After having chosen your next home and negotiated the terms of the arrangement, it is time to make your move and secure the unit. While not obligatory, the Letter of Intent is an often-used tool and many landlords would refuse to skip this step. Especially when you attempt to rent a place for a long period of time, or when you aim to rent an entire unit, it is common practise to employ this transitionary option and make use of the Letter of Intent.
What is a Letter of Intent
An Letter of Intent is really just that – a letter stipulating your intentions to eventually venture into a tenancy agreement with the landlord in respect to the agreed-upon unit. In short, it serves as an intermediary step between the viewing/negotiation and the signing the Tenancy Agreement (TA). While the Letter of Intent can rightly be seen as an unofficial prelude to its official and legally binding brother that is the Tenancy Agreement, we still advise you to pay close attention to it.
The Letter of Intent serves a series of purposes. Firstly, it shows the landlord that you are serious in wanting to rent the unit. Secondly, and relatedly, it aims to secure the place, meaning that from the moment the Letter of Intent is signed, the landlord will cease to look for prospective tenants and exclusively focus on settling a deal with you.
Underscoring the significance of the Letter of Intent, its issuing goes accompanied with the hand-over of a good faith deposit (Also known as a booking deposit). This is a mandatory measure and serves as a financial token to credibly back your intentions.
The good faith deposit generally amounts to one month’s rent for a 12-month lease, and double for a 24-month lease. after the Tenancy agreement is signed the good faith deposit will become part of the security deposit or serve as an advance rental fee.
Importantly, before you write the Letter of Intent and transfer the good faith deposit, make absolutely sure the landlord you are dealing with is in fact the real owner of the unit. A foolproof way to this is by e-validating someone’s ownership here (the cost is S$2.50). Subsequently, request for the landlord or the representative agent to show identification, and cross reference it to the information you acquired through the e-validation.
As a precaution we also recommend to bypass the agent and send the good faith deposit straight to the landlord. Moreover, the medium of transfer should be traceable, that is by cheque or online transfer rather than cash.
Good Faith Deposit
Before we further dig into the Letter of Intent we shall briefly elaborate on the good faith deposit. If all goes well, it will as stated earlier, be converted into either a security deposit or advance rental fee. This way, it’s value is essentially neutral.
However, there is a possibility that after the Letter of Intent is signed, but before the Tenancy Agreement is signed, the deal goes bust. While really quite rare, it does happen and if you find yourself in this situation, you are probably wondering whether or not you can get your good faith deposit back.
In the event you get into an insurmountable dispute and you cannot agree upon the terms of the Tenancy Agreement, you should get the good faith deposit back unless you as a tenant explicitly back out of the deal. In that case the money is forfeited.
While exceedingly improbable, it could be that you and the landlord disagree over who is backing out of the deal, with the landlord refusing to return the money. If you find yourself in at the centre of this most uncommon situation, you have the option to file a claim at the Small Claims Tribunal. That said, the laws and procedures in Singapore are rather pro-landlord and you must have a good case to win.
To avoid the above-mentioned hassle, make sure to spell out and include a specification regarding the good faith deposit, so as to establish the terms and conditions under which it shall be returned or forfeited in the event that a dispute arises and the Tenancy Agreement is not signed.
Note*: If you are wondering what precisely the difference is between the good faith deposit and the security deposit check out this guide.
A Letter of Intent template
The Letter of Intent constitutes a framework of the terms on which you shall rent your unit. It is a written-down version of almost everything you and the landlord have already verbally agreed on. Be sure to include all clauses you intend to put into the Tenancy Agreement also in the Letter of Intent.
You can find a comprehensive template of an Letter of Intent here, which you can use at your convenience. It includes an extensive set of clauses which most Letters of intent have – and feel free to add any and all additional clauses.
Procedure of the Letter of Intent
As the Letter of Intent is signed by both the tenant and landlord, and the good faith deposit changes hands, the landlord has the responsibility to send you a draft of the Tenancy Agreement within a previously agreed-upon timeframe (mostly three days). You then have a week (more if you stipulated it in the Letter of Intent) to work out the details and sign the Tenancy Agreement.
Check out other rental related articles here: 99.co’s guides: Rental agreement – Terms you must include and Tenant – Landlord Dispute: What to do?
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