Whether you are setting up a business for the first time or you are a foreigner planning to set up a branch office or relocating your business to Singapore, as terms and conditions and leasing practices vary from country to country, we hope this Leasing Guide would help you to better understand the common practices in Singapore and assist you in the process of securing your business space.
(a) Security Deposit
- A refundable security deposit equivalent to between 3 to 6 months’ gross rent is payable by the tenant and to be maintained by the Landlord throughout the lease term. The number of months usually depends on the tenant’s paid-up capital and the lease term secured.
- The security deposit, payable by the tenant upon signing the Letter of Offer, is held as security for the tenant’s compliance of all its obligations in the lease. The landlord reserves the right to deduct costs and expenses payable by the tenant resulting from any default or breach by the tenant. The deposit is refundable free of interest when the lease expires.
(b) Fitting Out/Renovation Deposit
- A Fitting Out or Renovation Deposit is payable by the tenant before any renovations or fitting-out works to the premises can be carried out. The deposit, held by the landlord as security for making good any damage to the premises and or building, removal of all waste materials and debris etc, is refunded upon completion of renovations, less any deductions.
- Floor Area of the premises typically includes half the thickness of the walls/partitions/glass (as may be the case) which form the external boundaries of the premises and the area occupied by all pillars, columns, mullions and projections within the premises measured in square metres or square feet.
- Typical lease term in Singapore is for a period of 2 or 3 years. Most landlords would generally offer a term of 3 years and with an option to renew in most cases. For large space users and companies who have long-term strategic plans, 4 to 6 years lease term are also possible, and typically with a rent review clause within the lease term.
- Premises refers to the office space and most are in bare condition but include ceiling grids, ceiling boards, standard lighting, sprinklers and raised floor system for some buildings.
- The gross rent, in Singapore Dollars, is paid monthly in advance (or quarterly in advance for some buildings) based on gross rate (inclusive of service charge rate) per square foot or per square meter on the Floor Area and is subject to Goods and Services Tax (GST).
Rent-Free Fitting-Out Period
- Landlord normally provides rent-free period to the tenant for the purpose of renovating the premises, typically two weeks to one month.Depending on the area of the premises, large space users may be granted longer rent-free fitting-out period.
- For longer lease terms such as 4 to 6 years, the lease/tenancy agreement would usually contain a provision for a rent review after the first 2 or 3 years, which revised rent would be at the then prevailing market rent.
Reinstatement of Premises
- All tenants, regardless of the condition of the premises when they first took possession, i.e. bare or fitted (renovated), are expected to reinstate the premises to bare condition upon the expiry of the lease. Exceptions may be made if a new incoming tenant or landlord wishes to retain the existing fittings and fixtures.
Service Charge (also known as Tenant’s Contribution)
- This refers to the payment for general management services provided by the landlord, such as air conditioning during office hours, building maintenance, management fees, building repairs and security. The current figure for service charge is typically specified in the lease agreement along with a clause that it is subject to increase during the lease term. This allows the Landlord to recover from tenant any increase in cost of general management services provided under the service charge.
- In most lease agreements, sub-letting of office premises is not allowed.
Option to Renew
- Most landlords offer tenant the option to renew for a further term at the end of the first lease term. Standard option to renew term is 2 to 3 years. The rental rates for the renewed term will be negotiated usually about 6 months before the lease expiry date.
Costs Relating to the Lease
Administrative & Legal Fees
- The tenant is normally required to pay for the preparation of the lease documentation and the fee varies from landlord to landlord.
- Most office buildings in Singapore are served by centralised air-conditioning system which operates during office hours, typically between the hours of 8am and 6pm from Mondays to Fridays (except during public holidays).After office hours air-conditioning can often be provided on a chargeable basis which varies from buildings to buildings, ranging from $55 to $90 per hour (subject to GST) on average. Most office buildings allow the tenant to install auxiliary air-conditioning, which tap chilled or condensing water from the building’s central air-conditioning system at a cost, to provide additional cooling typically for the tenant’s server room. Costs are usually charged based on the capacity of these auxiliary air-conditioning, i.e. per Refrigerant Ton (RT).
- Season parking lots are usually allocated to tenants using an allocation ratio according to the total area of office premises leased by the tenants. The allocation ratio varies from buildings to buildings depending on the total number of parking lots available. The average allocation ratio is 1,500 to 4,300 sq. ft. per lot. Average cost of a season parking lot is S$180 to S$300 per lot per month (subject to GST).
Cleaning or Maintenance
- The tenant is only responsible for internal cleaning and maintenance. The maintenance and cleaning of the exterior of the premises and common areas are maintained by the landlord.
Goods and Services Tax (GST)
- The tenant is usually required to pay GST in respect of the gross rent or other sums payable under the lease. GST is similar to Valued Added Tax (VAT) in other countries and the current rate is at 7%.
- Presently, the annual property tax rate is 10% for all properties. The Landlord is responsible for paying the base property tax which is calculated based on the rent payable by the tenant in the lease agreement. There is usually a provision in the lease agreement to allow landlord to recover from the tenant additional property tax due to any increase in property tax attributable to the premises, levied by Inland Revenue Authority of Singapore during the lease term.
Public Liability Insurance
The tenant is expected to maintain a comprehensive public liability insurance against claims for personal injury, death or property damage or loss arising out of the tenant’s fitting-out works in the amount specified by the landlord for the entire duration of the tenant’s fitting-out works. As a common practice, the policy is taken out and maintained at the tenant’s cost with a reputable insurance company in Singapore, naming the landlord and the tenant’s contractors as co-insured parties.
(b) Lease Term
Similar to the public liability insurance required when carrying out fitting-out works, during the lease term, the tenant is expected to maintain a comprehensive public liability insurance policy against claims for personal injury, death or property damage or loss arising out of all operations of the tenant in the premises, for an amount specified by the landlord. The policy is usually required to be held in joint names of the landlord and the tenant with a reputable insurance company in Singapore and at tenant’s cost.
- Stamp Duty is payable on the lease or tenancy agreement relating to a lease or tenancy of any immovable property under the Singapore law to the Inland Revenue Authority of Singapore (IRAS). The tenant is responsible for the cost of the stamp duty which is calculated as follow:
The stamp duty must be paid within 14 days from the date of execution of the lease document. You may wish to visit the Inland Revenue Authority of Singapore (IRAS) website for more information on Stamp Duty.
Utilities & Telecommunication
- The tenant is required to pay for their own electricity and telecommunication bills, including all initial connection and installation costs. Most of the office buildings in Singapore have centralized air-conditioning.