Understanding the Diplomatic Clause In Rental Agreement in Singapore
Have you ever wondered what a diplomatic clause in a rental agreement is all about when you have heard about it frequently while planning your move to Singapore? Although the term 'diplomacy' typically evokes notions of exemption and privilege, it is important to recognise its relevance in more mundane contexts such as rental agreements, especially for expatriates. Singapore stands as a pinnacle of urban development, its skyline testifying to both its economic vitality and the transient nature of its diverse global workforce. Given the nation’s strategic geographic location and its role as a financial and business epicentre in Asia, we can also see many professionals temporarily residing here.
What is a Diplomatic Clause?
A diplomatic clause is a provision in a rental agreement that allows tenants to terminate the lease early without penalties under specific conditions. It is particularly relevant for expatriates and foreign tenants who may face sudden relocations due to work commitments.
It allows for the lease to be terminated before it expires at a predetermined period (or times) or upon the occurrence of a predetermined event(s). It also allows flexibility and fairness in housing commitments.
Function and Legal Basis of the Diplomatic Clause
Singaporean tenancy agreements typically require a diplomatic clause for twelve months or longer leases. This clause allows tenants, particularly expatriates, to terminate their lease prematurely under specific conditions—such as a job transfer or unexpected job loss—without facing severe penalties. The clause usually stipulates a minimum occupancy period, which is often one year, after which the tenant can exercise the clause with a notice period, two months. This ensures that landlords have sufficient time to find a replacement tenant while providing security to tenants against sudden changes in their circumstances.
The Council for Estate Agencies (CEA) is the primary regulatory body that provides specific guidelines and templates for tenancy agreements. They provide resources that offer landlords and tenants guidelines on drafting fair and balanced rental agreements and enhance our understanding of standard tenancy agreement templates.
Significance and Implementation of Diplomatic Clause
As we all know, no job in the world is permanent and secure forever. If you are currently working in Singapore, you should also consider the possibilities of getting a job transfer sometimes. In such situations, having to pay the rest of the money as per the contract would be a sure pain for you. This is the reason why including a diplomatic clause in rental agreement is crucial.
The diplomatic clause is only applicable to expats in Singapore, and not Singaporeans.
Tenancy agreements in Singapore for two years is likely to include a diplomatic clause. A typical diplomatic clause would appear as follows:
- A tenant can exercise the diplomatic clause if he/she/they has to leave the country due to job transfer or termination.
- The tenant will have to give at least two months' notice period, or else he/she/they will have to pay rent for the same period.
- A tenant will have to stay at the place for a minimum of twelve months for the diplomatic clause to kick in.
- The tenant will also have to provide the evidence to prove the reason for relocation.
Note that you have to be a tenant for twelve months to protect the interest of the landlord as well. What this means is that a tenant can only issue a notice after twelve months of stay at a place coupled with two months' notice period.
Usually, there is also an additional clause that comes along with the diplomatic clause, and it is called the reimbursement clause. It makes the tenant liable to reimburse the landlord of the agent fees on a pro-rata basis. However, you can always try to negotiate and reach a mutual consensus in the best interest of both parties involved.
Tenants must also present valid reasons and evidence for their need to terminate the lease early when activating the diplomatic clause. This is often related to job transfers or termination. Such evidence ensures that the clause is used appropriately and protects the landlord's interests by verifying the reason behind the premature termination.
Negotiating the Diplomatic Clause in Rental Agreements
Negotiating the diplomatic clause in your rental agreement in Singapore can indeed give you more flexibility, particularly if your work might require you to relocate at short notice. It is essential to be upfront about your needs while also being considerate of the landlord’s position while negotiating these clauses. A mutual understanding can lead to terms that protect the interests of both parties. We must also ensure that any agreed-upon changes are documented in writing within the lease agreement to avoid future disputes.
Here are some elements you might consider discussing with your landlord:
Reimbursement Clauses
This typically involves the tenant reimbursing the landlord for part of the agent's commission if the lease is terminated early. It is worth discussing whether this fee could be reduced or waived depending on how long you have stayed in the property. The reimbursement is usually prorated based on the time you have lived there relative to the total lease period.
Flexible Notice Periods
Standard diplomatic clauses usually require two months' notice before you can terminate the lease early. However, you might negotiate for a shorter notice period if your job involves frequent travel or uncertain tenure. This can particularly appeal to a landlord in a high-demand area where finding a new tenant might not be difficult.
Proof of Circumstance
Be prepared to provide evidence of the reason behind invoking the diplomatic clause, such as a letter from your employer if you are relocating due to a job transfer. This transparency can make a landlord more amenable to custom terms.
Minimum Stay Requirements
The diplomatic clause can typically be invoked only after you have stayed for a certain minimum period—usually around one year for a two-year lease. If your assignment is shorter, you might negotiate the inclusion of a diplomatic clause that activates earlier.
Discuss the Reimbursement of the Agent’s Fees
If the diplomatic clause is activated, some agreements require the tenant to reimburse the landlord for agent fees paid at the start of the tenancy. Discussing the possibility of lowering these costs or setting a cap can be beneficial.
Understanding and effectively negotiating the diplomatic clause in rental agreements is crucial as we witness the growth in population of expatriates in Singapore post the COVID-19 pandemic. You need to familiarise yourself with the specifics of this clause so that you can secure flexible and fair terms that accommodate the unpredictable nature of international assignments. This proactive approach will safeguard your interests and enhance your ability to confidently adapt to the dynamic Singaporean job market and lifestyle.
