An unfair term in a tenancy agreement, put simply, is one that creates an imbalance between a landlord and a tenant, to the tenant’s detriment. For example, the most common would be how tenants have to bear the legal costs for the drafting of the lease agreement even though the lawyers are working on behalf of the landlords and the terms are leaning towards the landlords’ favour. Or that the tenants have to pay the full stamp duty fees even though the agreement is between two parties.
For too long, tenancy agreements have blatantly ignored the tenants as an equal partner and entity with rights in the relationship. Tenants have been treated unfairly, unjustly and dishonourably, all in the guise of free market operations.
In this article, we discuss some of the unfair terms and fees relating to renovation/ maintenance of premises and strongly urge attention to and reconsideration of these often neglected areas in a tenancy agreement.
Often, tenants just bite the bullet thinking renovations is a one-off expense. The repercussions last, as many realised on hindsight. And landlords do not hesitate to further add on to the misery with additional burdens, as will be described later.
Rachel* was ending her Food & Beverage business in a mall that was going to get a major overhaul and thus all businesses had to cease and leave. She will lose everything because in her agreement, landlords can engage in redevelopment or refurbishment works that disrupt the regular business of tenants and tenants are not entitled to claim compensation from landlords. This clause protects the landlord one-sidedly and many tenants can only earnestly hope that such will not happen to them. Unfortunately, Rachel struck jackpot. She did not have a choice.
The least she hoped was to get some cash back from her furnishings which she spent close to $100K for two years ago. She had a beautiful custom made marble counter top that she wanted to sell off to another owner who can appreciate and have a real usage for it.
“I’m hoping to get $2K for it as I paid $7K and it has been barely 2 years and still as good as new. Beautiful colour, lovely veins, no scratches— a piece of art!” she told viewers enthusiastically, confident that something as worthy would surely find itself an owner. Little did she know, until the contractor who was helping her dismantle her furnishing told her, that it would never have been possible to sell at $2K. “Because $2K is the price for a new piece! Who are you kidding?”
Rachel went on to dig her quotation from two years back and showed the contractor who affirmed that the works quoted were all a good 50-60% above market rates. Had Rachel knew back then, would things be any different though? Not much. It was the stipulated contractor that she had to work with, assigned by the landlord. She did not have a choice.
Daniel* runs several stalls in various major foodcourts, namely, KOUFU, NTUC Foodfare, Kopitiam and Food Junction and he realizes, after years of business, that “renovation” is a very convenient term used to collect money and then more money, just like that.
“When we rent new stalls, in the midst of the agreement, or when we renew our contracts (basically it could be anytime), the foodcourt management would collect a $10K-$40K renovation fees. But after so many years, I know there are no planned future works. They never come. We just have to pay our way to the better locations”.
The crux of the problem here is, the “renovation fee” can be imposed by landlord at whim. There is no accountability to how the fee will be used. More than that, these are sometimes NOT in the tenancy agreement upfront but imposed mid-way. If he wants to keep the business he worked so hard to build up or not lose his security deposits, he has to pay.
Thus, while the landlord does not have the right to increase the rent during the period of the agreement, the landlord does otherwise have the power to impose additional costs on the tenant under the lease.
Additional costs may be imposed through a number of clauses which give landlords the right to claim expenditure reasonably and properly incurred in respect of the building or premises. Daniel had to pay or risked chased away. He did not have a choice.
Daniel also had to use the assigned contractors for renovations and maintenance works. There are also all sorts of fees collected to ensure compliance to standards. For example, a Video Serial Interface installation fee of $1,000 and a Kitchen Design Fee of $1,000.
For regular repairs, Daniel also had a list of assigned contractors to contact. Fortunately, “the local managers have some heart and will sometime close one eye and ask me fix it myself. Or else the rates will be exorbitant, even for small fixes”. This applies even for reinstatement works at the end of an agreement. He did not have a choice.
More than just rental, stalls at food courts also have to pay a multitude of other kinds of fees, all at exorbitant and hard to qualify rates. For example, at one of the food courts, Daniel has to pay:
- Advertising and Promotion Fee — 0.3% of Monthly Gross Sales
- Monthly Maintenance and Cleaning Fee $7,000
- Coin-Changing Fee $50
- Point of Sale System Rental Fee $220
For Daniel, it worked out to be $11,500 (and to add to it, a high G.T.O rental), $7, 000 and another
$2K-$3K worth of other fees depending on his sales. For a mere stall in a foodcourt, Daniel’s upfront costs to the management landlord is already more than $20, 000. He did not have a choice.
For Utilities like gas, electricity, water, sewerage and telecommunications, there are often hefty deposits and “designated suppliers” which charge higher than usual rates. One would think such bulk purchase by all the tenants of the foodcourt would equate to cheaper, more favourable rates but unfortunately this is not the case. For example, Daniel had to use gas suppliers who charge $11-$16 per metric ton when SP Gas is only about $8 per metic ton. These costs increased his monthly costs by great amounts. He did not have a choice.
If Daniel’s stall is unable to achieve monthly sales of minimally $45K each month for three months, it would be a breach of agreement. If Daniel’s stall cannot get an A grade in its SFA inspection, it would be a breach of agreement. On top of that, the operator can terminate agreement with no reason with just one month’s notice. These are all terms that lean in favour of a landlord. It gave the landlord the space, power and control to evict tenants who are not bringing in the G.T.O sales target they want or those who are not in the landlords’ favour, for whatever reasons. Daniel had to do all he can to appease by paying and paying. He did not have a choice.
In the case of Eddie*, he realised just how much additional expenses there can be relating to renovations, as landlords try all means and ways to protect themselves and their premises at
tenant’s full expense. The biggest irony would be how there would always to be terms that help the landlord to be absolved of all liability even when the landlord is at fault or is negligent. Nor is there any limit on the extent, duration, or frequency of such inconvenience or damage to the tenants.
More than just renovation costs, there are many other associated costs that add to the burden.
Landlord would require insurance coverage like 3 rd Party Public Liability covering not just contractor and tenant but themselves too, as well as Contractor’s All Risks insurance for the fitting out period.
Such insurance costs are often at the tenant’s expense. Other than fitting out deposits, tenants also have to pay administration fees for the approval of designs, professional fees to get certified for safety and electrical turn on ranging from LEW to PE to QP. There are usually many drawing submissions and layers for approval that will delay renovations as well. All these just add to the already hefty renovation costs. He did not have a choice.
Sometimes, even when the overall renovations do not have to be handled by assigned contractors, landlords do stipulate the kind of style/furnishing/look the shop should have. They would list preferred styles, must-haves items, interior designers (the high-end ones) to use, and design concepts. Shop owners with budget constraints for renovations have limited choices because of hefty renovation deposits paid and they have to comply or else they risked getting it confiscated. They did not have a choice.
For one of Eddie’s outlet, his security deposit was delayed and withheld for many months even after he exited the premise. The landlord cited lack of documentation and was unresponsive. At another mall, his renovation deposit was also held back as landlord said that it was pending clearance from their appointed consultant, even when the outlet is already in operation and the design was given full approval by their operations. The layers of clearances and approvals waste so much time and resources.
At another mall, he was made to do some compulsory maintenance works to the premises and had to close for three whole weeks, without rental waivers. Even up-keeping the premises were fully at the tenants’ costs. He did not have a choice.
Fairness goes a long way Once tenants sign an agreement, they are not in any position to protect their interests. To be fair is to not take advantage of the other party knowing that he is not in a position to protect his own interest. This is something many landlords fail to do.
In fact, they made use of tenants’ weakest spot— the desire to protect and continue one’s painstaking built up business— to continue to exploit. It was all about being oppressive and manipulative. Landlords naturally have a stronger bargaining power being in possession of something all businesses need.
Thus it would be unfair, to begin with, to depend on the principle of “freedom of contract” or free market operations. The weaker party, in need of premises for conducting their business, is more or less subjected to the exploitative terms of the landlord and often equipped with only a superficial understanding of the potential consequences of those terms. It is important to recognise the vulnerability of small businesses in such circumstances and for legislation to ensure a nationally consistent and fair tenant protection framework.
Often, what tenants need are choices. The choice to use the lowest quotation, the choice to use
their cheapest supplier and the choice to not pay for a service they do not need etc. It is even more dark and sinister if the sub-contracts that tenants are forced to use are relatives or even subsidiaries of the landlords or that landlords are obviously in receipt of kickbacks and rebates from the suppliers. Landlords should earn their profits from fair and transparent fees that are agreed upon in the tenancy agreement and not engage in such dishonourable acts of deceit.
While it is natural to seek protection and indemnity against claims and damages, it is not fair that only the landlord can receive such protection. As the weaker party, small businesses need to have certainty and rights as well to ensue continuity. Landlords should not have the right to demand maintenance closures, demand premise upkeep without the appropriate rental waivers and compensation. Nor should they be allowed to demand extra fees of all sorts at their absolute whims and fancies. They definitely should not be allowed to impose sales targets or external standards with the penalty being eviction.
There remains a long way to correcting all these injustices towards tenants but as a rule of thumb, fairness will go a long way. Even further than all else.
And in this current pandemic, we all have a long way to go, together.