Waiver of Building Premium
What is building premium and why has it been levied previously?
Under Common Law, ownership of the land and the buildings erected on it reverts to the lessor at the expiry of the lease. Hence, if a fresh lease is granted, the State has a right to charge the lessee a land premium and a building premium, which is the residual value of the building component.
How is building premium calculated?
Building premium is determined by the Chief Valuer who will assess the land and building premium payable based on the fair market value on a case-by-case basis. The building premium is assessed based on the building’s existing condition, the existing gross floor area and permissible land use at the point of lease extension.
Why is the Government waiving the building premium when it was levied previously?
Under Common Law, ownership of the land and the buildings erected on it reverts to the lessor at the expiry of the lease. Hence, if a fresh lease is granted, the State has a right to charge the lessee a land premium and a building premium. But we have decided to waive the payment building premium so as to remove the disincentive for lessees to upkeep or upgrade their buildings.
Has SLA waived any building premium in the past on behalf of the State?
Yes. Under the 1997 Lease Renewal Policy, building premium is already waived in instances where industrial and institutional leases are renewed.
General questions on lease extension
Why does the Government generally allow leases to expire without extension? What are the circumstances under which lease extension can be granted?
In land scarce Singapore, a leasehold system is important to allow the government the ability to reallocate land to meet the changing socio-economic needs. The Government’s lease extension policy supports this objective. It enables the Government to recover land upon expiry of the lease and release it back into the market to meet changing needs as well as to allow others the opportunity to participate in the development of land. For this reason, the Government will generally allow leases to expire without extension.
Nevertheless, the Government is prepared to consider, and has in fact allowed, lease extensions, based on factors such as whether the continued use of the land is in line with the Government’s long term planning intention, and whether the lease extension is accompanied by intensification of land to better optimise land use. In evaluating such extensions, the Government would also consider the long term planning intention of surrounding land to ensure compatibility of land uses.
When can the lessee apply for lease extension?
Generally, applications for lease extensions will be considered only if the application is submitted no earlier than after half of the lease period has expired, and no later than 3 years before the expiry of the lease. However, for relatively high-density residential developments, the Government recognizes that redevelopment may take place earlier. Hence the Government is prepared to consider applications before at least half of the lease has expired for such residential redevelopments.
What is the allowable tenure of the extended leases?
If lease extension can be supported, the lease extension will be granted up to the original tenure (i.e. a 60-year lease will not be extended to more than 60 years) or up to the tenure in line with URA’s planning intention, whichever is lower.
What charges are payable when a lease is extended?
Upon granting approval for lease extension, the lessee is required to pay a land premium as advised by the Chief Valuer.
It was stated that eligibility for lease extension is cut off at 3 years before lease expiry. However, would there be any exception given for interested parties who have less than 3 years lease validity upon announcement of the new policy?
The Government is prepared to consider applications for lease renewals in respect of such cases on a case by case basis.