Outline of Speech at the 2nd Reading of the Lease Agreements for Retail Premises Bill, Rethinking the Moral Limits of Markets
5 years ago, in a speech I made during an adjournment motion in the House, I drew attention to the fact of the power imbalance between small tenants and big landlords, particularly the REITs of shopping malls. I advocated that the Government intervene statutorily. At that point, the Government, in its response, stated that it was best to leave such matters to market forces. Fast forward to now, I am glad to note that the Government’s position has changed with respect to tenants in the retail sector. In my speech, I welcomed this development. I also provided some insights and raised queries on the dispute resolution mechanism.
- Mr Speaker, I support the bill, which in my opinion, is a mountain appearing as a molehill.
2. Its title is “The Lease Agreements for Retail Premises” bill. Its spirit though, is a deep and thorough rethinking of the moral limits of markets.
a. Markets in Singapore, as in almost every country in the world, are created, not only by supply and demand but by the laws that regulate them.
b. Being one of the most competitive countries in the world, Singapore takes a light touch towards constraining the freedoms of the market.
c. And most of the time, this has been the case, both because of the need for efficiency and the belief in wise decisions of a relatively unfettered marketplace.
d. But let us make no bones that in Singapore, a nation founded on the back of a socialist political philosophy, the market bends for the public good.
e. And through this bill, the Government has demonstrated that it is not shackled by the positions it took in the past and is willing to constantly review its policies to ensure that they address the needs of our people and enterprises.
3. 5 years ago in this House, in my adjournment motion speech entitled “Power Imbalance in Contracts Involving Small Businesses”, I highlighted the onerous nature of contractual clauses which were, as a matter of course, imposed by the dominant players in the market against the small businesses.
a. I specifically highlighted landlords of retail malls, particularly the REITs, as one category of dominant players:
i. In my speech, I recounted how a “demolition clause”; which is a clause that allows a landlord to pre-terminate a lease with a tenant on the basis that it has decided to undertake renovation work without any compensation to the tenant, works unfairly against many tenants.
1. These tenants, who would have invariably incurred capital expenses to fit out the premises, were left to bear the loss themselves. This does not appear to be a fair sharing of business risks.
b. I highlighted other onerous clauses imposed by landlords. They include:
i. Unilateral clauses that will make the tenant responsible for any additional property tax that is payable on the leased premises above the base property tax payable by the landlord but will not allow the tenant to recover any tax savings that the landlord may receive through tax rebates, reliefs or exemptions; and
ii. Illusory options to renew which provides that landlord can unilaterally decide on rent to impose at point of renewal of the option.
4. This asymmetry adds insult to injury when we remember that tenants are small businesses and landlords, are owners of large assets.
a. I advocated those small businesses to be provided with statutory protection in Singapore beyond what the Unfair Contract Terms Act 1977 provides.
i. Ironically, as a senior judge in Singapore recounted, the Unfair Contract Terms Act does not strike down unfair terms as the name implies.
1. It only deals with exclusion and indemnity clauses within a defined space of contracts.
b. I shared the examples of small business protection modes in UK, Hong Kong, USA, Germany and Australia.
5. In response, the hon Senior Minister of State for Law as she was then, Ms Indranee Rajah stated that whilst the Government was “empathetic to the challenges faced by SMEs”, the Government’s underlying philosophy is that “in general, free-market principles should apply and the Government should intervene only when necessary, for example, to address systemic market failures”.
a. She also said “enacting such legislation in Singapore can cause market distortion and eventually market inefficiency to the detriment of all”.
b. She also said to the effect that an answer to what constitutes a fair dealing is not something that is always clear cut because different parties may have different views.
c. Finally, she recognized that, fundamentally, the issue is that of bargaining power and suggested that SMEs leverage on Government’s schemes to scale up their business capabilities and use business and trade networks such as the Singapore Business Federation.
6. The introduction of this bill, 5 years since, represents, in my respectful view, a significant shift in the Government’s position which I welcome.
a. It recognises that free market principles are not the holy grail of public policy — that these principles must bend to larger principles of public life.
7. Let me point out what these are below.
a. First, equality. This bill recognizes that landlords and tenants stand shoulder to shoulder, both with legitimate interests. They share a mutual goal of collaboration to ensure that Singapore continues to have a vibrant and competitive retail, F & B and lifestyle sectors.
i. In this, the bill gives teeth to a Code of Conduct in which it is expressly stated that one key objective is to provide guidance to landlords and tenants to enable a fair and balanced position in lease negotiations.
ii. The beauty of this Code is that it is put up by a Committee representing both the interests of landlords & tenants and consists of neutral parties too. The expectation is that the Committee can provide holistic guidance on what constitutes fair practices in the context of retail lease agreements.
b. Second, fairness. A plain reading of the Code will show that the focus is really to protect the small tenant, not the big landlord. Sir, I welcome the Government’s decision to intervene for the small tenant in the retail sector:
i. It is a simple matter of fairness;
ii. And it also makes business sense in a long term:
1. Otherwise, we would see a hollowing out of SMEs, which are representative of our nation’s entrepreneurial spirit, within the retail sector.
2. I see this move as being fully aligned with the Government’s Singapore Economy 2030 vision that includes the nurturing of a deep bench of local enterprises.
8. There is a third principle that this bill makes provisions for — but in my view, it has not gone far enough. This is the true freedom to contract.
9. I would like to invite the hon Minister to state the Government’s position on power imbalances in contracts involving small businesses which fall outside the purview of this Bill:
a. This includes businesses outside the retail sector; as well as
b. Contracts with businesses have with other dominant players such as telcos and utility services providers.
i. For this 2nd category, in my 2018 speech, I circulated a handout containing standard clauses that are incorporated in areas of provision of utilities and telecommunication services that, in my respectful view, are one-sided.
ii. 5 years later, when I had the occasion to review these standard terms as part of my preparation for this speech, I was happy to note that the situation has improved. However, there remains a smaller number of one-sided clauses:
1. To illustrate what I mean, let me read out 1 example of an overbearing clause that appears in the standard terms and conditions of a telco’s contract that is accessible publicly:
a. The Service Provider may at any time terminate the availability of any Service Number or change, re-assign or replace any Service Number without giving any reason therefor.
b. This is worded in a way not to be an exclusion clause and therefore does not fall within the purview of the Unfair Contract Terms Act 1977.
2. Hence, contractually, there may be little recourse for the business which will have to assume the risk that the specific service it contracted for may be terminated at any time and without being given any reason.
a. In market parlance, the business is a price taker, whether willing or not.
c. Thankfully, where the dominant players are regulated, I see an ability on the part of the regulators to reign in unfair practices and ensure fair dealing outcomes through exercise of their regulatory powers.
i. This is done, for example, by the MAS which issued Fair Dealing Guidelines in 2013.
1. I suggested in my 2018 speech that other regulators follow suit.
ii. What would be useful in particular is to ensure that the contracts issued by these dominant players are reviewed for compliance with such guidelines too.
1. In other words, there should be no gap between regulation and contract.
10. I now turn to the bill.
11. Part 4 of the bill provides the dispute resolution mechanism that may be invoked by a landlord or a tenant should there be a complaint that there has been a non-compliance with a leasing principle set out in the Code of Conduct.
a. This dispute is to be resolved through mediation first.
b. If mediation does not work, then it is proposed that it be dealt with by an adjudicator who will have the power to not just determine whether there is a non-compliance with a leasing principle but also deal with the issue of compensation.
c. Under Clause 10 of the Bill, the Minister may authorize any person to be an authorized dispute resolution body. In turn, the authorized dispute resolution body must maintain a panel of mediators and adjudicators.
i. My first question is what are the proposed qualifications of the mediators and adjudicators.
1. It seems to me that they need to have a reasonably strong grounding in commercial and property law.
ii. Why is it felt that the appointments of the mediators and adjudicators should not be done directly by the Minister?
12. My next question concerns the power of the adjudicator:
a. Under Clause 25 (4) of the Bill, the adjudicator must make a determination whether there has been a non-compliance with a leasing principle.
i. In such a case, the adjudicator may vary the lease agreement to correct the non-compliance; or
ii. He may order compensation.
b. May I clarify that, notwithstanding the use of the word “or” in the clause, the adjudicator in any suitable case may be able to order a variation of the lease and also order compensation for the period before the order to vary is made?
i. In addition, may I ask what are the principles upon which the adjudicator is to calculate compensation:
1. Is it based on the law governing damages for breach of contract?
2. Or can the adjudicator decide on compensation in accordance with his own views of what is just and equitable in the circumstances?
3. How would he deal with clauses in the lease agreements that attempt to exclude or limit liability for compensation?
13. Moving on, it is proposed in Clause 13 of the Bill that where there are any proceedings before a court in respect of a matter that is subject matter of Part 4 of the bill, the Court may order staying the proceedings on terms that it sees fit.
a. If the legislative intent is to ensure that the adjudicator (not the court) handles all complaints of non-compliance with leasing principles at 1st instance, would it not be better to provide that the Court “must” grant a stay instead of making it discretionary?
i. We can draw from the example of what the court does in dealing with international arbitration issues.
ii. Under Section 6(2) of the International Arbitration Act 1994, it is provided that where a party commences legal proceeding instead of submitting the dispute to arbitration, the court is to order a stay unless it is satisfied that the arbitration agreement is null and void.
iii. In other words, the stay is mandatory save for limited circumstances.
b. I would be grateful for the hon Minister’s clarification on this matter.
c. If indeed it is intended that the Court be vested with a discretion to stay, may I please ask the hon Minister what factors must the Court weigh in determining whether or not to grant a stay having regard to the legislative objective of this bill.
d. I also seek a clarification on the ambit of Clause 28 of the Bill which specifically provides that a party is not supposed to be prevented from challenging the party’s lease agreement on the basis of whether or not it complies with the proposed Act in separate court, arbitral tribunal or other dispute resolution proceeding.
i. At first glance, it seems to be that Clause 28 may not be congruent with the legislative intent to channel disputes arising from the Act to the adjudicator.
14. Finally, I deal with appeals from the decisions of the adjudicator.
a. I note that there is no provision specifically providing for an appeal.
b. However, under Clause 27(4) of the Bill, it is proposed that a party may commence separate proceedings in the General Division of the High Court to set aside the adjudication determination subject to the provision of security.
c. Under Sub-Clause (5), a non-exclusive list of grounds are provided for the purpose of the setting aside application. In essence, the grounds are illegality and palpable injustice.
d. I would like to seek clarification from the hon Minister whether the intent behind the provision is, generally, not to allow for appeals from the adjudicators’ determinations save for narrow and extenuating circumstances.
i. If that is the case, would the hon Minister please clarify the reason for doing so;
ii. I ask this also bearing in mind that the adjudicator may have to apply the law governing contracts as determined by the courts to issues at hand; for eg compensation and dealing with the enforceability of exclusion and indemnity clauses.
1. Since what constitutes such law are matters within the province of the courts, I would have thought that there should be recourse to the court system as a matter of right.
2. An alternative option is to allow for an appeal if it raises an issue of law.
15. Mr Speaker, I conclude by offering my support for this significant piece of legislation which shows the Government’s understanding of the moral limits of the market.
a. It gives life to everything I had imagined in my adjournment motion five years ago.
b. I thank the Minister for this important piece of legislation.
16. To my colleagues in this House, may I be allowed to share that in parliamentary life, sometimes, time is the secret ingredient.
17. In time, we have recognised that there are power imbalances which do not work — not only because they oppress small businesses, but because they do not respect the general public good.
a. In promoting fairness, equity and true autonomy in contracting, we achieve the rare feat of a “win-win” solution.
18. Surely, this is a very good deal in the marketplace of ideas! Thank you.
