Government to introduce new laws against unfair retail leasing practices

• Guidelines to form the basis of a new code of conduct to stop unfair leasing practices were unveiled on March 26
• The code of conduct will be reflected in legislation later
• The Government said it is releasing the code now so that affected parties can prepare for the changes
• Tenants in the retail business have long complained that leasing deals favour landlords
• The Government will take the lead by applying the code of conduct where possible

SINGAPORE — The Government will be introducing fair tenancy laws involving the leasing of retail premises, and will be consulting with landlords and tenants in the next few months to work out details of the legislation. 

The new legislation will be based on a set of guidelines, termed as a code of conduct for the leasing of retail premises, which were put forth by a committee made up of landlords, tenants, government representatives and industry experts. 

Released on Friday (March 26), the guidelines came about after nine months of negotiations between landlords and tenants and were developed with the aim of levelling the playing field in the retail leasing space. Tenants have long complained that it has been tilted to the advantage of landlords. 

The issue was brought to the fore last year when the Covid-19 pandemic struck, leaving many retail businesses, including food-and-beverage outlets, struggling to survive. Reports emerged that some landlords did not pass down savings from government property tax rebates to their tenants, for example.

Speaking to reporters at a media briefing on Friday, Ms Low Yen Ling, Minister of State for Trade and Industry, said that the Government was announcing its decision early so that all parties involved would have enough time to make the adjustments needed to comply with the code. 

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

She also noted that major trade associations have committed to this code of conduct, and she hopes that many more companies and parties in the retail scene will also start observing the leasing practices set out in the code even before legislation comes into effect. 

Landlords and tenants who have decided to adopt the code would have to abide by the leasing guidelines and negotiation principles set out in the 32-page document from June 1, this year. 

The code of conduct will also apply to lease agreements that were signed on or after June 1 this year with a tenure of more than one year. 

Some of the leasing principles set out in the code are:

• Landlords can collect rent from tenants based only on a single rental computation.
  
  Currently, the monthly rent is generally derived from two formulae, and the final amount paid depends on whichever is higher. One formula consists of a base rent dependent on the size of the shop space in addition to a percentage of total gross sales, while the other formula computes rent based on a percentage of total gross sales. 

• Landlords can terminate rental agreements before their leases are up only for substantial redevelopment works, and tenants can terminate if they have become insolvent or lost franchise rights. 
  
  Currently, landlords can terminate the lease for whatever reason without compensating the tenants even before the lease term is up. Leases are usually three years. Tenants, however, are not able to do the same.

• Landlords must bear the costs of preparing the lease agreement, unless there are terms that are not compliant with this code that the tenants asked to be added.
  
  Currently, tenants have to bear the full legal costs for the drafting of the lease agreement. 

A fair tenancy industry committee will also be set up to review the code and update it when necessary.

It will also look into instances where landlords and tenants do not comply with the code or are in dispute. Any disputes that arise will be referred to the Singapore Mediation Centre.

The committee consisting of landlords, tenants and neutral parties is set to be formed as soon as possible and will be supported by a secretariat hosted by the Singapore Business Federation (SBF).

Mr Lam Yi Young, chief executive officer of SBF, said that recalcitrant landlords or tenants that continually fail to uphold leasing guidelines in the code may be taken to task by the committee by having the particular company’s name published through a media statement or on its website.

Mr Andrew Kwan, president of the Restaurant Association of Singapore, said in a media briefing on Friday that this code of conduct is not the end, but the beginning of a new journey between landlords and tenants. 

LANDLORDS NOT OBLIGED TO ADHERE TO CODE

However, before the code becomes law, landlords are not obliged to take it up. 

Mr Chia Ngiang Hong, president of the Real Estate Developers’ Association of Singapore (Redas), said during the briefing that the association will persuade its members to come on board. 

Having a reputation as a responsible landlord could be one way to incentivise more to commit to this code as well, Mr Lam of SBF said. 

Mr Terence Yow, chairman of the Singapore Tenants United for Fairness, which represents more than 700 tenants who banded together during the pandemic, said that tenants in the grouping would be highlighting to other tenants the landlords who have taken the step to commit to the code.

“We’re going to give that positive reinforcement and incentive to landlords who have signed up as preferred or priority landlords for the community to consider when they are thinking of a new lease, and to also use that positive encouragement to bring in the other landlords who are still wavering prior to legislation,” he said.

WHAT TENANTS FEEL

Tenants approached by TODAY greatly welcomed the announcement on Friday, especially since a majority of them have struggled with bad experiences with landlords.

Mr Lik Wong, director of retailer X-Boundaries, which sells travel clothing and accessories, said that one landlord terminated his lease before it expired and was not willing to compensate him for the losses.

“I also experienced water leaking into my store and that damaged the goods, yet the landlord refused to pay for the damages,” he added.

While he could not take any action against the landlord in the past due to the lease agreement he signed, Mr Wong felt that his rights as a tenant will now be more protected once the Government implements the fair tenancy laws.

Agreeing, Mr Logan Wong, founder of Pure Senses and distributor of Yankee Candle, said that this move reduces the risk when renting shop premises.

With major apparel firms such as Forever 21 and American Eagle filing for bankruptcies during this economic downturn, distributors are at risk of having to close their premises before their lease ends.

Mr Wong said: “When tenants pre-terminate the lease, we are expected to compensate the landlord and more often than not, they will demand for the unrealised rent based on the lease term.

“So if you sign a three-year lease and you terminate the agreement in the second year, you would still need to pay one more year of rent.”

Hence, the new code of conduct will allow tenants to terminate their leases without incurring as much costs, he added.

Mr Willie Goh, director of gymnastics centre Gymkraft, said that it has been difficult in the past to negotiate a lease agreement that is tilted towards tenants.

The Government’s move to introduce fair tenancy laws is a big win for tenants, Mr Goh said, adding that the move levels the playing field between the two parties.