 6 months’ prior written notice must be provided to the landlord; and
(c) the tenant must pay compensation to the landlord in the sum of 3 months’ worth of base rent under the retail shop lease. The termination notice period may be shortened by a lump sum payment by the tenant to the landlord of the amount of base rent that would have been payable by the tenant for the shortened notice period.
Recommendation 2.7: Provisions in a retail shop lease that permits or otherwise provides for the termination of the lease on the ground that the tenant or the business of the tenant has failed to achieve a particular level of sales or turnover should be made unenforceable.
Recommendation 2.8: An adverse circumstances clause should be mandatory in leasing agreements.
Recommendation 2.9: There should be a duty of honesty and good faith imposed on parties during negotiations for the lease.
Recommendation 2.10: Where a lease renewal for a specified subsequent lease period is provided for in a lease, a maximum increase in all rent components upon renewal must be provided for in the lease.
Recommendation 2.11: Security deposits are to be limited to a maximum of 1 month’s base rent per year of tenure of the lease, subject to a maximum of 3 months’ base rent.
Recommendation 2.12: FTFIC proposes that area alteration clauses in leases mandatorily provide that both landlords and tenants are permitted to require that a survey be conducted during the tenure of the lease to confirm the leased area under a lease, and that:
(a) where the actual leased area is at least 1% less than the leased area being paid for by the tenant under a lease, the landlord is required to adjust the monthly base rent and related fees downwards proportionately and refund all excess base rent amounts already paid by the tenant; and
(b) the landlord is only entitled to make an upwards proportionate adjustment to the monthly base rent and related fees only where the actual leased area is at least 1% more than the leased area being paid for by the tenant under a lease. The actual leased area must be determined by a duly registered surveyor. The landlord shall bear the cost of the survey, except where the survey is requested by the tenant and there is no variance to the leased area found by the survey.
Recommendation 2.13: FTFIC proposes that provisions purporting to exclude landlords from excluding their liability for any of their actions or omissions relating to building maintenance are made unenforceable, and where tenants are required to incur any rectification costs for building maintenance due to the actions or inactions of the landlord, such costs are to be reimbursed to the tenant.
Recommendation 2.14: FTFIC proposes that retail rental rates should follow a prescribed formula of a combination of: (i) a base rent (calculated using prescribed objective metrics of a landlord’s actual cost for the premises), and (ii) a GTO component allowed to be negotiated between the parties.
Part C – Fair Tenancy Commission
Recommendation 3.1: A Fair Tenancy Commission be set up, with the Competition and Consumer Commission of Singapore as the ombudsman in the enforcement of the obligations under the proposed Fair Tenancy Bill.
Recommendation 3.2: Legislation should provide for mediation as the primary mode of resolution of retail tenancy disputes, and only failing which the court or other adjudicatory process can be utilised.
Source: Singapore Retailers Association
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