Retailers seeking avenues to renegotiate leases

Singapore

AHEAD of this year's Budget on Feb 16, retail tenants are hoping for measures to help them renegotiate lease terms with landlords, as fair tenancy talks make slow progress and some landlords seek higher rents.

A new fair tenancy framework has been in the works since last year, after a long tussle over rental rebates brought what retail tenants see as a long-standing inequality between tenants and landlords to the fore.

It is widely perceived that landlords have not actively supported the existing Fair Tenancy Framework, which is voluntary. A Fair Tenancy Pro Tem Committee, made up of landlords, tenants and industry watchers, had been expected to complete its deliberations by the end of last year.

But asked about its progress in mid-January, the Singapore Business Federation (SBF), under which the committee is set up, only said the committee is "wrapping up its deliberations on the identified issues".

"Further consultative sessions with stakeholders are being planned over the next two months to fine-tune the recommendations to address sector-specific challenges," said SBF chief executive Lam Yi Young.

As for the recommendations, the committee will share more details once they are finalised, he said.

Areas addressed include access to rental information and "lease terms and conditions that would promote a more efficient and effective free-market dynamic in the retail sector".

Against this backdrop, tenant group SG Tenants United For Fairness (SGTUFF) suggested that the government introduce a mechanism to compel landlords and tenants to have a "proper renegotiation of lease terms" in the presence of an independent assessor.

SGTUFF, which comprises over 700 business owners who lease about 3,100 retail outlets, suggested that the government lower the revenue decline needed to qualify for the Re-Align Framework, so that more businesses will have a chance to seek fairer terms of rent from landlords.

The framework, which commenced on Jan 15, allows businesses with less than S$30 million in annual revenue at a global group level to renegotiate or exit contracts without penalty.

However, the business must have experienced at least a 70 per cent year-on-year fall in monthly average gross income for July to December 2020.

As a result, the framework may end up little used. SGTUFF, polling 72 members, said that the framework would be helpful for only about 19 per cent of its community.

Of this group of tenants, only a few have used the framework to change lease terms "favourably", SGTUFF said. "No tenant has managed to exit from a lease using the framework so far," it added.

Other tenants are hoping that the contractual relief offered under the Covid-19 Temporary Measures Act could be extended further. It was extended once last October.

The Act was introduced last April, and offered temporary relief from legal and enforcement action to those unable to fulfil their contractual obligations owing to Covid-19, while they renegotiated their contracts.

According to the Ministry of Law, 8,428 businesses and people had sought the relief by the end of last year, with a large proportion of applications - 3,005 of them - related to leases and licences of non-residential property. The relief period for leases and licences of non-residential property ended on Nov 19 last year.

Loh Lik Peng, founder of restaurant group Unlisted Collection and one of the founders of the informal #savefnbsg group, said: "I believe any extension will have to factor in present and future circumstances, and by far the largest impact will come from the lifting of border restrictions and the resumption of normal trading conditions."

He noted that "rent is only one factor and many of the operators facing grave difficulties even now will not survive".

Some tenants, such as retailers, restaurants and entertainment establishments, report that their landlords have resumed asking for pre-pandemic rents, with some even seeking higher rents, on the basis of recovering sales and foot traffic in the malls.

For entertainment establishments, which have not been able to operate for nearly a year now, this may be the last straw.

"We have a few landlords who were more understanding and willing to suspend rents until an official announcement is made by the government on the resumption of business activities," said Christopher Ng, business development manager at Party World KTV.

"On the other hand, we still encounter a good number of landlords who were not willing to be realistic about building footfalls and (offering) reasonable rent reductions or waivers," he added.

"The more viable options will be to pivot (to a new line of business) or exit the industry. It will really depend largely on the outcome of negotiations with landlords."

READ MORE: As rebates end, restaurants and retailers reel from rent, deposit hikes