SINGAPORE - Lease agreements between landlords and tenants of all retail premises will have to comply with an industry code of conduct from early February in 2024, as legislation is strengthened to level the playing field between the two parties.

Among other things, landlords will be barred from using rental formulas that change during the lease, and from including clauses in their contracts to make their tenants pay for unspecified costs.

The Lease Agreements for Retail Premises Bill, which was first introduced in Parliament on July 4 and passed on Thursday, will make compliance with the code of conduct for the leasing of retail premises in Singapore mandatory.

These premises include eateries, clinics, pet shops, tuition centres and gyms.

Minister of State for Trade and Industry Low Yen Ling said the code provides tenants and landlords with greater clarity on industry norms for key terms in retail lease agreements.

“This makes the negotiation process more transparent for both parties and addresses the tenants’ concerns over imbalances in bargaining power,” she told Parliament.

However, this does not signal a shift in the Government’s position on free market principles, she said, in response to points raised by Mr Lim Biow Chuan (Mountbatten) and Mr Murali Pillai (Bukit Batok) during the debate on the Bill.

“The Government’s underlying philosophy has always been and still is, in the words of then Senior Minister of State Indranee Rajah in 2018, that ‘free market principles should apply, and the Government should only intervene where necessary’,” said Ms Low, adding that the Bill does not seek to intervene in market outcomes or distort competition or market forces at work.

She said: “We recognise the potential downsides of over-regulating in the lease negotiations space where market forces and commercial considerations should prevail.”

Mr Lim had expressed concern about Parliament being asked to legislate matters which “ought to be determined by market forces”. He also cautioned that recommendations in the code may tilt too much towards protecting tenants if more members of the committee reviewing the code are pro-tenants.

Ms Low said that the Bill empowers the industry players in the retail sector to come together to identify, agree on and address key pain points by finding common ground.

Besides mandating the guidelines of the code, the Bill formally establishes the Fair Tenancy Industry Committee as a custodian of the code.

The committee, which is appointed by the minister for trade and industry, includes representatives from tenants and landlord groups, as well as industry experts. It has three main roles: periodically review and, with the minister’s approval, modify the code; monitor and promote compliance by tenants and landlords; and establish the process for submission of declarations of permitted deviations from the code’s leasing principles.

Four leasing principles under the code can be deviated from if the landlord and the tenant mutually agree.

Since June 2021, when the code was introduced, all government landlords and nine major private-sector landlords have voluntarily adopted the code. To give other landlords time to come on board, the Bill will take effect in early February in 2024, covering all new leases, extensions or renewals, said Ms Low.

Several MPs asked whether more data could be made available to help tenants make informed decisions about leasing.

Mr Saktiandi Supaat (Bishan-Toa Payoh GRC) and Workers’ Party MP Louis Chua (Sengkang GRC) asked if data transparency guidelines outlined in the code will be mandated under the Bill.

The data transparency guidelines state that landlords who collect sales data from tenants as part of the gross turnover rent structure must share sales data metrics by trade category – such as total monthly sales and total floor area – on a one-on-one basis before the signing of the lease agreement.

Ms Low confirmed that these guidelines would be mandated under the Bill.

Other areas covered include prohibiting landlords from profiting from the sale of electricity, and from including exclusivity clauses that restrict tenants from opening another business within a certain radius, except by mutual agreement.

Landlords will also not be allowed to include in their agreements sales performance clauses where they can unilaterally terminate a lease if certain sales targets are not met, and they will be allowed to unilaterally pre-terminate leases for redevelopment works only if they fulfil certain conditions.

Some MPs also stressed the need to balance the needs of retailers and landlords.

Ms Jessica Tan (East Coast GRC), for example, said that a win-win approach should be taken. “If this is achieved, retail businesses can have fair and predictable rents and terms and conditions to allow them to operate in a highly competitive market, while landlords can benefit from the occupancy and continue to invest in the quality of their properties and marketing programmes,” she said.

The Bill sets out a formal dispute resolution process. The parties will first be required to undergo mediation to resolve the dispute, but if they cannot agree, an adjudicator may be brought in to decide on the dispute.

The adjudicator can order the parties to vary the lease agreement or pay compensation, where applicable, for their non-compliant conduct, and this will be enforceable as a court order.

Said Ms Low: “I’m confident that by ensuring fair and balanced lease negotiations, the Bill will strengthen the foundations of the retail market.”