Commonly Used Commercial Leasing Terminologies

Below are the most commonly used leasing terminologies in commercial property rental agreement.

We hope it provides the reader a better understanding to those terminologies and the office leasing procedures in Singapore

  • Security Deposit
  • A refundable security deposit between 3 to 6 months’ gross rent is normally payable by the tenant upon the execution of lease agreement. It will be maintained by the Landlord throughout the lease term as security for tenant’s compliance of all its obligations in the lease. It is refundable within 30 days after the lease expires provided there is no damages or breach that may result in the deduction from the deposit. 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.
    The number of months for the deposit usually depends on the tenant’s paid-up capital and the lease term secured. This deposit applies to most of commercial property for rent in Singapore whether it is an industrial building or office building.

 

  • 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 is held by the landlord as security for making good of any damage(s) to the premises or common area, removal of all waste materials and debris etc. The deposit will be refunded upon completion of renovations, less any deductions if any.

 

  • Floor Area
  • 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.

 

  • Lease Term
  • Typical commercial office lease term in Singapore is for a period of 2 or 3 years. Most commercial landlords would generally offer a lease term of 3 years with an option to renew in most cases. For companies who have long-term strategic plans and require a big office space, 4 to 6 years lease term are also possible. But this typically comes with a rental review clause within the lease term.

 

  • Premises
  • 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.

 

  • Rental
  • The gross rent (in Singapore Dollar) is based on gross rate which is 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). It is paid monthly in advance or quarterly in advance for some buildings. Office rental rates should be negotiated prior to the signing of the tenancy agreement.

 

  • Rent-Free Fitting-Out Period 
  • Landlord normally provides rent-free period to the tenant for the purpose of renovating (fit-out works) the premises, typically between two weeks to one month. Depending on the size of the premises and the rental rates, large space users may be granted longer rent-free fitting-out period.

 

  • Rent Review Clause
  • 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. The rental for the commercial office property would be revised at the then prevailing market rent.

 

  • Reinstatement of Premises
  • All tenants, regardless of the condition of the office space when they first took possession, i.e. bare or fitted (renovated), are expected to reinstate the premises to bare or original condition upon the expiry of the lease. Exceptions may be made if a new incoming tenant (replacement) or commercial landlord wishes to retain the existing fittings and fixtures. The commercial property for rent in Singapore generally have good and solid infrastructure to begin with.

 

  • Service/facility 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, cleaning of common areas, building repairs and security. The amount for service charge is typically specified in the commercial 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. However, this revision rarely happens during the lease term.

 

  • Sub-Letting
  • In most lease agreements, sub-letting of commercial office to third party is not allowed. But inter-company charges between related companies under the same group of companies are not covered.

 

  • Option to Renew
  • Most landlords offer tenant the option to renew for a further term at the end of the first lease term. Standard renewal term is 2 to 3 years. The office rental rates for the renewed term will be negotiated usually about 6 months before the lease expiry date.

 

Costs Relating to the Commercial Lease Agreement

  • Administrative & Legal Fees
  • This refer to the preparation of the commercial property for lease documentation and the fee varies from landlord to landlord. Tenant is required to bear all these costs.

 

  • Air Conditioning
  • Most commercial office for rental 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 normal office hours, air-conditioning can 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).

 

  • Car Parking
  • Season parking lots are usually allocated to tenants using an allocation ratio according to the total area of commercial office rented 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 sqft per lot. Average cost of a season parking lot is S$180 to S$300 per lot per month (subject to GST) depending on location and lots availability.

 

  • Cleaning or Maintenance
  • The tenant is only responsible for internal cleaning and maintenance of the office they are occupying. The maintenance and cleaning of the exterior of the office 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 commercial lease. GST is similar to Valued Added Tax (VAT) in other countries.

 

  • Property Tax
  • Presently, the annual property tax rate is 10% for all commercial properties in Singapore. 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 commercial property 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(a) Fitting-OutThe 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 TermSimilar 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
  • Stamp Duty is payable on the commercial property 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:
  For lease term not exceeding 1 year
– Every $250 or part thereof of Average Annual Rent and Other Consideration
$1.00
  Lease term exceeding 1 year but not exceeding 3 years
– Every $250 or part thereof of Average Annual Rent and Other Consideration
$2.00
  Lease term exceeding 3 years or any indefinite term
– Every $250 or part thereof of annual rent
$4.00

 

  • The stamp duty must be paid within 14 days from the date of execution of the commercial 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 commercial office for rent in Singapore have centralized air-conditioning.

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