SINGAPORE (May 22): A group of tenants, claiming to represent some 10,000 small and medium enterprises (SMEs), are getting organised in their fight against what they perceive as unfair terms saddled on them by the “cartel” of landlords.
The retail and F&B industries are under severe strain from the Covid-19 lockdown measures. The government has introduced relief measures such as wage subsidies and property tax rebates. However, tenants have grumbled that landlords are slow in passing on the rebates to them — if at all.
“Covid-19 brought to glaring views the dominant position that landlords wield,” says Kurt Wee, chairman of the newly-formed grouping, Fair Tenancy Framework Industry Committee (FTFIC). He accuses landlords of adopting a “cartel-like” behaviour. In good times, landlords enjoyed good income, but the relationship is not symmetrical in bad times, he says.
FTFIC was formed with representation from the Association of Small & Medium Enterprises (ASME), Restaurant Association of Singapore (RAS), Singapore Retailers Association (SRA), Singapore Tenants United for Fairness (SGTUFF), as well as the SME Committee (SBF SMEC) of the Singapore Business Federation, the apex business chamber.
“Despite the best of efforts, our revenues have been and will likely continue to be severely impacted. Accordingly, we will seek to keep all costs variable and in line with the fall in revenues,” says Andrew Kwan, president of RAS. “Manpower and COGS [cost of goods sold] are variable and can be managed by operators. But rentals are not, at this point in time,” says Kwan, who is co-chair of FTFIC.
They say that when property tax rebates were announced so that landlords can pass them on to tenants as rental rebates, the latter were kept in the dark as to how much rebate landlords will issue them.
“Many institutional landlords even advantaged themselves with the taxpayers’ monies by imposing conditions on tenants when giving rebates, and it almost always came with an imposed gag order. Some did not even care about how urgent the SME tenants needed the speedy help, and proposed delayed-and-time-staggered payments through months ahead,” says Wee.
Ho Meng Kit, CEO of SBF and a former top civil servant, says that a fair and sustained outcome would have been preferred and could have been achieved without legislation. “Rules and laws can be prescriptive, blunt and cannot fit every commercial situation. But we had an industry code called the Fair Tenancy Framework that was not well supported. So, we push for legislation for greater effectiveness and enforcement. It is a very Singaporean way,” he adds.
FTFIC is putting forward a total of 15 key recommendations guided by five principles — incentivising value creation, transparency, protecting tenants from unfair tenancy practices, building a more sustainable ecosystem, and instituting the concept of reciprocity.
The fair tenancy framework outlines a three-pronged initiative of rental data transparency, education and awareness, as well as a preferred dispute resolution channel. FTFIC submitted its position paper and recommendation to the Ministry of Law and Ministry of Trade and Industry on May 21.
RAS’ Kwan says: “When the rentals are so fixed, it really will just drag the entire operations down. So that is the elephant in the room that we need to address, otherwise all the other assistance being rendered, and all the belt tightening by even the staff, management and owners are not going to save the ship. It is important that this cost element be fixed right now.”
The strain on the industry is already apparent. In a separate study released by online dining platform Chope on May 20, 13% of the 150 dining establishments surveyed said they have not received rental waivers from landlords equivalent of the property tax rebates. By May, 57% of restaurants have received rental rebates the equivalent of the property tax rebates, or have heard from their landlords that they will get the rebates.
Even with the phased lifting of the “circuit breaker” from June 2 onwards, dining-in will still not be allowed. The F&B sector has some way to go before the pain eases. Already 11% of restaurants have retrenched staff, and another 25% are considering ceasing employment of more staff if the situation does not improve.
Now, the issue of escalating rents has been attributed to the growing popularity of REITs, which as an asset class, is entrenched in popularity among investors, both institutional and retail alike. To please them, REITs face pressure to deliver “positive rental aversions” every time they report earnings, and so, they have been, presumably, redirecting the pressure to tenants by jacking up rates at every opportunity.
The committee does not “have a problem” with the REIT model per se. “It is actually the behaviour of the leasing management and the leasing agents at play, whereby when you have overly aggressive behaviour, then the conduct leads to a situation whereby a few groups of institutional landlords control a large amount of Grade-A retail space,” says Wee.
So, when SMEs try and look for some space within these choice real estate, they not only have to pay the steep rental but are also subjected to onerous leasing terms. “You get slammed with 60-page, 90-page, 100-page contracts. Your only recourse is some faith and some hope that you will do well and you can pay the rent,” says Wee.
