Towards fair tenancy practices

THIS WEEK'S TOPIC: Will legislating the new code of conduct on tenancy agreements level the playing field between landlords and tenants?

Victor Mills Chief Executive Singapore International Chamber of Commerce

THE new Code of Conduct for Leasing of Retail Premises is long overdue but very welcome. For far too long the relationship between landlords and tenants in Singapore has been unfair and in favour of landlords instead of recognising the symbiotic relationship between both parties fairly. The new Code corrects this imbalance. It is yet another silver lining of the pandemic which has highlighted the urgency for change. I hope all landlords and tenants will adopt the new Code of Conduct and see it in their best mutual interests. Legislation can be kept as an option in the unlikely event they do not.

Lawrence Loh Director, Centre for Governance and Sustainability NUS Business School

The new Code of Conduct will definitely be a good governance framework to achieve a fair balance of expectations between landlords and tenants. It will help the parties manage responsibilities in a clear and explicit manner. However, this Code cannot be taken to a be-all and end-all. We have to go beyond the Code. The best landlord-tenant relationship has to be based on mutual respect and reciprocal trust. The finest outcome is that there is even no need to refer to the Code in sustaining a long-lasting bond between landlords and tenants. This is the way to go to forge win-win partnerships.

Yeoh Oon Jin Executive Chairman PriceWaterhouse Coopers

THE guidelines in the Code of Conduct for Leasing of Retail Premises are a timely and positive development to facilitate negotiations between retail tenants and landlords in an uncertain economic climate largely driven by the Covid-19 pandemic. Whilst the Leasing Principles and the Checklist provide a documented framework to better support tenants for new leases to be negotiated from June 1, 2021, landlords would also welcome deviations from the single rental structure for retail premises that attract high footfall or for tenants that have remained resilient throughout the pandemic.

David Kuo Co-founder The Smart Investor

A RENTAL agreement between a landlord and tenant should be based on fairness. It should be the start of a long-term relationship between two parties that can only be successful if there are tangible benefits to both parties. The landlord wants sustainable and recurring income. The tenant wants safe and secure premises where there is reasonable certainty over costs. The Code of Conduct for Leasing of Retail Premises in Singapore is a strong signal of intent that a level playing field could be beneficial to both sides. Isn't it about time for a similar code of conduct for the home rental market?

Chia Ngiang Hong President Real Estate Developers' Association of Singapore (REDAS)

THIS Code of Conduct on retail tenancies sets out the key terms to bridge some major differences between landlords and tenants with the aim to ensure fairness between both parties. It is important to have clear guidelines and negotiation principles for landlords and tenants in order to create a healthy retail ecosystem that promotes the industry's long-term growth. I believe the Code will provide the right platform to build sustainable and collaborative landlord-tenant relationships and I can see that a soft legislative approach would help facilitate its effective implementation/adoption which ultimately should hopefully help both parties find acceptable and balanced solutions in terms of their respective commercial interests.

Moray Armstrong Managing Director CBRE Singapore

THE Code of Conduct is a much welcome change to the retail industry. It bridges the gap between landlords and tenants, fostering a more sustainable retail environment in the long term. This framework tilts the scale to achieve a more equitable balance in the leasing dynamics. With improved transparency in data and lease agreement clauses, initial hurdles could be minimised, which helps to accelerate business decisions for retailers, in turn encouraging new entrants into Singapore. In the longer term, this seeks to raise the competitiveness of Singapore's retail sector, which will be timely when we are at the forefront of Covid-19 recovery. While billed as guidelines for landlords and tenants, this will most likely not be a one-off exercise and will mark the beginning of a more collaborative environment.

Toby Koh Group MD Ademco Security Group

THE new Code of Conduct for retail tenancy will most certainly ease the concerns of retailers. From their perspective, this framework helps cut risk to their entity. However, I am also sure that the shareholders of retail malls will have concerns over profitability. We have to keep in mind that such contracts are entered into by parties on a willing and able basis, with each side calculating their own benefits. The changing face of the retail trade both online and off will continue to morph. I am of the opinion that online purchasing trends will have substantially more influence on tenancy agreements and terms than this framework in the near future. Market forces will prevail.

Ng Beng Tiong Deputy Group CEO and Group COO ARA Asset Management Limited

ARA supports the new Code of Conduct on tenancy agreements. We have always been a firm believer that all business relationships should strike a balance in the sharing of risks and rewards. The new Code will help to build trust, reduce ambiguity and provide greater clarity on the 'rules of engagement' during lease negotiations. With the new Code in place, we are confident that landlord-tenant relationships will be enhanced over time, and all parties can focus on the more important objectives of achieving long-term business success and helping the Singapore retail sector recover and emerge stronger from the impact of Covid-19.

Helen Ng Chief Executive Officer Lock and Store

RENTS based on single computation could be disadvantageous to small businesses who might not be able to afford market rates. The ''whichever is higher'' formula allows these businesses to enjoy a lower rent in malls and gives them time to build up their business. The insolvency clause disadvantages small retail tenants in the long run because they are not likely to have the means to provide audit documents in the first place to prove insolvency. Landlords would shy away from renting out to them and choose more established tenants instead.

Lee Chong Win Chief Executive Officer Logicalis Asia

MANY seemingly successful retail tenants have wound up their businesses or terminated their leases due to unfavourable terms that made continuing untenable. The already dire circumstances faced by tenants are exacerbated by the advent of the food delivery culture and online shopping. Notwithstanding the convenience and efficiency of eCommerce, I wish for Singapore to have a balance between digital and brick and mortar. Indeed, the pleasure associated with walking out of your favourite retail outlet, shopping bag in hand, easily trumps simply checking out an online shopping cart. A Code of Conduct supporting fair tenancy agreements is critical to create a sustainable and vibrant retail industry. As such, I welcome this new Code of Conduct. I also applaud the government's move to take the lead by being an early adopter. Beyond that, the government should also strongly encourage government-linked landlords to follow suit. Ultimately, we will only see the full benefits of this Code of Conduct when it becomes law.

David Emery Chairman Reciprocus International Pte Ltd

COVID-19 was a rude awakening on both aisles of the rental business, and this new Code of Conduct for Leasing of Retail Premises is indeed going to deliver the long-overdue levelling of the playing field between all parties involved.

We have seen throughout 2020 how retail fronts have been heavily impacted due to the circuit breaker and subsequent restricted entry due to social distancing. It is now the right time to breathe new life into the ecosystem and revise the old contracting formats we have grown accustomed to, where landlords indeed had the upper hand that inevitably put a lot of financial stress on retail businesses when under pressure. Additionally full transparency related to third party expenses will go a long way to eliminating unnecessary misinterpretations and misunderstandings, especially during challenging times.

Mario Singh Chief Executive Officer Fullerton Markets

THE new Code of Conduct is certainly a step up from the voluntary Fair Tenancy Framework launched in 2015. Over the past year, I've heard my fair share of stories from tenants who complain about sustainability issues and lack of support from landlords.

One of the most important issues which the new Code helps to resolve between tenants and landlords is the level of certainty. As an example, the clause of ''either/or'' or ''whichever is higher'' relating to base rents and/or percentage of gross turnover in some contracts have always favoured landlords, in good times and bad. With the proposed 'single computation' method, tenants would not need to worry about paying a higher rent when their sales increase.

I look forward to seeing the retail market roaring back with the help of this new Code especially under these trying times.

David Jacob CEO, Regional Marsh Asia

THE new Code of Conduct allows additional flexibility for retail tenants, but such flexibility may increase the risk to landlords who could in turn seek higher guaranteed minimum rental levels. Retailers with higher risk profiles, including those more in need of flexibility, may therefore struggle to secure their desired retail space.

As with insurance, the success of a policy will be measured by the strength of the wording and its ability to respond in a dispute. This is critically important when considering changes to Early Termination of Leases, and landlords are likely to seek additional guarantees. Other non-industry-specific risks, such as supply chain disruption, have great potential to disrupt business. Retailers need to ensure they continue to build resilience in their business and have robust preparedness.

Seamus Phan Chief Content and Technology Officer McGallen & Bolden® Group

In an organised nation like Singapore, the government and judiciary are often the best trusted mediators. The pandemic has certainly unified Singapore - whether the government, businesses, institutions, and individuals - to recognise that only corporate success together can empower an individual's success or survival. Landlords in Singapore have had too much unfair and unsustainable leverage. In these trying times, it is finally clear even to the uninitiated that such rentals are unsustainable. This Code of Conduct is not a panacea, but it's offering an olive branch in the right direction.

Zaheer Merchant Regional Director (Singapore & Europe) QI Group of Companies

There is no doubt the Code of Conduct will help in many ways towards levelling the playing field between parties. The fact that the Code is mandatory in aspects will also ensure this. However, this is only scratching the surface since ultimately(and leaving aside industry dynamics) the potential size of any business (as tenant) will be a key factor in bargaining power. There is a marked difference between a large entity (and thereby anchor tenant) and a smaller firm in terms of innumerable aspects that affect the lease arrangements and allow a tenant to have greater ''say'' in the tenancy agreement.

Lim Soon Hock Managing Director PLAN-B ICAG

Tenants would naturally seek to minimise rent while landlords would want to maximise it. This ''conflict of interests'' has always been an underlying contentious issue between the parties.

To the extent that the Code of Conduct for Leasing of Retail Premises addresses this, it is a welcome step in levelling the playing field between landlords and tenants.

Either party must not profiteer not just in challenging times, taking advantage of the other, such as during this Covid-19 crisis, but also in good times. The Code of Conduct must deter this, and take the defaulting party to task. A case in point: Landlords should pass the rental subsidies from the government to tenants and not retain them for themselves.

Henry Tan Group CEO Nexia TS Group

In this new normal of shorter business cycles and fast-changing market conditions, this is a timely change to level the playing field between landlords and tenants. The right to terminate from both tenant and landlord allows fairer and faster adjustment to business conditions. The single computation of rent is also a great leveller. For retailers, already faced with challenges, being ''penalised'' if they do better sales is a double whammy to the business. I look forward to more 'phygital' retailing so that customers can have the best of both online and physical shopping.

Annie Yap Founder & Chairman The AYP Group

Legislating the new Code of Conduct on tenancy agreement can greatly equalise the playing field between landlords and tenants. This goes both ways, as the new Code has to recognise that a property belongs to a landlord and needs to be taken care of. It also has to protect the rights of tenants and ensure that they are being treated fairly. As the new Code of Conduct aims to do this, I believe it does have the potential to not only greatly level the playing field between landlords and tenants, but also bring them together.

Dora Hoan Best World International Ltd

The new Code of Conduct on tenancy agreements is a necessary step towards a more fair and balanced tenancy relationship. Indeed it is a breakthrough as it acts to safeguard tenants' interests, and helps to mitigate any imbalance in the tenant-landlord relationship. The new Code encourages both parties to achieve a fair position through negotiations, with a Fair Tenancy Industry Committee set up to supervise the implementation of the Code and to resolve disputes. This is especially vital in the effort to create better conditions to restore retail competitiveness and to achieve a win-win situation.

David Leong Managing Director PeopleWorldwide Consulting

Retail leasing practices can be onerous and Covid-induced stresses on the retail and F&B sectors have opened up glaring wounds and caused casualties among tenants.

The crux of the issue is the size of the landlords (who are typically publicly-listed retail REITs), and to the tenants, it is a real case of David versus Goliath. Legislation will level the playing field, especially for most small retail and F&B businesses, and take into account the inherent vulnerabilities of the sector. The lease agreement should pivot fairly, taking away a lot of onerous clauses, such as the ''either/or, whichever is higher'' rent formula that would benefit landlords.