New Code of Conduct for Commercial Leasing in Singapore – Real Estate & Construction

introduction

On March 26, 2021, the Business Federation of Singapore (“SBF”) announced the introduction of the Code of Conduct (“Code”) for the rental of commercial premises which aims to ensure a fair and equal position in negotiating leases. and introduce a framework for dispute resolution. A Fair Rental Industry Committee (“FTIC”) will be formed by June 1, 2021 to monitor industry compliance. The Code will apply to all commercial leases entered into as of June 1, 2021.

RENT STRUCTURE

As a general rule, the rental formula should be based on a single rental calculation throughout the term of the lease, i.e. the rental structure should not contain a formula “either / or, whichever is greater. high of both ”, unless both parties agree to these conditions. In such a situation, a joint declaration must be made to FTIC within 14 days of signing the agreement. This “rotating rent” is very commonly applied in commercial rentals in Singapore and Malaysia.

EARLY TERMINATION OF LEASE

Early termination by the tenant

If a tenant needs a right to terminate a lease due to exceptional conditions, the lease agreement should contain provisions granting this right. The exceptional conditions include the case where the principal commercial of the goods and / or services for which the tenant has obtained the exploitation rights which are kept in the premises is insolvent or the tenant loses the distribution or franchise rights to sell the goods and / or provide the services which are retailed on the premises.

Early termination by the owner

If a landlord needs a right to terminate a lease due to redevelopment work as specified in the Code, the lease agreement should contain provisions granting that right. A landlord must give tenants at least 6 months written notice to exercise this right and is required to compensate tenants for the value of tenants’ capital work in accordance with the calculation set out in the Code.

EXCLUSIVITY CLAUSES

Provisions preventing a tenant from having another branch or franchise within a certain radius or preventing an owner from renting premises for a trade or similar business in the same building should not be included during or after the end of the lease, except agreement of both parties. In such a situation, a joint declaration must be made to FTIC within 14 days of signing the agreement.

SALES AUDITS

There must be an initial disclosure of all costs billed. The Code sets out the categories of fees that a landlord can charge their tenant. No profit is allowed, and all charges, such as labor costs to coordinate the work, must be legitimate and justifiable. Significantly, the Code provides details on the costs associated with the integration of point-of-sale (“POS”) systems (where integration with the POS is required under the contract, and the allocation of legal costs for the negotiation and preparation of the rental contract).

CIVIL LIABILITY INSURANCE

Where the business premises are 15,000 square feet or less, the landlord cannot require the tenant’s LIP to be greater than SGD 3 million or the coverage limit of the owner’s LIP policy, whichever is lower. both.

ELECTRICITY CHARGES

When the owner adheres to the block contestability regime and the owner organizes the purchase of electricity for the building, the costs invoiced by the owner to the tenant must be passed on without mark-up or price discrimination between tenants of the same building, but the landlord can charge an administrative fee (but not an infrastructure fee) if it is communicated in advance to the tenants.

Conclusion

In short, the Code aims to ensure a fair and transparent arrangement between landlord and tenant, applying guidelines on key lease terms such as rental structures, lease termination and legal fees incurred. The costs incurred for the preparation of the agreement, as well as the costs of third parties, will be disclosed between the two parties. With such stringent measures imposed, safeguards are in place to prevent any exploitation for profit.

And Malaysia?

In Malaysia, there is currently no specific legal framework for landlords and tenants. This is expected to change as the Residential Tenancies Act (“RTA”) is expected to be tabled in Parliament in the first quarter of 2022. The RTA seeks to address similar major issues such as (1) evictions without discrimination (2) rental rates and (3) Direct and indirect discrimination. However, the RTA will only cover residential rentals. Malaysian regulators are unlikely to want to regulate commercial rental space in the near future. We anticipate that Malaysian institutional and international business owners will eventually adopt best practices in accordance with the Singapore Code to enhance the competitiveness of the Malaysian commercial retail market in the region.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.