Your Security Deposit, and the Diplomatic Clause

“Oh, bother.”
— Winnie the Pooh

Security deposit

collected can range from 1 month to 3 months. The purpose of a deposit is for Landlord to hold onto this amount of money, so that any outstanding damages can be repaired by using the deposit.

There is NO fixed rule on amount for deposit. In Singapore, it is very common to have 1 month’s rental value as deposit for every 1 year lease.

However, some Landlords have chosen to impose a fixed 2-month rental value as deposit, regardless of lease term being 1, 2 or 3 years. Rationale being — the potential extent of damage or repairs necessary is a dollar value that should be an amount tied to property (in this case: rental) value, and not dependent on period of stay.

Diplomatic Clause

This is usually for foreigners only, and can only be exercised when certain terms are fulfilled. There are some variations to this Clause (some contracts may name it “Special Termination” or “Pre-Termination”).

All parties have to be careful on what’s written inside this terms that need to be fulfilled.

Photo by cottonbro from Pexels

How is Security Deposit refunded? When can Tenant reasonably expect return of funds?

It depends on how the contract is written, but usually is within 14-28 days upon expiry of lease. However, do notet that this situation typically happens ONLY IF no major costs or repairs are to be deducted from the Deposit. Otherwise, the return of security deposits may get delayed due to negotiation in finalising costs of repair (and/or) any compensation fees involved.

Some Tenants may choose to close bank account and are no longer able to receive funds in Singapore bank. As such, the return can be via cheque (posted to new overseas address), or via international remittance.

What if you exercised the Diplomatic Clause, and need to “reverse the decision”?

Where possible, provide ample notice to the Landlord (once your personal situation can be confirmed). If the property has not received any offers, it is most likely that the Landlord will be acceptable with the request to continue.

For lease extension (renewal), how should the Diplomatic Clause work?

For extensions and renewals, the diplomatic clause needs to be clear, whether it is “carry-forward” or “re-start”. Most landlords will prefer a “re-start”, meaning having a new 24 months term with minimum of 12 months stay and 2 months advance notice. This is a very common setup in Tenancy Agreements in Singapore.

However, the original rationale of diplomatic clause offered to a particular Tenant (be it individual or organisation), is to allow this Tenant the flexibility of early termination in the first Tenancy (legally, in circumstances beyond control), and if there is a extension of the lease into a second term period, and if all other terms remaining exactly the same except for the dates, then it is only fair for the Tenant to “carry forward” the diplomatic clause, in such a way where the first 12 months of minimum stay have already been fulfilled.

In the renewals, there may also be situations where there are repairs or replacements requested by Tenant to be made good by (paid for by) the Landlord, or re-negotiation of certain terms in the contract (for example: rent amount or sub-lease approval), then such cases can be already be classified as fresh contract and thereby warrant a new 12 or 24 months term, together with the necessary diplomatic clause terms be included, which can be negotiated between the parties involved.

Some useful reference on common terms in Tenancy Agreements

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