The Code of Conduct for Leasing of Retail Premises in Singapore released on 26 Mar 2021 brought many cheers from the retailers.
While the Fair Tenancy Pro Tem Committee proposed to the government that the Code of Conduct be made mandatory, the proposal still has to go through legislative due process for the code to have any legal teeth.
Minister of State for Trade and Industry Low Yen Ling provided a much-needed jab in the arm by announcing that the government will back this call for new fair tenancy laws. The Bill is expected to be passed in Parliament in November 2021.
Meanwhile, life goes on for us retailers with existing leases due for renewal and new leasing opportunities showing up.
From now to legislation, adoption of the code is entirely voluntary. Whether I am capable of getting the landlord to adopt the code, in part or in its entirety, rests completely on my ability to negotiate. I am also cognisant that, at any point in time, I can walk away from the deal and so can the landlord. Don’t get all psycho on the landlord just because they refuse to adopt the code now.
As a tenant, what can we do in the meantime?
Adopt the Code of Conduct for Leasing of Retail Premises in Singapore voluntarily with immediate effect.
Your company may commit to adopt the code immediately.
What does that mean? How does that help? Isn’t it just one-sided?
Adopting the code is like adopting a new way of interacting with the landlord’s leasing officer in your lease negotiation. It interrupts and alters the conversation drift to your advantage.
Yes we are keen to renew. Will our new tenancy agreement be compliant with the Code of Conduct for Leasing of Retail Premises?
Oh you haven’t heard anything from your management about this code? You may want to find out. Our company has already adopted the code so all the tenancy agreements we sign moving forward have to be compliant with the code.
What do you mean the Exclusivity clause is a standard clause of your company? Are you sure? It’s explicitly prohibited in the code leh. I think you better check again.
It helps to go through the key leasing terms covered in the code and ask yourself which ones are important to you and which ones aren’t. For example, if your current lease has a “whichever is higher” OR GTO of 8%, which you never achieve, maybe it doesn’t really matter to you if your renewed lease retains that clause.
By anchoring the conversation to the code, you are able to “give” or compromise on those terms that matter little to you and “take” or insist on those terms that matter greatly to you.
Focus on renting or buying retail premises from non-institutional landlords
The code serves to level the bargaining field between all tenants and powerful, institutional landlords that control those Grade A retail premises. Most smaller landlords who are not allocated Grade A land do not usually have onerous leasing terms. You may focus your energies on those i.e. shophouses, HDB shops and strata-titled malls.
What COVID-19 has taught me personally is the importance of diversification. You can look at your real estate mix and ask yourself how many of my shops should be mall shops, shophouses, HDB shops, standalone etc.? Which ones can/should I buy and which ones should I rent?
Focus on shopping malls of landlords who are represented on the pro tem committee
The landlords who are represented on the pro tem committee have pledged to adopt the code by 1 June 2021. Who are they? Capitaland, CDL, Frasers Property, SPH and UOL.
They are your best bet if you’re looking for institutional landlords who are likely to adopt the code before the fair tenancy laws are enacted. Interestingly, to date, none of the landlords listed above have come out openly confirming that they made the pledge to adopt the code by 1 June 2021.
Again, manage your expectations.
It will be interesting to see how things unfold after 1 June 2021.
Sign shorter lease terms if you fail to get the landlord to adopt the code
It is important to note that the code will most likely apply only to tenancy agreements signed after the code is made mandatory by law. It will not apply retrospectively to tenancy agreements that are signed prior to that. If it is that important for you to renew the lease or take on the new lease, you may want to negotiate signing a shorter lease. Our company renewed two leases for one year instead of what we usually do, which is to renew for three years. By the time these two leases are up again a year from now, the code should already be mandatory for all landlords.
At the press conference, Janice from TODAY asked “What is in it for the landlords to adopt the code of conduct before it is made mandatory?”
I see it as the landlords sending a strong signal to the government that, from this entire episode, the landlords took away some valuable lessons and that moving forward, they embrace the spirit of the code and are capable of self-regulating. If not, there’ll be a version 2 and version 3 of the mandatory code of conduct.