POSTED 3 Jun 2019 - 09:58

Should fair rent terms be enforced in order to level the playing field?

Is it necessary for Singapore to expand on the Fair Tenancy Framework by introducing fair tenancy legislation?
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Top Response

Lim Soon Hock, Managing Director, PLAN-B ICAG Pte Ltd

Rental is a major cost item for businesses, both big and small. When a company signs a lease, it should take affordability into account, not only during the tenure, but into the future. In other words, future growth in the business must be able to support any potential rental increase and not...

Responses

Annie Yap, CEO, AYP HR Group
17 Jun 2019 - 10:56

Given that Singapore's leasing practices operate on free market principles, SMEs are generally disadvantaged, compared to landlords, in trying to protect their own interests.

There should be stipulations to bind the proprietor/landlord and occupant/tenant. Singapore should introduce fair tenancy legislation, perhaps taking a leaf from Australia's experience.

Rental costs can be freely negotiated between proprietor and occupant but rental cost increases or termination during the contract period should be reviewed and approved by a tribunal to safeguard both parties' interest.

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David Leong, Managing Director, PeopleWorldwide Consulting Private Limited
3 Jun 2019 - 10:08

THE Fair Tenancy Framework aims to establish a set of clear leasing guidelines and negotiation principles for small businesses looking to rent premises for commercial, industrial, retail and F&B activities. It is an issue of imbalanced bargaining power - not so much private landlords against the tenants at large, but particularly large landlords like the listed REITS, JTC and Temasek-linked companies, such as Capitaland.

The recent CapitaLand and Ascendas-Singbridge S$11 billion deal to create Asia's largest diversified real estate group is a real force to be reckoned with, spanning residential, commercial, retail to industrial. The monolithic giant's pricing power has great influence over the market price benchmark.

Singapore Business Federation hopes to align Singapore to countries that have legislated tenancy acts to protect tenants and small retailers, including Australia, the UK and Canada. However, these countries have relatively fewer such monolithic giants that hold sway on rental pricing.

The large property giants and REITs must come on board the Fair Tenancy Framework initiative. Introducing Fair Tenancy legislation will hopefully put real teeth to the enforcement tiger.

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Zaheer Merchant, Regional Director (Singapore & Europe), QI Group of Companies
3 Jun 2019 - 10:07

Singapore does not need ''fair tenancy'' legislation in my opinion. The impression given is that our tenancy rules may be unfair, which is incorrect. Tenancies are commercial terms. But both parties are perfectly capable of arm's length negotiations. We also have a body of established legal precedents to clarify parties' intent and dealings (see the 2017 Takashimaya case).

The converse otherwise may become painfully evident - by over legislating, such as having regulated or assured tenancies, or worse where tenancies cannot be severed (leaving landlords in an invidious position). If anything, a Rent Review Board similar to the Strata Titles Board can be set up to help oversee fair rent evaluation. Jurisdiction to deal solely with rental matters can be placed in the board, along with say, a mandatory clause in tenancy agreements that rental increases are pursuant to a reasonable notice (similar to a rent increase notice under the Housing Act 1988 of UK).

But anything else detracts from the free market enterprise. Nor should tenancy grievances such as short-term let (like Airbnb which is prohibited) or other commercial/disruptive elements creep in and be confused for needing protectionist measures or legislation.

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Maren Schweizer, Director, Schweizer World Pte Ltd
3 Jun 2019 - 10:07

Rent control, seen by many economists as old-fashioned, has recently made a surprising comeback in high-growth, dynamic economies.

Considering any rent control requires a minimalist approach. It should be easy to determine if the unit is covered by rent control or not and any basis has to be transparent.

The most common form of rent control is where rents are initially freely negotiable but there is a limit on the amount of rent increase (''tenancy rent control'' or ''second-generation rent control'').
Using the consumer price index (CPI) for calculating rental increases has proven to work in many countries, both for tenants as well as for investors.

Tenancy rent control shall be accompanied by vacancy decontrol - when the unit is vacant, rents can be increased by any amount. Newly constructed buildings are usually exempt from rent control.

By using artificial intelligence in the real estate management sector there is room to reduce cost. AI is here to stay, and property managers should be excited about a future where machine learning simplifies otherwise time-consuming (time equals cost) tasks.

Furthermore, when moving towards rent control it is important to manage distortion of economic incentives that might lead to a reduced supply of rental units while keeping any scheme easy to implement and execute.

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Lim Soon Hock, Managing Director, PLAN-B ICAG Pte Ltd
3 Jun 2019 - 10:05

Rental is a major cost item for businesses, both big and small. When a company signs a lease, it should take affordability into account, not only during the tenure, but into the future. In other words, future growth in the business must be able to support any potential rental increase and not left to chance.

The introduction of a fair tenancy legislation will not only distort the rental market, which should be left to the forces of demand and supply, but also create unnecessary legal complications with respect to compliance and disputes, let alone possible abuse.

On the matter of rents, landlords (lessors) and tenants (lessees) must and will have to cut the coat according to their cloth, to keep their respective businesses viable, given that both parties also have costs to manage.

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Sheena Chin, Country Director, Veritas Storage Singapore
3 Jun 2019 - 10:04

The leasing challenges faced by SMEs are real. However, we should not be in a haste to introduce fair tenancy legislation as this could result in market distortions or unintended consequences. For instance, landlords might simply impose a higher rental fee upfront to counter the legislation.

It is critical to strike the right balance between competing interests, with safeguards in place to protect SMEs against injustice.

The fundamental challenge lies in strengthening the capabilities of SMEs in Singapore, especially when businesses operate on free market principles. To level the playing field, SMEs would need to explore new ways to grow their businesses - to bolster their relative bargaining positions vis-a-vis the landlords.

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Helen Ng, Chief Executive Officer, Lock+Store
3 Jun 2019 - 10:04

Fair tenancy legislation would help level the playing field for tenants. In addition to ensuring greater clarity with regard to lease terms and conditions, the legislation should also support a transparent arbitration process conducted by a neutral party with appraisal expertise. This dovetails with Singapore's aim to be a global arbitration centre. Mediation and arbitration should be the key dispute resolution mechanisms of the legislation.

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Dennis Yeo, Chief Executive, Cushman & Wakefield, Singapore and South-east Asia
3 Jun 2019 - 10:03

Putting in place fair tenancy legislation would be a step in the right direction. Some level of parity would certainly help small and medium enterprises who operate out of a small space. They spend a substantial sum fitting out a shop space, while running the risk of their leases being pre-terminated or not renewed.

Lease renewals should take into account market rents rather than rental levels that are determined by landlords. There is room for more transparency and flexibility in relation to service charge components including property tax charges. This way, tenants pay less when taxes are reduced.

Conversely, they should be prepared to pay more when taxes are raised. In addition, putting in place a lower cost dispute resolution channel would help SMEs manage costs better. Many are daunted by the prospect of seeking legal recourse in a dispute, deterred by the hefty legal fees they will have to incur.

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