SINGAPORE — Surprise jumps in rental costs upon renewal of leases could soon be a thing of the past for small and medium enterprises (SMEs), following a new voluntary framework proposed by the Singapore Business Federation (SBF) yesterday.

This comes four years into Singapore’s economic restructuring, where companies are increasingly challenged by escalating business costs and a manpower crunch.

The Fair Tenancy Consideration Framework, which the SBF-led SME Committee (SMEC) has been working on since April, currently comprises 12 broad guidelines, including the call for full clarity on fees and charges in tenancy agreements, more equitable liability terms and no restriction of trade on tenants.

But one of the biggest issues the framework aims to tackle is unreasonable rental increments when leases are renewed, said Madam Cynthia Phua, chairman of the SMEC working group on rental practices.

“In Singapore, we have the practice of not stating clearly the rent of the renewal term … So when negotiating for the next term, there’s always a dispute between landlords and tenants, as tenants see their new rents go up 50 or even 80 per cent of current levels,” she said while unveiling the framework at the SME Convention yesterday.

“We are not in any position to determine what a fair rate should be, but what we hope for is to look more closely at the process and basis of determining market rental to ensure its reasonableness,” Mdm Phua added.

To that end, the framework suggests getting third-party valuations when negotiating for renewal rents and stresses that no new terms of liability should be added for renewal if they are not in the initial tenancy agreement.

The framework will be finalised by the end of the year, but at this point, it is only intended as a guide for voluntary adoption, Mdm Phua said.

Commenting on the new framework, Minister of State (Trade and Industry) Teo Ser Luck — who also attended the SME Convention — said the Government would support the framework as long as it is fair to both landlords and tenants. He added that there is no plan to make the guidelines mandatory.

“Legislation is always a big step. We have not taken the first step yet, so we cannot take the second,” Mr Teo said, although he added that the framework gels well with the Government’s own efforts to ensure fair tenancy, including the launch of a detailed rental index that is on track to be delivered by the end of the year.