New code of conduct launched to level playing field for retail tenants and landlords

NEW guidelines that set out to make for fairer lease negotiations between landlords and retail tenants could be made into laws in the coming months.

The guidelines are part of a new code of conduct announced on Friday by the Singapore Business Federation (SBF), which sets out guidelines on leasing arrangements and dispute resolution. 

Specifically, it covers 11 aspects of lease negotiations, from rental structure and third-party fees, to pre-termination by landlords or tenants, addressing long-standing points of contention between landlords and tenants.

The code was developed by a Fair Tenancy Pro-Tem Committee comprising major landlords, such as CapitaLand and Frasers Property Retail, and tenants, which also recommended the government enforce compliance with the code through legislation.

Speaking to reporters following the release of the code on Friday, Minister of State for Trade and Industry Low Yen Ling said the government will work closely with stakeholders, including landlords and tenant associations, in the coming months to turn the code into legislation.

“The government is making this announcement early, so that all parties involved have enough time to make the necessary adjustments to comply with the code,” she added.

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In addition, all government landlords will lead by complying with the code of conduct, unless there are other statutory obligations to abide by, Ms Low said. 

The new code of conduct will apply to all qualifying retail premises in Singapore; these retail premises can be housed in standalone commercial buildings such as shopping centres, office buildings, shop houses, MRT stations, or other types of buildings.

Key issues addressed by the new code - described by SBF as “breakthroughs” - include how rents must now be based on a single rental computation, meaning it cannot have an “either/or, whichever-is-higher” formula. Previously, some rents were structured to include a base rent and/or percentage of gross turnover, whichever is higher. Tenants have deemed this unfair, as landlords stand to gain in both good and bad times. 

Another key issue has been the difficulties tenants face in exiting their leases early - although landlords can terminate leases for various reasons, without compensating the tenants.

Under the new code, tenants will be entitled to terminate leases early under exceptional conditions, such as if the retailer’s business principal is insolvent, or if the retailer loses distributorship or franchise rights through no fault of the retailer.

However, the tenant must give at least six months’ prior notice or pay six months’ gross rent in lieu of the notice period to the landlord. The tenant must also compensate the landlord with a sum equivalent to the security deposit, and reinstate the premises.

Likewise, landlords must give notice to or compensate tenants if they terminate leases early.

The code requires that the termination be for reasons such as substantial redevelopment, asset enhancement or reconfiguration works that would require the premises to be vacated. A tenant’s failure to meet specific sales targets set by the landlord will not qualify as a reason.

Some of these clauses, however, can be included in the lease agreement if both the landlord and tenant agree to them and declare their agreement to a Fair Tenancy Industry Committee (FTIC) that will be formed by June 1 to serve as the custodian of the code and monitor industry compliance. The committee will comprise landlords, tenants and independent parties.

But such provisions were made to take into account the varying practices in the market, and are not to be seen as “backdoors”, said SBF chief executive Lam Yi Young.

While adoption of the code is currently voluntary, members of the pro-tem committee have committed to adopt and abide by the code from June 1.

The Reit Association of Singapore (Reitas) and Real Estate Developers’ Association of Singapore (Redas), which are represented in the committee, have also said they will encourage their members to do so.

All of these mark the new code of conduct as a step up from Fair Tenancy Framework launched in 2015, which is voluntary and did not gain private landlords’ buy-in.

On what has changed for landlords in the last five years, Low Chee Wah, Reitas vice-president and chief executive of Frasers Property Retail, pointed to the pandemic’s unprecedented impact on the retail industry and legislative measures implemented by the government over the past year.

“All of it would not have happened in the normal course of business. ... So, it’s all relating to the situation at hand,” he said at a media briefing on Friday.

Meanwhile, errant parties or disputes arising from lease negotiations can be referred to the FTIC. It will also monitor instances of non-compliance, and may “name and shame” recalcitrant parties. 

Disputes arising after lease agreements are signed can be brought to the Singapore Mediation Centre.

Read more:

• Retail, F&B players in Singapore to push for fair tenancy legislation
• Lobby group wants laws for a fair tenancy commission, data sharing
• Retailers seeking avenues to renegotiate leases