Key Clauses to Look for in a Fair Tenancy Lease Agreement

Leasing a commercial space is a significant commitment for businesses in Singapore, where rental costs account for a major portion of operational expenses. According to URA data, commercial property rental rates increased by 12.4% in 2023, reflecting the competitive market. Given these rising costs, understanding key lease clauses is crucial to securing a fair agreement that protects your business.

The Fair Tenancy Industry Committee (FTIC) introduced the Fair Tenancy Framework to promote transparency and reduce power imbalances between landlords and tenants. Whether you run a retail store, office, or F&B outlet, reviewing your lease terms carefully can prevent future disputes and financial strain.

1. Lease Duration & Renewal Terms

A lease agreement typically lasts between 3 to 5 years in Singapore, but durations can vary depending on location and property type.

Key Considerations:

Renewal options: Ensure the agreement includes an option to renew at fair market rates. Some leases contain automatic rent increases that may exceed market conditions.
Break clauses: If you anticipate potential business changes, negotiate an early termination option with minimal penalties.
Rent-free periods: Some landlords offer 1 to 3 months rent-free to help new businesses set up.

2. Rental Structure & Escalation Clauses

Rental costs in prime locations can be steep, with Orchard Road retail spaces averaging $40 – $60 per square foot (psf) and suburban malls charging around $15 – $25 psf. It’s essential to understand how rent is structured and whether it escalates over time.

Common Rental Models:

Fixed Rent: A set monthly amount, providing predictability.
Revenue-Sharing Rent: A percentage of your sales (often 5% – 15%) is paid as rent, common in high-traffic malls.
Step-Up Rent: Rent increases incrementally (e.g., 5% per year), which may become costly over time.

Check if the lease includes cap limits on rent hikes to avoid excessive increases.

3. Security Deposit & Advance Rent

Landlords often require security deposits of 2 to 6 months’ rent, depending on lease length and property type.

Things to Check:

Refund conditions: Ensure the deposit is refundable unless there is documented damage.
Holding period: Some landlords delay returning deposits for up to 6 months after lease termination—confirm the exact terms.
Advance rent payments: Some leases require 1-2 months of advance rent upon signing.

For dispute resolution, visit CASE Singapore.

4. Maintenance & Repair Responsibilities

Understanding maintenance obligations prevents unexpected expenses.

Common Lease Terms:

Landlord’s responsibility: Structural repairs, major systems (e.g., HVAC, plumbing).
Tenant’s responsibility: Interior maintenance, minor repairs, and sometimes air-conditioning servicing.

Some agreements include service charges for common area upkeep, often $0.50 – $1.50 psf monthly.

5. Subletting & Assignment Rights

If you may need to exit the lease early, subletting or assignment rights are important.

Subletting clause: Defines if you can rent part of your space to another tenant.
Assignment clause: Determines if you can transfer the lease to a new tenant.

Always get landlord approval policies in writing before proceeding.

6. Termination & Exit Clauses

Given business uncertainties, knowing how to exit a lease early can prevent financial strain.

Key Termination Considerations:

Early termination clauses: Some leases allow exits under specific conditions, such as financial distress or relocation.
Force majeure clauses: Covers unforeseen events (e.g., pandemics, government restrictions) that may impact operations.

Check Singapore contract law for lease termination rights.

7. Dispute Resolution Methods

Lease disputes can lead to legal battles and financial losses. A fair lease should outline mediation or arbitration processes.

Mediation: A cost-effective way to resolve disputes.
Arbitration: A binding process that avoids lengthy court proceedings.

For assistance, refer to Singapore Mediation Centre.

Conclusion

A fair tenancy lease should protect both landlords and tenants by ensuring transparent rental structures, reasonable renewal terms, and clear exit strategies. With rental costs rising, negotiating favorable terms is more critical than ever.

Empowering Businesses with SGTUFF

At SGTUFF, we believe in creating a level playing field for businesses in Singapore. Whether you’re a tenant navigating leasing challenges or an SME striving for growth, we provide resources and insights to help you succeed.

Here’s how you can get started:

Become a Member: Unlock exclusive tools and networking opportunities with our Membership Plans.
Learn More: Gain practical insights into fair tenancy practices with our guide: Master the Code of Conduct for Retail Leasing.