In Singapore, tenancy agreements typically include a lease term of between six months to two years. During this period of time, the tenant is legally obliged to pay the amount of rent outlined in the tenancy agreement (TA) with the landlord. However, due to unforeseen circumstances, there could be a need for breaking lease by either party. We explore what these circumstances are, and their consequences.
Breaking lease and early termination of your rental contract can bring about a world of frustration and stress
A foreword on what a tenancy agreement entails
Tenants and landlords should be aware of the terms set out in the tenancy agreement before they sign it. After all, the very nature of the TA is to avoid any conflict or miscommunication between both parties.
(Read here for more info about what should be included in the TA)
In most cases, the tenancy agreement should contain terms which ensure the tenant(s) has exclusive possession over a property within a stipulated duration. Moreover, tenant(s) should be able to live without intrusions and disruptions to their personal space, security and/or belongings during the aforementioned period of occupancy.
On the other hand, tenants too have a responsibility to uphold the obligations set forth in the terms of the contract. The most fundamental of these include:
- Rent payment for the duration of stay
- Maintenance of the property
- Agreement not to sublet the property for personal profit
- Bear the burden for utilities/repairs (unless otherwise stated)
- The start and end date of occupancy
Ending a tenancy early
It is often the last point mentioned above that causes disputes to arise. Once the tenancy agreement has been signed and approved, the tenancy may be terminated only when either the landlord or tenant gives prior, and appropriate, advanced notice. When this should be done must correspond with the length of the tenancy period, as well as the frequency of rent payment. For example, for a tenancy where rent is paid monthly, the appropriate period of notice should be one month. In most instances, the minimum notice period is 30 days.
Breaking lease as a tenant
Tenants should not end their tenancy prematurely without first notifying their landlord. It is always advisable to obtain their consent before proceeding with vacating the premises. Sometimes, landlords may object to the tenant’s request to end the tenancy, hence may request for monetary compensation in return.
This is where the security deposit comes into play. Equivalent to an additional month’s rent, the security deposit is often used as a safeguard against early termination of a tenancy. This is in addition to its intended function of paying for reparations to damages (if any) found during the course of the tenancy.
However, it is still best for landlords and tenants to clearly establish the parameters for the penalties for an early termination as well as ascertain the likelihood of this happening, even before the TA is signed.
Of course, there are instances when breaking lease is inevitable such as:
- Tenant relocated overseas by his or her company
- Tenant’s employment terminated
- Tenant is ordered to leave the country by authorities
As a tenant, to indemnify yourself of paying penalties when such things occur, it’s best that you ensure that such clauses are included into the tenancy agreement.
The Diplomatic Clause
Because of cultural norms and public housing policy, the rental market in Singapore tends to be very expat-centric. This is why most tenancy agreements of at least two years will include a Diplomatic Clause as a safeguard for tenants who encounter unexpected changes in lifestyle. These can include being transferred out of the country by their employer, termination of their employment or being ordered to leave Singapore. Should these unfortunate circumstances occur, the duration specified in the diplomatic clause allows the tenant to terminate the contract earlier, inclusive of the notice period. Naturally, documentary evidence will have to be provided to prove reason for such a termination.
For example: if the Diplomatic Clause duration is 6 months and the notice period is 2 months on a lease of 2 years, it is within the tenant’s rights to give notice after a year of rental, bringing the total rental paid to 14 months.
The Reimbursement Clause
Auxiliary to the Diplomatic Clause is the Reimbursement Clause. This typically covers the agent fees paid by the landlord at the commencement of the lease. Upon exercising the Diplomatic Clause, the tenant is liable to reimburse the landlord with these fees on a pro-rata basis.
The En-Bloc Clause
The En Bloc Clause serves to provide the landlord with the option to terminate the lease prematurely in the event of the entire building being sold for redevelopment. While this is relatively rare, the inclusion of this clause gives the landlord the ability to end the lease without having to compensate the tenant.
Breaking lease without these clauses
What happens if your tenancy agreement did not include these clauses or you find yourself in the predicament of breaking your lease before the Diplomatic Clause period? What are your options then?
The purpose of the Diplomatic and Reimbursement Clauses is to ensure an equitable and fair resolution in the event of a trying situation. Without these clauses, it is still possible to negotiate this with your landlord on your own by understanding the losses that he will incur with your early termination of rental.
Primarily, there is a loss of rental income. Finding a replacement tenant takes time and effort and having the property remain empty would be a significant loss. To mitigate this, as a tenant, what you can do is search for a tenant to take over your lease until the end of its term. Prior to searching for a replacement tenant yourself, however, you should make sure the landlord is agreeable to this arrangement and be prepared to make sure that the replacement tenant pays the same amount of rent. Sometimes this could entail subsidising the replacement tenant’s rent until the termination of the lease.
These clauses are vital to protecting yourself as a tenant. If these clauses are not in the tenancy agreement, you are still liable for rent until the end of the lease term.
Breaking lease as a landlord
Despite property law in Singapore strongly favouring the landlord over the tenant, landlords terminating the lease is a fairly rare situation. As a tenant, opening communication with the landlord and seeking fair compensation would be the best solution in this case.
Landlords breaking lease should also realise the costs incurred by the tenant and compensate the tenant accordingly. In some cases this could entail refunding the rent for the notice period the landlord provides, along with the security deposit.
Legally, however, the tenant is well within his or her rights to reside in the property until the end of the lease. If a wrongful eviction takes place, the tenant could resort to pursuing a case with the Small Claims Tribunal if the lease does not exceed two years.
Eviction of a tenant
If the terms of the tenancy agreement have been breached, such as non-payment of rent, the landlord may choose to evict the tenant. To this end, it is important that the landlord expressly stipulates the right of re-entry in the tenancy agreement . The landlord must also serve notice specifying the breach, the compensation sought and the course of action he wishes the tenant to take.
The tenant may also apply to the courts for relief to alleviate the forfeiture of the property. The courts may then choose to give the tenant an additional amount of time to settle his affairs, in most cases, this is 4 weeks.
A landlord may also choose to invoke his right to distress under the Distress Act. This allows him to claim up to 12 months’ arrears prior to the distress application. This is followed by sending the tenant a notice of seizure of goods and writ of distress. If the tenant does not reply within 5 days, the landlord may then sell off his goods.
Breaking lease equitably
Whether you’re a tenant or a landlord, changes in life can present themselves without warning and it is important that we have empathy for each other. Open and honest communication is the key to coming to a reasonable settlement with fair outcomes for all involved.
(Photo: Caroline Chia)
In 2013, Minister for National Development Khaw Boon Wan revealed that some 40,000 entire HDB flats in Singapore are being sublet while up to another 40,000 owners rent out their spare bedrooms. Last year alone, the HDB granted over 27,000 approvals for subletting whole units. Some HDB flat buyers, frustrated at being priced out of the resale market, have blamed these non-occupier HDB owners for partially contributing to the supply crunch.
Fair allegation or not, these non-occupier HDB flat owners could include retirees who depend on rental income for a living, people who work overseas who do not have a CPF contribution to help cover the monthly payment, and yes, upgraders who now live in private property. Whatever the reason may be, if you’re thinking of monetising your flat or spare room, make sure you’re treading on the right side of HDB regulations.
1. CHECK YOUR ELIGIBILITY AND SEEK APPROVAL TO SUBLET YOUR ENTIRE HDB FLAT
Firstly, only Singaporean citizens are allowed to sublet their entire flat; a recent policy change announced in January 2013 now bans Permanent Residents (PRs) from doing so, which should soothe some ruffled feathers among disgruntled Singaporeans.
Secondly, Singaporean flat-owners need to fulfil their Minimum Occupation Period (MOP). If you bought a non-subsidised resale flat (without a CPF housing grant) before Aug 30, 2010, your MOP is three years. If it’s after Aug 30, 2010, your MOP is five years, regardless of whether it’s a new flat bought directly from the HDB or a subsidised or non-subsidised resale flat. Thirdly, seek the HDB’s approval before you lease out your whole flat by submitting an application at www.hdb.gov.sg/subletting. Each application costs $20 and lasts a maximum of three years.
2. INFORM THE HDB EVEN IF YOU’RE SUBLETTING BEDROOMS
Although subletting bedrooms does not require the HDB’s approval, you must register your room tenant’s particulars within seven days. The HDB must also be kept informed of any changes, or if you renew or terminate the subletting. For repeat offenders who fail to do so, your flat may be compulsorily acquired by the HDB.
3. CHECK YOUR TENANTS’ ELIGIBILITY, TOO
You can rent your entire flat or bedrooms to Singapore citizens, Singapore PRs or noncitizens who are holding Employment Passes, S Passes, Work Permits, Student Passes, Dependant Passes, or Long-Term Social Visit Passes. Strictly no tourists are allowed. If someone wants to rent your whole flat, they cannot be a tenant or owner of other HDB flats unless they are divorced or legally separated (even then, only one party may be a sub-tenant). A person who has met his own MOP and is eligible to sublet his whole HDB flat can rent your flat, but he needs to do so within a month of moving into your home. Owners of HDB Executive Condominiums who haven’t met their five-year MOP aren’t eligible to rent another HDB flat.
The minimum period of rental for each tenant per application is six months, to a maximum of three years. However, subletting to non-citizens (excluding Malaysians) is capped at 1.5 years; after which you have to reapply for approval. If you’ve hired a property agent, he should show you proof of your tenants’ immigration status. You can also check it at the Immigration & Checkpoints Authority website (http://ienquiry.ica.gov.sg), and your tenant’s Employment Pass and S Pass validity at the Ministry of Manpower website (www.mom.gov.sg).
Make sure the passes are valid for at least six months at the date of the subletting application. If your tenant’s company decides not to renew his employment pass, you might have to incur an extra sum of commission to the property agent to find a new tenant. Also note that two-year leases usually come with a diplomatic clause. If the tenant is no longer employed in Singapore or is transferred to another country, he can terminate the lease after 12 months by giving two months’ notice.
4. LAY DOWN THE GROUND RULES
Tenants who rent a whole unit pay their own utility bills separately from the monthly rent. However, for room tenancy contracts, the landlord usually accepts an agreed sum of, say, $700 for a bedroom, which covers the utilities. Some tenants abuse this by perhaps leaving the air-conditioner on the whole day, even when they are out. To prevent this, some landlords include a clause in the tenancy agreement that states that the tenant can only use the air-con at say, between 9pm to 8am every night.
Also put down in writing if you disallow overnight guests who might incur extra utility costs, as they aren’t registered tenants. If you’re open to your tenants doing “light cooking”, spell out exactly what you mean. Does it mean daily meals or a few times a week? Simple dishes like instant noodles or four-course meals?
Most tenants do their laundry separately but this could mean using the washing machine every night for just three or four pieces of clothing. To prevent this, homeowner Lily asks her tenants to pay a nominal sum of $20 monthly; in return, her domestic helper will machine-wash, fold their clothes and iron their clothes together with the family’s load. “It’s a small sum that they don’t mind paying but more importantly, it cuts down on my washing machine’s wear and tear, and running costs,” she says.
5. DON’T SQUEEZE IN MORE TENANTS THAN YOU’RE ALLOWED TO
You can sublet your entire one-room or two-room flat to a maximum of four people; three-room flats to six people; and four-room or bigger units to a maximum of nine. Note that only owners of three-room or bigger flats can rent out spare bedrooms. You can rent out one bedroom in your three-room flat (subject to a maximum of six occupants in each flat), while owners of four-room flats and larger units can sublet two bedrooms (maximum nine persons per flat).
The same “maximum nine tenants” rule applies to executive flats or jumbo flats even though you may have four or five bedrooms. Also, you can only sublet bedrooms – the utility room, living room and bomb shelter doesn’t count. One savvy owner of a five-room flat installed sliding doors to carve out an extra bedroom in his living room for his daughter, while renting out the other two common rooms to tenants. Also, be wary of main tenants who may illegally sublet your HDB flat.
6. DON’T FORGET YOUR TAX COMMITMENTS
Once you’ve sought approval from the HDB to sublet your entire flat or bedrooms, it’s only a matter of time before the Inland Revenue Authority of Singapore (IRAS) catches up with you if you don’t voluntarily declare your rental income, so don’t be tempted to cheat. Don’t forget to keep receipts such as agent’s commission, air-con servicing and replacement of furniture to claim for your expenditure. Currently, owner-occupiers who sublet bedrooms continue to enjoy the concessionary tax rate, which is calculated at zero for first $6,000 of the Annual Value of the flat, four per cent for the next $59,000 and six per cent for the first $65,000 exceeding that. Owners who rent out their entire flat, however, are taxed at the standard rate of 10 per cent. Come 2014, all residential properties will be subject to Progressive Tax Rates.
If you currently own and stay in a private property, don’t forget to notify IRAS to transfer the owner-occupier property tax (granted to your HDB flat by default) to your private property. Otherwise, your private property will automatically be charged the higher tax rate!
DID YOU KNOW?
HDB landlords who haven’t met the MOP, and so can’t get HDB approval to lease out their entire flat, try to “lock one bedroom” while renting out the rest of the unit. This is illegal. Last year, homeowner Chew Teck Fatt sued the HDB for wanting to seize his five-room flat on the charge that he wasn’t occupying it. He had previously informed the HDB when he rented two of the bedrooms and said the third was for his own use. However, HDB surveillance caused them to suspect he didn’t stay there and was illegally subletting the entire unit. The landmark case was eventually settled when HDB reviewed more evidence and “decided to give him the benefit of the doubt”.
Text by Stella Thng (First published in The Straits Times)
TOPICS: guidelines, HDB, housing, know how, property, regulations, rental