Singapore business body pushing for fair rent terms from private landlords

Singapore

THE Singapore Business Federation (SBF) is in the midst of a last big push to get private landlords to support and adopt the tenets outlined by the Fair Tenancy Framework even as they look to introduce more best practices.

These include being more upfront about occupancy costs and limiting the amount of data tenants share, said Cynthia Phua, who chairs the Rental Practice Working Group under the SBF.

Launched four years ago, the Fair Tenancy Framework looked to develop greater transparency in rental information, educate and generate more awareness to help small businesses, and create a preferred dispute resolution channel.

The working group is reviewing the framework and renewing efforts to engage landlords this year on the back of dialogues with tenants.

If all else fails, the group may join jurisdictions elsewhere and push for legislation. "We're getting some landlords to really look at this framework to see how we can improve on it and subsequently adopt it . . . We may seriously have to look at legislation if the response from the landlords is still not there."

Public sector landlords such as JTC and HDB for instance, are upfront about their rental increases - they cap their rental increase for the option to renew at 15 per cent (or 5 per cent per year).

Ms Phua hopes private landlords will adopt a similar practice, as part of efforts to provide more rental clarity.

"The percentage must be known for the renewal period and not renegotiated just because the tenant does well," said Ms Phua. Most tenants when faced with a hiked percentage gross turnover (GTO) might feel beholdened to the renewal option given the investments already made, she said.

Most tenants BT spoke to are in favour of a cap on rental increases.

Wei Chan, assistant honorary secretary of the Restaurant Association of Singapore, suggested that landlords either charge their tenants a base rent or a percentage of gross turnover (GTO).

"We need a disruptive landlord who is willing to look at leasing space differently," he said. "And the job of the landlord is to bring people into the mall. It must be a win-win situation."

But most industry players remain suspicious of GTO.

R Dhinakaran, president of the Singapore Retailers Association, pointed out that while tenants are often forced to use the landlord's point of sales system, thus making landlords privy to tenants' sales, there is no reciprocal flow of information.

He also pointed out that it is unfair that only tenants are tied to the minimum rent - that is, they are required to top up if their GTO component is below the minimum rent but do not receive concessions when the situation is reversed.

Miss Phua too questioned landlords' need for such detailed data. Do landlords really require daily transaction figures or will monthly figures suffice? Are there not alternative ways of tracking footfall to a store? These are some of the issues the review hopes to tackle.

F&B players, already among those bearing the brunt of the government's policy to reduce Singapore's dependence on foreign labour, say the lopsided leases in Singapore, which are skewed in favour of landlords, are particularly crippling for them given the large investment required to set up a kitchen.

Among their pet peeves are short-term leases and clauses that tilt in favour of landlords.

Restaurateur-chef Beppe De Vito, founder of the ilLido Group, said short lease periods pose a big challenge. "Some landlords have even started asking for "three-plus-two", he said, referring to a lease deal of three years with an option to renew for just two years.

"Now, they want you to renovate within five years... If in five years you have to renovate, or they kick you out, why should one invest so much money?

"In Europe, it's very common for 15, 20, 30-year leases... if you want to retire you can sell the business. It's viable for someone to come in and buy it off you because you have five or 10 years left. In Singapore, I have eight months, one year left. People will say 'are you kidding me, I can never recoup'."

Another clause seen as grossly unfair is the personal guarantee clause, which makes the tenant personally liable to pay the rent for the remaining term if he or she ceases operations.

This clause is still binding even if the tenant is filing for bankruptcy. Some landlords might allow the tenant to find a replacement tenant provided they are suitable for that mall's retail mix. But, any shortfall in rent will have to be picked up by the original tenant, said Mr Dhinakaran.

Pressure on tenants also comes from a separate clause on pre-termination, which allows landlords to terminate a lease after giving, for instance, three months' notice.

"This is a common condition you see in Reit (real estate investment trust) tenancies. How can we guarantee sales? What happens if it's beyond my control like low footfall? So you lose out on renovation costs and the cost to reinstate the unit," said a leading regional restaurateur who spoke on condition of anonymity.

This push for fairer lease terms from landlords comes despite weakening numbers for retail space. According to the Urban Redevelopment Authority, the vacancy rate as at end-Q1 was 8.7 per cent, up from 8.5 per cent at the end of last year.

Retail rents in the central region fell 0.2 per cent in the first quarter, after rising 1.2 per cent in the previous quarter.

Despite slipping rents, it's rare for sitting tenants to get a rent reduction.

A restauranteur who runs a regional business said landlords "don't want a precedent - if they give you a rent reduction and somebody else gets wind of it and starts asking for the same, it gets very difficult for them. So they'd rather let you go and lease out the same premises at a lower rent to others".

But a CapitaLand spokesman said that in curating and enhancing the retail mix in the group's shopping malls, its staff are "regularly in discussion with our tenants to review leasing terms that support their business in meeting the changing needs of shoppers".

"We continue to reference the relevant guidelines in our discussion."

Frasers Property declined to comment.

With restaurateurs' frustrations coming to a head, many are drawn to the legal solutions introduced in jurisdictions elsewhere.

Victor Tay, an independent adviser to the Franchising and Licensing Association of Singapore, said the countries that have turned to legislation - some as early as the 1980s - include Australia, the United Kingdom and Canada.

"More recently in 2018, Luxembourg legislated to rebalance the bargaining power between tenants and landlords by introducing first right of refusal in favour of the tenant in sales of tenancy to preempt unfair pretermination. They even extended further a suspension of eviction from one to nine months, allowing the tenant to find other premises and perform obligations under employment agreements...

"In Canada notably, the association of real estate developers have developed their fair tenancy framework to regulate their members before government is compelled to legislate. Singapore will have to find its fair and acceptable industry model, which is not the status quo," said Mr Tay.

READ MORE: Short rental cycles resulting in 'hit-and-run' business practices, says a restaurateur