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Common Terms & Practices | SG Commercial

Common Terms & Practices

The terminology of leasing

(A) Security deposit

The security amount is the most vital things while dealing with the land issues, and it is the refundable deposit, which is valid for 3 to 6 months in a gross rent manner and paid by the concerned tenant. And this is checked and maintained by the landlords in the entire course of the lease term. The total number of months mainly depends on the tenant’s paid-up capital as well as on lease term secured.

The tenant only pays the security amount after signing the Letter of Offer, and this is held as the security deposit covering all the obligations and terms of the lease. The landlord has the sole authority to deduct the costs and other expenses that are owned by the tenant resulting from any of the breaches and defaults by the tenants. The deposits, whatever will be given by the tenants are entirely refundable and of course free of cost, and will be returned after the lease expires.

(B) Renovation and fitting deposit

The tenant pays this deposit amount before doing the fitting or renovation in the particular place or the premises of your choice. The amount is held by the landlord and considered as a security deposit for making something good as well as for the damages that may occur in the premises or place, for the removal of the waste materials such as debris and much more, is also refunded, but based on the complete renovation work, and deductions will be less as well.

  • Floor place or area

The floor area includes the typical places such as half of the partitions, walls, glass, which are forming the external boundaries of the buildings and the areas that are occupied by the mullings, columns, pillars as well as projection are within the premises, and are measured in square feet and square metres as well.

  • Lease term period

In case of the Singapore, typical lease period is from 2 to 3 years. And most of the landlords are offering the lease term for three years along with an option to renew the same in most of the cases. The companies, who want large space, as well as the lease term strategic plan for 4 to 6 years, are also possible but subject to a condition, they need to give the rent review clauses within the lease term period.

  • Premises

This term refers to the office space, and in most of the cases, it indicates the bare condition where the ceiling boards, ceiling grids, standard lighting, raised floor system and sprinklers are available for some part of the building.

  • Rental

The rent of the house, in Singapore, is paid on a monthly basis, or sometimes, the amount is also paid on the quarterly basis for some buildings. The gross rate is calculated based on per square meter or per square feet floor area and is subjected to be counted under the Goods and Services Tax (GST).

  • The rent-free fitting-out period

In this case, the landlords are providing the rent-free period to the concerned tenants to renovate the buildings or premises, typically given time duration of two weeks to hardly one month. It entirely depends on the area, if it is larger, then it may take more time, and the rent-free fitting-put period is granted for more days.

  • Review of the rent

If the tenants are asking for longer lease period such as mainly for 4 to 6 years, then the tenancy or lease agreement will contain a provisional period for the review of the rent, which will be conducted in the first 2 to 3 years, and later that is revised based on the prevailing market conditions and rent.

  • Restoration of the premises

The tenants are supposed to vacant the entire place or premise after the lease expires. Irrespective of the condition such as any existing fixtures or fittings, they need to take them out entirely before they leave the place. And if the landlord wants those fitting or fixtures to be there in the same place, then in those conditions, they can leave the premise without taking out anything.

  • Service charges (also called as tenant’s contribution)

Service charges refer to the general types of management services that are given by the landlord, as the maintenance charge for the buildings, cost for the air conditioning that is working in the office hours, security, management fees and the building repair. The current terms and figures are specified in the lease agreement along with the specific clauses, which are subject to enhance the lease term. This facility will allow the managers to recover the amount from the tenant if there is any case for increasing the general management services, which are provided under the relevant service charges.  

  • Sub-letting

In most of the lease agreements, the sub-letting of the premise or buildings is not allowed.

  • Options for renewing

In this case, some landlords are offering the option for renewal of the premises, just after the end of the first lease term. But, the standard option for renewal would be after 2 to 3 years.  Whatever the rental terms for the renewal term period will be calculated or negotiated, which is usually performed after six months before the lease expires.

Calculation of the cost related to the lease

  • Legal and administration fees

The tenants are supposed to pay the amount for the preparation of the documents as well as for the fees, which may vary from one landlord to other.

  • Air conditioning

In most of the building that is situated in Singapore are having the centralized air-conditioning systems that are mainly operating in the office hours, which is from 8 am to 6 pm starting from the Monday to Fridays. The charges for using the air conditioning systems depend on the place and often vary from one building to the other. After the office hours, the amount is calculated that varies from $55 to $90 per hour, based on the value of the GST, on an average scale, and this excludes the holidays as well. Apart from this, most of the buildings are installed with luxurious and auxiliary air conditioners that are reducing the cost due to the advanced technology used in it, provide them huge satisfaction and add cooling even to the server room of the tenants. So, the costs are calculated based on the usage as well as also depends on the capacity of the auxiliary air conditioners.

  • Parking of cars

The allocation ratio of the parking depends on the various buildings as well as also relies on the total number of parking lots that are available. Season parking lots are mainly allocated to the tenants who are using the ratio allocation based on the total area of the office premises that are leased to them. The average allocation ratio for the parking lots is 1,500 to 4,300 sq. ft per lot.  And the average cost that is required is S$180 to S$300 on a monthly basis.

  • Maintenance and cleaning

Tenants are entirely responsible for maintenance and internal cleaning. And the cost of the external maintenance and cleaning of the buildings or premises of the common parts are handled by the landlords.

  • Good and Service Tax (GST)

Tenants are supposed to pay the amount for the GST, which will be based on the gross rent and other sums coming under the lease. GST is quite similar to the Value Added Tax (VAT) in some other countries and presently, the rate is at 7%.

  • Property tax

Recently, the property tax is 10% for the calculation of all the relevant properties. The landlords are completely responsible for deposing the base property tax and that will be calculated based on the rent payment, which is given by the tenant during the lease agreement period. There are some opportunities for the landlord to recover the amount of the tax from the tenants during the lease period due to the enhancement in the attributes present in the premises, collected by the Inland Revenue Authority of Singapore within the lease term.

  • Public liability insurance
  • Fitting-out

Tenants are expected to maintain a comprehensive public liability insurance that should claim for the personal injury, damage of the property, death, or for other serious loses that may arise in the tenant’s fitting-out work duration, which is specified by the landlord. One of the familiar practices is that it is carried out and the charges are paid by the tenants, and they are also responsible for the maintenance as well. There are many insurance companies available in Singapore who will name the tenant and landlord’s contractors as the co-insured groups.

  • Lease team

Tenants have to maintain a relevant comprehensive public liability insurance policy, which will claim against the personal injuries, illness, death and property damage, and the amount is fixed by the landlords. This policy needs to be maintained in joint names of the tenants and landlords under a reliable insurance company in Singapore.

  • Telecommunication and utilities

Tenants will pay the cost of the telecommunication and electricity bills, which will include the installation costs and initial connection. And most of the building and offices in Singapore have the centralized air-conditioning systems.