Tenancy Agreement Guide: 9 Things You Need To Know

picture of a house and a pen

It’s not uncommon to hear some unbelievable rental horror stories from your friends and family sometimes.

These stories do happen in Singapore – and they happen more than you can ever imagine! Just head over to the online forums, and you’ll see all kinds of nasty encounters.

Moral of the story – get your tenancy agreement right.

Whether you’re a tenant or landlord, knowing what to include in the tenancy agreement is vital to protect yourself against tenancy disputes.

Want to know how to protect yourself from such precarious situations? Read on.

What Is Tenancy Agreement?

A tenancy agreement is a legally binding contract that spells out the terms and conditions that the landlord and tenant have mutually agreed upon.

This agreement plays a pivotal role in regulating the lease of a property as they define the rights and duties of the landlord and tenant.

Simply put, this agreement safeguards the interests of each party against legal matters that arise in the event of a tenancy dispute.

As with any legally binding contract, there are substantive and procedural aspects of a tenancy agreement.

The first part of this article will outline the substantive aspect of a tenancy agreement, stating the must-have clauses in a tenancy agreement and explaining these clauses in plain English.

The second part of this article will outline the procedural aspect of a tenancy agreement, such as registration and matters surrounding stamping of a lease agreement.

In short, this section tells you how to get your tenancy agreement legally recognised – after all, what is a well-drafted contract without legal effect?

 

The Bare Essentials of a Tenancy Agreement

Singapore does not have a comprehensive set of laws governing landlord-tenant relations.

Therefore, what is specified in the tenancy agreement is important in safeguarding the rights and interests of both tenant and landlord.

As a starting point, the essentials of a tenancy agreement are:
1. The full name and contact address of both landlord and tenant
2. Address of the leased property
3. Duration and commencement date of the lease
4. Rental amount, payment schedule and payment details
5. Any additional fees to be paid, such as agent commissions
6. Landlord’s and tenant’s covenants, stating clearly the obligations each party has towards the other. This section should be carefully negotiated and drafted to encompass both parties’ interests comprehensively.
7. Inventory list of all the items in the leased property and the working condition, to be checked and signed by both parties to avoid future maintenance disputes

This outline lays out a basic skeleton of what a tenancy agreement should typically look like.

However, having these basic clauses doesn’t guarantee that you’re free from any legal troubles.

Ever wondered about the “what if” scenarios? Read on to have these doubts answered!

 

Duration Of The Tenancy Agreement

“The term of lease shall be for a period of three years and one month commencing from the Lease Commencement Date (“Term”) unless renewed or terminated earlier in accordance with this Lease Deed.” (This is a sample clause and does not constitute any form of legal advice.)

The duration of a lease must always be stated clearly in the tenancy agreement. This duration begins on the commencement date of the lease (which must be stated too) and must be strictly adhered to by both parties.

If either party wishes to shorten or extend the duration, there must be a mutual agreement, or else severe consequences will follow.

It’s important to note that this clause determines the validity of your lease under the law. Never assume that this clause is a given in the agreement, things could happen.

And, you definitely don’t want your tenancy agreement to be denied of legal effect just because this clause isn’t included.

 

What If The Tenant Overstays?

Have you ever wondered what happens if the tenant overstays the tenancy end date?

Imagine this scenario where you’re the landlord, and you’ve leased your property to a tenant where the terms were mutually agreed upon, and the agreement was signed and in writing.

In particular, the commencement date of the tenancy agreement will be 1 Jan 2019, for the period of three years unless agreed otherwise.

It’s now 2 Jan 2022, a little over three years, and your tenant hasn’t moved out – and in fact, he refuses to! You’re astonished and outraged at how audacious he is, and you’re wondering: What can I do?

In this situation, once the duration is up, it conclusively marks the end of the stay for the tenant (unless there were further negotiations to extend the lease).

If the tenants overstay beyond the tenancy end date, the landlord has a right to claim double rent from them.

Extending Your Stay With The ‘Option To Renew’ Clause

However, if you’re the tenant, and you love the place so much that you want to extend your stay, you can exercise the ‘Option To Renew’ clause to extend the lease for another term.

However, this should be accompanied by notifying the landlord within the time period stipulated in the clause. Ultimately, it is within the discretion of the landlord whether to grant you the option to renew.

If granted, the landlord will prepare a contract with the same clauses as the current contract, unless clauses are re-negotiated.

Usually, if you’re a responsible tenant, the landlord will be more than willing to extend the lease for you since it’s not that easy to find good tenants who take care of their houses.

But, that said, it might not apply for profit-driven landlords who prioritise rental yield over everything else.

What Happens If You Terminate The Lease Early?

So, what if the landlord or tenant wishes to terminate the agreement early?

In reality, many tenancy agreements might be prematurely terminated by either the landlord or the tenant due to a variety of reasons and circumstances.

That said, early termination doesn’t always lead to a bad ending – but that’s if you guard against it by knowing and exercising your rights properly!

These situations are always governed by the ‘Termination’ clause, present in most tenancy agreements.

This clause should clearly state two things: the notice period and method of service of notice to be given; and the quantum of monetary compensation to be paid by the terminating party if they do not adhere with the obligations under this clause.

A tenancy may only be validly terminated if the terminating party offers adequate notice to quit the lease within the notice period.

The typical notice period for early termination is one month – which is negotiable, depending on the value of the rent, the type of property, and consequently, the difficulty in finding a new tenant.

A simple illustration of a one month notice period would be:

table showing tenancy agreement intended last day of stay and latest date for service of notice

 

Exercising The Diplomatic Clause To Terminate The Lease

But, what if you’re a foreigner, and you don’t know whether your company will transfer you out of Singapore due to work reasons?

This is where the ‘Diplomatic’ clause comes in handy. It’s a must-have in your tenancy agreement if you’re a foreigner working in Singapore.

If you need to leave Singapore due to a job transfer or terminated employment, this clause allows you to withdraw from the tenancy agreement without any backlash (i.e. your deposit being forfeited).

However, do note that you’ll have to stay for a minimum of 12 months for the diplomatic clause to take effect, and provide evidence to prove the reason for the termination of the lease.

Furthermore, you have to give at least two months notice. Otherwise, you’ll have to pay the two months notice in rent as a penalty.

 

Security Deposit

picture of a security box with combination lock

Upon entering a tenancy agreement, it’s common for the landlord to collect a deposit as security.

This deposit does not constitute part payment of the rent – it’s typically used to “insure” the landlord against any damage to the property caused by the tenant, in case the tenant refuses to pay for it.

This will cover the costs of repair and any outstanding utility bills when the tenant has left the premises.

Hence, the tenancy agreement should clearly stipulate the amount and breakdown of the security deposit and the relevant use. This comes hand in hand with the inventory list.

The standard practice in Singapore is usually one month’s rent for a one-year lease and two month’s rent for a two-year lease.

 

Rent Payment

A good tenancy agreement should always stipulate the amount of rent payable.

As a landlord, collecting rent is not only your source of income but also your number one source of headache!

Successfully finding a tenant to rent your property is the first hurdle you have gotten through – congratulations!

Now, both of you have signed the tenancy agreement and agreed on a fixed rent payment to be paid monthly.

But, this doesn’t mean that the process will be breezy and smooth sailing from here on – more often than not, tenants default on rent payments, or even refuse to pay.

In The Event of Non-Payment, Exercise The ‘Right to Forfeiture’ Clause

As a landlord, always make sure to include a ‘Right to Forfeiture’ clause in the tenancy agreement so that you can evict any errant tenant who refuses to pay rent.

Having this right essentially means that the landlord can regain lawful possession of his property.

This is done in two ways: either physically entering the premises, or serving a writ of notice stating the landlord’s intention to invoke his right to forfeiture and reasons for doing so.

However, this is a draconian method and should be the last resort for any landlord.

This will thoroughly destroy any relationship between the landlord and tenant, and potentially involve legal processes such as drafting and serving the writ.

An alternative solution would be to charge the overstaying tenant double rent for the period he/she has overstayed so you won’t have to pick up the remnants of errant tenants!

 

Landlord and Tenant Covenants

picture of a gavel and law books

The landlord and tenant covenants refer to the rights and obligations between both the parties.

This section of the tenancy agreement protects the specific rights and interests of both parties. It is mutually negotiated to a large extent.

The ‘Right to Quiet Enjoyment’ Clause

The most commonly included landlord covenant in a tenancy agreement is the “right to quiet enjoyment” clause – this means that as the tenant, you’re well protected from the landlord randomly barging into your flat without your permission.

The ‘Minor Repair & Other Maintenance’ Clause

As the tenant, the most typical covenant is to allow the landlord into the premises to make necessary maintenance and repairs.

It means that the landlord can’t barge into your home and say, “Hey, can I use the toilet?”.

But, he can knock on your door and say, “Hey, the scheduled maintenance of the toilet is due, may I enter with the contractor to carry out the necessary works?”

The Most Important Tenant Covenant You Should Negotiate For As A Landlord

As a landlord, your utmost concern and interest would be to maintain your property in good condition and to be clear about matters involving your property.

After all, it’s an expensive investment piece.

Imagine if your tenant sub-lease your property to another party and keeps you in the dark about it.

You can’t protect your property against such a situation if the subletting clause is missing.

This subletting scenario is common, and the horrors of it can be prevented with a carefully drafted tenancy agreement that includes a ‘Subletting’ clause.

This clause will prevent tenants from subletting the whole or part of the property to others.

A breach of this clause will typically lead to a termination of the lease agreement and compensation to the landlord.

The Most Important Landlord Covenant You Should Negotiate for as a Tenant

As a tenant, the most important thing is for you to be able to enjoy the leased property during the entire duration of your lease.

This right is conferred to you through the ‘Exclusive Possession’ clause.

With this clause in effect, the landlord must allow his tenant to occupy the premises exclusively, without any intrusions and disturbances from outsiders so that they can give their tenants peace of mind.

 

Procedural Aspects of a Tenancy Agreement

Registration of Lease

Under Singapore property law, only leases above seven years have to be registered with the land authority. Leases under seven years do not, and cannot be registered.

Stamp Duty

Stamp duty is a tax on documents which is related to the purchase or lease of a property.

It is extremely important to pay your stamp duty in full and on time, because failure to do so will render the tenancy agreement inadmissible as evidence in court, in case of any tenancy disputes.

Who should pay stamp duty?

By convention, the stamp duty is usually paid by the tenants.

Hence, in addition to the monthly rent and security deposit, a tenant is required to pay a tax upon signing of the tenancy agreement.

These payments should be made whenever a tenant rents the whole or part of a residential property or agrees to renew the existing lease.

However, there are cases where it’s negotiated that the landlord will absorb the cost.

In order to avoid any possible disputes, tenants and landlord should always state the payee of the stamp duty in the tenancy agreement clearly.

If there’s a dispute, and the tenancy agreement does not show who is responsible for the payment, the Inland Revenue Authority of Singapore(IRAS) will follow the rules stated in the Third Schedule of the Stamp Duties Act, which states which person is liable to pay stamp duty for different types of agreements involving property.

If you’re not familiar with this process, you should go through the terms and conditions with your property agent so that your interests are protected.

How much stamp duty is payable?

Generally, the taxable amount would be 0.4% of the total rent paid for the entire duration of the lease.

However, there are various permutations to the computation of this amount, depending on the duration of your lease.

Hence, you should keep abreast with the updates by IRAS or consult a property agent if you are unsure. The current rates for stamp duty are stated here.

When should the stamp duty be paid?

If the tenancy agreement is signed in Singapore, the stamp duty should be paid within 14 days.

However, if the tenancy agreement is signed overseas, the stamp duty should be paid within 30 days.

Where can tenants get their Tenancy Agreement stamped?

The most convenient way would be to e-stamp your tenancy agreement through IRAS e-Stamping Portal.

The e-stamping portal allows you to carry out many e-services, such as retrieving your stamp certificate or requesting for a refund.

Alternatively, tenants can physically head down to service bureaus listed here.

 

Legal vs Equitable Leases

What if you entered into a lease without any formalities, such as a verbal agreement?

A common question would be: Is this verbal agreement legally enforceable?

The answer is yes. A verbal tenancy agreement which does not fulfil the requirements of writing and registration is called an equitable lease, whereas a tenancy agreement that completes the above described is called a legal lease.

Your equitable interests will still be protected under the law.

However, an equitable lease doesn’t protect your interests as well as a legal lease would.

Most notably, an equitable lease doesn’t bind a buyer who enters into a contract of purchase in good faith, without notice of any verbal agreement.

Hence, if the landlord were to sell his house to a buyer and doesn’t inform him of the current agreement with the tenant, the buyer has a right to chase the tenant out and take immediate possession of the property before the agreed lease duration is up.

Thus, it is always advisable for you to put any kind of agreement in writing and ensure compliance with procedural requirements as the best form of defence against future legal disputes.

 

Practical things to note

two piece of papers showing the word illegal and legal

Armed with knowledge about the best way to draft a tenancy agreement, here are some practical matters you need to note before looking for a tenant:

1. The maximum number of tenants allowed:
a. HDB 1&2 room: 4
b. HDB 3 room & above: 6
c. Private properties: 6

2. Minimum lease period:
a. HDB(any type): 6 months
b. Private properties: 3 months

3. If your property is under an existing mortgage, the lease cannot exceed three years without express permission from your mortgage bank.

Finally, you can refer to these tenancy agreement templates from CASE and CEA to get a headstart on drafting the tenancy agreement that protects your interests.

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