Landlords get creative with new fees and charges as leasing code set to become law

Aug 03, 2022

MANDATORY compliance with a new code of conduct for leasing is welcomed by tenants, but several retailers who spoke to The Business Times also flagged that landlords are finding new ways to increase the amounts that tenants have to pay.

Since Jun 1, 2021, the Code of Conduct for Leasing of Retail Premises in Singapore has been voluntarily adopted by major private sector landlords and all government landlords. Legislation is expected to mandate compliance with the Code, following a public consultation exercise from Jul 18 to Aug 5.

But landlords have found ways to exploit tenants beyond the Code, said Terence Yow, chairman of Singapore Tenants United for Fairness (SGTuff) and managing director of shoe retailer Enviably Me.

For example, he said some may impose electrical meter reading charges or other administrative charges that were not previously in lease contracts and are not addressed by the Code.

Its a bit of a cat-and-mouse game where even as (the Code) brings in big improvements to fair tenancy lease contracts, we are seeing that it is a never-ending game of some landlords not all trying to find ways and means to extract other types of income beyond rental, he added.

Logan Wong, managing director of fragrance retailer Pure Senses, has also noticed new costs appearing in lease contracts. As he sees it, landlords are thinking: If I cant make S$10 from you here, where else can I make that?

Over the years, we are starting to see a lot of charges, said Wong. Meter reading and verification fees of more than S$50 and design vetting fees for advertisements are some examples he has seen since the pandemic started.

The issue of errant landlords charging unusual fees did surface in the discussions of the Fair Tenancy Pro Tem Committee, which drew up the Code, but Wong said this issue was not fully addressed because there was no clear distinction between the operational costs of the landlord and the costs they have to incur.

He sees a need for clarity and transparency in the Code as to what kind of charges landlords are able to impose besides rent.
Suggested enhancements

Pat Liew, founder of fashion lifestyle brand BritishIndia, said the Code has also missed out on guidelines for the return of security deposits to tenants. BritishIndia had to vacate its premises in a mall in February 2022, but only received its security deposit 5 months later in July.

Our point-of-sales system was integrated into the landlords system, and they wanted our audited account in April to verify the sales figures. After handing them the audited accounts, we were told that they needed another 3 months before they could release our monies. We find this rather unfair, she said. We kindly ask for guidelines to protect the interest of the tenants on this matter.

SGTuffs Yow hopes that future versions of the Code will make a force majeure clause mandatory. This would free both parties from liability if extraordinary events or circumstances beyond their control, such as the circuit breaker in early 2020, prevent the fulfilment of obligations.

Requiring a force majeure clause was also discussed during the formulation of the Code, but was eventually dismissed. Legally, it is not a simple matter, said Wong. If the clause was adopted specifically for fair tenancy, other industry players would start asking for it as well in their contracts, creating far-reaching consequences for the Singapore economy.
Smaller landlords also hope for changes

Shophouses or strata units have straightforward rental structures, with a fixed rent for up to 3 years so the Code will not have a huge impact on small landlords, said Henry Mok, founder of Facebook group S.O.S Small Owners Society and director of property group Happroperty.

Contractually, we dont have a profit sharing model like the large landlords who charge a portion of gross turnover rent (GTO). We also dont charge for advertising, marketing and promotion (AMP), Mok said.

Small tenants tend to have brief and simple tenancy agreements of perhaps 5 pages, while more explicit and detailed agreements with larger landlords could span 50 to 60 pages, according to Wong of retailer Pure Senses.

One problem during the pandemic was a lack of recognition of the difference in contracts with big and small landlords, Mok noted. When the pandemic first hit in 2020 and landlords had to provide rental waivers, large landlords could leave out GTO and AMP expenses, waiving only rental itself, which forms just 50 to 60 per cent of what tenants actually pay. But small landlords only receive rental revenue, and so lost all their income.

The Code can have provisions to make sure that small landlords are not disproportionately disadvantaged over the bigger landlords, especially in adverse situations, said Mok. The variety of small tenants and contracts may also make it a challenge to draw up contracts that are Code-compliant, he added.

The challenge will be how quickly we roll out education regarding the Code for both tenants and landlords, and even property agents, before the Code is legislated, SGTuffs Yow said.
Positive response

Overall, the Code is expected to help tenants. For instance, landlords could previously choose to take the higher of a fixed rental income or a portion of tenant sales every month. The Code restricts landlords to picking one option for the entire period of the lease agreement, which could result in lower overall rental costs.

The Code provides more stability for tenants, said Terence Ho, group director of marketing and business development at A Wellness Holdings. We have frequently experienced landlords asking for rental based on floor area or percentage of revenue, whichever is higher. This always results in a higher cost for us, with the landlords on the safer side.

As business costs have risen dramatically in the past 2 years with higher logistics costs, supply chain issues and inflation, reducing rental costs through the Code is a much-needed industry effort, said Yow.

The latest version of the Code addresses most of the lease contract issues that we see today. At the same time, it is a dynamic live document where the FTIC (Fair Tenancy Industry Committee) will look into continual refinement, he added. Once legislation pushes through, the Code will be a big breakthrough not just for Singapore, but also many other developed parts of the world which dont yet have such a formalised code. Its very big progress and a first step but that is what it is, a first step.