For entrepreneurs setting up a business in Singapore, renting a commercial space is often one of the first—and most significant—commitments they make. Whether you are setting up a retail shop in Orchard, a café in Tanjong Pagar, or an office in the Central Business District (CBD), understanding the commercial lease agreement is crucial.
Yet, many beginners find themselves overwhelmed by the jargon, obligations, and fine print that come with commercial leases. Unlike residential leases, which are relatively standardized, commercial leases in Singapore can vary significantly depending on the landlord, property type, and negotiations.
In this guide, we’ll break down the common commercial lease terms in Singapore in simple language so you can confidently evaluate agreements and avoid costly surprises.
1. The Lease Agreement
At its core, a commercial lease agreement is a legally binding contract between a landlord (lessor) and a tenant (lessee) for the rental of a commercial property. It specifies the rights, responsibilities, and obligations of both parties.
While standard templates exist, landlords often customize lease agreements, meaning no two contracts are exactly the same. Therefore, business owners should never assume terms are “standard” but instead review each clause carefully.
2. Lease Tenure (Duration)
One of the first terms you’ll encounter is the lease tenure, which specifies how long you can occupy the premises.
- Typical duration: 2 to 3 years for most SMEs, with an option to renew.
- Anchor tenants (large businesses in malls) may secure leases for 5 years or more.
- Shorter leases: Flexible spaces, co-working offices, or pop-up retail spots may offer 6- to 12-month terms.
Key Tip: Always check if the lease includes an option to renew and under what conditions (e.g., same rental rate or subject to market review).
3. Rental Structure
Understanding rent is more than just knowing the monthly figure. Commercial leases in Singapore often have different components:
- Base Rent: The fixed monthly amount payable to the landlord.
- Gross Rent: Includes base rent plus additional costs like service charges and maintenance.
- Turnover Rent (for retail spaces): A percentage of your monthly sales turnover, often charged if it exceeds a certain threshold.
- Security Deposit: Usually 2–3 months’ rent, refundable at the end of the lease if no breaches or damages occur.
Example: A café tenant might pay a base rent of $6,000 monthly, plus a 2% turnover rent if sales exceed $100,000 per month.
Having clarity on the rent structure is important for keeping your accounts in order, so you can plan cash flow accurately and avoid surprises.
4. Service Charges and Maintenance Fees
Most commercial properties, especially in malls or office buildings, require tenants to pay service charges. These cover expenses like security, cleaning, landscaping, and common area maintenance.
- Service charges are usually calculated based on floor area (per square foot).
- Tenants may also need to pay for utilities, air-conditioning, and repairs within their unit.
Tip: Clarify what’s included in service charges versus what you’ll pay separately.
5. Repair and Maintenance Obligations
Commercial leases in Singapore often place greater responsibility on tenants compared to residential ones.
- Landlord’s duty: Maintain structural elements (roof, walls, external façade).
- Tenant’s duty: Keep the interior, fixtures, fittings, and equipment in good working condition.
Some landlords impose a “keep open clause”, requiring retail tenants to remain open during mall operating hours—even if business is slow.
6. Permitted Use Clause
The permitted use specifies what type of business activities you can conduct in the premises.
- A lease for a retail unit may state “for use as a café only.”
- Running another business (e.g., a retail clothing store) without approval could breach the agreement.
- Tenants must also comply with URA (Urban Redevelopment Authority) zoning laws and obtain the necessary licenses (e.g., F&B licenses from SFA).
Key Tip: Ensure the permitted use matches your intended business model and has flexibility for future expansion.
A good way to stay compliant with these requirements is by engaging corporate secretarial services in Singapore, which help ensure your business operations meet regulatory standards.
7. Assignment and Subletting
If your business outgrows the space or faces challenges, you may wish to transfer the lease to another party.
- Assignment: Transferring your entire lease to a new tenant.
- Subletting: Renting out part of your premises to another party while you remain the main tenant.
Most commercial leases restrict assignment and subletting unless you obtain the landlord’s consent. Some may prohibit it entirely.
8. Renovation and Fit-Out
Businesses often need to renovate or “fit out” a commercial space to suit operations. Lease agreements usually include:
- Fit-Out Period: A rent-free window (e.g., 1–2 months) to carry out renovations before operations begin.
- Landlord Approval: Plans must be submitted for approval, especially in malls or heritage buildings.
- Restoration Clause: At the end of the lease, tenants may be required to reinstate the unit to its original condition.
Tip: Restoration costs can be significant—factor this into your budget.
9. Break Clause and Early Termination
A break clause allows either party to terminate the lease before its expiry, subject to notice and conditions.
- Not all commercial leases include a break clause.
- Tenants who terminate early without such a clause may lose their security deposit or face legal action.
Key Tip: Negotiate for a fair break clause, especially if you are a new business testing the waters.
10. Stamp Duty and Legal Fees
In Singapore, stamp duty is payable on commercial leases, calculated based on rent and lease duration. Typically:
- The tenant pays the stamp duty.
- Legal fees: Each party usually bears their own legal costs, though this can be negotiated.
Tip: Always budget for these upfront costs, as they can add up.
These are also important when planning corporate tax in Singapore, as lease-related costs may affect your tax position.
11. Insurance Requirements
Many landlords require tenants to purchase insurance, such as:
- Public Liability Insurance – to cover third-party injury or property damage.
- Fire Insurance – for the premises and contents.
- Plate Glass Insurance – common in retail spaces with shopfronts.
- Failure to maintain proper insurance can be considered a breach of the lease.
12. Renewal and Rent Review
At the end of the lease term, tenants may have the option to renew. However, renewal terms can vary:
- Rent may be subject to market review, which could mean an increase.
- Renewal periods are often shorter than the initial lease term (e.g., 2 years initial + 1 year renewal).
- Always clarify renewal terms upfront to avoid uncertainty.
13. Common Legal Clauses to Watch Out For
Apart from the major terms, here are some commonly overlooked clauses:
- Force Majeure: Defines what happens if events beyond control (e.g., pandemics) affect operations.
- Indemnity Clauses: Tenants may be required to indemnify landlords against claims arising from tenant activities.
- Default Provisions: What constitutes a breach and what remedies are available to landlords.
Practical Tips for Tenants
- Negotiate, don’t just accept: Almost every clause is negotiable, especially in a tenant’s market.
- Engage professionals: Consider hiring a property agent or legal advisor to review terms. You may also benefit from business advisory services in Singapore to negotiate terms that align with your growth plans.
- Plan for exit costs: Restoration, reinstatement, and termination penalties can be hefty.
- Check URA guidelines: Ensure the unit is approved for your intended business use.
Conclusion
Signing a commercial lease in Singapore is a major milestone for any business, but it also comes with obligations that can impact long-term sustainability. By understanding common terms such as lease tenure, rental structures, permitted use, repair obligations, and renewal clauses, you can protect your business interests and avoid unwelcome surprises.
Whether you are a first-time entrepreneur or an established business looking to expand, take the time to read the fine print, negotiate fairly, and seek professional advice where necessary. A well-understood lease is not just a contract—it’s the foundation for your business’s success.
If you’re uncertain about navigating the complexities of lease terms, consider consulting a reputable corporate service provider in Singapore. Their expertise can help you review agreements, negotiate favorable terms, and ensure compliance with local regulations—giving you peace of mind as you focus on growing your business.
