Rarely do entrepreneurs share their office lease journeys in a foreign country, notably because most challenges start with finding the right business model, investment and customers. Having seen and negotiated several commercial agreements in the past in several Asian countries and more recently in Singapore, I’ve summarised some helpful information about office leasing procedures so you can find a suitable location for your business office in Singapore. I’ve simplified the terms and common conditions which you will find in Asia and endeavoured to make this an easy read as possible.
Typical Lease Terms and Conditions
Standard commercial office lease terms in Singapore is for a duration of 2 or 3 years. However, if your enterprise has a long – term strategy and requires a large amount of space, the length can easily extend 5 to 6 years with a rental review clause. Most commercial landlords would offer you a further renewal term with the prevalent market price at the end of your lease term.
The security deposit is an amount of money that a new tenant will give to the landlord in case of property damage during your tenancy. The typical amount of security deposit depends on the value of the property and the tenant’s credit score. The higher your credit score, the more comfortable you can get a reasonable deposit price. Remember everything is negotiable so take note of the type of business risks, equipment on-site and the number of staff you will have. This will help you negotiate the deposit from 3 to even one month. Before signing in a leasing contract, remember to document the original condition of the house both in writing and pictures with an agreement between two parties, so you can decrease future potential dispute and take back your deposit at the time you return the property.
Utility, Maintenance and Other Fees Payable.
In a standard commercial office lease agreement, the landlord is responsible for the maintenance of outside premises, including cleaning expenses, and the tenants are in charge of the interior space. You can ask the landlord for a cleaning service to handle your office as well.
The tenant will pay for all the electricity and telecommunication bills directly to the suppliers. Comprised of the gross rent, the landlord will provide air conditioning services during office duration, tenants can negotiate with the landlord to use the air conditioners over time for a surcharge.
The parking cost usually depends on the total leasing space for rent and where the building is located. Monthly parking expense in Singapore is about $S120 to $S215 for offices inside the Central Business District and $S70 to $S130 for the offices outside. The tenants are also expected to take responsibility for the Fire and Special Perils insurance policy and keep all the furniture and fixtures from damage during leasing time.
Other expenses that the tenants need to be aware of are the fees for document preparation and stamp duty. These costs can add up to a significant sum of money, which may affect tenants’ affordability; therefore, the payment should be discussed clearly between two parties. The law requires stamp duty is to be paid whenever a tenant rents a property or makes a contract to renovate or expand their current lease. Remember to get your payment document stamped within 14 days after signing the contract inside Singapore, and within 30 days if it is approved overseas. The amount to pay is dependent on the Average Annual Rent, which based on the total rental value for the lease duration. In Singapore, the stamp duty is around 0.4%, so if you rent an office for $5000 a month for two years, the lease duty rates will be ($5000 x 24) x 0.4% = $480. For the calculation, see commercial lease calculator here.
Tenancy agreement process
Besides the deposit, a Tenancy Agreement (TA) is the next most essential items in the rental transactions between a tenant and a landlord in Singapore. These are steps that you should take note of before signing in a TA.
Letter Of Intent
In commercial real estate, Letter of Intent (LOI) is negotiation means used during the transaction to get an agreement on the terms of the leasing property. Be as detailed as possible, include agreed rental rate, lease period, utilities, maintenance, responsibilities of both parties, and other clauses. Usually, it is good practice for the tenant to secure the TA details by paying the landlord one month rent as a sign of good faith after signing the LOI. This amount of money will become a part of the security deposit or advance rental fee later.
The Tenancy Agreement
The Tenancy Agreement (TA) is a legally binding version of the Letter of Intent. It plays a decisive role in the leasing process. The landlord prepares the documents with the details that both parties need to agree. The tenant should understand every clause stated in the TA to ensure your rights. A standard agreement should cover all of the issues related to rent payment, maintenance and utility cost and any additional fees.
It’s worthwhile for entrepreneurs to ensure a Diplomatic Clause is in place. This is usually found in agreements which are 12 months or longer and allows for the early termination of the lease in the event of a company, economic or business change. This right is usually only specified by the tenant. It needs to include sufficient notice, compensation for any insufficient notice and reimbursement for any fees as a result of the unexpired portion of the tenancy.
After signing the tenancy agreement and paying for the security deposit, you will have possession to be ready to move in.