Office Space Tenant’s Guide
Based on common practices, the essential steps involved in leasing an office space in Singapore include:
Engage a Trusted and Competent Agent/Agency
To navigate the office landscape in Singapore, it is advisable to engage a trusted and competent agent and/or agency familiar with commercial leasing. Keeping to one agent and/or agency helps ensure continuity and accountability. For commercial leasing in Singapore, it is a common practice that landlords pay the commission earned by the agent/agency. It is prudent to take note that agent/agency in Singapore is not allowed to receive commission from both landlord and tenant for the same transaction.
Short-list Properties
During the short-listing step, tenant should be guided by agent/agency on the available properties based on submitted criteria. Agent/agency will arrange and schedule viewings for tenant. After viewing and with sufficient information provided by agent/agency, tenant should prioritise and rank the short-listed choices, and then proceed to next step of negotiation with landlord(s). It is good-practice to have more than one choice so that if one property does not work out, tenant has other options to consider.
Negotiation - Letter of Intent (LOI)
Once the tenant has identified the office space(s) that suits their needs, it is time to start the lease negotiation. The Letter of Intent is a short letter that outlines the basics of office lease (commercial) terms you want from the landlord and lets them know you are serious about leasing a space. It is an opportunity for landlord to profile the interested tenant concerning how stable the company is, whether it is a local establishment or overseas set-up in Singapore, how sufficient its paid-up capital is etc. All these contribute to the successful closure of the lease negotiation
Negotiation - Letter of Offer (LOO)
A Letter of Offer will be issued when all the main rental terms in the Letter of Intent are agreed upon. The landlord usually provides 7 to 10-day period for the tenant to sign the Letter of Offer and return together with a deposit, and then the premises will be secured subject to the signing of the Tenancy Agreement. A sample copy (sometimes the actual) Tenancy Agreement is attached along with the Letter of Offer for review. Renovation Guidelines could also be obtained from landlord at this stage for the planning and preparation of renovation or fitting-out.
Negotiation - Tenancy Agreement (TA)
The TA is issued once the LOO is signed. Tenant is typically given between 2 and 3 weeks to sign the agreement. In commercial leasing, it is a common practice for Landlord’s solicitors to prepare the TA. Many commercial landlords in Singapore have similar standard clauses in the TA, which they are reluctant and unwilling to vary very much. Therefore, major changes are unlikely and tenants are advised to engage local property lawyers familiar with the landlord and tenant legislation in Singapore.
Take Possession
After the TA has been duly signed and the necessary security deposit paid, the tenant may take possession of the property on the takeover date stipulated in the TA. After which, tenant is free to move in, and conduct fitting- out works according to the landlord’s renovation guidelines.
Plan and Organise Design and Renovation (concurrent with Steps 4 and 5)
Prior to the takeover of the property, tenant should start working with and obtaining quotations from designer(s) and/or contractor(s). This usually will be accompanied by site inspection(s) by the designer(s) and/or contractor(s). The landlord’s Renovation Guide should also be provided to them. From a timeline perspective, it is prudent for tenant to finalise the selection of designer and/or contractor close to takeover date so that fitting out work can commence shortly after takeover of the property.
Some agencies do provide project management and/or turnkey services. However, this usually comes at a fee. Tenant should enquire with the agency if such services are required. If such services are unavailable, the agent/agency could recommend some designers/contractors for tenant’s consideration.
Renovation and Fitting-Out
Subject to the contract, the renovation and fitting-out works will be conducted during the fit-out period. This period could range from 2 weeks to 3 months depending on the size of the property. While
renovation is ongoing, tenant should also work with third party service provider or directly with the service providers to ensure the following services are connected and activated.
a) Utilities b) Telephone Lines c) Internet Connection
For (a), tenant should approach Singapore Power to initiate account transfer. For (b) and (c), tenant could work with their preferred Telecommunication Company (Telco) for the site inspection, installation (where applicable) and activation of these services.
Common Lease Terms & Practices
Terms and conditions, and common leasing practices vary from country to country and what you may think is accepted and carried out in your homeland may not necessarily be the same in another. Below are some of the common leasing terms and practices that most landlords and tenants follow in Singapore.
Lease Duration
In Singapore, lease duration of two (2) or three (3) years is a common practice. Four (4) to six (6) years lease duration is also possible with companies that have long-term strategic plans and have no wish disruption caused by relocation but landlords are generally reluctant to sign a lease of more than three (3) years. The landlord may also insert a rent review clause in the lease agreement.
In April 2007, Standard Chartered Bank made history by securing an incredible 12 years lease term, relocating their operation to Marina Bay Financial Centre of Singapore.
Rent Free (Fitting-Out Period)
Landlord normally provides one (1) month rent-free period to renovate bare premises. For larger space tenant, two (2) to three (3) months is often possible. This will always be given outside the lease term.
Options to Renew
At the end of the lease term, most landlord offer tenant the option to renew for a further term, generally at the prevailing market price at the time of renewal. Renewal rates will have to be negotiated again nearer to the lease expiry date. The standard renewal option would be one (1) to three (3) years.
Rental
The gross rent is normally paid on gross rate per square feet (sq ft) per calendar month inclusive of service charge and is subjected to 7% GST (Goods and Service Tax).
Service Charge
The average service charge is between S$0.50 to S$1.20 per sq ft and is included in the gross rent. 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 service charge may fluctuate during the lease term.
Security Deposit
A refundable security deposit equivalent between three (3) and six (6) months gross rent is commonplace and payable by the tenant upon signing the Letter of Offer. It is refundable without interest when the lease expires. The number of months usually depends on tenant's paid-up capital and operation period. The landlord reserves the right to deduct costs and expenses payable by the tenant on account of any breach by the tenant from the security deposit.
Renovation Deposit
Some landlord requires a Renovation Deposit (ranges from S$1,000 to S$5,000) before any renovations or fitting-out works can be carried out. This is to defray the cost of rectifying damage to the building caused by tenant's contractors. The renovation deposit is refunded upon completion of renovations, less any deductions.
Stamp Duty
Singapore law requires stamp duty to be payable on a tenancy agreement for a lease of any immovable property. For lease period of 4 years or less, an estimated cost is 0.4% of the total rent for the period of the lease. The tenant is responsible for the cost of the stamp duty, which is calculated as per below formula:
Example For a 3-year lease with a monthly rental of S$5,800 Total Rent: S$5,800 x 36 = S$208,800 Stamp Duty: 0.4% x S$208,800 = S$835.20 => S$835.00 (Rounded down to the nearest dollar)
For more information and examples on how to compute the Stamp/Lease Duty, tenant can refer to the Inland Revenue Authority of Singapore website.
Administrative & Legal Fees
The tenant is normally required to pay for the preparation of the lease documentation. The scale varies from landlord to landlord but this is not a major expense item. However if the landlord engages its own in-house legal counsel, then the fee may be waived.
Office Insurance
During the lease term, tenant is expected to maintain a public liability insurance policy against allegations of personal injury, death, property damage or any form of loss arising out of any and all operations of the tenant in the premises.
Utilities & Telecommunication
The tenant is required to pay for their own electricity and telecommunication bills. Most of the office buildings in Singapore have centralized air- conditioning, however if the building is using a split-unit or VRV system where the tenant is able to control the operation hours, the tenant would be required to pay for their own air-con usage.
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.
Air Conditioning
For most office buildings, central air-conditioning operates during office hours.
Weekdays: 8.00am to 5.30 - 6.00pm
Saturdays: 8.00am to 1.00pm
(Sundays and public holidays excluded)
After office hours, air conditioning can often be provided on a chargeable cost varying from $30 to $80 per hour. Some landlords allow tenant to install their own air-conditioning unit - an auxiliary air-conditioning system, which tap chilled or condensing water from the building’s central air-conditioning system to the fan coil or package units within the office premises. Costs are charged per ton of chilled water.
Car Parking
Season parking lots is usually allocated to tenants according to the total area leased. Average ratio is 1,000 to 2,000 sq. ft. per lot. Cost ranges from S$170 to S$500 per lot per month (before 7% GST). Subject to availability, additional lots are sometimes offered on a quarterly basis.
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 when the need arises.
Property Tax
Landlord is responsible to pay property tax. Presently, 10% of the annual assessed value is taxable and payable half yearly in advance. However 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.
Reinstatement of Premises
All incoming tenants who take over a bare or renovated (fitted) unit will be required to reinstate the unit to bare condition upon the expiry of the lease, unless a new incoming tenant or landlord wishes to retain the existing fittings and fixtures. This standard clause is usually contained in all commercial or office lease agreement.
Checklist Guide for Prospective Office Space Tenant in Singapore
| S/No | Items | Tick |
|---|---|---|
| 1. | Short-Listing | |
| a. | Engage a trusted and competent property agent and/or agency familiar with office space leasing | |
| b. | View short-listed properties | |
| c. | Short-list properties | |
| 2. | Negotiation | |
| d. | Submit Letter of Intent (LOI) to landlord(s) for final short-listed property or properties | |
| e. | Accept or decline counter proposal of commercial terms from landlord by deadline provided | |
| 3. | Legal Agreement | |
| f. | Landlord to issue Letter of Offer (LOO) and Specimen Tenancy Agreement (TA) or Actual TA | |
| g. | Review LOO and Specimen TA or TA, negotiate on legal terms and conditions | |
| h. | Upon agreement, sign LOO and TA (where applicable) by deadline provided | |
| i. | Where applicable, landlord to issue actual TA. Sign TA and pay landlord Security Deposit and Advance Rental via cheque, and pay landlord’s lawyer Legal Fee and Stamp Duty via cheque (where applicable) by deadline provided | |
| 4. | Take Possession | |
| j. | On take-possession date, ensure relevant documents such as Renovation Guidelines, Drawings (where applicable), Access Key(s), Letter Box Key(s) etc. are provided by landlord or agent | |
| k. | Pay landlord Renovation Deposit via cheque (where applicable) | |
| l. | If taking over from existing tenant, ensure relevant documents such as Inventory List, Access Key(s), and Authority Submission Paper(s) and Drawings (where applicable) etc. are provided by existing tenant | |
| 5. | Plan and Organise for Design and Renovation | |
| m. | Engage and obtain quotations from designer(s) and/or contractor(s) at least 2 months prior to move-in date | |
| n. | Provide Renovation Guidelines from landlord to designer(s) and/or contractor(s) | |
| o. | Short-list and select designer and/or contractor | |
| 6. | Renovation & Fitting-out (after taking possession) | |
| p. | Inspect property and ensure timeline is met by designer or contractor | |
| q. | Work with service provider(s) to connect up and activate: - Utilities - Telephone Lines - Internet Connection | |
| 7. | Moving | |
| r. | Obtain quotations from movers and secure mover at least 1 month prior to move-in date | |
| s. | On move-in date, have fun moving! |