Our Take on “New Laws Against Unfair Retail Leasing Practices”
April 1, 2021
The Singapore Government is introducing new laws against unfair leasing practices by malls and will be consulting with landlords and retailers in the next few months.
The Current / Past
This news comes as a reminder to all leasing agreements in Singapore. For over a decade we have heard many stories from our clients relating to a one-sided unfair leasing terms that they signed for a minimum of 3 years if they wanted to operate inside malls.
Read More: Government to introduce new laws against unfair retail leasing practices | TODAY
Hopefully with the new laws, we would be able to rewind to a period where malls were just charging a fixed base rent without the “+ GTO” element.
What’s a “+ GTO”? GTO or Gross Turnover is an addition rent added onto to the base rent that landlord currently charges. Meaning to say, tenants will be charged an additional 1% of their monthly turn over.
Read More about GTO here: How to Understand Mall Rental Rates?
Below are some repeated voices we have been heading from our decade worth of clients:
- Rental keeps going up every year!
- Why should we pay % GTO to landlords when they are already charging base rent?
- We feel like we are the malls’ employees…
- We can barely make any profit even after 2 years…
- We are told to shift to another unit and re-renovate from scratch…
As a result, we feel that the new laws will brings new hope to the leasing world. And hope that the market will find a harmonious balance between rents and earnings between landlords and retailers.
How Current Agreement have Changed the Mall Landscape
Due to GTO, we have seen many retailers leaving malls with the exception of F&B concepts. Hence, you may notice that malls in 2021 are largely filled with food concepts.
We guess that the GTO element will be an integral part of this discussion exercise especially on the second part of the rental charge which is the infamous “OR % GTO” whichever is higher. This has been a major concern to tenants where when they do much better they will have to pay higher rent.
Thus, if this GTO element is removed or revised, plenty of tenants will be very grateful and the new laws will provide potential retailers with more confidence to enter malls.
We feel that in this way, we will see more new brands and concept coming into malls and not just offering consumers “cookie cut” malls.
So now you know that it is not that malls want every single mall to look the same, but the issue comes from their current agreement which makes it is hard to attract new concepts.
The Future
There is plenty of uncertainty at this time until discussions have taken place and the laws have been passed.
We shall stay tuned to the new laws in June and we feel that it will be an exciting period for both landlords and tenants.
As of the writing of this article, it is hinted that there will be six changes to expect:
- Rent Structure
- Early Termination of Leases
- Exclusivity
- Sales Audits
- Public Liability Insurance
- Electricity Charges
Read more here: Six changes to expect with new code of conduct for fair tenancy | Business Times
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