Press release issued by Ministry of Law on waiver of building premium
- The Government will with immediate effect waive the collection of building premium where lease extensions are granted.
- The Government currently charges both a land premium and a building premium when extending a State lease. The charging of these premiums was based on the Common Law principle that both land and buildings would revert to the Landlord at the end of the lease.
- In 1997, the Government decided to waive the building premium for short-term industrial and institutional leases. The change was made on the recommendation of the Committee on Singapore’s Competitiveness.
The Government has further reviewed the policy on the charging of a building premium when extending a State lease. The Government has decided to waive the building premium when a lease extension is granted because this will encourage lessees to continue to invest in the upkeep and improvement of the property,
Government’s Policy on Lease Extension
- In general, the Government’s policy is to allow leases to expire without extension. In land scarce Singapore, we need to recover land upon lease expiry to re-allocate it to meet fast changing socio-economic needs.
- Nevertheless, the Government will consider extension of State leases on a case-by-case basis where they are in line with planning intention and help to further specific economic and social objectives. Some of the specific considerations in assessing applications for lease extensions are listed in Annex A.
Government’s Considerations when Allowing Lease Extensions
- For all categories of leases, lease extension will be considered only if the proposed use and tenure are aligned with the Government’s planning intention and have the support of the relevant agencies.
- For industrial uses, the Government may allow lease extension if there is substantial investment on the land or property and the use is in line with the prevailing economic priorities.
- For commercial uses, the Government may allow lease extension if it helps to achieve planning intention - such as substantial intensification in land use - significantly earlier.
- For residential uses, the Government may allow lease extension if it results in land use intensification, mitigation of property decay and preservation of community.
- For agricultural uses, the Government may allow lease extension if there is substantial investment on the land or property, and the proposed agricultural use remains relevant to our strategic national needs.
- For institutional uses, the Government may allow lease extension if the institution continues to serve the needs of the community.
- For conservation properties, the Government may allow lease extension to provide the incentive for lessees to carry out major conservation works.
The considerations in evaluating lease extension applications will evolve as our socio-economic circumstances and development priorities change. Notwithstanding the above general principles, each case has to be assessed individually based on the specific circumstances of the site and the Government as the lessor reserves the discretion to decide whether to allow lease extension; and if so, the terms of the lease extension.
Supplementary questions on Announcement of Waiver of Building Premium
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.