Guide to Common Commercial Lease Terms in Singapore
A commercial lease agreement is a contract between a landlord (i.e. the owner of the commercial space) and the tenant (i.e. the business) where the landlord agrees to rent a commercial space to the tenant, subject to both parties complying with certain agreement terms.
In Singapore, there is no statute that states what terms can or cannot be included in a commercial lease agreement. This means that the terms of the agreement are primarily a result of negotiation between the parties.
That said, there are several terms that landlords and tenants in Singapore commonly include in their commercial lease agreements. This article will explain the following common terms in greater detail:
- Lease duration
- Deposits and other fees payable
- Utility and other maintenance
- Office renovation work
- Illegal employment of foreign workers
Commercial lease agreements will explicitly state the duration of the lease. In Singapore, the duration of a lease agreement depends on the size of the commercial space to be leased.
Generally, the duration of a lease agreement for a fairly large commercial space is between 5 to 6 years. However, if the commercial space is relatively small, then the lease agreement is usually between 2 to 3 years.
Towards the end of the lease, most landlords will offer the tenants the option to renew for a further term at the market price prevalent at the time of renewal. Generally, the option to renew for a further term is:
- For a duration that is similar to the lease that is about to end; and
- For a rental amount that was either agreed on beforehand or at the prevailing market rate at the time of renewal.
Commercial lease agreements in Singapore will also state the amount of rent or Gross Rent (GR) that is payable by the tenant to the landlord.
The GR is usually paid on a monthly basis. It is derived from:
- The base rent which is calculated per square foot of the floor area
- Goods and Service Tax (GST) of 7% (if the landlord is a GST-registered company)
- Service charges
Service charges refer to payments to the landlord for general services provided by the landlord, such as building maintenance, building repairs, and security. The amount payable by the tenant for service charges is usually specified in the commercial lease agreement.
3. Deposits and Other Fees Payable
The tenant has to make a refundable security deposit that is usually equivalent to 3 months’ worth of GR. When the lease expires, the tenant’s security deposit can be refunded without interest. However, the amount of refund is subject to the tenant’s performance of the terms of the commercial lease agreement.
This means that if the tenant has breached any terms of the commercial lease agreement, the landlord may use the security deposit to offset any losses suffered as a result of the breach.
4. Utility and Maintenance
Under a commercial lease agreement, the tenant is usually responsible for all general electricity and telecommunication bills that are to be paid by direct account to the relevant service providers.
However, matters such as proper maintenance and ensuring the cleanliness of the exterior premises and common areas are usually done by the landlord. The tenant is only responsible for the proper maintenance and cleanliness of all interior commercial spaces that have been leased.
Generally, the commercial lease agreement will include terms that prohibit the tenant from subletting the commercial space, whether in full or in part, unless the landlord has given its written consent.
Tenants are generally expected to maintain a public liability insurance policy against allegations of personal injury, death or property damage or any form of loss arising out of any and all of their operations in the premises throughout the duration of the lease.
7. Office Renovation Work
When a tenant intends to customise the commercial space to its tastes and preferences, it may only do so in compliance with the commercial lease agreement’s terms on fitting-out works at the premises.
This is because a commercial space in Singapore generally comes with certain standard fittings, standard fire sprinkler and protection systems, air-conditioning distribution ducts, basic lighting, and basic window fittings.
Accordingly, any modifications to the existing fittings must be carried out with the landlord’s approval. This is because the tenant is usually required to return the commercial space back to the landlord in its original form at the end of the lease.
The requirement of tenants to return the commercial space back to the landlord in its original form at the end of the lease is known as “reinstatement”.
The commercial lease agreement will state the extent of reinstatement that needs to be done before the tenant can officially hand the premises back to the landlord. This can include removing all furniture, repainting all walls to their original colour and repairing any damage the tenant has done to the premises.
The reinstatement clause may also state that the reinstatement contractor will be appointed by the landlord at the tenant’s cost. If so, the tenant will have to foot the bill for the reinstatement works conducted by the landlord’s appointed contractor.
9. Illegal Employment of Foreign Workers
It is widely understood that Singapore businesses are highly dependent on foreign workers in the conduct of their daily business. These workers must comply with the relevant statutory regulations and be equipped with the correct permits before they can be employed.
Given the circumstances, the commercial lease agreement may have a provision that prohibits the illegal employment of foreign workers. This means that the landlord excuses himself from all liability should the tenant be found to be illegally employing foreign workers during the conduct of its business.
Whether you are the landlord or the tenant, it is important to ensure that your commercial lease agreement accurately reflects the agreement between you and the other party on the terms of the lease.
You should also have a thorough understanding of the terms of the agreement so you know the exact extent of your rights and obligations.
In this regard, a corporate lawyer will be able to draft a commercial lease agreement that is in line with your intentions for the lease.
If you already have a commercial lease agreement but are unsure of what it says about your rights and obligations, consider having it reviewed by a corporate lawyer to get comprehensive advice on what you can or cannot do under the agreement.
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