Guide to Letters of Intent for Property Rentals in Singapore

Before renting a property in Singapore and signing your tenancy agreement, your landlord might ask you to sign a letter of intent. This article will explain:

• What is a letter of intent?
• What terms are generally included in a letter of intent?
• What should you do before signing a letter of intent?
• What happens after you’ve signed a letter of intent? 
• How can you get a letter of intent template?

What is a Letter of Intent?

A letter of intent shows that you intend to enter into a tenancy agreement with your landlord.

While a letter of intent is not legally binding and not all landlords will ask for a letter of intent, providing one is important as it shows that you are no longer looking at other possible properties to rent. Likewise, your landlord will not look for other prospective tenants after receiving a signed letter of intent from you.

What Terms are Generally Included in a Letter of Intent?     

A letter of intent generally includes terms typically covered in a tenancy agreement, such as the terms of the lease, payment of security and good faith deposits and a diplomatic clause. This is because the letter of intent shows an intention to enter into the tenancy agreement, and should thus reflect the terms that will be included in the tenancy agreement. These clauses will be discussed further below.

Terms of the lease

The letter of intent will provide for the terms of the lease, such as the rental amount and lease duration. The lease duration is usually two years. It is rare to find a lease for durations below 12 months.

Security deposit

The letter of intent will also provide for the payment of a security deposit.

The security deposit is generally 1 month’s rent for a year’s lease, and 2 months’ rent for a 2-year lease. The security deposit may serve as compensation to your landlord if you damage the property due to negligence, or if you end the lease early.

Good faith deposit

The good faith deposit is paid on providing the signed letter of intent. It shows that you are serious about renting the property. The sum is generally 1 month’s rent for a year’s lease, and 2 months’ rent for a 2-year lease.

While they may seem similar, there are several key differences between the good faith and security deposits:

1. First, the good faith and security deposits serve different purposes. The security deposit serves as compensation in the event that you damage the property due to negligence or if you end the lease early. On the other hand, the good faith deposit serves to signal your intention to lease the property from the landlord.
2. Second, the good faith and security deposits are to be paid at different times. The good faith deposit must be paid upon signing the letter of intent while the security deposit has to be paid upon entering into a tenancy agreement.

Note that the good faith deposit may become a part of the security deposit or a rental advance when you sign the tenancy agreement with your landlord. In such circumstances, you will need to pay only the balance of the security deposit to your landlord, if any.

Additionally, the security deposit will be kept for the duration of your lease and will be returned to you when the lease ends and there’s no reason for the landlord to withhold it.

Diplomatic clause

The diplomatic clause allows you to end the rental contract before the lease is up by giving due notice (typically at least 2 months). This clause applies for leases above 12 months in length.

If you are an expatriate, you should state in the letter of intent that you want this clause in your tenancy agreement, in the event that you need to leave Singapore and thus terminate your lease agreement early.

Specific requests

Because your letter of intent should include the terms that you and your landlord have agreed on, you should ensure that clauses that you intend to include in your tenancy agreement are included in the letter of intent.

The letter of intent will also provide for any specific requests you might have regarding the property, such as requests relating to the furniture. For instance, you might request your landlord to replace existing furniture that is in poor condition.

What Should You Do Before Signing a Letter of Intent?

Before submitting the letter of intent and paying the good faith deposit to your landlord, you should check that he or she is the owner of the property. This is important because you may fall victim to fraud otherwise. There have been cases where tenants have paid deposits to fraudsters who were not the owners of the property, and these fraudsters made off with the deposits paid.

There are at least three ways of verifying the identity of your landlord:

1. One way is to get your landlord to sign into the Singapore Land Authority’s MyProperty portal to check the HDB flat or private properties that he owns.
2. If you are renting a HDB flat, you can also ask your landlord to sign into his HDB account.
3. Alternatively, you can check his ownership using the IRAS myTax portal on your own by paying $2.50 for each search.

What Happens After You’ve Signed a Letter of Intent? 

When you submit your letter of intent to your landlord, your landlord will countersign the letter of intent. You should also pay the good faith deposit directly to your landlord instead of your property agent. This is because there have been cases of agents absconding with the good faith deposit.

After both you and your landlord have signed the letter of intent and you have paid the good faith deposit, your landlord will send you a draft tenancy agreement within the agreed time frame. You will then have some time, as agreed by you and your landlord, to review the agreement and sign it.

If you back out of renting the property after signing the letter of intent, the good faith deposit will be forfeited. However, you can get the good faith deposit back if you and your landlord cannot agree on the terms of the tenancy agreement, or if your landlord changes his/her mind and decides not to rent the property to you.

How Can You Get a Letter of Intent Template?

As the tenant, your property agent might provide you with a template for the letter of intent. If you are unsure of the terms in the letter of intent or the tenancy agreement, you should consult a conveyancing lawyer.

A conveyancing lawyer can help you to review the letter of intent and tenancy agreement, and explain the meaning of the clauses in these documents to you. Additionally, a conveyancing lawyer can help to highlight potentially unfavourable clauses to avoid problems during your lease.

You may get in touch with experienced conveyancing lawyers here.