New code of conduct for fair tenancy practices: What does it mean for landlords and tenants?

For the first time, landlords and tenants have a set of comprehensive guidelines. ST PHOTO: LIM YAOHUI

What is the story?

An industry-led committee has come up with a code of conduct to guide fair tenancy practices. This is an attempt to resolve long-standing issues between landlords and tenants that bubbled over last year during the height of the Covid-19 pandemic.

The committee has also recommended to the Government to introduce laws obliging landlords and tenants to follow the code, which was released last Friday (March 26).

In response, the Government said it supports the recommendation and will be working closely with the industry on the details of potential legislation.

Meanwhile, the Government will be adopting the code and all government landlords will abide by it.

The committee, which counts major landlords such as CapitaLand and Frasers Property Retail among its members, has also committed to following the code from June 1.

The code will apply to all retail leases entered into on or after June 1 with a tenure of more than one year.

Why it matters

Last year, simmering tensions between landlords and tenants bubbled over as they tussled over lease agreements.

Many tenants felt that landlords were abusing their power during the pandemic, refusing to lower rents or pass down rental rebates and waivers at a time when business and revenues were down.

Now, for the first time, landlords and tenants have a set of comprehensive guidelines that lay out specific fair tenancy practices.

In 2015, the Singapore Business Federation (SBF) published a Fair Tenancy Framework listing best practices for key clauses in lease agreements.

However, the guide was developed mostly by tenants without much participation by major landlords in Singapore. As a result, it had little impact on the industry.

This time, to monitor industry compliance with the new code of conduct, a Fair Tenancy Industry Committee (FTIC) comprising landlords, tenants and neutral parties such as academics will be formed by June 1.

Recalcitrant landlords who refuse to comply with the code could be named and shamed by the FTIC, which will monitor instances of non-compliance and update the code as necessary.

With the introduction of the code, the Government has signalled that new laws ensuring compliance are likely to follow - which would be a first for the industry.

One of the key clauses in the code of conduct is using only a single rental computation in lease agreements. This means that there cannot be an "either/or, whichever-is-higher" formula.

Currently, it is common for retail lease agreements to have a rental structure based on either fixed rent per square foot of the premises or on a percentage of the tenant's gross turnover, whichever is higher.

This will not be allowed under the code, unless both landlord and tenant agree and declare to the FTIC within 14 days of signing the lease.

The code also specifies when tenants and landlords can terminate their leases early.

What lies ahead

It is not known when new laws will be introduced to mandate compliance with the code of conduct or what form they would take.

While the code will apply to lease agreements entered into on or after June 1, landlords and tenants have no legal obligation to abide by it until legislation kicks in.

However, members of the Fair Tenancy Pro Tem Committee, which drew up the code of conduct, have publicly pledged to abide by the code.

Committee members who are heads of various trade associations have also said they will also encourage their association members to adopt the code.

These include the Restaurant Association of Singapore (RAS); Singapore Retailers Association; Association of Small & Medium Enterprises; Reit Association of Singapore; and Real Estate Developers' Association of Singapore.

In all, these associations represent a significant proportion of landlords and tenants in Singapore, and their commitment to the code of conduct will likely bring about change in the industry.

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