Commercial real estate terminology can be complicated and can vary from country to country. Here is a quick reference guide to some of the terms you may come across when leasing commercial property in Singapore.
The lease period is a fixed time frame for which a lease agreement is in force. This is usually two or three years at an agreed rental rate and often comes with an option to renew for a further term of two or three years at a rent to be agreed on or reviewed according to prevailing market rates.
The gross rent comprises of base rent plus service charges. Both are calculated as follows: $ x per sqft/month.
The service charge usually covers air-conditioning during normal business hours, management, security and maintenance of common areas in the building. They vary between buildings, but typically lie within the range of $0.80 to $1.50 per sqft/ month, depending on the grade of the building. As service charges fluctuate according to market costs, it is a general practice that landlords review it annually.
A security deposit is a cash payment that is usually made upon signing the Letter of Offer or Tenancy Agreement. It is most commonly equivalent to three months gross rent and is refundable (without interest) at the end of the lease, subject to the tenant’s performance under the terms and conditions of the lease.
Landlords usually grant a rent-free period for fitting-out works. The time allowed depends on prevailing market conditions and the size of the premises leased. In most circumstances, it varies between one and three months.
Usually borne by the tenant, legal fees and stamp duty are costs incurred in connection with the preparation and execution of the lease.
The tenant will be required to make arrangements for the connection of utilities (electricity, water supply and telecommunication equipment) with the relevant government authority.
Air-conditioning is provided during normal office hours (except on Sundays and Public Holidays) in general as follows:
Weekdays: 8.00 am to 5.30/6.00 pm
Saturday: 8.00 am to 1.00 pm
Afterhours air-conditioning can be requested by the tenant from the building management to be turned on for the number of hours required at a charge. This can vary between S$40 and S$100 per hour. In certain commercial buildings, the landlord may allow a tenant to tap into their air-conditioning chilled water systems. In this instance, the tenant pays a charge based on the per tonnage use of chilled water.
A tax levied directly on the property which is paid by the landlord.
Most buildings have private car parks. Space is allocated based on a ratio. In most cases, the ratio one carpark lot per 1,500 sqft applies for older buildings and one carpark lot per 4,500 sqft for newer buildings, leased in the CBD. These come at a monthly season charge to be paid by the tenant.
The Letter of Intent (LOI) is a non-legally binding document which summarizes the key commercial and legal terms (such as lease term, gross rental, size, deposit, etc.) and is submitted to the landlord by the tenant. The main terms and conditions are to be negotiated on by both the tenant and the landlord. The landlord will respond to the LOI submitted and may counter propose on several terms.
After both parties agree to the main terms and conditions, the landlord will issue a Letter of Offer (LOO) and a copy of the Tenancy Agreement, which details all terms and conditions. Both documents are legally binding upon acceptance. Once both parties agree on the details the tenant will sign the LOO and pay a booking fee equivalent to one month’s rent (subject to prevailing GST) and the security deposit.
After the LOO is signed, the landlord’s legal counsel will present the tenant with the Tenancy Agreement outlining the Terms and Conditions applicable to both parties (as stated in the LOO).
A tenant representation broker acts exclusively for tenants - no conflicts of interest. They bring years of market knowledge and can give the tenant the upper hand through market intelligence, understanding of common terms (and commercial jargon), strong negotiation skills and handling communication with third parties, like agents and landlords.
nIf you do not have the time or expertise to navigate the complexities of commercial leasing, then hiring a tenant representation broker might be a smart move.
The team at Tenant CS bring over 20 years experience in the Singapore market and would love to collaborate with you on any of your commercial real estate projects. Get in touch with one of our team members today!
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