As part of the Singapore Government’s efforts to minimize the spread of COVID-19, Singapore will embark on a three-phased approach to resume activities safely, post-circuit breaker. As part of this approach, many small and medium-sized enterprises (“SMEs”) will only be allowed to operate from phase two of the reopening of the economy.
To further support these SMEs, the Ministry of Law has proposed several amendments to the existing COVID-19 (Temporary Measures) Act, including a rental relief framework that provides for mandated co-sharing of rental obligations between the Government, landlords and tenants. These amendments were introduced as part of the COVID-19 (Temporary Measures) (Amendment) Bill No. 28/2020 (the “Bill”), first read in Parliament on 5 June 2020. If approved, such measures will be implemented in end-July.
New Rental Relief Framework for Eligible SMEs
- The rental relief framework aims to help affected SMEs who need more time and suport to recover from the impact of COVID-19. Eligible SMEs which are occupying tenants (including subtenants and licensees) can receive up to a total of four (4) months’ waiver of base rental for commercial properties, and up to a total of two (2) months’ waiver of base rental for industrial and office properties. Such relief will be partly supported by the Government and partly borne by landlords.
- The Government will give around two (2) months’ relief of rental costs for SME tenants through the following measures:
- The Government will disburse cash grants equivalent to approximately 0.8 months of rent for commercial properties, and approximately 0.64 months of rent for industrial and office properties to qualifying property owners who have eligible SME tenants. This was announced earlier on 26 May 2020 as part of the Fortitude Budget.
- Owners of qualifying commercial properties will also receive approximately 1.2 months’ worth of rental rebates through the Property Tax Rebate, and owners of industrial/ office properties will receive approximately 0.36 months’ worth of rental rebates through the Property Tax Rebate.
To ensure that the aforementioned measures benefit the intended beneficiaries, the Bill provides that SME tenants in qualifying commercial properties will receive two (2) months’ waiver of their base rental, and SME tenants in industrial / office properties will receive one (1) month’s waiver of their base rental. This rental waiver will apply to April and May 2020 for SME tenants in qualifying commercial properties, and April 2020 for SME tenants in industrial / office properties.
For SMEs who have seen a significant drop in their average monthly revenue due to COVID-19, these SMEs may receive an additional two (2) months’ waiver of base rental for qualifying commercial properties and an additional one (1) month’s waiver of base rental for industrial and office properties. These rental waivers will be borne by the landlords, and will apply to June and July 2020 for SMEs in qualifying commercial properties, and May 2020 for SMEs in industrial / office properties.
These rental waivers can be offset by any previous direct monetary assistance provided by the landlord to the tenant (or subtenant) from February 2020 onwards and/or passing on of the Property Tax Rebate from the property owner to his/her tenant.
As part of the Bill, where the rental relief framework is applicable, the tenant will not be liable for rent payable under the lease agreement for the prescribed periods. Where the tenant has already made payment of rent for all or any of the prescribed period to its landlord, then any rent payable for the remaining period of the lease agreement will be reduced by the amount paid up to the prescribed amount. If there remains a balance, the landlord must return the same to the tenant (this will be recoverable as debt due to the tenant).
Application for Rental Waivers / Eligibility Criteria
Before the Government disburses a cash grant to the owner / landlord, the Government will issue a notice of cash grant. On the date the owner / landlord receives such a notice, the applicable rental waiver will be deemed effective. Owners / landlords should note that they must serve a copy of the notice on their tenant, as a failure to do so without reasonable excuse shall be an offence.
Upon receipt of the notice of cash grant, the owner / landlord will have the opportunity to apply for an assessor to determine whether the tenant satisfies the eligibility criteria for rental relief. Tenants will be required to provide the necessary information to the landlord in order to determine the tenant’s eligibility upon the landlord’s request. Such an assessment of the tenant’s (or subtenant’s) eligibility for the relief can be applied for within a specific time period (details of which will be provided by the Ministry of Law at a later date). The assessor’s determination will be binding on all landlords and tenants, and there will be no appeal from such a determination.
For SMEs to be eligible for two (2) months’ waiver of their base rental for qualifying commercial properties, and one (1) month’s waiver of base rental for industrial and office properties (which are to be provided through Government assistance), SMEs must fulfil the following criteria:
- It must be an SME at the group level (i.e. ≤$100 million turnover in 2019); and
- The tenancy must be in force on 1 April 2020 and must have been:
- Entered into before 25 March 2020; or
- Entered into before 25 March 2020 but expired and was renewed automatically, or in exercise of a right of renewal in the contract.
To qualify for the additional two (2) months’ waiver of base rental for qualifying commercial properties and the additional one (1) month’s waiver of base rental for industrial and office properties (which are to be borne by the landlord), in addition to the criteria in paragraph 11, SMEs must also have experienced a substantial drop in their average monthly revenue during COVID-19 (i.e. the average monthly revenue from April to May 2020 on an outlet level must have been reduced by 35% or more, compared to April to May 2019).
If landlords are unable to provide the additional rental waiver, they may seek an assessment on the grounds of financial hardship. This will take into consideration whether the landlord’s rental income forms a substantial part of his/her total income and the annual value of his/her properties. Qualifying landlords will only be required to give half of the additional rental waivers to be provided by the landlords, i.e. one (1) month’s waiver of base rental for qualifying commercial properties, and 1/2 a month’s waiver of base rental for industrial and office properties.
Please do not hesitate to get in touch with Partner Suresh Divyanathan, by email ([email protected]) or telephone (+65 6239 5886).
The above content is for general information purposes only. It is not and does not constitute nor is it intended to provide or replace legal advice, a legal opinion or any information intended to address specific matters relevant to you or concerning individual situations. Should you require specific legal advice, please do not hesitate to contact the Partner listed or your regular contact at the firm. Copyright of Oon & Bazul LLP