The Fair Tenancy Framework Industry Committee (FTFIC) was formed with representation from:
- Singapore Business Federation SME Committee (SBF SMEC)
- Association of Small & Medium Enterprises (ASME)
- Restaurant Association of Singapore (RAS)
- Singapore Retailers Association (SRA)
- Singapore Tenants United for Fairness (SGTUFF)
The committee’s role is to propose the adoption of landlord-tenant legislation in Singapore to address the growing imbalance in the relationship between institutional landlords and tenants which has resulted in the aggressive financial engineering and pricing behaviour of institutional landlords that goes against the grain of their tenants’ sustainability and incentive to value creation.
The advent of COVID-19 culminated in landlords taking advantage of the lack of legislation to avoid passing on government tax rebates that were given with the intent for these rebates to be passed on in full to tenants as a form of rental rebates. The gravity of the situation exacerbated the need for legislation to save businesses and the livelihood of the workforce.
Following years of tensions and lopsided powers of negotiation by SME tenants with their landlords, the 5 key stakeholder organisations have agreed to come together as a collective to submit this Position Paper containing Key Recommendations for Fair Tenancy Legislation.
Fair Tenancy Framework Industry Committee
Chairman – Kurt Wee President, ASME/Council Member, SBF/Chair, SBF SME Committee
Co-Chairman – Andrew Kwan Vice President, RAS, Founder/Group MD, Commonwealth Capital Group
Co-Chairman – R. Dhinakaran President, SRA/MD, Jay Gee Melwani Group
Terence Yow SGTUFF Representative/MD, Enviably Me Group of Companies
Cynthia Phua Chairperson, SBF SMEC Rental Practices Workgroup
Ang Yuit Vice President, ASME/CEO, The Adventus Consultants Pte Ltd
Douglas Benjamin Council Member, SRA/COO, F.J. Benjamin Holdings Ltd
Dellen Soh RAS Representative/Chairman/CEO, Minor Food Group Singapore
Edward Chia RAS Representative/Managing Director & Co-Founder, Timbre Group
Keith Chua RAS Representative/Chairman at Abr Holdings Ltd
Lik Wong SGTUFF Representative/Director, X-Boundaries Pte Ltd
Logan Wong SGTUFF Representative/MD, Pure Senses Pte Ltd
Ann Goh SGTUFF Representative/MD, Simply Toys Retail Pte Ltd
Legal & Research Committee –
See Chern Yang Member, SBF SMEC RPWG/Director, Drew & Napier LLC
Mark Lee Legal Counsel, TenX
Joshua Tan Partner, Aquinas Law Alliance LLP
Lin Guoliang SBF SMEC Secretariat
Felicia Lee SBF SMEC Secretariat
Message from the Chairman
On 14 February 2014, I bemoaned the “cartel like” behaviour of institutional landlords in an article, “SMEs start to push back at rising rents” on The Business Times’ front page. Unfair rental situations have plagued tenant operators for years.
Since then, we begun the march to start the work of putting structure and substance to the issue of unfair tenancy situations faced by SMEs. In 2015, the Singapore Business Federation SME Committee formed the Rental Practices Workgroup and established the Fair Tenancy Framework to provide guidance to both tenants and landlords. Despite the efforts, over the years, no institutional landlords have come forth in support. We are however grateful that we did have 1 supporter that endorsed the Fair Tenancy Framework, that was Jurong Town Corporation.
COVID-19 brought to glaring views the dominant position that landlords wield. It first highlighted how landlords enjoyed good income in good times but the relationship was not symmetrical in bad times. When tax rebates were announced for the purposes of rental rebates to tenants, there was so much tussle between whether the landlords will issue the rental rebates to tenants, to how much they will release. Many institutional landlords even advantaged themselves with the tax payers’ monies by imposing conditions on tenants when giving rebates and it almost always came with an imposed gag order. Some did not even care about how urgent the SME tenants needed the speedy help, and proposed delayed-and-time-staggered payments through months ahead. This led to a parliament speech that saw Minister Chan Chun Sing beseech that landlords would be “Short-sighted not to pass on property tax rebates to tenants”. It eventually saw the Deputy Prime Minister Heng Swee Keat announcing that the government will legislate the passing of the property tax rebates “in full” to the tenants.
Five weeks ago, five stakeholder organisations – Singapore Business Federation SME Committee (SBF SMEC), Association of Small & Medium Enterprises (ASME), Restaurant Association of Singapore (RAS), Singapore Retailers Association (SRA) and the Singapore Tenants United for Fairness (SGTUFF) came together to establish the Fair Tenancy Framework Industry Committee (FTFIC) to propose the establishment of a Fair Tenancy Legislation and a Fair Tenancy Commission.
The Position Paper and Recommendations for Fair Tenancy Legislation is the cumulative effort of many individuals who are passionate about fair tenancy and contributed their experience to the collective so that we can have a better ecosystem for business owners.
It was an intense effort by everyone over the initial two and a half weeks of meetings to complete the bulk of all the recommendations. Over the last 2 weeks, we finally completed further refinements and also included a Sample Lease Tenancy Template that can of use as a guide for a fairer tenancy contract.
I am heartened to share, that this morning, we submitted the complete Position Paper and Recommendations for Fair Tenancy Legislation to the Minister for Law, and also to the Minister for Trade & Industry. It is the hope that this proposal will seed the ground for a fairer tenancy ecosystem, which at this point, remains heavily weighted against tenants.
I would like to make Special mention to SBF SMEC Rental Practices Workgroup for the background work accomplished over the years. I also like to recognise SGTUFF’s efforts for sharing their research with FTFIC, and also substantial inputs from RAS to provide the F&B sector’s experiences and perspectives and SRA on the retail sector.
Special thanks go to the three legal eagles that generously gave many nights of their time pro-bono and the support provided by the secretariat team from SBF SMEC.
Lastly, I must thank both my Co-Chairs, and all the committee members of FTFIC who worked selflessly and tirelessly to make this possible.
We hope that today’s Press Conference will allow the 5 stakeholders to better share with you, the recommendations, the landscape, some of the key issues that tenants are facing that led to this push.
Chairman, Fair Tenancy Framework Industry Committee
Council Member, SBF
Chair, SBF SME Committee
Role of the FTFIC
● FTFIC has been established to propose the adoption of landlord-tenant legislation in Singapore.
● In 2015, the SBF SMEC Rental Practices Working Group (RPWG) launched the Fair Tenancy Framework (FTF). The FTF was developed on the principle of fairness for all contracting parties and encouraged parties to conduct open, transparent and fair negotiations for leases.
● Chaired by Ms Cynthia Phua, the SBF SMEC RPWG said in an interview with TODAY on 25 March 2020 , “The framework has no teeth and that it was intended to be a roundtable for both tenants and landlords to come together to know the issues facing both parties and discuss a way where leasing practices can be fair and equitable.” She added, “Over the last five years, we have been trying to get landlords to come to the table but they refuse. They did not respond to us.”
● FTFIC recognises that landlords, including REITs, play an important function within the financial ecosystem that generates a healthy and stable rate of returns for investors. However, the sustainability of such trust frameworks also relies on an operating framework that ensures long term sustainability of the operating tenants.
● Prior to the formation of FTFIC, industry stakeholders have highlighted over the years the imbalance of the relationship between institutional landlords and tenants. Aggressive financial engineering and pricing behaviour by institutional landlords that goes entirely against tenants’ sustainability and incentive to value creation reached its peak during this COVID-19 period when landlords rely on the lack of legislative bite to avoid passing on government tax rebates that that were originally only “encouraged” to be passed in full to tenants in the form of rental rebates. The stakeholders have also sufficiently studied the imbalance over the years to be in the position to propose the need for legislation.
Guiding Principles of the FTFIC
● In submitting these key recommendations for legislation, FTFIC adopted the following principles:
(a) Incentivising Value Creation
Effective Fair Tenancy Legislation will provide a more balanced system of incentives and power of negotiation that will keep both tenants and landlords equally motivated to work together to create value instead of the predatory rent-seeking behaviour we see today from the side that holds an unfair advantage.
(b) Increasing Transparency
Transparency provides the conditions that foster better and informed decision-making leading to a fairer and more efficient ecosystem that operates through (i) having sufficient market rental data for current and prospective tenants to use in rental terms negotiations (ii) prohibiting behaviour that leads to overt oligopolistic behaviour in the setting of rental terms. This is a long-established mechanism that promotes free market and fair trading. Singapore has used this mechanism very effectively in sectors like residential purchases and rentals.
(c) Protecting tenants from unfair tenancy practices
FTFIC highlights unfair tenancy agreement practices that we see today that comprise of lopsided clauses highly in favour of landlords. Such clauses include practices like forcing tenants to do renovation works that go way beyond the needs of the tenancy for e.g. water-proofing the floor and clauses that force tenants to pay for marked-up water & electricity bills. These unfair clauses have resulted in the difficult situation we have today during the COVID-19 crisis where tenants are completely helpless and powerless to negotiate with landlords to take on their fair share burden or to give fair treatment to businesses who are in big financial trouble due to COVID-19 drop in sales or Government ordered business restrictions.
(d) Building a more sustainable ecosystem
This paper seeks to rebuild and rejuvenate a frontline business sector based on symbiotic partnership between landlords and tenants. We recognise that for tenants to thrive, landlords must do well and vice versa. We seek to eliminate rent-seeking behaviour on either sides but instead reinstate fair trading practices that incentivise creativity and mutual value creation by both parties.
(e) Instituting the concept of reciprocity
FTFIC proposes the concept of reciprocity as the key mechanism to deliver fairness between landlords and tenants in the specific terms within Tenancy Agreements. FTFIC have identified 3 main areas that the concept of reciprocity between landlords and tenants should be applied onto, namely
(i) Early Termination,
(ii) Data Sharing, and
(iii) the parameters established in the enforcement of Force Majeure clauses between parties.
FTFIC supports the principles of fairness and conscionable conduct, which were promulgatedby the FTF.
The Approach of the FTFIC
● The FTF outlined a three-pronged initiative:
(a) Rental Data Transparency – Work with the relevant government agencies to develop rental data information for businesses;
(b) Education and Awareness – Develop a Business Leasing Guide and a Basic Reference Lease Agreement for Business Space to help small businesses understand lease terms and conditions;
(c) A Preferred Dispute Resolution Channel – Facilitates partnerships between trade associations and chambers (TACs) and the Singapore Mediation Centre (SMC) for mediation to serve as a preferred dispute resolution channel to resolve issues between tenants and landlords.
● The RPWG has been reviewing the FTF while engaging landlords these past years. Data transparency is at the national level and the RPWG has been engaging URA and HDB, in turn they are working with IRAS which has the rent data through the stamp duties of the leases. Over the years, URA has provided the rent data through its website and has made a few changes with the feedback of the RPWG of the data granularity and usefulness to the tenants. What is basically lacking is the rental data of the HDB shops where most SMEs are operating. The group has been engaging HDB since 2015 as the rental data at HDB estates level does not seem to be available. It is anticipated that this data will be made available sometime in 2021. RPWG continues to encourage the agencies to continue to provide at nation-wide the data as granular as possible for the tenants.
● While the review of lease terms under the FTF served merely as a guideline, RPWG has always hoped for Fair Tenancy Legislation and has given support for the effort of FTFIC in recommending for the same. In summary, the desired Fair Tenancy Legislation will augment the three pronged initiatives of the FTF to give it the teeth to balance the power of and encourage fair conduct between the landlords and the tenants.
● There are also three parts to FTFIC’s key recommendations:
(a) Part A: Transparent access to information – We recommend 2 levels of rental data be made available, namely (i) A public rental info database that is updated on a monthly basis, and (ii) A mall-level productivity and performance data that is to be made available by landlords to tenants from whom they require data like monthly sales data (concept of reciprocity).
(b) Part B: Regulation of conduct – We recommend for the Government to legislate and pass a Fair Tenancy Bill to prohibit undesirable or unfair tenancy practices and behaviour by either landlords or tenants and also to promote a more efficient and effective free market dynamic for this business sector.
(c) Part C: Fair Tenancy Commission – We recommend the establishment of a Fair Tenancy Commission (FTC) that will oversee the creation and generation of market rental data in accordance to our data transparency recommendations. Landlords and tenants frequently find themselves in complex situations or disputes where the tenants face many difficulties. The FTC will also provide guidance on gaps, disputes, regulate matters between landlords and tenants and undertake periodic review and revision of the Fair Tenancy Legislation. The FTC can also act as the arbiter should situations of Material Adverse Conditions arises and can be required to review and implement conditions on tenancy contracts.
● As an ancillary, FTFIC also encourages the adoption of a national standard for retail leases as a reference point for the industry. This standard format should be in plain English and easily understood by both tenants and landlords. FTFIC has annexed such a proposed sample as Annex C.
● FTFIC has reviewed practices in Australia, Hong Kong, U.K. and U.S.A. As a reference point for the recommendations in this paper, the FTFIC will refer extensively to the tenancy legislation in Australia.
● Australia has no national laws on retail tenancy legislation. In May 1997, the House of Representatives’ Standing Committee on Industry, Science and Resources released a report on fair trading in Australia called Finding a Balance: Towards Fair Trading in Australia (the “Reid Report”).
● The Reid Report included recommendations made on retail tenancy after examining:
(a) major business conduct issues arising out of commercial dealings between firms including retail tenancy;
(b) economic and social implications of the major business conduct issues particularly whether certain commercial practices might lead to sub-optimal economic outcomes; and
(c) whether the impact of the business conduct issues it identifies is sufficient to justify Government action taking into account existing legislative and common law protections and overseas developments in the regulation of business conduct.
● The aim in the Reid Report was to “ensure certainty in the market place, contract dealings and other commercial transactions, minimise the regulatory burden on business, and keep litigation and costs to a minimum”.
● The Reid Report led to the introduction of unconscionable conduct in legislation after findings that small businesses were often disadvantaged in their business dealings. In 2008, the Australian Government Productivity Commission published a report detailing an inquiry into the market for retail leases in Australia titled The Market for Retail Tenancy Leases in Australia (the “PC Report”).
● The FTFIC also observed that the existence of legislation in Australia has not crippled the market cooperation between landlords and tenants. During the COVID-19 crisis, the National Retail Association, Australian Retailers Association, Pharmacy Guild of Australia and Shopping Centre Council of Australia proactively met, discussed and agreed on a common Code of Conduct to govern behaviours of landlords and tenants during this time. This was before the Australian Government passed national laws on the same issues.
● The approach by the stakeholders in Australia is in stark contrast to the developments in Singapore, particularly surrounding the necessity for government intervention to legislate conduct between landlords and tenants.
● FTFIC’s view is that the key difference is that the historical existence of legislation against unconscionable conduct in Australia has conditioned the stakeholders to automatically adopt such a collaborative effort during such unprecedented times.
● It is with this context that the FTFIC proposes for the adoption of fair tenancy legislation in Singapore and for the Fair Tenancy Bill to minimally contain the recommendations set out in this paper. In particular, FTFIC will be making specific extensive references to the Retail and Commercial Leases Act 1995 in South Australia (“RCLA”).
SUMMARY OF RECOMMENDATIONS
FTFIC has made a total of 15 key recommendations, separated into the three different parts:
(a) Transparent access to information;
(b) Regulation of conduct; and
(c) Fair Tenancy Commission.
PART A – TRANSPARENT ACCESS TO INFORMATION
● FTFIC has received feedback that there is substantial information asymmetry between landlords and tenants, which should be mitigated through reciprocal sharing and disclosure of material information about the lease. This will facilitate better and informed decision-making by parties and militates against any possible abuse of market power by the landlords. FTFIC has set out three key recommendations in this Part.
● Recommendation 1.1
o If a retail shop lease requires the tenant to provide the tenant’s sales or turnover information to the landlord, the landlord must make specified mall-level information available to the tenant in a written report on a quarterly basis.
● Recommendation 1.2
o The confidentiality of information exchanged between landlords and tenants should be a mandatory covenant for both parties to a retail shop lease, with disclosure permitted only in specified circumstances.
● Recommendation 1.3
o Landlords should publish anonymised lease data for each retail lease, by submitting the prescribed information in the format set out in Annex A for each lease to a publicly accessible site administered by an appropriate governmental authority. For the purpose of confidentiality, the FTC may exclude prescribed leases from disclosure, such as anchor tenants who fall within only one trade category.
PART B – REGULATION OF CONDUCT
● FTFIC has received feedback from stakeholders on various examples of unconscionable or unfair practices between landlords and tenants pertaining to restraint of trade, payment of a landlord’s outgoings, termination of leases and forfeiture, and renewal of leases.
● FTFIC has identified these examples and made ten key recommendations in this Part setting out how such conduct should be regulated by the enactment of a Fair Tenancy Legislation.
● Recommendation 2.1
o A retail shop lease must not contain a provision which has the effect of preventing or restricting the tenant from carrying on business outside the retail shopping centre, either during the term of or after the expiry of the lease.
● Recommendation 2.2
o Where a tenant is liable to pay any amount (other than rent) to the landlord including other expenses incurred by the landlord in connection with the preparation, stamping and registration of a retail shop lease (preparatory costs), the tenant is not required to make the payment until it is provided with a copy of any account given to the landlord for the expenses. The tenant’s liability for the preparatory costs cannot exceed:
(a) the actual amount of the stamp duty payable on the lease and the government fees for registration of the lease; and
(b) one-half of the other preparatory costs.
● Recommendation 2.3
Where the tenant is required under the leasing agreement to enter into contract with a third-party, or to make payment to the landlord or any other third-party for services (excluding utilities and its associated charges) or equipment (including set-up and maintenance costs) that is incurred ancillary to the rent paid to the landlord. And in each case:
(a) the landlord and tenant shall agree prior to the commencement of the lease term on the ancillary services and the proportion of the expenses that each party shall be obliged to pay; and
(b) the tenant shall not be obliged to make payment of more than one-half of each of the expenses incurred for the ancillary services.
● Recommendation 2.4
o Advertising and Promotion charges shall not be adjusted during the term of the tenancy and the landlord be required to produce an account of the fund clearly detailing the expenses incurred by the landlord and the identity of the receiving third-party on a quarterly basis.
o The landlord shall not be allowed to charge a mark-up greater than three percent (3%) of the price provided by the third-party for such services.
● Recommendation 2.5
o FTFIC proposes that pre-termination of a retail shop lease due to actions within a landlord’s control should not be permitted, except where the landlord is electing to have a part of the premises under that retail shop lease renovated, retrofitted, refurbished, reconfigured and/or altered, provided that such a right of pre-termination can only be exercised in compliance with the following conditions:
(a) the right of pre-termination may only be exercised after the first year of the retail shop lease;
(b) at least 6 months’ prior written notice must be provided to the tenant;
(c) the landlord must pay to the tenant compensation in the sum of the aggregate of the tenant’s (i) capital expenditure incurred for the retail space (including design fees), and (ii) costs incurred for installation and removal of furniture and fixtures, pro-rated based on a 6-year depreciation formula to be prescribed by the FTC.
(d) The termination notice period may be shortened by a lump sum payment by the landlord to the tenant of the amount of base rent that would have been payable by the tenant for the shortened notice period.
● Recommendation 2.6
o FTFIC proposes that pre-termination of a retail shop lease by a tenant must always be permitted, provided that such a right of pre-termination can only be exercised in compliance with the following conditions:
(a) the right of pre-termination may only be exercised after the first year of the retail shop lease;
(b) at least 6 months’ prior written notice must be provided to the landlord; and
(c) the tenant must pay compensation to the landlord in the sum of 3 months’ worth of base rent under the retail shop lease. The termination notice period may be shortened by a lump sum payment by the tenant to the landlord of the amount of base rent that would have been payable by the tenant for the shortened notice period.
● Recommendation 2.7
o Provisions in a retail shop lease that permits or otherwise provides for the termination of the lease on the ground that the tenant or the business of the tenant has failed to achieve a particular level of sales or turnover should be made unenforceable.
● Recommendation 2.8
o An adverse circumstances clause should be mandatory in leasing agreements.
● Recommendation 2.9
o There should be a duty of honesty and good faith imposed on parties during negotiations for the lease.
● Recommendation 2.10
o Where a lease renewal for a specified subsequent lease period is provided for in a lease, a maximum increase in all rent components upon renewal must be provided for in the lease.
● Recommendation 2.11
o Security deposits are to be limited to a maximum of 1 month’s base rent per year of tenure of the lease, subject to a maximum of 3 months’ base rent.
● Recommendation 2.12
o FTFIC proposes that area alteration clauses in leases mandatorily provide that both landlords and tenants are permitted to require that a survey be conducted during the tenure of the lease to confirm the leased area under a lease, and that:
(a) where the actual leased area is at least 1% less than the leased area being paid for by the tenant under a lease, the landlord is required to adjust the monthly base rent and related fees downwards proportionately and refund all excess base rent amounts already paid by the tenant; and
(b) the landlord is only entitled to make an upwards proportionate adjustment to the monthly base rent and related fees only where the actual leased area is at least 1% more than the leased area being paid for by the tenant under a lease.
The actual leased area must be determined by a duly registered surveyor. The landlord shall bear the cost of the survey, except where the survey is requested by the tenant and there is no variance to the leased area found by the survey.
● Recommendation 2.13
o FTFIC proposes that provisions purporting to exclude landlords from excluding their liability for any of their actions or omissions relating to building maintenance are made unenforceable, and where tenants are required to incur any rectification costs for building maintenance due to the actions or inactions of the landlord, such costs are to be reimbursed to the tenant.
● Recommendation 2.14
o FTFIC proposes that retail rental rates should follow a prescribed formula of a combination of: (i) a base rent (calculated using prescribed objective metrics of a landlord’s actual cost for the premises), and (ii) a GTO component allowed to be negotiated between the parties.
PART C – FAIR TENANCY COMMISSION
● FTFIC has also considered the issue of enforcement of the provisions of the Fair Tenancy Legislation. FTFIC has taken into account a tenant’s usually limited resources in seeking enforcement of its legal rights and proposed 2 key recommendations in this Part to address this limitation.
● Recommendation 3.1
o A Fair Tenancy Commission be set up, with the Competition and Consumer Commission of Singapore as the ombudsman in the enforcement of the obligations under the proposed Fair Tenancy Bill.
● Recommendation 3.2
o Legislation should provide for mediation as the primary mode of resolution of retail tenancy disputes, and only failing which the court or other adjudicatory process can be utilised.