Types of leasing arrangements
Generally, the law recognises contractual agreements (whether oral or written) under which occupation and use of real estate is let for a certain period of time. Such arrangements include both leases and licences.
Common terms in commercial leases
Lease agreements can be voidable for lack of certainty if parties’ intentions are not set out in clear and express terms.
The lease agreement must contain the following:
- Details of the parties;
- Address of the demised premises;
- Rent; and
- Lease term.
Apart from the above, parties are generally free to negotiate and agree on the terms of commercial leases, including the security deposit payable by the tenant and whether the rent payable shall be fixed or adjustable during the lease term. Most commercial leases also grant to the tenant an option to renew prior to the expiry of the lease term.
In terms of apportioning costs, the landlord is generally liable for structural repairs whereas the tenant is obliged to keep the demised premises in good and tenantable condition.
Managing leasing agreements
Whilst a tenant is usually provided with the right to terminate the lease in very limited circumstances, the landlord will often provide for a right to terminate and re-enter the demised premises upon the tenant breaching a condition or a covenant and failing to remedy such breach within a stipulated notice period.
Many leases also include sale and redevelopment clauses which give the landlord a right to terminate the lease, if the building is to be sold by way of a collective sale. Typically, the landlord has to give at least three months’ notice in writing to the tenant. The lease will terminate upon the expiry of the notice.
Termination by third party
Occasionally, lands may be required by the Government for public projects and infrastructure developments. The Government has the right under the Land Acquisition Act (Cap. 152) to compulsorily acquire such lands as needed and make the necessary compensation to the affected landowners, typically at market value.
Transfer of lease
The landlord does not usually allow the tenant to do any of the following:
- Assign or sublet the lease;
- Part with or share possession of the demised premises with others, including with companies in the same group; and
- Change control of the tenant.
A breach of any of the above will often give the landlord a right of re-entry and the ability to terminate the lease. It is possible to negotiate carve-outs to these provisions.
Managing a leased real estate
Restrictions on use
Tenants must abide by the permitted use set out in the lease agreement as well as the use as restricted under the Planning Act (Cap. 232), such as those in the Master Plan.
Leases typically limit the extent of or prohibit alterations or improvements to the demised premises. Structural repairs which involve alteration of the building’s form and framework are usually not allowed. The landlord’s consent should be sought prior to undertaking non-structural alterations.
Leases will either set out a fixed rent payable, or a mechanism to calculate the adjustable rent payable, for the entire duration of the lease term.
Taxes for rental
Stamp duty is payable on the lease agreement. The amount depends on the level of rent and the term of the lease. The Stamp Duties Act (Cap. 312) states that stamp duty is to be borne by the tenant.