The Legal Implications of Violating a Business Code of Conduct

The Code of Conduct for Leasing of Retail Premises in Singapore, overseen by the Fair Tenancy Industry Committee (FTIC), sets mandatory guidelines to ensure fair and balanced lease negotiations between landlords and tenants. Violating this code of conduct can have serious legal implications, affecting both parties’ rights and obligations under the law. This article explores the legal consequences of breaching the code of conduct in retail leasing and highlights the importance of compliance to maintain a healthy landlord-tenant relationship.

1. Legal Status and Mandatory Compliance

The code of conduct is legally mandated under the Lease Agreements for Retail Premises Act 2023, which took effect on 1 February 2024. All qualifying leases signed on or after this date must comply with the leasing principles set out in the code of conduct. Failure to comply can render certain lease provisions void and expose parties to regulatory scrutiny.

For example, if a landlord includes a rental formula that violates the code of conduct—such as an “either/or, whichever is higher” rent clause—such a clause may be deemed unenforceable unless both parties have explicitly agreed to it and the deviation has been declared to the FTIC within the prescribed timeframe (RPC Legal).

2. Enforcement and Dispute Resolution

The code of conduct includes a dispute resolution framework to address breaches. When a party alleges non-compliance, the matter can be escalated through mediation and adjudication processes facilitated by neutral bodies such as the Singapore Mediation Centre.

If mediation fails, an adjudicator may issue binding decisions to vary lease terms or award compensation to rectify breaches (FTIC Code).
Non-compliance with adjudicator decisions can lead to court enforcement and potential financial penalties.

3. Specific Legal Implications of Violations

3.1 Void or Unenforceable Lease Provisions

Certain breaches, such as failing to disclose permitted deviations or including prohibited rent formulas, can cause those lease terms to be void. This means landlords may lose the right to enforce unfair clauses, affecting their rental income and contractual control.

3.2 Financial Penalties and Fees

The FTIC may impose filing fees for declarations of permitted deviations (currently set at S$100 per deviation), and failure to comply with procedural requirements can lead to penalties under the Act (FTIC Code).

3.3 Impact on Lease Negotiations and Renewals

Violations can damage trust, complicate lease renewals, and potentially lead to longer-term disputes that disrupt business operations. Retailers may be reluctant to renew leases with landlords who have a history of non-compliance.

4. Professional and Reputational Consequences

Beyond legal penalties, breaches of the code of conduct can harm the reputation of landlords and tenants alike. The retail leasing ecosystem in Singapore emphasizes transparency and fairness, and failure to adhere to these principles can result in reputational damage and loss of goodwill.

Retailers may avoid leasing from landlords known for unfair practices, and landlords may find it harder to attract quality tenants if they violate the code of conduct (Singapore Retailers Association).

5. Preventive Measures to Avoid Violations

5.1 Educate and Train Stakeholders

Both landlords and tenants should familiarize themselves with the code of conduct and ensure lease agreements comply with its principles. Participating in workshops or training sessions can reduce inadvertent breaches (SGTUFF).

5.2 Transparent and Good-Faith Negotiations

Adhering to the spirit of the code of conduct, parties should negotiate openly and honestly, disclosing all relevant information and avoiding unfair tactics (FTIC Code).

5.3 Timely Declarations of Permitted Deviations

Where deviations from the code of conduct are agreed upon, landlords must submit declarations within 14 days of signing the lease to avoid invalidation of those clauses (RPC Legal).

Conclusion

Violating the code of conduct for retail leasing in Singapore carries significant legal implications, including unenforceable lease terms, financial penalties, and damage to professional relationships. Compliance with the code of conduct is essential for fostering fair, transparent, and sustainable leasing arrangements that benefit both landlords and tenants. By understanding and adhering to these legal requirements, stakeholders can avoid costly disputes and contribute to a vibrant retail leasing ecosystem.

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