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Government looking to legislate new rules on lease agreements for retail spaces

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SINGAPORE: Landlords and tenants of retail spaces may soon have to abide by new rules for leasing negotiations, with the Government looking to legislate a new code of conduct for the industry.  

The code of conduct, announced on Friday (Mar 24) by the Singapore Business Federation (SBF), sets out guidelines on leasing arrangements and dispute resolution. 

Covering 11 areas of lease negotiations, ranging from rental structure to pre-termination clauses, the guidelines aim to iron out long-standing issues around the practice.

Such issues came into the spotlight last year, following tussles between landlords and tenants for rental relief amid the COVID-19 pandemic.

The guidelines were crafted by the Fair Tenancy Pro Tem Committee, comprising landlords, tenants and industry experts.

They are currently voluntary but the committee recommended that compliance be made mandatory through legislation, said SBF, which facilitates the work of the committee.

GOVERNMENT LOOKING TO LEGISLATE GUIDELINES

Speaking to the media following the release of the guidelines, Minister of State for Trade and Industry Low Yen Ling said the Government supports the recommendation.

“In the next few months, we will be working closely with stakeholders, the landlords and the tenant associations to scope out details and involve them in this consultation process with a view of effecting the legislation,” she said.

“In fact, the Government will be a lead adopter of this code of conduct and all government landlords will lead by complying with this code of conduct, unless there are other statutory obligations that we need to abide by,” she added.

READ: IN FOCUS: Why are some retail tenants up against their landlords and can the relationship be mended?

WHAT ARE SOME OF THE NEW GUIDELINES?

Under the new guidelines, landlords and tenants of retail premises must base rental formulas on a single computation throughout the lease term, instead of an “either/or, whichever is higher” formula, said SBF. 

For instance, this means rental can be based on floor area, the amount of sales, or a combination of both – but there cannot be a clause that allows tenants to be charged whichever amount is higher.

This can only be included if both parties agree to it, and make a joint declaration to the Fair Tenancy Industry Committee (FTIC) – a body that will be set up to monitor compliance with the guidelines.

READ: Amended COVID-19 laws passed requiring landlords to give SME tenants more rental waivers

In addition, the guidelines state that landlords will not be allowed to pre-terminate a lease if a tenant does not hit a specific sales target.

Such a clause must not be included in the lease agreement, unless both parties agree to it, SBF said. Similar rules on declarations apply.

Conditions for pre-termination have also been spelt out more clearly under the guidelines.

DISPUTE RESOLUTION MECHANISM

The code of conduct also outlines a process for dispute resolution and enforcement.

Under this, landlords or tenants who have already signed agreements may take issues to the Singapore Mediation Centre (SMC) within 14 days to resolve the issue.

The FTIC will also be formed by Jun 1 to “provide advice regarding the (code of conduct) and keep track of instances of non-compliance”, it added.

It may even “name and shame” recalcitrant parties, it said.

WHO DO THE GUIDELINES APPLY TO?

The code of conduct applies to retail premises, which have lease agreements entered into on or after Jun 1, 2021, with a term of more than a year, among other conditions.

“These retail premises can be housed in standalone commercial buildings such as shopping centres, office buildings, shop houses, MRT stations, or other types of buildings,” SBF said.

Members of the committee have committed to adopting the guidelines from Jun 1 this year, while pledging to encourage their stakeholders to adhere to the measures as well, SBF said.

Landlords in the group are represented by the Real Estate Developers’ Association of Singapore (REDAS) and REIT Association of Singapore (REITAS). 

The tenants in the committee are represented by the Association of Small & Medium Enterprises (ASME), Restaurant Association of Singapore (RAS) and Singapore Retailers Association (SRA), for instance.

READ: Businesses call for fair tenancy law to solve ‘growing’ imbalance in landlord-tenant relationship amid COVID-19 outbreak

In response to questions on why landlords should comply, several members of the committee said following the guidelines would boost landlords’ reputations as being responsible.

Mr Terence Yow, president of the SG Tenants United for Fairness, added that the organisation would highlight landlords who choose to abide by the guidelines.

“We’re going to give that positive reinforcement and incentive to landlords who sign up as preferred or priority landlords for our community to consider when they are thinking of a new lease,” he added.

Mr Michael Lim, chairman of the committee said: “The jointly developed industry-led code is a significant milestone and marks substantive progress from when we first started.

“I am confident that it will set the standards for future lease negotiations and raise the vibrancy and competitiveness of the retail industry moving forward.”

In a joint media release, the REDAS and REITAS added that as Singapore’s retail market grows in diversity and complexity, clear negotiation guidelines are important in creating a healthy ecosystem.

“The (code of conduct), in its intent and purpose, does not restrict or stifle market dynamics.

“On the contrary, it fosters a smooth and efficient functioning of the retail ecosystem as well as provides a common goal of progressing towards a healthier and more vibrant retail market,” they said.

In a joint release, the tenants’ community also said: “With the anticipation that the Government will legislate this code of conduct … we believe all tenants and landlords can, from thereon, work together as symbiotic partners to restore Singapore’s status as a premier shopping, wine & dine destination in the world.”

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