Common Office Rental Terms and Practices

COMMON OFFICE RENTAL TERMS AND PRACTICES

Common leasing practices differ from country to country and so do their policies. Given below are some of the common lease terms that are currently followed when leasing/ acquiring an office for rent in Singapore and which most landlords and tenants duly accept.

Lease Duration

A common practice in Singapore is to lease with duration of 2 or 3 years. An extension of 4-6 years lease duration is also possible for those firms who have future business plans and who avoid any sort of disturbance due to relocation. However, the signing of the lease is normally done with a lease period below 3 years. The landlord may also include a rent review section in the lease agreement.

In April 2007, Standard Chartered Bank made history by securing an incredible 12 years lease term, relocating their operation to Marina Bay Financial Centre of Singapore.

Rent Free (Fitting-Out Period)

Landlords normally provide a rent-free period on one whole month to refurbish a bare premise. For a larger space tenant, 2-3 months is often extended, if possible. This will always be given outside the lease term.

Options to Renew

When the lease term is at an end, landlords often give tenants the opportunity to renew the lease for a further term. This is normally done at the current market price at the time of renewal. Negotiation with the renewal rates would have to be done when the lease expiry date arises. The typical renewal option would be 1-3 years.

Rental

The office rental rates in Singapore are very affordable to pay. The gross rent is normally paid on gross rate per sq. feet per calendar month. This includes the service charge and it is subjected to 7% GST (Goods and Services Tax).

Service Charge

The average service charge hovers between S$0.50 to S$1.20 per sq. ft and is included in the gross rent. This includes the payment to the landlord for providing general management services; air conditioning, management, building repairs & maintenance, and security. The service charge may change depending on some factors during the lease term.

Security Deposit

A refundable security deposit equivalent between 3- 6 months gross rent is common practice and payable by the tenant upon signing the Letter of Offer. It is refundable without interest when the lease expires. The number of months usually depends on tenant’s share capital and reserves and operation period. The landlord reserves the right to deduct costs and expenses properly payable by the tenant on account of any breach by the tenant.

Renovation Deposit

Some landlords in Singapore require a Renovation Deposit (ranging between S$1,000 and S$5,000) before any reconstruction or refurbishments procedures can be executed. This is to settle the cost of any possible damage to the building caused by tenant’s contractors. However, after the renovation is completed, the deposit is then refunded, subsequent to any deductions.

Stamp Duty

In accordance with the Singaporean law, a stamp duty must be paid on a tenancy contract for a lease of any permanent property. The tenant has to pay that stamp duty which can be calculated based on the following formula:

  • For a 4 years lease or less: 0.4% of total rent for the lease period
  • For more than 4 years lease: 0.4% of 4 times the Average Annual Rent (AAR)

Example
For a 3 years lease with a monthly rental of S$24,000
S$24,000 x 36 months = $$864,000 x 0.4% = $3,456
Stamp Fees = S$3,456

Fees related to Administration and Legal issues

The tenant normally has to pay for the preparation of the lease documentation. Indeed, the scale varies from landlord to landlord but this is not a major expense item. However, if the landlord employs their own counsel, the fees would obviously be exempted.

Office Insurance

Keeping the lease term intact, the tenant is expected to maintain a public liability insurance policy against any injury, death or property damage claims, or any form of loss caused by the activities of the tenant in the premises.

Telecommunication and Utilities Bills

The tenant has to bear the Telecommunication and Electricity bills himself. In Singapore, many office spaces have centrally air-conditioning systems installed in them.

Maintenance

The tenant is only responsible for internal cleaning and maintenance. The exteriors have to be cleaned and maintained by the landlord himself.

Air Conditioning

As stated earlier, majority of the office buildings in Singapore have central air-conditioned systems operating during office hours. The timings and days of which are listed below.

  • Weekdays: 8.00a.m to 5.30 – 6.00p.m
  • Saturdays: 8.00a.m to 1.00p.m (Sundays and public holidays are not included)

Excluding office hours, air conditioning can often be provided on a cost varying from S$40 to S$80 per hour. Some buildings permit tenants to install their own personal air-con unit, whereas other buildings allow tenants to set up an auxiliary air-conditioning system. The tenants are then charged per ton of chilled water consumed.

Car Parking

The allocation of parking lots is done with respect to the area of office space leased. The average ratio is 1,000- 2,000 sq. ft. per lot. Cost averages from S$170 to S$300 per lot per month exclusive 7% GST. Subject to the availability of lots, extra parking lots are sometimes offered seasonally and on a quarterly basis.

Sub-Lease

Many lease agreements disallow sub-letting of office premises. However, tenants may request or seek approval from landlord for partial sub-letting.

Property Tax

Landlords are responsible to pay property tax. Currently, 10% of the annual assessed value is taxable and payable half yearly in advance. However, there is usually a provision created in the tenancy agreement which enables the landlord to recover any increase in property tax attributable to the premises from the tenant. This often happens when the Inland Revenue Authority of Singapore levies tax during the lease term.