Property Legal Brief: One Property, Multiple Storeys, Different Uses. Should It Be One Tenancy Agreement Or Two?

So, you own a multi-storey property? Two storeys, perhaps three? Should you sign a single tenancy agreement for all the storeys? Will it be advisable if all are approved for the same use? Will it be different if they are approved for different uses? We will examine a 2024 High Court case in this article to answer these questions.

The two tenancy agreements

Three tenants rented a 3-storey property at 29 Lembu Road from a landlord (the "Property"). On 3rd December 2018, the tenants entered into one tenancy agreement for the 1st storey for its F&B business (the "1st TA"), and another tenancy agreement for the 2nd and 3rd storeys as accommodation space for its employees (the "2nd TA"). 

The lease period for the two tenancy agreements were the same; four years from 1st December 2018 to 30th November 2022. The material terms were also similar, with two differences. First, there was GST on the rental for the 1st TA, but no GST on the 2nd TA. Second, under clause 31, the tenants were obliged to obtain at their own cost, all necessary approvals, permits and licences from the relevant authorities to use the 1st storey as a "restaurant or eating house", whereas the same clause 31 in the 2nd TA was related to approvals for "a Residential unit only". Both TAs also provided that any delay or failure in obtaining such necessary approvals, permits or licences shall not affect the 1st TA and the 2nd TA.

The legal dispute

In February 2019, the tenants were informed by the Urban Redevelopment Authority ("URA") that (a) the approved use of the 1st storey under the Planning Act was for use as a shop, and not as a restaurant or eating house; and (b) there was no approved use for the 2nd storey. The URA made no mention of the 3rd storey, let alone the approved use, and that gave rise to the question of whether the 3rd storey was constructed legally. 

As a result, the tenants stopped paying rent under the 2nd TA in September 2019, and the rent under the 1st TA in December 2019. On 3 January 2020, the tenants returned the keys of the Property to the landlord. Both tenants and landlord accused each other of having breached the tenancy agreements.

The tenants argued, among other things, that the 1st TA and the 2nd TA constituted a "single contract" under which the tenants agreed to lease the entire Property in order to use the 1st storey to operate a restaurant and the 2nd and 3rd storeys to house the employees.

There was an implied term in the "single contract" by which the landlord warranted to the tenants that all three storeys of the Property had been constructed lawfully (i.e. in accordance with, and in satisfaction of all regulatory approvals). The landlord's breach of the implied term substantially deprived the tenants of the whole of the benefit of the single contract, and that entitled the tenants to terminate both the 1st and 2nd TA. As a result, the tenants allegedly suffered loss in the amount over $685,000, and claimed that amount from the landlord.

In response, the landlord argued, among other things, that the two tenancy agreements were separate and independent contracts, and the tenants breached both the tenancy agreements when they stopped paying rent. There was also no implied term in the 2nd TA that the 2nd and 3rd storeys were constructed lawfully, and implying such a term would be inconsistent with the express term in Clause 31 of the 2nd TA.

The Court's Decision

The 1st and 2nd TAs are separate and independent agreements, and the tenants breached the 1st TA when they ceased to pay rent in December 2019 and yielded up the 1st storey before the end of the lease terms.

The landlord committed a repudiatory breach of the implied term of the 2nd TA when it breached the warranty that the 3rd storey had been constructed lawfully. However, the tenants affirmed the 2nd TA by continuing to pay rent even after having knowledge of the breach.

The tenants also submitted that the landlord did not act reasonably to mitigate his loss after the tenants yielded up the Property. The landlord advertised the Property for rent from January 2020 to November 2020 and then stopped. A replacement tenant was found for the 1st storey only in March 2022, with a 3-month rent-free period and a lower rental. No replacement tenant was found for the 2nd and 3rd storey. 

The Court took judicial notice that the COVID-19 pandemic had a severe impact on the F&B sector in 2020 and 2021, rendering it difficult for a landlord to find replacement tenants in that sector. Even if the landlord had continued to advertise the Property after November 2020, there was a low likelihood of securing a new tenant before March 2022.

In the final analysis, because both the tenants and landlords committed breaches, they were liable to pay damages to each other. In the end, the Court held that the tenants were liable to pay to the landlord compensation in the sum of $265,161.91 plus costs of $150,000.

Takeaways

The proverb "don't place all your eggs in one basket" rings true here. This is because if there is a single contract for the 1st, 2nd and 3rd storeys, the tenants would have succeeded in terminating the lease for the Property due to the unlawfully constructed 3rd storey. Does it mean then that tenants should insist on having only one single contract so that it can terminate the lease due to the breach of a substantive term by the landlord? 

This question is best answered by a legal professional, but the point to be made here is having a single contract can cut both ways, and having separate agreements to govern different storeys with different approved use should be preferred. 

About the writer

Heng Eam joined PropNex Realty Pte Ltd in March 2021, and is presently the Assistant Director of PropNex's Legal and Compliance Department. A lawyer by training, he was called to the Malaysian Bar in 2005. From 2007, he practiced law in Singapore for several years before being called to the Singapore Bar in 2014. He then served as legal counsel for another real estate agency, from 2015 till 2021. Besides his specialisation in litigation, he also provides legal counsel for corporate regulatory issues such as the Personal Data Protection Act (PDPA), as well as advises clients on employment, property, and landlord and tenant disputes.