Competition watchdog studying private retail lease market amid tenant complaints

The CCCS has disseminated a survey soliciting feedback from tenants. ST PHOTO: JASON QUAH

SINGAPORE - The Competition and Consumer Commission of Singapore (CCCS) is looking into the private retail lease market amid a chorus of complaints by mall tenants of an imbalance of bargaining power with landlords and unfair clauses in tenancy agreements.

Tenants had previously said that this imbalance, among other things, has seen them shouldering a large part of the financial burden amid the slowdown caused by the Covid-19 pandemic.

The CCCS has disseminated a survey soliciting feedback from tenants on market competitiveness and lease terms as part of its market study.

The survey was sent to members of trade associations, including the Singapore Retailers Association (SRA) and Restaurant Association of Singapore (RAS), over the last week.

The aim is to help CCCS better understand the market structure and identify any anti-competitive practices, according to a circular to various trade associations seen by The Straits Times.

Feedback from firms will also give government agencies a more holistic view of the private retail lease market and identify any issues that need to be addressed, the circular said, adding that survey responses will be kept confidential.

The competition watchdog said in response to queries by ST that there have been recent reports suggesting that tenants in private retail malls may have been subjected to uneven bargaining power in their tenancy agreements.

"As such, the study aims to better understand the market for the leasing of private retail space in Singapore, including how the market features impact competition in Singapore," a spokesman said.

Previous market studies conducted by the CCCS, including on the online travel booking sector and formula milk, have concluded with recommendations to improve market functioning, such as legislative changes.

Questions on its current tenant survey include how feasible public or strata-titled developments are as alternatives to private retail spaces; whether rental rates charged by different landlords are available for comparison; and whether there have been issues around unfavourable lease terms, such as short notice periods for lease termination.

The study comes amid complaints that some mall landlords have been dragging their feet on rental relief for tenants during the two-month circuit breaker, when most shops have been forced to close.

The Covid-19 outbreak has also sparked a push for fair tenancy legislation, as retailers say the current struggle has brought the growing power imbalance to the fore.

SG Tenants United For Fairness (SGTUFF), an informal grouping of more than 700 tenants of private landlords formed in February, told ST it has been working with SRA and RAS on recommendations for fair tenancy legislation and will have more to share on the issue soon.

The CCCS' survey is a welcome government effort that follows prolonged industry engagement on unfair tenancy terms that have become the norm, a spokesman for the group said.

Such clauses commonly found in tenancy agreements include restrictions on opening another outlet within 1km of a mall, allowing landlords to terminate leases early or relocate stores with no right to compensation and requiring tenants to provide monthly sales information to landlords.

Landlords often do not reciprocate with information on the mall's performance, SGTUFF said.

"So when it comes to negotiation for lease renewal, landlords always have a very clear upper hand in knowing exactly how to price up the rental charges based on their in-depth knowledge of the tenant's sales performance whereas tenants have almost zero leverage."

"These unfair terms have created a situation where tenants end up shouldering a highly disproportionate share of the financial burden from the loss of business during the Covid-19 crisis."

The majority of mall landlords have not stepped up to offer rental assistance beyond the mandatory passing on of government property tax rebates, the group said.

While fair tenancy legislation is an important first step towards creating a more symbiotic relationship between landlords and tenants, re-aligning the incentive system for key stakeholders in real estate investment trusts (Reits), which manage a number of malls, is also worth looking into, it said.

"The current Reit incentives are much more geared towards maximisation of rental charge per sq ft instead of working proactively with tenants to drive traffic and business to the shops in the mall."

Property expert Christine Li, Cushman & Wakefield's head of research for Singapore and South-east Asia, said landlords should be mindful that it may not be easy to find replacement tenants in these uncertain times.

"As the Covid-19 pandemic is likely to be long-drawn, landlords may not wish to alienate or lose important anchor tenants or other key tenants which may have long-term leases and which may not be easily replaced."

Allowing tenants to pay a reduced base rent with a higher proportion of gross turnover may ease rental pressure for tenants while encouraging them to transform their business models, said Ms Li.

The outbreak should also serve as a wake-up call to retailers that had up to now refused to adapt a robust online strategy, she added.

"It is imperative for landlords and tenants to work closely together in partnership for survival," said Ms Li.

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