Guide to the Most Frequently Used Terms in Commercial Office Leases in Singapore
This article explains the nine (9) most commonly used terms in the Tenancy Agreement for Commercial Office Leases
A lease for commercial office space is a contractual agreement between the owner or landlord of the space and a business, which is the tenant. In this case the landlord is agreeing to rent a commercial space that he/she owns to a tenant, subject to them both adhering to specific terms set forth in the agreement.
There is no law in Singapore that spells out which terms are allowed or not allowed to be included in such agreements. Therefore, the terms stipulated in commercial lease agreements must be negotiated between the two parties.
However, there are certain terms that frequently appear in commercial lease agreements in Singapore. This article explains the following most commonly used terms in detail:
3. Deposits and Other Fees Payable
9. Illegal Employment of Foreign Workers
1. Lease Duration
A commercial lease agreement will always spell out the exact duration of the lease. How long the duration of a commercial lease in Singapore will be depends on how large the commercial space being leased is.
The duration of a lease for a large commercial space would generally be five to six years. If we’re talking about a fairly small commercial space, the lease agreement would typically be two to three years.
As the lease is approaching its end date, landlords typically offer their tenants an option to renew the lease at the prevailing market price at the time. The renewal option for another lease term is generally for the following:
- A duration similar to the length of the existing lease agreement; and
- A rental amount that had already been agreed upon or an amount that matches the prevailing market price at the time.
2. Rent
A commercial lease agreement will also always stipulate the amount of Gross Rent (GR) that the tenant must pay the landlord for using commercial space in Singapore.
The GR is typically paid each and every month and is comprised of:
- Base rent, which is determined by the square footage of the floor space
- 7% Goods & Services Tax (GST) (if the landlord’s company is GST-registered)
- Service charges
Service charges cover basic building services that the landlord provides, such as maintenance, repairs, and security. The service charges that the tenant is obligated to pay the landlord is usually spelled out in their commercial lease agreement.
Most agreements state that this amount can change during the lease duration, which allows the landlord to charge the tenant for the cost of any added services.
3. Deposits and Other Fees Payable
Tenants must make a security deposit, which typically equals three months’ GR. This deposit is refundable without interest when the lease ends. However, how much money is refunded depends on whether the tenant fully complied with the terms set forth in the commercial lease agreement.
Therefore, if the landlord can prove that the tenant has breached any terms of the commercial lease agreement, he/she may use monies from the tenant’s security deposit to recover the losses resulting from the breach.
For example, if there is damage to the premises caused by the tenant, the landlord has a right to deduct the cost to repair the damage from the tenant’s security deposit.
4. Utility and Maintenance
Most commercial lease agreements stipulate that the tenant is responsible for paying all telecommunication and electricity bills directly to the service providers.
However, the landlord is usually responsible for the costs associated with properly maintaining the premises and keeping the exterior and common areas clean. So, the tenant is only required to maintain and keep clean the interior commercial spaces that he/she is leasing.
5. Sub-Lease
Most commercial lease agreements have terms that forbid the tenant from subletting all or part of the commercial space unless they first get written permission from the landlord.
6. Insurance
In general, tenants are supposed to carry public liability insurance that covers allegations of property damage, personal injury, death, or any type of loss resulting from any and all of their business operations on the premises. This insurance policy is expected to be in effect for the entire length of the lease.
7. Office Renovation Work
If a tenant would like to customise their commercial space according to their own preferences, he/she may only do this if it complies with the terms set forth in the commercial lease agreement regarding fitting-out works and renovations on the premises.
In Singapore, commercial space typically comes with standard air-conditioning distribution ducts, standard fittings and fire protection and sprinkler systems, as well as basic lighting and window fittings.
Therefore, any modifications or changes to the existing fittings must have the landlord’s permission. Tenants of commercial spaces are typically required to leave the space in its original condition when it is returned to the landlord at the end of the lease.
8. Reinstatement
“Reinstatement” is the term used when describing the requirement that tenants have to return the commercial space they’ve been leasing back to the landlord at the end of the lease in its original condition.
The commercial lease agreement will spell out the full extent of reinstatement required of the tenant before he/she can officially return premises back over to the landlord. This may require removing the furniture, putting a fresh coat of paint on the walls in their original colour, and carrying out repairs to the premises for any damage caused by the tenant.
The reinstatement terms in the lease agreement may also specify that the contractor hired to do the work be selected by the landlord but be paid by the tenant. If this clause is in the lease agreement the tenant will have no choice but to pay for the cost of reinstatement works carried out by the contractor chosen by the landlord.
9. Illegal Employment of Foreign Workers
It is widely known that businesses in Singapore depend a great deal on foreign workers in conducting their daily operations. Any workers that are employed by Singapore businesses must comply with the relevant statutory regulations. They must also have the proper permits before they can be hired.
Since this is the case, your commercial lease agreement will likely have a provision that forbids the illegal hiring of foreign workers. Therefore, the landlord would be exempted from all liability if a tenant had illegally hired foreign workers to help run his/her business.
Whether you are a landlord leasing to a tenant, or a tenant leasing commercial space from a landlord, you need to make sure that the agreement correctly reflects what the two of you have agreed to regarding the terms of the lease.
You also need to fully understand the terms of the lease agreement, so you know exactly how far your rights and obligations go under the agreement.
Regarding all of these factors, a corporate lawyer would be the best one to draft a commercial lease agreement that aligns with your intention.
If you have been presented with a commercial lease agreement but have questions about your legal rights and obligations, we would recommend that you have a corporate lawyer review it for you. This way you will get solid advice on what you are allowed and not allowed to do under the lease agreement. We would be happy to refer you to one of our partner corporate lawyers.
Disclaimer: The information provided in this article does not constitute legal advice. We recommend that you get the specific legal advice you need from an experienced attorney prior to taking any legal action. While we try our best to make sure that the information provided on our website is accurate, you take a risk by relying on it.
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