With the recent COVID-19 pandemic sending ripples across multiple sectors, industry leaders have been working hard to find ways to mediate the negative impacts. Although some sectors have remained resilient when the economy is seeing many sectors struggling, the retail sector has been facing immense pressure and ordeals.
This fall in demand for retail goods has reduced retail tenant’s revenue and profits. Efforts to halt the drop in profits were dealt a further blow when landlords refused to grant rent rebates or discounts, on top of a refusal to renegotiate rent terms.
Announcement of “Code of Conduct for Leasing of Retail Premises in Singapore”
Distressed tenants would have breathed a sigh of relief upon hearing the recent industry-led initiative, “Code of Conduct for Leasing of Retail Premises in Singapore” which was announced on 26 March 2021. It represents the efforts of The Fair Tenancy Pro Tem Committee at rejuvenating the retail industry in Singapore and will apply to any retail leases entered into, on or after 1st June 2021, with a tenure longer than a year.
Referencing from an extract from Singapore Business Federation’s website states that the Code is divided into four main sections:
Part A: Conduct and Spirit of Negotiations
To negotiate in good conscience, landlords and tenants must take a cooperative approach. Neither party can attempt to benefit unfairly or take unfair advantage of the other.
Part B: Leasing Principles for Key Tenancy Terms
There are a total of 11 key tenancy terms, including exclusivity, landlord pre-termination due to landlord redevelopment works, sales efficiency, and tenant pre-termination, among others.
Part C: Data Transparency
If landlords receive sales data from tenants as part of the Gross Turnover rent structure, landlords must share sales data metrics by trade category (i.e., total monthly sales, total floor area) on a one-on-one basis before signing the lease agreement and to current tenants on a bi-annual basis.
Part D: Dispute Resolution & Enforcement of Code of Conduct
Parties may report cases of non-compliant activities to the FTIC. The identified cases will be gathered and monitored by FTIC. All lease agreements must provide a checklist of clauses from the Code of Conduct, and any clauses that deviate from the Code of Conduct must be flagged by the landlord for the tenant’s review.
If all parties consent to the deviation, a joint statement of deviation must be filed with FTIC within 14 days of signing the lease agreement if the Code of Conduct allows for it. Should a dispute or conflict occur because of the lease agreement, either party can take the matter to Singapore Mediation Centre (SMC) for resolution. Once escalated, both parties must approach SMC and shall comply with the resolutions of the SMC.
So how exactly does the code rejuvenate the Retail industry?
Simply put, the code is meant to ensure fairer lease agreements between the landlord and tenant, enforcing guidelines on key lease terms such as rental structures, lease termination and legal costs incurred for the preparation of documents. This will protect tenants from having to pay unreasonable rents during these challenging times, ensuring that they can continue and stay in business.
These terms cover a range of areas and ensure that both landlord and tenant can protect their self-interests. For instance, there is greater transparency between landlord and tenant over their financial dealings. Costs incurred over the preparation of the lease agreement, as well as third party costs will be disclosed between both parties. With such stringent measures imposed, safeguards are in place to prevent any exploitation for profits.
Termination clauses are also streamlined to ensure both parties safeguard their best interests. A landlord can terminate the lease before its expiry if substantial redevelopment work to be done requires tenants to move out from the premises. On the flip side, tenants can call time on the lease if their business principal is insolvent, or if they have lost distributorship or franchise rights for reasons not due to their non-performance or breach. A 6 months written notice has to be given to the other party and a compensation amount that was specified in the code has to be paid, for either of the aforementioned scenarios to be approved.
However, prohibitions and controls are imposed to ensure that either party does not overstep the mark when looking out for their self-interest. Landlords are not allowed to end the lease if their tenants fail to hit a certain sales target. Nor are tenants allowed to include an exclusivity clause to prevent the landlords from leasing out space to their business competitors. This ensures that some semblance of fairness for both parties is maintained and that any business dealings are conducted in a mutually beneficial manner.
What can we expect from the Fair Tenancy Industry Committee (FTIC)?
Plans are in place for the formation of a Fair Tenancy Industry Committee (FTIC) by 1 June 2021, which will comprise of landlords, tenants and neutral parties like academics. The FTIC will act as a mediator in the case of disputes between landlord and tenants over terms of the code and will go to great lengths to ensure compliance, to the point of naming and shaming parties flouting the terms.
The Government has already voiced their support for this implementation and landlords are committed to abiding by it. With such backing and measures in place, the implementation of this code of conduct is likely to be a smooth process.
This code of conduct is a step in the right direction in towards some form of normalcy. While the granting of rent rebates and reliefs by the Government are beneficial, it isn’t sustainable in the long term and the private sector has to play their part as well. Hence, implementing such a code of conduct to ensure the co-operation of landlords and tenants is an effective solution to help the retail sector tide through these challenging times.