Time to give Singapore's fair tenancy framework legislative bite

Singapore

FIVE years after a committee under the Singapore Business Federation (SBF) came up with guidelines aimed at halting unfair leasing practices and months after we first heard of Covid-19, which then was known under a different name, concrete steps are finally being taken to right the perceived imbalance of power between landlords and tenants.

Even as businesses celebrate (albeit while lamenting that it is overdue) the announcement by the Ministry of Finance on Thursday that the government will introduce new legislation in Parliament next week to place an obligation on property owners to pass on the property tax rebate to their tenants, two questions stand out: why did it take us this long to get here and perhaps more pertinently, was regulation the only way forward?

Perhaps the very fact that the government has had to resort to legislation to ensure that the rebates are passed on to SMEs is the biggest acknowledgement of the unfair playing field that exists between tenants and landlords.

Businesses and market watchers invested in this fight have long highlighted unfair clauses, such as the personal guarantee clause which makes the tenant personally liable to pay the rent for the remaining term if he or she ceases operations (in some cases landlords might allow the tenant to find a replacement tenant provided they are suitable for that mall's retail mix) or having retailers guarantee a certain amount in sales, failing which landlords can terminate the lease after giving, for instance, three months' notice.

President of the Association of Small and Medium Enterprises Kurt Wee also pointed out that landlords sometimes offer "rent-free months" during such periods of economic downturn instead of officially lowering rents, thus keeping rents artificially inflated.

"Despite the government giving tax rebates and saying the full tax rebate should be given to companies, many landlords pretend they don't know there's a tax rebate or drag their feet responding to tenants," said Mr Wee.

"Of those that do give something, they make tenants sign confidentiality agreements and tag on conditional clauses. So for example, if I give this rebate to you, you cannot terminate your lease for the next one to two years. They are using this as a tool to further enslave and tie in SMEs when (the rebate) is meant to be a relief measure."

The proposed provisions and subsequent subsidiary legislation will address these issues. But the fact that the government is stepping in formally, even after Deputy Prime Minister and Finance Minister Heng Swee Keat said he "strongly urge(s) landlords to fully pass on the rebates" during the unveiling of the Resilience Budget last month, is telling.

Indeed, the directness of Mr Heng's message to landlords, to "do your part, chip in, and give additional help to tenants who are more badly hit" is about as direct as they come.

Mr Heng acknowledged in a Facebook post on Thursday night that while some landlords have passed on the rebates and "done even more in other ways", some have chosen not to.

"To tackle the current challenge decisively, the government will be introducing legislative action," he said, adding that National Development Minister, Lawrence Wong, who also co-chairs the multi-ministry task force on Covid-19, will announce further details in Parliament on Tuesday.

That we are moving in the direction of legislation raises the all-important question: Is it time to also arm the Fair Tenancy Framework with some teeth?

SG Tenants United for Fairness (SGTUFF) certainly thinks so, as does Cynthia Phua, the chairperson leading the committee behind the framework.

Less than a year ago, Ms Phua said SBF was in the midst of a last big push to get private landlords to support and adopt the tenets outlined by the framework. But Mr Wee, who also chairs the SBF SME Committee said landlords have been resistant.

The retail arena is an increasingly difficult space to manoeuvre. Between dwindling footfall, impact from e-commerce, and now Covid-19, there is a limit to how much pain players can take.

And while this situation of empty malls and social distancing is not likely to be resolved any time soon, perhaps the best way forward is to even the playing field.

After all, we have tried the "free market" model for five years now. Perhaps it's time for more permanent change.

READ MORE: New laws to compel landlords to pass on property tax rebate