Leases starting to reflect fair tenancy code of conduct, but tenants still call for legislation

NEW or renewed retail leases are starting to reflect Singapore’s year-old industry-led code of conduct (COC) for fair tenancy, but tenants still look forward to legislation, which could happen as early as this year.

At least 8 major private sector retail landlords and all government landlords have committed to the COC, which came into effect June 1, 2021.

Businesses and Fair Tenancy Industry Committee (FTIC) members told The Business Times that while most major private landlords and government landlords have updated their lease agreements in line with the COC, adoption is rarer among smaller landlords due to a lack of awareness and the absence of legal obligation.

This pool includes the “vast majority” of landlords which are small and medium-sized enterprises (SMEs), typically owning strata title units in malls or shophouses, said Terence Yow, chairman of Singapore Tenants United for Fairness (SGTUFF) and managing director of shoe retailer Enviably Me.

Some larger corporate landlords still do not abide by the COC either, added Yow, who represents SGTUFF in the FTIC.

With the Covid-19 pandemic exacerbating long-running tensions, the COC was introduced by the Singapore Business Federation (SBF) to provide clear guidelines on fair retail tenancy negotiations.

Kelvyn Chee, chief executive (CEO) and founder of fashion retailer Decks, has signed 3 new leases in the last 6 months, 2 of which were COC-compliant.

“I was quite surprised. The agreements came with the terms updated according to the COC and I didn’t even have to remind them. Now there’s a very basic standard to follow, which is good for entrepreneurs just starting out,” Chee said.

Logan Wong, managing director of fragrance retailer Pure Senses, said the 3 new leases and 2 lease renewals he signed in malls in the past year all abided by the COC.

For example, if landlords use sales data from tenants to compute rental, they must themselves share the relevant category’s average sales data with tenants – which has allowed Wong to benchmark his performance against others.

Another change that Wong appreciates is that landlords are not allowed to pre-terminate leases for reasons other than substantial redevelopment, asset enhancement or reconfiguration works. Landlords must also pay compensation if pre-termination happens.

“The big landlords controlling the majority of prime retail space are more pressured to do something, because their reputations are at stake,” said Wong.

But as an FTIC member, he has also seen indifference from smaller landlords: “If you’re the owner of 1 or 5 shop lots, you wouldn’t care – you don’t need to raise funds from investors, and so on.”

Even if a lease proposal is not COC-compliant, tenants may accept if they want the unit badly enough or the overall deal is still fair and reasonable, said Ivan Loo, managing director of Hoong Services which operates steakhouse chain iSTEAKS.

Just this week, he signed a new lease for a unit in a conservation building with a Malaysian private landlord, who did not abide by the COC.

“Tenants have more bargaining power with the code, but the fact is that we are still a small-time player. If you ‘die also’ want that place, you will submit yourself (to their terms and conditions).”

Mutually-agreed deviations - a loophole?

One concern is the potential abuse of mutually-agreed deviations in contracts, which might thus defeat the purpose of the COC, said Wong.

To cater to the needs of tenants and landlords under “exceptional circumstances that are beneficial to both parties”, the COC allows for mutually-agreed deviations in 4 areas: exclusivity, sales performance, security deposit and rental structure.

Said Wong: “These 4 clauses, in the eyes of the landlords, are the most disadvantageous to them, which is why they fought for such clauses to be slightly flexible. Over time, if such deviations become the norm, more landlords will find it acceptable to request for their inclusions.”

While the FTIC has observed some deviations in signed lease agreements every month, these are a “small minority” of all leases signed in the past year, Yow said.

“In practice, we so far do not have any major concerns on such deviations being abused. But conceptually, if a principle is very clear, there isn't a need to have some exceptional clause. We hope to work on this, as we continually fine tune the COC on a year-to-year basis.”

Michael Tan, CEO of the Singapore Productivity Centre (SGPC), said: “At the end of the day, it is still considered fair negotiation – if the landlord wants to deviate on certain clauses, and if the tenant feels that those are unreasonable, by all means, they can just walk away from the whole deal.”

In April, the SGPC began conducting 2-day workshops to educate retailers and landlords on how to use the COC in lease negotiations. Over 35 businesses and 8 mall operators attended the first 2 runs, with a third planned for July.

Legislation needed for real change

While the COC has gained traction, industry players still look forward to legislation.

In May last year, Minister of State for Trade and Industry Low Yen Ling affirmed the government’s commitment to making the COC mandatory via legislation. According to SGTUFF’s Yow, the latest update is that the government plans to do so this year.

Said Wong: “The COC cannot stay voluntary. The publicity around the code is beginning to die down, especially as we emerge from the pandemic. Over time, once people realise that there are no actual consequences (for not adopting the code), they simply will not do it.”

Passing laws will help “tremendously” to move the industry forward, said a Restaurant Association of Singapore (RAS) spokesperson: “The code has been great in terms of setting the tone. But more needs to be done in order for all parties to understand and honour their obligations.”

Landlords CapitaLand, UOL Group, City Developments Limited and Frasers Property Retail said the COC has helped to strengthen relationships between tenants and landlords, and aided tenants in their own operations.

“The transparency of data, such as third-party costs, helps small and medium-sized enterprise tenants in their business planning and cash flow management,” said a CDL spokesperson.

A spokesperson from Frasers Property Retail said the COC has been “well received” by its tenants since implementation in June 2021, adding that the “open and structured negotiation of lease agreements… has allowed tenants to focus on the key drivers of their business”.