Development in Singapore's Retail Landscape: Introduction of the Code of Conduct for Leasing of Retail Premises in Singapore

On 26 March 2021, the Fair Tenancy Pro Tem Committee (“Committee”) released the Code of Conduct for Leasing of Retail Premises in Singapore (“Code”).  We set out the key points of the Code which retailers should take note of going forward in navigating Singapore’s evolving retail landscape.

Who is the Committee?

The Committee comprises representatives from the landlord and tenant communities, as well as industry experts and members from academia. It was formed in June 2020 to strengthen collaboration between landlords and tenants, with the intent to address long-standing tenancy issues for the retail, food & beverage (“F&B”), and lifestyle sectors, and to help establish industry norms on tenancy practices and terms.

What are the objectives of the Code?

The key objectives of the Code are:

• To provide a set of guidelines to enable a fair and balanced position in lease negotiations.
• To develop a governance framework to ensure compliance by the industry.
• To introduce an accessible dispute resolution framework for landlords and tenants.

Who does the Code apply to?

The Code applies to all “Qualifying Retail Premises” in Singapore, which is defined as premises that are:

• held under a lease agreement entered into on or after 1 June 2021 with a tenure of more than one year; and
• permitted to be used by the Urban Redevelopment Authority (“URA”) and other relevant authorities for any of the following uses:
  • F&B
  • Shop
  • Medical / dental clinic / aesthetic clinic
  • Pet shop and pet boarding
  • Commercial school
  • Sports and recreation / place of entertainment

What is the legal effect of the Code?

The members of the Committee have committed to adopt and abide by the Code from 1 June 2021. However, as of the date of this publication, the Code does not have the force of law and compliance with the Code is not mandatory. That said, the Committee has made recommendations to the Government for legislation to be introduced to make compliance with the Code mandatory.  While this is still under consideration by the Government and it will take time before the Code (or any part of it) is passed into legislation, the Government has issued remarks welcoming the pledge by the landlords and tenants’ associations to adopt the Code[1].   

What are the key tenancy terms that the Code seeks to address?

Part B of the Code sets out the leasing principles for 11 key tenancy terms (“Leasing Principles”). These Leasing Principles are expressed to be either (i) recommended best practices or (ii) mandatory requirements. In respect of the points expressed to be mandatory requirements, the Code states that any deviation from the mandatory requirements cannot be made unless the relevant Leasing Principle expressly allows for such deviation with the agreement of both parties to the lease agreement.  

In summary, in stating that these are to be best practices or mandatory requirements, these Leasing Principles seek to lay down norms for terms pertaining to:

• Exclusivity (e.g. terms which prevent or restrict tenants from opening a branch or franchise within a certain radius, or terms which prevent or restrict landlords from leasing premises with a similar trade or business in the same building)
• Costs (e.g. terms which deal with costs of preparing the lease agreement, the costs of maintaining and integrating Point-of-Sales systems, and other third party costs relating to sales audit fees, public liability insurance, and electricity charges)
• Advertising and promotion charge and service charge (e.g. terms which seek to adjust such charges during the lease term, and terms providing for proper record keeping by Landlord in respect of such charges)
• Pre-termination by landlord due to landlord’s redevelopment works (e.g. terms which give landlords the right to pre-terminate the lease due to redevelopment works)
• Sales performance (e.g. terms which give landlords the right to pre-terminate the lease if specified sales targets are not met by the tenant)
• Material adverse change (e.g. terms which allow re-negotiation of the lease agreement in cases where the tenant is prevented, obstructed or hindered from performing its typical business activity due to events beyond the tenant’s control)
• Pre-termination by tenants (e.g. terms which give tenants the right to pre-terminate the lease due to exceptional conditions)
• Security deposit (e.g. terms which relate to the provision of security deposit amounts by the tenant)
• Floor area alterations (e.g. terms which require landlords to provide a registered surveyor’s certificate confirming the surveyed area of the premises prior to handover)
• Building maintenance (e.g. terms which require the landlord to be responsible for loss or damage suffered by the tenant due to gross negligence or wilful default by the landlord to maintain the premises)
• Rental structure (e.g. terms which require rental formulas to be based on a single rental computation only)

What is the possible impact that the Code may have on cost considerations when negotiating the lease agreement?

It is often the case that tenants are asked to agree to bear the legal costs incurred by landlords in preparing the lease agreement. These legal costs would be a fixed amount, and in some instances such costs may be increased where the tenant seeks to negotiate the terms of the lease agreement. In this regard, the Code sets out the following mandatory requirements on the costs to prepare the lease agreement:

What enforcement measures are provided for by the Code?

Completing the compliance checklist

As stated above, as at the date of this publication, the Code does not have the force of law.

However, where the Code is adopted, Part D of the Code provides that the Landlord must complete a checklist in the form set out in Appendix 1 of Part D of the Code (“Checklist”) and provide it to the tenant at the same time when the landlord sends the first draft of the lease agreement to the tenant. The completed Checklist must clearly indicate:

1. the Leasing Principles which deviate from the mandatory requirements of the Code (if any); and
2. the Leasing Principles which are not applicable (if any).

Where there is any Leasing Principle which deviates from the mandatory requirements of the Code and both parties mutually agree to such deviation, both parties must indicate its acknowledgement in the Checklist.

Non-compliance during lease negotiations

A Fair Tenancy Industry Committee (“FTIC”) will be formed by 1 June 2021 to serve as the custodian of the Code and to monitor industry compliance. If there is non-compliance by either landlord or tenant with the Code during lease negotiations, the matter can be referred to the FTIC. The FTIC will monitor and keep track of incidences of non-compliance by landlord or tenant. If there are many reports made against a particular party, the FTIC may name and shame the party for acting in a manner that is against the Code and the spirit of the fair tenancy framework.

Non-compliance after signing of lease agreement

If there is any non-compliance in the lease agreement by the landlord or tenant with the Code after the lease agreement is signed, the Code seeks to introduce a dispute resolution mechanism by providing that either party may escalate the matter to the Singapore Mediation Centre (“SMC”) within 14 days of the signing of the lease agreement to resolve the dispute or disagreement, and that the landlord and tenant must attend the mediation and comply with the resolutions of the SMC.