For Retail Tenants & Landlords
The Most Monumental Change That You Must Know If You are a Landlord or Tenant Leasing a Retail Space
10 Things That You Should Know to Negotiate Your Next Lease Agreement!
Balancing Landlord and Tenant’s Rights
Never before in the history of Singapore have the rights of landlords and tenants been more negotiated, balanced and transparent since the introduction of the Code of Conduct for retail agreements.
In a series of simple questions and answers, we help you understand what is important and what to look out for!
#1 – What is this Code of Conduct?
This Code of Conduct (“Code”) is the initiative of the Singapore Business Federation, where a Fair Tenancy Pro Tem Committee was set up to propose guidelines and negotiation principles for landlords and tenants in Singapore.
The objective was to create a level playing field between landlords and tenants in the negotiations of retail leases.
This Code is to be read together with the Lease Agreement for Retail Premises Act 2023.
#2 – What is this Lease Agreement for Retail Premises Act 2023 (“LARP Act”)?
On 3 August 2023, Parliament approved the proposals of the FTPT Committee to give bite to the Code by introducing, among other things, a process for the resolution of disputes and enforcement for non-compliance.
The LARP Act is expected to come into force and be part of the Singapore legislation in early February 2024.
Under Section 6(1) of the LARP Act, the landlord and the tenant of a qualifying lease must ensure that the lease agreement for that qualifying lease complies with the leasing principles found in the Code unless there are permitted deviations in the lease agreement.
Non-compliance with the leasing principles and the Code and unapproved amendments by the FTPT Committee to the lease agreement would render the amendments void.
#3 – What is a qualifying lease?
Qualifying lease is a lease agreement (which includes a licence, sub-lease and a sub-licence) with a term of at least one (1) year. It applies to an extension or renewal of the lease provided it was signed after June 2021 (the date the Code came into effect).
#4 – What is a retail lease and how does it affect my business?
The Code applies to all retail premises in Singapore located in:
- Shopping Centres
- Office buildings
- Industrial and business parks
- Mixed used developments
- Shophouses and shop flats
- Hotels
- Community Centres
- Recreation and social clubs
- Museums, schools and hospitals
- Petrol kiosks, MRT stations, Bus interchanges and airports
The predominant purpose of the retail lease must be for:
- the sale of goods by retail; and
- the supply of services by retail.
#5 – What is the essence of the Code of Conduct?
The Code is divided into 4 parts namely:
A. Conduct and Spirit of Negotiations
B. Leasing principles for key tenancy terms
C. Leasing principles for Confidentiality and Data Transparency
D. Dispute Resolution and Enforcement of the Code
The essence of the Code is captured in the overarching principles expected of the conduct of the landlord and tenant—how should parties negotiate the lease agreement.
Generally, the guiding principles are that the parties are to act in an open, honest and transparent manner. They should adopt a consensual approach in the negotiations to reach a fair dealing while observing reasonable commercial standards. Parties should act in good faith to achieve the respective parties’ objectives.
#6 – What are some of the items that a tenant should look out for?
There are many items in the Code which require landlords and tenants to consider. The good news is that there will be a checklist together with the first draft lease agreement. The following issues which will be shown in the checklist are:
- Is there exclusivity of the agreement?
- Who bears the costs of preparing the lease agreement and third-party costs (e.g. point-of-sale system, fees for tenant-initiated requests)?
- Who bears the advertising and promotion charge and service charge?
- What happens if the lease agreement is terminated due to landlord’s redevelopment of the property?
- How is the sales performance measured? Is there a gross turnover component?
- What if the tenant terminates due to exceptional circumstances?
- How much of the security deposit has to be paid?
- Is there an alteration to the floor area?
- Who pays for the building maintenance charges?
- What is the rental formula to be applied?
- Do the confidentiality clauses in the lease agreements apply to both landlord and tenant?
- Has the sales data by trade been provided by the landlord to the tenant (especially for malls)?
- Has the landlord shared the sales data every 6 months during the lease term?
#7 – What if I disagree with the Landlord’s draft Lease Agreement?
To cater towards the needs of tenants and landlords for certain exceptional situations that are beneficial to both parties, the Code allows for permitted deviations that both parties must agree to.
For the permitted deviations to be approved, the tenants and landlords must notify the FTPT Committee by making a declaration to the committee of the amendments. The four clauses where a mutually agreed permitted deviation can be made are as follows:
- Exclusivity
- Sales Performance
- Security Deposit
- Rental Structure
#8 – What if parties still cannot agree on the Lease Agreement during the lease negotiation period and the Landlord insists that the tenant must agree to the “mutually agreed” deviation?
Then your complaint is to the FTPT Committee for such non-compliance and the FTPT may choose to “shame” the non-complying party after it has carried out its own assessment.
#9 – What if there is non-compliance after the signing of the Lease Agreement?
Affected parties may apply for the Dispute Resolution Procedure as set out in the LARP Act.
#10 – What is this Dispute Resolution Procedure?
Part 4 of the LARP Act sets out the steps on how complaints of non-compliance with the leasing principle can be raised and the procedures for it.
In short, the affected party—whether landlord or tenant—may file with an authorised dispute resolution body (e.g. Singapore Mediation Centre) a complaint with all the relevant information.
The complaint must first be sent for mediation before a mediator to assist parties in settling the dispute.
If the matter cannot be resolved at mediation, the affected party may apply for an adjudicator to be appointed to hear and determine the dispute. The adjudicator’s decision will be binding on the parties.
Promoting Business & Stability Between Landlords and Tenants
The Code will in exciting ways change how landlords and tenants have negotiated lease agreements and to some extent it will level the playing field between the parties. It is expected that there will be a teething period as we watch the Code’s adaptability before it becomes widely accepted as the norm.
One thing is for sure: landlord and tenant matters will less likely be litigated and resolved in the Singapore Courts as disputes between parties will have to follow the mechanism set out in the LARP Act. This will save time for parties and bring about certainty for businesses and promote a fair and transparent framework.
