The Office Lease Agreement
The Commercial Lease Process in Singapore
Check List for Office Leasing Procedures
Commercial Leasing Terminology
Office lease agreements in Singapore often follow the landlord’s set template for commercial lease agreements and usually, there is very little room to negotiate. In most cases they are weighed heavily in favour of the landlord and there is no room to manoeuvre. We always recommend that you use a local lawyer, who will be able to tell you what is common and what is unusual in the office tenancy agreement.
Contact Corporate Locations if you have any general questions regarding office leases or rental agreements in Singapore.
Office Leasing Process Check List
1. Define Requirements
Size, budget and location are the most important criteria. This will often determine the quality, the level of specification and facilities available to the tenant.
2. Timing of Possession
Tenants should be mindful that at least one to two months are required to order materials and furniture before taking possession, so it is important to set a realistic target date for possession, otherwise the unit will be standing idle during the rent-free fitting out period.
3. Appraisal of Options
Corporate Locations will provide a complete list of opportunities available to the client, but will also offer accurate guidance on those buildings that will suit their needs best.
4. Site Inspections
Once a shortlist of buildings has been drawn up, Corporate Locations will arrange a site inspection with full itinerary prepared, transport organized and refreshments laid on.
5. Building Selection
Usually the client will have 2-3 buildings in their final shortlist and this is the time to check with an interior designer that the size, layout and specification will suit their needs. Corporate Locations will be able to give the client a list of the most suitable designers according to the nature of the requirement.
6. The Negotiations
Corporate Locations are completely independent agents, so we are one of the best qualified to negotiate the strongest possible terms for any occupier. We prepare the initial ‘heads of terms' proposal in the form of a ‘Letter of Intent’ – which is always ‘Subject to Contract' and thus non-binding until the landlord issues a formal offer for acceptance. Subsequent offers and counter-offers will all be scrutinized vetted and coordinated through Corporate Locations.
Once heads of terms are agreed, the landlord will issue a formal Letter of Offer (LOO) or Booking Form, which is binding once signed. Often this refers to the lease agreement so this does need to be checked by the tenant before signing any LOO but sometimes a copy of the draft lease is not always provided which can cause issues. The tenant will need to sign the LOO/ Booking Form with a company chop/stamp marked on the document and return with an initial security deposit (usually 1 month's rental). Before taking possession, the landlord will insist the actual lease documentation is signed and the remainder of the deposit money paid over.
8. Security Deposit
Before the tenant signs a Letter of Offer and pays over the initial 1 months rental deposit (sometimes landlords ask for 3 months), he/she should be happy with the terms of the offer and be reasonably comfortable with the draft lease. This is because the deposit is normally non-refundable.
Whilst it is not intended that all the terms and terminology of the lease are finalized at this stage, the tenant should be satisfied there are no major obstacles in the lease before signing the Letter of Offer.
After signing the Letter of Offer, tenants are usually given one month to finalize the drafting of the lease. Many landlords in Singapore will have their own standard lease documentation which they will not want to vary too much. Therefore, major changes are unlikely and we always recommend all tenants to use local lawyers familiar with landlord and tenant legislation in Singapore.
9. The Handover
It is recommended that the client's interior designer/contractor be present at the time of handing over to take an accurate record of the condition of the premise at that time and to highlight repairs that the landlord should be responsible for.
Generally office rentals are nearly always quoted at a gross rate per sq ft per calendar month. This includes service charge, but excludes Goods and Service Tax (GST) which is currently 7%. There are no other hidden rental overheads. Rental is usually paid quarterly in advance, but monthly rental agreements also exist.
The charge covers landlords costs such as property tax, maintenance and management of common parts and air conditioning of the offices and common parts during normal office hours. The average service charge is between $0.80 to $1.20 per sq ft but is included in the gross rental. The exact figure will be specified in the lease but can change during the lease term.
Length of Lease
Minimum commercial lease term is normally 3 years but 2 year leases are also quite popular. Longer leases over three years are now difficult to negotiate because this is a rising market. A five year lease with a rent review is possible in many cases but then the tenant is locked in even if they are unhappy with the then market rate.
Options to Renew
These are standard and lease renewals for 1 to 3 years should be no problem. Care should be taken in the drafting the revised rental clause in the option, which is sometimes worded "at a rate to be agreed" or "at market rate" with no provision to settle any disputes as to what is a fair rate.
The ingoing tenant is normally responsible for both parties reasonable legal costs incurred in connection with the preparation of the lease documentation. The scale varies from landlord to landlord but this is not a major expense item.
Electricity is usually supplied to the premises and the charges for consumption are paid by the tenant. The tenant is responsible for connection charges and opening an account with the relevant authorities. See later notes.
Tenants are only responsible for internal repairs (excluding structural items). The repair and maintenance of the exterior and common parts is the owners/management corporations responsibility.
Normally provided by the landlords during normal office hours. Usually:
Weekdays: 8.00am to 5.30 - 6.00pm
Saturdays: 8.00am to 1.00pm
After office hours air conditioning can often be provided on an hourly basis on giving sufficient notice. Costs range from $40 to $80 per hour depending on the size of the floor/area.
Alternatives include fitting your own air handling unit and tapping into the landlords chilled water supply. Costs are charged per ton of chilled water. Some tenants install their own split unit/condenser but not all buildings will allow external fittings to their buildings.
For regular out-of-hours use, tapping into the landlords water supply is the most cost effective. For infrequent use free standing / portable air conditioning units are commonly used.
The number of lots allocated to each tenant is usually based on the total floor are leased. The average ratio is 1 lot per 1,000 to 2,000 sq ft. Costs average $100 to $250 per month per lot, exclusive of GST and is not included in the office rental. Additional spaces are sometimes offered on a seasonal quarterly basis, subject to availability.
All tenants are required to put the premises back into their original state (fair wear and tear excepted) at the termination of their lease. This normally takes a period of 3-4 weeks for the average unit and costs around $10 to $13 per sq ft.
Rent Free / Fit-Out Period
This will depend upon the size of the premises and is normally one month. For larger space users 2 to 3 months is often possible. This will always be given outside the lease term.
The ingoing tenant is also responsible for the cost of the stamp duty fees payable on the lease documentation. As an estimated guide, the amount payable on a standard 3 year lease would be approximately 10% of the monthly rental.