Singapore Business Federation announces introduction of Code of Conduct for Leasing of Retail Premises
28 April 2021
On 26 March 2021, Singapore Business Federation (“SBF”) announced the introduction of the Code of Conduct for Leasing of Retail Premises, which was developed by the Fair Tenancy Pro Tem Committee (“Committee”).
Comprising representatives from the landlord and tenant communities, industry experts and members from academia, the Committee was formed in June 2020 to strengthen collaboration between landlords and tenants and address long-standing tenancy issues for the retail, F&B, and lifestyle sectors, and establish industry norms on tenancy practices and terms. SBF facilitated the work of the Committee and discussions between landlords and tenants.
Through the deliberations, the Committee developed a Code of Conduct for Leasing of Retail Premises in Singapore (“Code”) with the objective of providing a set of guidelines to enable a fair and balanced position in lease negotiation, developing a governance framework to ensure compliance by the industry, and introducing an accessible dispute resolution framework.
The members of the Committee have committed to adopt and abide by the Code from 1 June 2021. They also pledge to encourage their stakeholders in the retail, F&B, and lifestyle sectors to adhere to the guidelines. The Committee has also recommended to the Government for compliance with the Code to be made mandatory via legislation.
The Code sets out guidelines for the negotiation of lease agreements in various areas, including rental structure, third-party fees, pre-termination by landlords or tenants, and data sharing. The Code is applicable to all qualifying retail premises in Singapore, and these retail premises can be housed in standalone commercial buildings such as shopping centres, office buildings, shop houses, MRT stations, or other types of buildings.
A Fair Tenancy Industry Committee (“FTIC”) will be formed by 1 June 2021 to serve as the custodian of the Code and to monitor industry compliance. Representatives from both the landlord and tenant communities, as well as other independent representatives, will be on the FTIC.
In the event of non-compliance with the Code by either landlord or tenant, the matter may be referred to the FTIC. FTIC will provide advice regarding the Code and keep track of instances of non-compliance. For individual cases of disputes, either the landlord or the tenant may bring the dispute to the Singapore Mediation Centre.
Matters provided for in the Code include the following:
- Negotiation in good faith: Landlords and tenants must adopt a consensual approach to negotiate in good faith, which includes acting honestly and fairly having regard to the legitimate interests of the other party and observing accepted or reasonable commercial standards of fair dealing in the performance of identified obligations. Neither party shall attempt to unfairly profit, or take unfair advantage of the other party, from the known ignorance of the other party.
- Exclusivity: As a general rule, exclusivity clauses (e.g. any provision which prevents or restricts a tenant from opening a branch or franchise within a certain radius of the qualifying retail premises or which prevents or restricts a landlord from leasing premises with a similar trade or business in the same building where the qualifying retail premises are located), whether during or after the end of the lease term, must not be included in the lease agreement. However, on an exceptional basis, such an exclusivity clause may be included in the lease agreement if both parties agree to it. A joint declaration by both parties on the inclusion of the exclusivity clause must be made to the FTIC within 14 days after both parties sign the lease agreement.
- Sales performance: As a general rule, sales performance clauses (e.g. a clause which allows landlord to pre-terminate the lease if a specified sales target is not met by tenant) must not be included in the lease agreement. However, on an exceptional basis, a sale performance clause may be included if both parties agree to it. A joint declaration by both parties on the inclusion of the sales performance clause must be made to FTIC within
14 days after both parties sign the lease agreement. - Material adverse change: While not mandatory, the landlord and tenant are encouraged to re-negotiate the lease agreement in cases where the tenant is prevented, obstructed or hindered from performing its typical business activity at the leased premises due to events beyond the tenant’s control, e.g. compliance with the requirements of any law, regulation, by-law or requirements of a public authority (including but not limited to store closure in the interests of public health).
- Rental structure: As a general rule, the rental formula in a lease agreement must be based on a single rental computation throughout the lease term, i.e. the rent structure must not have an “either/or, whichever is higher” formula. However, on an exceptional basis, if both parties agree to an alternative rental structure that is not based on a single rental computation, such alternative rental structure can be included in the lease agreement.
A joint declaration by both parties on the agreed alternative rental structure must be made to FTIC within 14 days after both parties sign the lease agreement.
Comment
With the introduction of the Code, landlords of qualifying retail premises are starting to undertake a comprehensive review of their existing retail lease templates in order to incorporate and align them with the leasing principles set out in the Code with a view to ensuring compliance with the Code from
1 June 2021 onwards. In terms of practical application of the Code, FTIC will continue to monitor the performance of the Code and keep the Code updated in line with the latest market practices, guided by the principles of transparency, fairness, reciprocity and sustainability together with enhancements of the regulatory framework to ensure compliance with the Code by landlords and tenants.
Reference materials
The following materials are available on the Singapore Business Federation website www.sbf.org.sg and MTI website www.mti.gov.sg: