Some Singaporeans See Rental Property As A Retirement Plan — But This Case Shows What Can Go Wrong

We had a bit of an outrage this week, when an elderly couple had a tenant take advantage of them.

In short, a a couple who are both in their 80s rented out their Kembangan semi-detached house to an American tenant. But they didn’t enter into a direct rental contract with him, instead the lease agreement was to a Singapore-incorporated company of which the tenant was a director and shareholder.

The company paid the first month’s rent, and half of an agreed $15,000 security deposit. Then it simply stopped. The tenant and his family continued living in the house while raising alleged defects, and seeking court orders to stop the owners from recovering their property.

Ultimately, the court found that the company had plainly breached the tenancy agreement. The District Court judge identified a pattern involving the same tenant, his family, and companies he controlled: a company would sign the lease, pay only part of the deposit and rent for a short period, then stop paying while citing defects.

The family would remain in the landed home as the owners were stalled by litigation. In an earlier case, the family stayed in a Siglap property rent-free for close to a year. In another, they stayed in another Kembangan property for at least five months without paying rent.

While these incidents are fairly rare, they highlight an important consideration for landlords.

Age is an often overlooked factor when it comes to owning and renting out properties.

Among some property investors, the retirement plan isn’t necessarily to sell, right-size, and live off the proceeds. Some investors have a targeted post-retirement income, and thus look toward rental instead. Others rent because they don’t want to surrender a property they once raised a family in, or want to ensure their children can own housing in an increasingly expensive market.

Because Singapore is such a law-abiding society, there’s a general tendency to assume this will go smoothly. This generates a sense of complacency that you will have no more problems renting out a property at 60, 70, or 80+ years as you would at 40. And for the most part, this is the experience of many. It is not, however, universal as the aforementioned case shows.

There are cases where elderly landlords run into a troublesome tenant. Now I’m not referring to the physical aspects of the issue - such as having to confront angry tenants, wait outside the gate, and so forth. That’s definitely one of the factors, but it goes beyond that.

The applications, lawyer letters, and litigation are already a time consuming headache as is. But a protracted tenancy dispute often requires money, and it means having to fund legal representation. This is something that can be much less affordable when you’re a retiree on a fixed income.

Consider the aforementioned situation: The tenancy began back on May 1.

Rent wasn’t paid after June, and the company filed the application to stop the landlords’ repossession on 24th June. The judgment was only published on 7th October, which means that more than four months had passed after the first missed payment.

Even then, the matter was far from over. As of 12th October, the tenant and his family still hadn’t vacated the house.

The published judgment provides some of the numbers involved: by mid-August, the landlords’ counterclaim was already in the region of $39,257.91. This included three months of unpaid rent from June to August, the unpaid half of the security deposit, utilities, interest, and the agent commission paid for the aborted two-year lease.

From 15th August onwards, the court also ordered double rent at $15,000 per month until the house was returned. By 12th October, that would have added roughly another $29,000. So the amount owing had likely grown to around $85,000 by the time this was reported.

The problem is that a court order for $85,000 doesn't necessarily mean the landlord actually gets to pocket $85,000.

The landlords had received the initial $7,500 deposit, but that’s really it. Since the company that they rented their house to has few meaningful assets (a paid-up capital of $200 and little else), the owners may regain the house while recovering only a fraction of what is owed.

There’s a very real possibility that when the matter is resolved, the elderly couple would have lost a substantial amount from unpaid rent, legal fees, and any maintenance costs incurred.

This, I think, is where age becomes relevant.

For a younger landlord with a stable income, legal fees and several months of lost rent is painful. It is, however, usually manageable. But for someone with no other income stream, and with no alternative financing options, it can have a real impact on day-to-day expenses or healthcare needs.

A retiree reliant on rental can be asset-rich on paper - owning a landed home, for example - while not having a pool of cash to keep funding lawyers, court applications. and property expenses.

There’s also the fact that, at 80 years old or close to it, most of us don’t want to spend our remaining time fighting a civil dispute; as well as the stress of knowing an unpaying tenant has full access to your property and possibly your legacy.

This isn’t to say all elderly landlords are helpless by the way. My point is that we need to recognise how much money and effort a tenancy dispute can take up, and that it can be much harder with age. It’s a good reason to have some diversity in your income streams when you retire, rather than relying too much on rental income. Especially if that rental income is from a single, high-value property.

When renting out your property, it’s also worth bearing in mind what it means when the leasing contract is signed by a company.

To be clear, a corporate tenant is not automatically a red flag. It’s really not uncommon for businesses to lease homes for employees in Singapore. In fact I know many landlords who consider this to be more reassuring than renting to an individual.

But it’s still important to eyeball the company closely. The company named in the tenancy agreement had paid-up capital of just $200, and the landlord’s contractual claim would be against the company. It’s very likely that the company has little money or few assets, so recovery is tough even if the landlord wins.

Standard tenancy agreements work because most tenants care about their reputation. Even if they don’t care about their future rental options, individuals generally do care about getting sued. But a shell company - specifically designed to hold little value - doesn’t have any of these usual deterrents.

In the case cited here, it was raised that the director had used similar underhanded tactics before. But this raises the question as to how many landlords know how to search court judgments, interpret a company’s filings, or vet an entity as opposed to an individual. For a landlord who has never done so before, it may be a potentially expensive learning curve - and property agents may have some work to do, in educating landlord clients in this area.

This situation may also highlight a much needed preventative measure

I’m thinking of elderly retirees who are renting out their flat, or just a room in their flat. Some may be heavily dependent on this as a source of income. Not everyone has cash reserves, expertise, or family members ready to help them, if a tenant takes advantage.

Perhaps older landlords could be offered a short “tenancy check-up” before they sign an agreement or hand over possession. It doesn’t have to be complicated - just a qualified third party to help them ask the right questions, before anything is signed.

This isn’t so much to tell them whether they should or shouldn’t rent out their room or flat; just to minimise the chances of an unpleasant, expensive surprise down the road.

Meanwhile in other property news…

• With the RTS opening up, is now the time to buy property in Johor? Here’s what you need to consider.
• Should you buy a larger flat on the basis it could generate rental income? Here’s our advice to a reader.
• Thomson Reserve is the first mega-launch in around eight years, in the Upper Thomson area. Check out what we discovered during a preview tour.
• What are some of the most affordable condo options near Rosyth School, or the best performers? Find out in the next part of this Stacked Pro series.

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