Covid-19 exposing how much landlords squeezing tenants in S'pore

Tenants are using this pandemic to regroup into a larger negotiating bloc. And they might be winning.

Belmont Lay | May 26, 2020, 05:06 AM

The numbers coming out have not been pretty, while the narrative sounds almost like a potential good old David versus Goliath tale.

As the Covid-19 pandemic continues to wreak havoc in Singapore, problems that were not addressed and tucked away are coming back in full force.

On May 21, 2020, five business groups representing more than 10,000 firms in Singapore have come together demanding landlords provide fairer terms for tenants.

This is by far one of the largest collective bargaining exercises Singapore has seen -- made possible by a virulent outbreak on a scale not felt before globally.

Tenants unite

A total of five business groups have since formed a new committee, the Fair Tenancy Framework Industry Committee (FTFIC).

They came together decisively in mid-April 2020 with a greater sense of urgency, after the Covid-19 pandemic hit Singapore businesses hard and forced a reckoning of just how asymmetrical the landlord-tenant relationship has become.

Bludgeoning the iron while it's hot, the committee slapped together a list of fairly detailed recommendations, completed over two-and-a-half weeks.

The committee's 15 recommendations for fair tenancy legislation were then submitted to the Ministry of Law and Ministry of Trade and Industry on Thursday morning, May 21.

The 64-page document advocated for the passing of a Fair Tenancy Bill -- which is tantamount to getting a new law created to force landlords to come to the table -- and for a new commission for enforcement and preferred dispute resolution channel to be set up.

The five business groups that have made this happen are:

1. Singapore Business Federation SME Committee (SBF SMEC)

2. Association of Small and Medium Enterprises (ASME)

2. Restaurant Association of Singapore (RAS)

4. Singapore Retail Association (SRA)

5. Singapore Tenants United for Fairness (SGTUFF)

FTFIC's chairman is Kurt Wee, who is also the president of the Association of Small and Medium Enterprises.

Straw that broke camel's back

The proverbial push that became a shove was the result of landlords in Singapore not dishing out rental relief fast enough for tenants, when time is of the essence and livelihoods are at stake.

Landlords have been effectively granted property tax rebates by the government.

But tenants had to engage in a months-long tussle for rental relief. (A summary of the entire process has been documented here.)

The committee's chairman, Wee, revealed that landlords were not about to pass on the rebates without conditions.

This was despite a 100 per cent property tax rebate given by the government, which works out to slightly more than one month of rent for most properties -- an essential lifeline if passed on to businesses.

Landlords were also perceived to have behaved in business-unfriendly ways.

They imposed gag orders on tenants, Wee revealed, effectively keeping the terms and conditions of tenancies confidential, and proposed delayed and time-staggered payments across months.

Landlords also were offering "rent-free months" instead of officially lowering rents, thus keeping rents artificially inflated.

The government eventually had to step in to deal with the delays first, by making it compulsory for landlords to pass on rebates.

A section of the Covid-19 (Temporary Measures) Bill, which was passed on April 7, requires the property owner to pass on the full amount of property tax rebate attributable to a rented property to his tenant in a timely manner, either by making a cash payment or by offsetting future payments.

No law, no talk

Property owners are also prohibited from imposing conditions when passing on the rebate.

The property owner must keep records that the benefits had been passed on and when it was carried out.

It is offence to do otherwise, with a risk of being fined S$5,000.

Wee said this episode showed landlords have been taking advantage of tenants when there are no legislation.

And it appears this episode has opened the door to more legislation.

Some examples of landlords' demands

Unfair rental situations have been ongoing for years, Wee added, and described some of the landlords' methods as "strong-handed".

Some of these terms imposed on tenants include mandating personal guarantees, or allowing landlords to pre-terminate leases.

Landlords are also known to require tenants to buy electricity from them at a 20 to 30 per cent mark-up and pay for sub-metering infrastructure, even as the government has sought to liberalise the energy market.

Anecdotes of landlords' crafty ways are now publicly traded fodder for all and sundry to read about as businesses have taken to Facebook to regroup as well:

The Singapore Tenants United for Fairness, which represents nearly 700 tenants, was formed in February after the Covid-19 outbreak began taking a significant toll on the economy.

Previous industry code proposed but not made into law

What is being tried now by tenants is definitely not new.

A previous attempt five years ago to level the playing field was met by landlords' non-committal indifference.

At that time, tenants did not try to make what they were pushing for a formal legislation.

A voluntary Fair Tenancy Framework industry code was introduced by a committee under the Singapore Business Federation in 2015 to help tenants, but that effort was not well supported by the landlords who had no impetus to come to the table.

Only Jurong Town Corporation supported the framework.

No other private landlords endorsed it.

As a result of the status-quo-abiding behaviour, legislation is now being actively pushed because it appears this is the only way it can work.

Silver lining

The silver lining these days is that the Covid-19 pandemic and heightened public consciousness of tough times ahead for businesses might be bringing about a change of heart.

Cynthia Phua, chairperson of SBF SMEC Rental Practices Workgroup, said it has been difficult to meet with landlords over the past five years, but sentiment might be changing.

Phua has been pushing for the Fair Tenancy Framework since 2015.

Such legislation is critical, especially as more than 200 retail shops and 90 restaurant outlets have filed for a suspension of their contractual obligations to pay rent for up to six months.

Many more are planning to do so if they do not get more assistance from landlords.

Fair tenancy recommendations submitted to MinLaw & MTI

FTFIC, which stands for Fair Tenancy Framework Industry Committee (as mentioned above), is calling for transparency of information, regulation of conduct, and enforcement.

FTFIC is recommending a public rental information database updated every month for landlords to provide mall-level productivity and performance data.

A lopsided example of this relationship can be gleaned from the asymmetrical nature of information collection.

Landlords have access to tenants’ sales data via point-of-sale systems, but tenants lack data on footfall or how mall's perform.

This lack of reciprocity leads to lopsided negotiations, as landlords possess the upper-hand with richer datum.

It is also common for the monthly rent to be a base rent plus a small percentage of total gross sales (about 1 per cent), or some 7 to 15 per cent of total gross sales, whichever is higher.

This means landlords get more money in the good times, and not lose money in bad times.

The committee called for the base rent to be calculated objectively based on a landlord’s actual cost for running the premises.

It is also calling for the variable gross sales component to be negotiable.

Wee said: "What moral right does the landlord have to say whichever is higher? Why not whichever is lower in that case?"

Reit malls play economic role

But mall operators in Singapore are not all about profits for themselves.

The committee also acknowledged that landlords play an important function by generating a healthy and stable rate of returns for investors via Reits (real estate investment trusts).

However, the sustainability of tenants has to be ensured in the first place, the committee added.

The committee said: “The sustainability of such trust frameworks also relies on an operating framework that ensures the long-term sustainability of the operating tenants.”

One of the tenants' main gripes has been that rents over at Reit malls have been increasing year by year.

Unfair tenancy practices spelt out

FTFIC is also calling for a Fair Tenancy Bill to prohibit undesirable or unfair tenancy practices and behaviour by either landlords or tenants.

- Leases should have an “adverse circumstances clause”, such as in the event of a pandemic

- Security deposits should have a limit

Moreover, the creation and generation of market rental data should be overseen by a new Fair Tenancy Commission.

The competition and consumer watchdog, the Competition and Consumer Commission of Singapore, is proposed to serve as the official public entity overseeing the commission.

This commission will be vested with certain powers, such as regulate matters between landlords and tenants, and undertake periodic review and revision of the legislation.

The committee also made the following recommendations:

- The lease contract should not include a provision preventing or restricting the tenant from carrying on business outside the retail shopping centre

- The landlord shall not be allowed to charge a mark-up of advertising and promotion charges that is greater than 3 per cent of what is charged by a third party for the service

- A tenant should be allowed to end his lease ahead of the expiry of the lease term after the first year by paying compensation of three months of base rent

- The landlord should not be allowed to end a tenant’s lease in the first year of leasing. During termination, the landlord must pay the tenant a compensation to cover the tenant’s set-up costs such as design fees, and installing and removing of furniture and fixtures

- Make unenforceable provisions allowing the landlord to terminate lease on grounds that the tenant has failed to achieve a particular level of sales or turnover