The Singapore Business Federation(SBF) published the Fair Tenancy Framework on the 20 January 2015 with the intention of leveling the playing field between landlords and tenants in small, medium enterprises in the commercial, industrial, retail and F&B activities.
With a clear set of leasing guidelines and negotiation principles, tenants of small medium enterprises (SMEs) are better placed to negotiate their leases with bigger landlords which impacts their fixed overheads and operating costs significantly.
Developed by the Rental Practices Working Group (RPWG) of the SBF-led SME Committee (SMEC), based on the principles of fairness for all contracting parties as well as adopting best practices from developed countries like Australia, Korea, Belgium and United Kingdom, the Fair Tenancy Framework has a three-pronged initiative:
Rental Data Transparency – With the help of Ministry of Trade and Industry, Jurong Town Corporation & Urban Redevelopment Authority, authoritative rental data information will be made available without compromising on the confidentiality of businesses/contracting parties. With increased transparency, tenants will be able to make fairer assessment of the market rental of their premises when negotiating with the landlords. It’s hoped that such initiative will have a stabilizing effect on the market.
Education and Awareness – A comprehensive Business Leasing Guide 2015 has been developed, with key clauses, typical leasing terminologies explained as well as the roles and responsibilities of both tenants and landlords outlined to facilitate better understanding of the lease agreement by tenants in an open and honest manner that does not favour one party over the other. The Guide covers three main areas: Negotiations, Financial and Contractual. Each of the above three areas are elaborated under three columns as follows:
- The “Description” column spells out the major terms of a lease agreement under different business conditions and their implications;
- The “Guide” column cites experienced professional advice on specific aspects of the lease term;
- The “Tick Box” column provides tenant and landlord a checklist to guide them through negotiation.
Key clauses explored in the Business Leasing Guide include:
- Rental clauses:
- Gross Rent
- Gross Turnover Rent
- Rental Deposits, including Bank and personal guarantees
- Rent Review
- Service charges, taxes and stamp duty
- Lease term clauses:
- Option to Renew
- Commercial clauses:
- Restriction of Trade within a Radius
- Landlord’s Point of Sale (POS) Systems
- Restriction on Subletting
- Consequences of breach
- Dispute resolution clause
The Business Leasing Guide serves as a great guide although one could argue that its hardly a model template suited for all businesses.
Mediation as the preferred method for dispute resolution – The Fair Tenancy Framework recommends Mediation as the preferred way for dispute resolution. On top of saving time & money, and getting the contracting parties to take ownership, Mediation preserves business relationships and goodwill that had been built up over the years. Adopting Mediation as the dispute resolution method protects the privacy and confidentiality between contracting parties thus avoiding unnecessary media exposure and negative publicity. The most common types of tenancy disputes include breach of agreement, pre-termination of tenancy and rental increase. The Singapore Mediation Centre serves to facilitate Mediation between the tenants and landlords to encourage early settlement so that all parties can move on to conduct their business productively.
While the move by Singapore Business Federation has largely lauded by industry players as a positive step towards a more transparent business environment on equal footing, it remains to be seen if the Fair Tenancy Framework will have a positive impact and the extent of the impact on SMEs in this competitive business environment.
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