30 May 2022
The Code of Conduct for Leasing of Retail Premises in Singapore (“COC”) was introduced by the Singapore Business Federation on 26 March 2021. The CoC was developed with the key objectives of providing a set of guidelines to landlords and tenants of qualifying retail premises to enable fair and balanced lease negotiations, providing a governance framework to ensure compliance with the COC, and providing an accessible dispute resolution framework for both landlords and tenants.
The Fair Tenancy Industry Committee (“FTIC”) was set up to be the custodian of the COC and to provide guidance to landlords and tenants of qualifying retail premises and monitor compliance with the COC by landlords and tenants.
The COC was revised by the FTIC recently, with such revisions to take effect from 1 June 2022.
The FTIC also developed a recommended COC compliant lease agreement template for qualifying retail premises (updated on 15 March 2022).
The following is a summary of the key revisions to the COC.
Application of the CoC
The COC applies to all Qualifying Retail Premises in Singapore. Qualifying Retail Premises refer to premises which are held under a lease agreement entered into on or after 1 June 2021 with a tenure of at least one year and permitted by the relevant authorities for uses such as F&B, shops, clinics, commercial schools, and childcare centres. It has been clarified in the revised COC that references to a lease agreement include a renewal lease agreement or any agreement which extends the term of a lease for at least one year.
Where landlords require integration between landlord’s and tenant’s point-of-sale (“POS”) systems:
- If the tenant’s existing POS system is not compatible with the landlord’s POS system, and the tenant has to purchase a new POS system in order to integrate with the landlord’s POS system, the additional costs and expenses for the purchase of such new POS system must be borne by tenant and landlord on a 50:50 cost sharing basis.
- New tenants must purchase a POS system which is compatible for integration with the landlord’s POS system at the costs and expenses of the tenant. However, if the options for a compatible POS system which is available in the market are limited and the cost to a tenant to purchase a compatible POS system is substantially higher than a non-compatible POS system, new tenants must purchase a POS system which is compatible for integration with the landlord’s POS system and the costs and expenses for the purchase of such compatible POS system must be borne by the tenant and landlord on a 50:50 cost sharing basis.
- The costs and expenses for the ad-hoc POS integration of the tenant’s POS system with the landlord’s POS system should be borne by the tenant and landlord on a 50:50 cost sharing basis.
Pre-termination by landlord due to landlord’s redevelopment works
If a landlord pre-terminates a lease by reason of proposed redevelopment works, the landlord must pay the tenant a compensation sum calculated based on the Agreed Declared Value of the Tenant’s Capex Works, i.e. capital expenditure works carried out by the tenant during the fitting out period or, if agreed between the landlord and tenant, at the time of renewal.
Prior to the parties’ entry into a binding lease agreement, the landlord and tenant shall discuss in good faith to agree on the items to be included as part of the Tenant’s Capex Works and the estimated value of the Tenant’s Capex Works for the purpose of computing the Agreed Declared Value. Not later than three months after the completion of the Tenant’s Capex Works, the tenant must declare the actual value of the Tenant’s Capex Works to the landlord in writing together with supporting invoices.
The COC has been revised to provide that if the tenant does not declare the actual value of the Tenant’s Capex Works to landlord in writing and/or submit copies of the supporting invoices within three months after the completion of the Tenant’s Capex Works, the landlord (acting reasonably) will be entitled to determine the Agreed Declared Value, having regard to the estimated value of the Tenant’s Capex Works (where applicable). The landlord shall notify the tenant in writing of the Agreed Declared Value as determined by the landlord and this shall be accepted by both parties as being the Agreed Declared Value.
The requirement above will be waived if the landlord accepts the estimated cost of the Tenant’s Capex Works as the Agreed Declared Value and notifies the tenant in writing of its acceptance.
The revised COC clarifies that the prohibition against sales performance clauses extends to clauses which allow the landlord to penalise the tenant in any manner (not only by pre-termination of the lease) if the tenant does not fulfil a stipulated sales target.
Under the COC, the security deposit amount for Qualifying Retail Premises with a floor area of up to 5,000 square feet and with a lease term of up to three years must not exceed an amount equal to three months’ gross rent. The COC has been revised to provide that where the rent payable to landlord comprises gross turnover (“GTO”) rent, “gross rent” may include the projected GTO rent as may be agreed between landlord and tenant. For escalating or staggered rental structures, “gross rent” may be calculated based on the lowest, average or highest rent rate payable during the lease term, as may be agreed between landlord and tenant.
The landlord and tenant may also mutually agree to alternative security deposit amounts.
The COC clarifies that the limit on the security deposit of three months’ gross rent and the ability to agree to alternative security deposit amounts do not apply if the amount equal to three months’ gross rent is equal to or less than S$500.
Floor area alterations
Under the COC, the landlord must provide a certificate from a registered surveyor confirming the surveyed area of the leased premises prior to handover. The CoC has been revised to provide that the landlord and tenant may agree to waive this requirement if the agreed floor area of the premises is equal to or less than 300 square feet.
Under the COC, if the surveyed floor area is smaller than the floor area originally specified in the lease agreement by more than 10%, either party may terminate the lease agreement by giving written notice to the other party.
The COC has been revised to provide that if, at the time of the termination of the lease agreement, the tenant has not taken possession of the premises, the lease agreement shall be deemed null and void from the beginning with the intent that the landlord and tenant shall be put in the same respective position as if the lease agreement was not entered into. In this event, the tenant will not be required to reinstate the premises as the tenant has not taken possession of the premises, and the landlord shall refund all monies paid by tenant without interest (including any rent, service charge, and security deposit, but excluding stamp duties and legal fees).
The COC has also been revised to provide that if, at the time of the termination of the lease agreement, the tenant has taken possession of the premises and:
- the lease agreement is terminated by written notice from the landlord, the lease agreement shall be deemed null and void from the beginning. The tenant shall not be required to reinstate the premises and shall promptly deliver up possession of the premises to landlord. The landlord shall refund all monies paid by the tenant pursuant to the lease agreement without interest (including any rent, service charge, and security deposit, but excluding stamp duties and legal fees). Further, the landlord shall pay a compensation sum equivalent to the amount actually incurred by the tenant for the Tenant’s Capex Works prior and up to the date of the landlord’s notice of termination. If the parties are not able to agree on the compensation sum, either party may escalate the matter to the Singapore Mediation Centre.
- the lease agreement is terminated by written notice from the tenant, the tenant must promptly reinstate the premises and deliver up possession of the premises to landlord in accordance with the provisions of the lease agreement. The lease agreement shall be deemed terminated on the date of such delivery of possession to landlord, without prejudice to the rights and remedies of either party against the other party in respect of any prior breach of the lease agreement by the other party.
The COC has been revised to provide that the lease agreement shall contain an obligation on landlord to maintain the building where the leased premises are located (if landlord owns such building), or such part(s) of the building owned by landlord where the leased premises are located (if the landlord does not own such whole building).
As a general rule, rental formula must be based on a single rental computation throughout the lease term, i.e. the rent structure must not have an “either/or, whichever is higher” formula. Examples of prohibited rental structures are provided in the COC. An additional example of a rental structure that is not compliant with the COC has been provided: S$X psf + Y% of GTO above S$Z per month. Such a formula may be included in the lease agreement only if both parties agree to it.
The following materials are available on the FTIC website http://www.ftic.org.sg/:
- Code of Conduct for Leasing of Retail Premises in Singapore (Version 2 dated 15 March 2022, with effect from 1 June 2022)
- Amendments to the Code of Conduct for Leasing of Retail Premises in Singapore
- Lease Agreement Template for Landlords (recommend for use from 1 June 2022 in line with CoC version 2)
- Code of Conduct for Leasing of Retail Premises - Tips on Floor Area Alterations
- User Guide for Filing of Joint Declaration of Deviation