Renting Office Space in Singapore for Long-Term
Entrepreneurs who are starting a new business in Singapore and plan to lease an office space, often are not familiar with the process of drawing up a leasing agreement and all the protocol and paperwork associated with it. The purpose of this guide is to help you become knowledgeable about the office lease process and tenancy agreement in Singapore so you can handle this task with more ease.
There are two main ways to go about locating office space in Singapore. The first one involves hiring a real-estate agent, while the second option is to look for office space on your own. In the second option, to find available office space in Singapore you will need to look at the local newspapers, classified ads, and internet websites that advertise as having space available. Keep in mind that the process of searching for office space on your own can be a very time consuming experience. Hiring a property agent is the most popular option in Singapore, especially given the fact that as a normal practice, the landlord is responsible for paying the commission to the agent and it won’t cost any money to the tenant.
Before signing a lease, you must consider all costs associated with renting an office in Singapore. While you may be able to afford the rent on the office space, you must also ensure that you can afford the other bills associated with the space such as electricity, telecommunications, office cleaning, etc. There are also incidentals that you must consider such as insurance, etc.
Renting Office – Common Lease Terms & Practices in Singapore
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.
The most common practice for duration of a lease agreement in Singapore is between 2 to 3 years, with longer leases available for 5 to 6 years if you intend to occupy a larger space. At the end of your lease term, most landlords offer you the option to renew for a further term, generally at the market price prevalent at the time of renewal. As a common practice, landlords usually grant tenant an option to renew for a further term of similar duration at a rent either pre-agreed upon by both parties or at the prevailing market rent rate at the time of renewal.
Typically the term Gross Rent is used in Singapore. The Gross Rent rent is normally paid on a monthly-basis and comprises of a base rent calculated per square feet of floor area, Goods and Service Tax (GST) of 7% if landlord is a GST registered company, and service charges (on average ranging from S$0.75 to S$1.20 psf), which 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 current figure for service charge is typically specified in the lease agreement along with a clause that it can change during the lease term. This allows the Landlord to recover from tenant any increase of the service charge.
Deposits and Other Fees Payable
A refundable security deposit equivalent to three months gross rent is common practice and payable by the tenant in two phases; One month’s gross rent is expected upon the exchange of legally binding documents, the Intent to lease by the tenant and the Letter of offer by the landlord, with the balance payable upon the signing of the lease agreement, occupation of premises or commencement of lease term, whichever comes first.
The security deposit is refundable without interest when the tenancy expires but is subjected to tenant’s due performance of the terms and condition in the tenancy agreement. The landlord reserves the right to deduct costs and expenses properly payable by the tenant on account of any breach by the tenant. A separate refundable renovation deposit is required by the landlord or building management if and when you intend to carry out any renovations or fitting-out works in the office space, and covers any damages caused to common areas of the building during the renovation period.
Document preparation fee, stamp duty, etc are to be agreed upon by the parties. Often the landlord would ask the tenant to bear the full or partial cost. The law requires stamp duty to be payable on a tenancy agreement for a lease of any immovable property. Stamp duty is payable within 14 days from the date of the Agreement if it is signed in Singapore and within 30 days from the date of receipt in Singapore if it is signed outside Singapore. Revenue authorities of Singapore take a serious view on late-stamping and non-stamping. As a very rough guide, the stamp duty can be estimated around 0.4% of the total rental value for the lease period. So far example, for a two year lease agreement with 2000/month rent, the stamp duty would be 192 (2000x12x2/250).
Applicable property tax is paid by the Landlord in Singapore. However, there may be clause in the lease agreement that allows the landlord to recover from tenant any increase in property tax attributable to the premises during the term of the lease.
Utility and Maintenance
The tenant is responsible for all general electricity and telecommunication bills which are to be paid by direct account to the relevant service providers. Apart from the provision of air conditioning services during office hours (most of the office buildings in Singapore have centralized air-conditioning) by the landlord which is comprised in the gross rent, tenants can also request for after-hours air conditioning services for an additional charge.
The maintenance and cleaning of the exterior of the premises and common areas is maintained by the landlord, and tenants are responsible for the cleaning and maintenance of all interior spaces functional to you. If you choose, you may be able to appoint the landlord’s nominated cleaning contractor to maintain your space as well.
Depending on the car parking situation at the place where you are renting an office, season parking lots may be allocated to tenants according to the total area leased, at a monthly charge of approximately SG$100 to SG$180 for buildings outside the Central Business District (CBD) and S$170 to S$300 for buildings inside the CBD.
Most landlords do not allow the tenant to sub-let full or part of the office space unless written consent is given by the landlord. On a case-by-case basis, landlord might allow the tenant to find a replacement tenant to take over the lease.
In Singapore, during the lease term, tenants are expected to maintain a public liability insurance policy against allegations of personal injury, death or property damage or any form of loss arising out of any and all operations of the tenant in the premises. Tenants are also expected to insure all furniture, fixtures and fittings of their office against risk and damage. If renovations to the office are carried out, tenants are also required to take out a Fire and Special Perils insurance policy within the duration of such works.
Office Renovation Work
An office in Singapore usually comes with standard fittings of a cemented and raised floor system, suspended ceilings, standard fire sprinkler and protection systems, central air-conditioning distribution ducts and basic lighting and window fittings.
If you have the need to customize the office to suit your preferences, you may do so in accordance with the terms and conditions as stipulated by the landlord (large office building typically maintain a standard fitting-out manual) with regard to all fitting-out works at the premises. In such cases, you may be able to negotiate a rent-free period of two weeks to three months depending on space and floor area to carry out the renovation work.
The cost of fitting-works depend on floor space, layout complexity and technical requirements of different businesses and the charges of interior design providers or architects. It can be roughly categorized as ranging from S$40 – 60 p.s.f. for a low range budget, S$70 – 90 p.s.f for mid-range budgets and above S$100 for a high -end budget. Any fitting-out works, either modifications to existing fittings or additions and alterations should be carried out with the approval of the landlord, and as in most cases, the tenant is responsible for the reinstatement of the office premises back to its original state at the end of the lease term.
Renting Office – Tenancy Agreement Process
As a common practice, the steps involved in negotiating and signing a tenancy lease agreement in Singapore include:
Letter Of Intent
Once you have identified the office space that suits your needs, it’s time to start the lease negotiation. Ask your agent (or do it yourself if you don’t have an agent) to submit a Letter of Intent to the landlord’s representative. The Letter of Intent, also known as a LOI, is a short letter that outlines the basics of office lease terms you want from the landlord and lets them know you are serious about renting space. Be patient during negotiations as this process may go for a while until you and the landlord can come to an agreement.
Letter Of Offer
Upon receiving a Letter of Intent, the landlord will normally perform a company check including company’s paidup capital to ensure that the company will be able to pay rent. Once the office space owner is satisfied with the company’s application and the two parties have agreed on the basic lease terms, a Letter of Offer will be issued by the landlord along with a sample copy of the Tenancy Agreement document. The landlord will ask you to return a signed copy of the Letter of Offer along with a non-refundable fee. When the Letter of Offer is signed and the necessary non-refundable deposit is given, the premises will be secured, subject to the signing of the Tenancy Agreement.
Upon signing the Letter of Offer, you will be handed over a tenancy agreement document by landlord for signing. Tenancy Agreement in Singapore is normally a simple document, however, if you feel necessary, you may use professional legal service at your own cost. At this point you may go with your landlord’s legal documentation or may appoint your own solicitor to attend to the drawing up of the final tenancy agreement.
You are required to pay stamp duty to Internal Revenue Authority of Singapore (IRAS) once you have signed the rental agreement. Stamp duty for leases involving a fixed rental throughout the rental period, will be computed based on the gross rent and must be paid within 14 days from the date of execution if the document is signed in Singapore or within 30 days of its receipt in Singapore if the document is signed overseas.
After the tenancy agreement has been duly signed and the necessary security deposit paid, you may take possession of the property and are free to move in, or conduct fitting-out works should the need arise. In the case of the latter, you need the approval from the landlord to carry out any alteration, modifications and additions to the premises. At this stage, you need to focus on getting your new office up and running as soon as possible. You will need to contact the relevant authorities for getting connections such as utilities, telephone, internet, etc. You will also need to think about engaging an office cleaning agency or a person.
Renting Office – Should You Hire A Property Agent?
Like any major city including Singapore, finding the right office space and location can be time consuming and tedious. Property agents spend a lot of time sourcing the office market to keep track of available space, going rental rates, etc.
Having a local expert with specialized knowledge to assist you will increase your chances of finding the right space and get the best deal possible. In taking over most of the mundane aspects of office hunting process, a property consultant will let you spend your time on your business while he/she attends to your office lease issues including locating the right property, negotiating the lease on your behalf, coordinating the paperwork formalities, and other technical aspects of the lease process.
Best of all, as a common practice in Singapore, for property rentals above S$2500/month, the property agents do not charge the tenant any fees. The landlord will typically pay the commission equivalent to one month’s gross rent. Most of the real estate agents in Singapore will not indulge into unethical practices such as collecting commission from both landlord & tenant in the same transaction without prior knowledge of the landlord & tenant. For monthly rental value of below S$2500, the tenant is typically asked to pay a commission equivalent to half-month’s gross rent.