Commercial Lease Agreement
Tenancy Agreement
The Lease Agreement is issued once Letter of Intent or Offer is signed. The balance of the deposit and first month rental will need to be paid before the handover of the premises with the execution of the Tenancy Agreement. Tenant usually has between 14 to 21 days to sign the agreement. Tenancy agreement is usually prepared by landlord’s solicitors and contains the following common principal terms.
- Lease Term
- Monthly Rental
- Security Deposits
- Maintenance & Service Charges
- Property Tax
- Office Space Sub-Lease
- Option to Renew
- Renovation Clause
- Legal Fees & Stamp Duty
Office Rental Payment
Typically the term “gross rent” is used in the agreement. This is a combination of the base rent and maintenance & service charge payable monthly or quarterly in advance. The gross rent is also subjected to GST which is currently 9%.
Security Deposit
Usually a 2 to 3 years lease term requires tenant to place a security deposit with the landlord equivalent to 2 or 3 months’ gross rent payable upon signing the letter of offer. The security deposit will normally need to base on the landlord company policy.
- Initial 1 month’s gross rent deposit payable upon signing the letter of offer or intent to lease.
- The balance 1 or 2 month’s gross rent deposit payable upon signing the tenancy agreement or the occupation of premises or commencement of lease, whichever is earlier.
The deposit is refundable without interest when the tenancy expires but it is subjected to tenant’s due performance of the terms and condition in the tenancy agreement. The landlord reserves the right to deduct all costs and expenses properly payable by the tenant on account of any breach by the tenant.
Maintenance and Service Charge
The gross rent is inclusive of maintenance and service charge, this provision is for services such as central air-conditioning during office hours and management and maintenance of common areas.
The charge varies from building to building. It generally covers the following:
- management fees
- repairs to the building
- insurance for public and fire risk
- building and maintenance (including water and electricity)
- security service
- central air-conditioning during normal office hours
The exact figure is specified in the lease but can change during the lease term. At such, there would be a clause in the agreement allowing Landlord to recover from tenant any increase of the service charge.
Property Tax
Landlord is responsible to pay property tax. Currently, 10% of the annual assessed value is taxable and payable half yearly in advance.
There is usually a provision in the tenancy agreement to allow landlord to recover from tenant any increase in property tax attributable to the premises, which may be levied by Inland Revenue Authority of Singapore during the lease term.
Office Space Sub-lease
In most lease agreement, sub-letting office premises is not allowed. However tenant may request or seek approval from Landlord for partial sub-letting. Alternatively tenant could find a replacement tenant to take over the lease, but it is subject to Landlord’s approval.
Renovation Clause
Not to make or cause to be made any fitting-out decorations and/or any alterations, additions or installations to the demised premises without first obtaining the written consent from the Landlord (such consent not to be unreasonably withheld or delayed) and the relevant Government if such are required under regulations.
Reinstatement Clause
This clause is usually contained in all commercial or office lease agreement. It stipulated that Tenant is required to reinstate the premises to its original bare condition at the end of the lease.
Option To Renew
In the initial tenancy, most landlords usually grant tenant an option to renew for a further term of 1 year or similar duration at a rent either agreed upon by both parties or at the prevailing market rent rate, at the time of renewal.
With the Option To Renew the landlord will grant tenant the first right of the offer for the lease renewal before the lease expire.
Legal Fees & Stamp Duty
Tenant is responsible for both parties legal costs incurred in connection with the preparation of the lease documents. The scale varies from landlord to landlord but this is not a major expense item.
Tenant is also responsible to pay stamp duty on tenancy documents. The cost is approximately 10% of the monthly gross rent.