Negotiating a Fair Tenancy Agreement: 10 Best Practices for SMEs

For SMEs in Singapore, securing a fair tenancy agreement is vital to maintaining financial stability and operational flexibility. The right lease terms can help retailers avoid unnecessary expenses and disputes. Here are ten best practices to help SMEs negotiate better tenancy agreements.

1. Understand the Code of Conduct for Retail Leasing

Singapore’s Code of Conduct for Leasing of Retail Premises was introduced to establish fair leasing standards between landlords and tenants. The Code outlines clear principles on rental structure, renewal terms, and dispute resolution. Effective from February 2024, compliance is now mandatory for new retail leases.

How to Apply: Before negotiating, download and study the Code of Conduct. Identify clauses that protect tenant rights, such as rent escalation limits and dispute resolution terms. During discussions, reference specific clauses to strengthen your position.

2. Research Market Rental Rates

Before signing a lease, SMEs should analyze the prevailing rental rates in their desired location. Utilize platforms like URA’s Rental Data to benchmark rates and ensure landlords are offering competitive pricing.

How to Apply: Visit URA’s website and extract rental data for similar-sized units in your location. Prepare a document comparing your landlord’s offer with market rates. If the landlord’s rate is higher, present your research and negotiate a fairer price.

3. Engage a Professional Advisor

A real estate consultant or legal expert can help review tenancy agreements and highlight hidden clauses that may be disadvantageous. The Council for Estate Agencies (CEA) offers guidelines on engaging licensed professionals to assist in lease negotiations.

How to Apply: Approach a CEA-registered property agent specializing in commercial leases. Ask them to review the lease and identify unfavorable terms. Use their report as leverage during negotiations.

4. Negotiate Favorable Rent Structures

Landlords may propose fixed rents, turnover-based rents, or a combination of both. Negotiate a structure that aligns with your business model. The Fair Tenancy Industry Committee (FTIC) recommends transparency in rent computation to prevent hidden costs.

How to Apply: If your business has fluctuating revenue, propose a turnover-based rent with a reasonable base rent. Show revenue projections to justify a flexible structure.

5. Seek Flexible Lease Terms

Negotiate for renewal options, rent-free periods, and break clauses that offer flexibility. Retailers should push for an option to renew clause to secure rental continuity at a predefined rate.

How to Apply: When discussing terms, request a 3+3 lease structure where the lease runs for three years with an option to renew for another three years. This prevents sudden rental hikes upon renewal.

6. Scrutinize Common Area Maintenance (CAM) Fees

Common Area Maintenance (CAM) fees can add unexpected costs. Ensure that the lease specifies which expenses are included. Avoid contracts that allow arbitrary increases in service charges. Singapore Business Federation (SBF) advises SMEs to cap maintenance fee increases where possible.

How to Apply: Request a detailed breakdown of CAM fees. Negotiate a cap on annual increases, such as a 3% maximum increment per year.

7. Clarify Permitted Use and Renovation Rights

Ensure that the lease agreement clearly defines permitted business activities. Seek approval for minor renovations without excessive landlord restrictions. The Building and Construction Authority (BCA) provides guidelines on permitted renovations and alterations.

How to Apply: If your business requires renovations, request a clause allowing specific works without requiring additional approval. Get pre-approval for necessary renovations before signing the lease.

8. Include a Clear Dispute Resolution Mechanism

The lease should specify mediation or arbitration as the preferred dispute resolution method instead of lengthy court proceedings. The Singapore Mediation Centre (SMC) provides structured dispute resolution services.

How to Apply: Insert a clause stating that all disputes must first go through mediation at SMC before legal proceedings. This ensures faster and less expensive resolutions.

9. Monitor Lease Expiry and Renewal Notices

Leases often require tenants to give notice months before expiry. Missing this deadline could lead to automatic lease termination or unfavorable renewal terms. Set calendar reminders and review options early.

How to Apply: Create a calendar alert three months before the renewal deadline. Schedule a discussion with your landlord well in advance to renegotiate terms if necessary.

10. Document All Negotiated Terms

Verbal agreements hold little legal weight. Ensure that all negotiated terms are documented in writing and included in the final lease agreement. The Law Society of Singapore offers guidance on contractual best practices.

How to Apply: After negotiations, draft a formal letter summarizing agreed terms. Request both parties to sign the document before finalizing the lease.

Conclusion

SMEs in Singapore must approach tenancy negotiations strategically to secure fair lease terms that support business sustainability. By leveraging industry guidelines and legal frameworks, businesses can avoid costly pitfalls and foster positive landlord-tenant relationships.

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.