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In brief: real estate acquisitions and leases in Singapore – Lexology

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Acquisitions and leases
Describe the various categories of legal ownership, leasehold or other occupancy interests in real estate customarily used and recognised in your jurisdiction.
In Singapore, property ownership interests are broadly categorised as freehold (including estates-in-perpetuity) or leasehold (usually 99 years – however, industrial property leases can be of 60, 30, 20 or fewer years’ tenure).
Longer term leases (eg, seven years and over leases) can be registered and have their own certificate of title.
Commercial properties can be single-titled or strata subdivided, with either freehold or leasehold tenure. Even longer-term leases of commercial properties by anchor tenants tend to remain contractual leases that are unregistered.
Approximately 80 per cent of the residential properties in Singapore are public housing (ie, strata-subdivided leasehold Housing Development Board flats). The remaining 20 per cent private properties include private apartments, condominiums, cluster landed housing and private landed properties.
Through the Torrens system of registered land, legal land interests represent indefeasible title to the properties, and the sale and transfer of properties are done by way of a legal transfer and conveyance.
Entire (or substantial parts of) residential property developments can be master leased to an operator as a co-living facility or serviced apartments. Shophouses or even commercial buildings can be master leased (within their approved use terms) as co-working facilities or offices.
What are the typical pre-contractual steps?
For residential properties, or lower valued transactions involving commercial and industrial properties, the seller usually issues an option to purchase (based on agreed terms) to the purchaser, in exchange for the purchaser’s payment of an option fee (usually 1 per cent of the sale price). If the purchaser elects to proceed, the purchaser will pay a further deposit (usually 4 per cent) to exercise the option (which then becomes a binding sale contract) with the balance sale price payable on the completion date.
For higher valued commercial and industrial properties, contracting parties (particularly institutional buyers) may begin by agreeing on an exclusivity period during which they negotiate the terms of a sale and purchase, while the purchaser conducts its due diligence.
Real estate agents are usually involved in transactions, and each side could appoint their own agent. All real estate agents must be licensed by the Council for Estate Agents, which prescribes their duties and regulates their conduct.
What are typical provisions in a contract of sale?
The typical provisions in a property sale contract depend on the type of property and buyer.
Residential property units tend to be sold on an ‘as is where is’ basis, the main negotiation points being the sale price, transaction timing, and whether the property is sold vacant or with tenancy.
On the other hand, an institutional buyer, for example a real estate investment trust or property fund buying a commercial or industrial building, is likely to conduct legal and technical due diligence, and negotiate extensive warranties on the property title, property condition, approvals and specifications.
Outgoings on the property (including property tax) are usually apportioned between the seller and buyer with reference to the completion date.
Risk in the property usually passes only on completion of the sale, although sellers with a strong bargaining position may be able to insist that risk in the property passes once the sale contract is signed.
Who takes responsibility for a future environmental clean-up? Are clauses regarding long-term environmental liability and indemnity that survive the term of a contract common? What are typical general covenants? What remedies do the seller and buyer have for breach?
Environmental clauses are usually not common in Singapore other than for industrial properties.
Industrial properties managed by JTC form the vast majority of industrial properties in Singapore. JTC has to approve any intending transfer of a JTC property. Approval includes consideration of whether any environmental baseline study is needed to determine whether the property has been polluted, and whether decontamination works are needed.
What are typical representations made by sellers of property regarding existing leases? What are typical covenants made by sellers of property concerning leases between contract date and closing date? Do they cover brokerage agreements and do they survive after property sale is completed? Are estoppel certificates from tenants customarily required as a condition to the obligation of the buyer to close under a contract of sale?
The sale of residential properties or small retail or office units usually do not involve extensive representations on underlying leases, and the property owner is generally taken to have authority to lease out the property.
For larger ticket properties, the seller may be required to represent, among others, that there is no outstanding default or pending dispute under the leases, all necessary approvals from authorities have been obtained and there are no other leases granted or to be granted pending completion.
Estoppel certificates are not commonly issued by tenants in Singapore property transactions.
Is a lease generally subordinate to a security instrument pursuant to the provisions of the lease? What are the legal consequences of a lease being superior in priority to a security instrument upon foreclosure? Do lenders typically require subordination and non-disturbance agreements from tenants? Are ground (or head) leases treated differently from other commercial leases?
It is a usual term in a mortgage that mortgagors must seek the mortgagee’s consent prior to entering into any lease of the property. Mortgagees usually take a practical view of things, as property leases generally enhance the mortgagor’s overall credit profile unless the proposed lease is at an undervalued rent or contains onerous terms on the landlord, or both.
Subordination and non-disturbance agreements are not usually seen in the Singapore market.
What steps are taken to ensure delivery of tenant security deposits to a buyer? How common are security deposits under a lease? Do leases customarily have periodic rent resets or reviews?
Security deposits for leases are usually furnished in cash upfront, and sometimes (in whole or in part) via on-demand bank guarantees or insurance bonds.
Where a property seller (as landlord) holds a security deposit, the same will typically be transferred to the buyer by way of deduction from the sale price.
Leases can have flat or tiered rental rates throughout the lease term. If the lease has an option to renew, the parties can either leave the rent to be agreed upon renewal, specify a formula to determine the renewal rent (eg, a cap) or leave it to expert determination.
What due diligence should be conducted before executing a contract? Is any due diligence customarily permitted or conducted after contract but before closing? What is the typical method of title searches and are they customary? How and to what extent may acquirers protect themselves against bad title? Discuss the priority among the various interests in the estate. Is it customary to obtain government confirmation, a zoning report or legal opinion regarding legal use and occupancy?
For property acquisitions, legal due diligence generally involves searches against the land register on the property title, extraction of any underlying leases, review of legal requisition replies and existing tenancies.
Technical and financial due diligence are separate investigations which the client will need to engage the relevant advisers to assist on.
Is it customary to arrange an engineering or environmental review? What are the typical requirements of such reviews? Is it customary to get representations or an indemnity? Is environmental insurance available?
If the purchase of the property involves a building, then structural or engineering reviews are more common. Parties can negotiate warranties on the building structure and the right of recession if there is any structural defect found by the purchaser.
Environmental investigation and warranties are not common other than in the case of industrial properties that involve pollutive activities.
Do lawyers usually review leases or are they reviewed on the business side? What are the lease issues you point out to your clients?
Institutional tenants would usually engage lawyers to review lease documents. End-user tenants may take a practical view and not incur the counsel costs.
Tenants should be conscious of the key commercial terms of the lease (rent, security deposit, term, right of renewal, any pre-termination rights). In addition, they may consider a right to sublet or share the premises or to assign or transfer the lease.
What other agreements does a lawyer customarily review?
Real estate lawyers will usually review property title documents, legal requisition replies and underlying head lease terms, and extract the terms of any registered easements or restrictions or encumbrances. In addition, if the property is leased out, the lease agreement should be reviewed.
If the property is sold subject to any property maintenance contracts, these will be reviewed as well.
How does a lawyer customarily prepare for a closing of an acquisition, leasing or financing?
The closing items for an acquisition, leasing or financing depend on the agreed closing items.
For an acquisition, closing items usually include title documents (and any discharge documents), underlying leases, and keys and access items to the property.
For a financing, the closing items usually involve the finance and security documents duly executed, the title documents, as well as specific ancillary items agreed between the lender and borrower, for instance, corporate resolutions approving the borrowing.
For a lease, the closing items usually involve the signed lease, together with the tenant’s payment of the first month’s rent and security deposit and any other specific items agreed between the landlord and the tenant.
Is the closing of the transfer, leasing or financing done in person with all parties present? Is it necessary for any agency or representative of the government or specially licensed agent to be in attendance to approve or verify and confirm the transaction?
Closing often does not require the principals to be physically present. If the closing is an exchange of documents, it can happen physically between counsel for either side or even virtually, if the closing items are agreed to be pre-positioned with either party with the relevant confirmations given for the release of items.
Some closings involve physical meetings, for example if payments are made by way of cashier’s orders to be delivered at closing.
What are the remedies for breach of a contract to sell or finance real estate?
The typical remedy that a court will grant is damages, if they adequately compensate the wronged party. Specific performance is a discretionary remedy that courts may grant if damages cannot adequately compensate the wronged party.
What remedies are available to tenants and landlords for breach of the terms of the lease? Is there a customary procedure to evict a defaulting tenant and can a tenant claim damages from a landlord? Do general contract or special real estate rules apply? Are the remedies available to landlords different for commercial and residential leases?
In the Singapore market, landlords are in a stronger position than tenants because they hold the security deposit and can deduct any amounts owed by the tenants. Beyond the security deposit, upon the tenant’s breach of the lease terms, the landlord can re-enter the premise and determine the lease. The landlord is entitled to the rent payable for the remainder of the lease term, although it is also required to mitigate its losses if it can obtain a replacement tenant – the defaulted tenant is only liable for shortfall in rent the landlord suffers for the remainder of the existing lease term.
Tenants may take legal action against their landlords if the landlord is in breach of the lease terms, for instance, if the premises is structurally unsafe or uninhabitable by the tenant.
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