COMMON CLAUSES IN TENANCY AGREEMENT
Being a landlord might not be everyone's cup of tea but it is indeed a great way to earn passive income. Hence, it is still an attractive option for those that have an investment property or even those who want to rent their unoccupied room/rooms for extra income.
Before renting out their properties, potential landlords should first be aware of the URA
guidelines for renting out private residential properties:
For the purpose of this article, we will look at rental of private residential properties only.
Private residential properties or the rooms within their premises are not allowed to be rented out on a short-term basis for fewer than three months on a daily/weekly/monthly basis.
In an article published in Today on 8th May 2019, the Singapore government reiterated that Airbnb will remain illegal in Singapore.
SINGAPORE — Short-term rentals offered by platforms such as Airbnb will remain illegal in Singapore, the authorities announced on Wednesday (May 8) after nearly four years of discussions. A minimum stay of three months will continue to apply to private residential properties.
Renting out the entire unit or individual rooms for residential purposes is merely allowed for long-term stays of three months or more if the conditions below are met:
1). No internal partitioning works that alter the layout of the property to make more rooms. Such overcrowding can pose safety concerns
2). The maximum number of occupants allowed in a private residential unit (regardless of how big the property is) is between six to eight, depending how big the unit is and that includes the owner if he's living within the premises
Immigration & Checkpoints Authority (ICA) Anti-Harbouring
It is the responsibility of homeowners who wish to rent their premises to foreigners to exercise due diligence in checking the immigration status of their prospective foreign tenants to make sure that their status in Singapore is legal.
Before renting your room, apartment or house, a landlord is required to perform the subsequent mandatory checks:
- Tenant's original immigration pass and/or work pass have to be checked - Cross-check the particulars of his pass against the particulars on his original passport - Verify the validity of his travel by checking with the issuing authority, which is the ICA or Ministry of Manpower
Once the passes are verified and the status of the tenant is confirmed, you can proceed to draft the letter of intent (LOI) and the tenancy agreement (TA) thereafter.
The tenancy agreement is a contract between two parties (i.e. landlord and tenant). It is essentially an agreement between the landlord and the tenant and both parties have to agree with all the terms and covenants before they sign the contract.
Both the landlord and tenant can certainly negotiate the terms before signing and as long as both parties are agreeable, the terms and conditions will apply.
Interestingly, on one instance, I was the landlord's agent and after presenting the tenancy agreement to the tenant, he wanted to amend approximately 38 out of the 45 items on the agreement! Needless to say, the deal didn't go through successfully!
Once the tenancy agreement is signed, the tenant have to provide the landlord with a security deposit and this is usually between 1-2 months rent depending on the length of the lease.
For a 1 year rent, the security deposit is typically 1 month and for a 2 years lease, the security deposit is 2 months.
This amount is to be returned to the tenant at the end of the lease without interest. However, if there are any breaches to the terms stipulated in the contract, such as damages to the property, the landlord reserves the right to deduct from the security deposit accordingly.
Of course, there are instances where the landlord may negotiate for a higher security deposit depending on the tenant's situation. One landlord wanted the tenant to provide a 2 month's security deposit for a 1 year lease because the tenant had a pet and the landlord was afraid that the pet may damage the parquet flooring of the property!
Let's look at the six different clauses commonly found in a tenancy agreement.
1. Minor repair clause
The minor repair clause stipulates that the tenant shall be responsible for all minor repairs or replacements within the premise up to $150 per item per repair. If the cost of repair exceeds $150, the tenant must first get the written approval from the landlord before proceeding with the repair or replacement works.
Once the landlord agrees to the repair, the tenant will bear the first $150 per item per repair and the excess borne by the landlord.
The standard minor repair amount is usually $150. Some landlords, however, will ask for the minor repair clause to be at $200 or more.
2. Clause of “Quiet enjoyment” and “exclusive possession”
Leases usually have a clause for “quiet enjoyment” or “exclusive possession”. Generally, this imposes upon the owner an obligation to offer the tenant the liberty to exercise his right of the full benefits of such occupation.
Accordingly, a tenant who has exclusive possession of the premises can keep strangers, and even the owner, out of the premises. Therefore, even as the legal owner of the property, a landlord cannot simply enter the premises as and when he pleases.
3. Diplomatic clause
A diplomatic clause, which is typically found only in tenancy agreements for a lease of 12 months or longer, allows for the termination of the lease before its expiry. It is usually only applicable for foreigners.
The tenant can only activate the clause provided the lease has commenced for at least 12 calendar months.
A diplomatic clause is particularly important for foreign expatriates whose stay in Singapore could be of an indefinite length. Such a clause protects the tenant if he's transferred out of Singapore or if his company terminates his employment during the tenancy.
By including such a clause within the tenancy agreement, these expatriates can safeguard their interests with the legal flexibility in the event of early lease termination.
They will not have to not face a massive financial penalty (compared to arrangements without the clause) for prematurely ending their tenancy. Generally, the tenant must show documentary evidence of his company transferring him to a different country or that of his cessation of employment to invoke the diplomatic clause.
Once the tenant is conscious of such transfer or cessation, he should show proof to the owner immediately to make sure that sufficient notice is given within the notice period as stipulated within the tenancy agreement. Usually, a two month notice is required.
4. The Reimbursement Clause
The Reimbursement Clause usually accompanies the Diplomatic Clause. It requires the tenant to reimburse the owner for the commission paid to the agent at a prorated amount. depending on when the lease is terminated.
5. “Good and tenantable condition" clause
Basically, in a lease agreement, this clause states that tenant is responsible for looking after the property and keeping it in a good condition.
Such a clause is usually followed by a caveat – “fair wear and tear and acts beyond the control of Tenant excepted”. This means that the tenant is not liable to compensate the owner for reasonable usage or normal aging of the property.
Accordingly, if the damage wasn't due to “fair wear and tear”, the owner can deduct from the security deposit as compensation or otherwise request the tenant to make arrangements to repair the damages.
It should be noted that what counts as “fair wear and tear” can't be defined specifically but generally, it might be unreasonable for a landlord to withhold the security deposit or insist on the replacement of the door, or the repainting of an entire house or the re-tiling of the entire floor just because of a couple of scratches caused by normal usage or aging.
6. Clause forbidding ‘alterations or additions’ to premises
A tenancy agreement will usually provide that the tenant cannot make any alterations or additions to the premises without the landlord’s consent. Essentially, the tenant shouldn't change the structural nature of the premises, unless expressly approved by the owner.
For example, a tenant shouldn't remove fixtures or pull down the premises. Other examples include the unauthorised installation of air-conditioning units or doors.
7. Right of re-entry clause
A right of re-entry clause gives the owner the choice to forfeit the tenancy and re-enter the premises when the tenant has breached the terms of the tenancy agreement – specifically, when the tenant has failed to pay rent after repeated reminders.
This is usually a last resort and most landlords will refrain from this clause until they have exhausted all options!
This six clauses that are discussed above are generally found in most tenancy agreements. There are more clauses included in a typical tenancy agreement.
If you are looking to rent out your property and would like to find out more, please feel free to contact me for a non obligatory 90 min free consultation at 96658596
Having a keen interest and passion in real estate led Caroline to join the real estate industry. An investor herself since 2006, Caroline is constantly learning and upgrading herself through courses and seminars so that she is able to provide meaningful insights to her clients and to help them successfully manage and restructure their portfolios in the ever- changing market conditions.
Caroline strives to be honest, transparent and professional in all her real estate dealings with her clients. She understands that clients need to work with someone they trust, as they will be entrusting their valuable assets to that person. She is known to be trustworthy and reliable and will ensure that her clients’ interests are protected always.
With a strong commitment to client satisfaction and with the support of her teammates from Navis Living Group (Orange Tee and Tie) , she is confident that she will be able to share her experiences and knowledge to assist her clients in making the best decisions for their real estate needs so that they can achieve their desired real estate goals.