A Bill that will make it mandatory to comply with the principles of a code of conduct for the leasing of retail premises in Singapore was passed in Parliament on Thursday (Aug 3).

“We recognised that the code enables a fair and balanced lease negotiation process that will support the growth of retail businesses and strengthen the symbiotic relationship between tenants and landlords in the long run,” said Minister of State for Trade and Industry Low Yen Ling.

The Lease Agreements for Retail Premises Bill, which was first tabled in July, mandates landlords and tenants of retail premises to abide by the leasing principles of the code.

Legislation will take effect in early February 2024, “to provide additional time for other landlords to come on board”, said Low. Since the code came into effect in June 2021, all government landlords and nine major private sector landlords have voluntarily adopted the code.

Under the new law, the code will apply to all leases of retail premises, or extensions and renewals of such leases, with a tenure of one year or more. It does not cover industrial, office and residential spaces, nor premises used primarily for conducting administrative work in connection with the supply of services.

Retail premises are defined as those used primarily for the retail sale of goods or for the supply of services. This includes restaurants, supermarkets, clinics, walk-in bank branches, tuition centres and gyms, as well as businesses in shopping malls.

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The code was developed during the Covid-19 pandemic by the Fair Tenancy Pro Tem Committee amid “rising tensions” between tenants and landlords, noted Low.

The committee comprised leaders from trade associations and industry groups, such as the Singapore Business Federation, the SG Tenants United for Fairness (SGTuff) and the Real Estate Developer’s Association of Singapore.

A Fair Tenancy Industry Committee (FTIC) was formed in May 2021 to act as custodian of the code. The second and current version of the code was issued on Mar 15, 2022 in response to industry feedback.

The current code contains 11 key leasing principles that aim to promote fair and balanced lease negotiations. These include prohibiting landlords from unilaterally pre-terminating leases or passing on marked-up electricity costs to tenants, among others.

A third version of the code is set to be finalised “in the coming months”, said Low, and will take effect at the same time as legislation in early February next year.

The third iteration of the code will enshrine data transparency and confidentiality clauses as new leasing principles, which so far have only been drawn up as guidelines. This will bring the number of leasing principles in the code up to 13.

“The code provides tenants and landlords with greater clarity on industry norms for key terms in retail lease agreements,” said Low. “This makes the negotiation process more transparent for both parties and addresses the tenants’ concerns over imbalances in bargaining power.”

Deviations from selected leasing principles are permitted with mutual consent by tenants and landlords. Such deviations must be jointly declared and submitted via the FTIC’s website.

With the passing of the Bill, an “accessible and affordable” dispute resolution process for parties to address matters of non-compliance with the code’s leasing principles will be established, said Low.

Parties will first be required to undergo mediation to resolve the dispute. But if mediation does not lead to an agreed outcome, an adjudicator may be brought in to decide on the dispute.

The adjudicator will be able to order the parties to vary the lease agreement or pay compensation, where applicable, for their non-compliant conduct. The adjudicator’s determination will be enforceable as an order of the court.

The Bill also formally establishes the FTIC as an appointed body by the Minister for Trade and Industry.

FTIC’s role will be to periodically review and modify the code, with the minister’s approval; monitor and promote compliance by tenants and landlords with the Act and code; and lastly, establish the process for submission of declarations of permitted deviations from the code’s leasing principles.

Low added that the code will remain a “living document”, and will be updated by the FTIC as necessary to meet industry needs.

Workers’ Party Member of Parliament (MP) Louis Chua and People’s Action Party (PAP) MP Don Wee said that while they supported the Bill, there was room for improvement in the area of data transparency.

Beyond sales data by trade category, landlords could provide tenants with information such as footfall and the average rental per square foot, they said. SGTuff had previously called on landlords to provide such data following the Bill’s first reading.

Chua also asked the government to consider launching a public rental information database, which was previously proposed by the Fair Tenancy Framework Industry Committee in 2020.

In response, Low said the Fair Tenancy Pro Tem Committee had considered these matters when deliberating the data transparency requirements, and that it had “ultimately landed on the position in the code that members see today.”

PAP MP Edward Chia had asked if the government or FTIC could provide guidelines for parties renegotiating lease agreements, due to “material adverse changes” – for example, if a tenant cannot carry on its typical business operations because of events beyond their control.

Low replied that it was not “feasible” to issue guidelines for what would be commercial arrangements between the two parties, as circumstances would differ from lease to lease.

“Parties are encouraged to abide by the principles governing the conduct and the spirit of negotiations as set out in the code, and to negotiate leases in good faith, while also considering the other party’s legitimate interests,” she said.

Addressing concerns shared by PAP MP Lim Biow Chuan that the Bill may interfere with “free market principles”, Low said: “(The Bill) does not seek to intervene in market outcomes and does not seek to inadvertently distort competition, or distort market forces at work.

“Instead, it empowers the industry players in the retail sector to come together to agree to address their key pain points by finding common ground.”