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SMEs call for fair tenancy legislation

[SINGAPORE] Small and medium-sized enterprises (SMEs) are calling for the introduction of fair tenancy legislation here, the Singapore Business Federation (SBF) said yesterday.

Such a law - which could make effective rent reporting mandatory - would help SMEs cope with rising industrial and commercial rents and provide greater rental transparency here.

Said SBF's chief operating officer, Victor Tay: "Economies such as Korea, Belgium and Australia have legislated tenancy acts to protect tenants and small retailers, while the UK has both legislation and a voluntary code which consists of checklist and model lease templates to help tenants in lease negotiation and renewal. Singapore may wish to explore similar legislation or a fair consideration lease framework."

These views were aired at an SBF forum yesterday, where close to 180 corporate leaders from a myriad of industries were polled on various business pressures.

Close to three-quarters (73 per cent) of participants said that they had been affected by rental rates and lease terms negotiations. When asked about measures to best promote the development of SMEs and reduce rental pressures, around 37 per cent opted for fair tenancy legislation, while 35 per cent would like to see a fair consideration lease framework.

Their sentiments echo a growing number of voices in recent months - both in and out of Parliament - calling for greater government intervention.

Association of Small and Medium Enterprises (ASME) president Kurt Wee told The Business Times that over the last 10 years, there had been a shift towards "a very aggressive" model where rent is based on a percentage of gross turnover. Said Mr Wee: "I've come across lease agreements where landlords take as high as 28 per cent of (their tenant's) turnover - that's better than a shareholder, without even investing in the business!"

Last month, Minister of State for Trade and Industry Teo Ser Luck said that the government will intervene if it sees evidence of collusion or the abuse of market dominance by any landlord - including real estate investment trusts (Reits). He also revealed that the government was looking into publishing more comprehensive shop rental data later this year, to make rental pricing more transparent.

But Mr Wee feels that the government should go a step further. He said that fair tenancy legislation here should make effective rent reporting mandatory, so as to create an information databank for maximum transparency. He would also like a panel to preside over leasing disputes, and a published set of recommended practices approved by the Competition Commission of Singapore.

"Don't be mistaken - we're not trying to interfere with the demand and supply situation. We're saying landlords can charge as high (rents) as they want, but we want some kind of fair trading act to bring full transparency to the market . . . We also need to manage unreasonable rent increases," said Mr Wee, adding that some SMEs have seen their rents increase by 400 per cent upon renewal.

"At the end of the day, (legislation would be) good for institutional landlords, because they will end up having more sustainable rental rates (since businesses won't fold as often). We should stop churning asset prices to a level where they're not manageable, where it becomes a bubble."