On 5 June 2020, the Covid-19 (Temporary Measures) (Amendment) Bill (“Bill”) was passed in Parliament. Among other things, the Bill seeks to amend the Covid-19 (Temporary Measures) Act 2020 (“Act”) to introduce a new rental relief framework for eligible small and medium enterprises (“SMEs”), and relief for tenants unable to vacate business premises due to Covid-19.
To support landlords that may face cashflow constraints as a result of providing relief to tenants under the Bill, the Ministry of Finance (“MOF”), Inland Revenue Authority of Singapore (“IRAS”), Enterprise Singapore (“ESG”), and Monetary Authority of Singapore (“MAS”) announced on 3 June 2020 a package of measures to enhance the existing relief measures for landlords. Real estate investment trusts listed on the Singapore Exchange (“S-REITs”) will also be provided an extension of time to distribute their taxable income to qualify for tax transparency treatment.
Other amendments introduced by the Bill include a cap on late payment interest and charges for specified contracts, and relief for certain parties affected by breaches or delays in construction or supply contracts due to Covid-19.
1. Relief for tenants
The Act, which took effect from 20 April 2020, provides temporary relief from certain types of legal action in relation to the inability to perform specified contracts because of Covid-19. In a press release issued on 3 June 2020, the Ministry of Law (“MinLaw”) noted that businesses, especially SMEs, were facing financial concerns and uncertainties arising from the unprecedented spread and severity of Covid-19. With SMEs playing a critical role in Singapore’s economy, the Bill introduces targeted steps to intervene and help SMEs in these exceptional circumstances. The following amendments are expected to be implemented in mid-July 2020.
a. New rental relief framework for eligible SMEs
The new rental relief framework aims to help affected SMEs who need more time and support to recover from the impact of Covid-19, by providing mandated co-sharing of rental obligations between the Government, landlords and tenants. These measures are intended to establish a baseline position for the handling of tenants’ rental obligations. Landlords and tenants are encouraged to continue to try working out mutually agreeable arrangements that best address their specific circumstances.
The new rental relief framework will also be applicable for eligible non-profit organisations (NPOs) and eligible tenants of government properties.
i. Rental relief provided by Government and landlords
Eligible SMEs which are occupying tenants (including subtenants and licensees) can receive a total of four months’ waiver of base rental for commercial properties, and a total of two months’ waiver of base rental for industrial and office properties. The rental relief will be part supported by Government assistance, and part shared by landlords, as summarised below:
Type of relief
Duration of rental relief for qualifying commercial properties
Duration of rental relief for industrial/office properties
Rental relief for eligible SME (supported by Government assistance)
(April to May 2020)
Additional rental relief for eligible SMEs (borne by landlord)
(June to July 2020)
(April to July 2020)
(April to May 2020)
(Source: MinLaw website www.mlaw.gov.sg)
The details of the rental relief supported by Government assistance are as follows:
- The relief is applicable to eligible SMEs (i.e. with not more than S$100 million in annual turnover) with qualifying leases or licences in force on 1 April 2020 and (i) entered into before 25 March 2020; or (ii) entered into before 25 March 2020 but expired and renewed automatically, or in exercise of a right of renewal in the contract.
- Owners of qualifying commercial properties will receive approximately 1.2 months through the property tax rebate granted to landlords of qualifying properties, and owners of industrial/office properties will receive approximately 0.36 month through the property tax rebate. The Government will provide additional cash grants approximately equivalent to 0.8 month of rent to owners of qualifying commercial properties, and approximately 0.64 month of rent to owners of industrial/office properties.
- 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.
- To ensure that these measures benefit the intended beneficiaries, landlords will be required to grant eligible SMEs in qualifying commercial properties two months’ waiver of their base rental, and eligible SMEs in industrial/office properties one month’s waiver of their base rental.
The details of the additional rental relief to be borne by landlords are as follows:
- To be eligible for the mandatory rental relief co-shared by landlords, the occupying tenant (including subtenants and licensees) must satisfy all the following criteria:
- SME at the group level (not more than S$100 million turnover in 2019).
- Substantial drop in average monthly revenue during Covid-19 (average monthly revenue from April to May 2020 on an outlet level reduced by 35% or more, compared to April to May 2019).
- The tenancymust be in force on 1 April 2020 and must have been (i) entered into before 25 March 2020; or (ii) entered into before 25 March 2020 but expired and was renewed automatically, or in exercise of a right of renewal in the contract.
- Such SMEs will receive an additional two months’ waiver of base rental for qualifying commercial properties, and an additional one month’s waiver of base rental for industrial and office properties.
- These additional rental waivers will be borne by the landlord, and will be applied to June and July 2020 for SMEs in qualifying commercial properties, and May 2020 for SMEs in industrial/office properties.
- The rental waivers can be offset against any previous direct monetary assistance provided by the landlord to the tenant (or subtenant or licensee) from February 2020 onwards and/or any earlier passing down of the property tax rebate from the property owner to his tenant.
Landlords may apply to have an Assessor determine whether the tenant (or subtenant or licensee) satisfies the eligibility criteria. Tenants will be required to provide the necessary information to determine eligibility to the landlord upon request.
Landlords may also seek an assessment on the grounds of financial hardship if they are unable to provide the additional rental waiver. This will take into consideration the rental the landlord receives (which will be based on the annual value of his properties) and the landlord’s dependence on the rental income for his livelihood. If the landlord meets the grounds of financial hardship, the Assessor can halve the amount of additional rental relief that needs to be provided by the landlord, i.e. one month’s waiver of base rental for commercial properties, and half a month’s waiver of base rental for industrial and office properties.
ii. Repayment scheme for rental arrears
Eligible SMEs that qualify for additional relief by landlords may also elect to serve notice on their landlords to take up a prescribed repayment scheme for a specified portion of rental arrears accumulated from 1 February 2020 up till 19 October 2020.
Upon serving the notice, tenants must start payment of the first instalment no later than 1 November 2020. Under the repayment scheme, tenants can pay for a specified portion of their arrears over an extended period of time (up to nine months, or the remaining term of the tenancy, whichever is shorter) in equal instalments, with the interest payable on such arrears capped at 3% per annum.
The maximum amount of arrears that can be paid in instalments will be five months’ base rent for commercial properties and four months’ base rent for industrial/office properties.
If the tenant fails to make a payment under the statutory repayment scheme within a prescribed period of time, or the tenant terminates the lease or licence, or the landlord terminates the lease agreement for any other default by the tenant, the statutory repayment scheme will be cancelled, and the landlord will be entitled to:
- immediate payment of all the arrears; and
- take steps under the contract for rentals not paid.
b. Relief for tenants unable to vacate business premises due to Covid-19
The Bill introduces measures that will assist tenants who, due to Covid-19, face difficulties vacating their business premises after their lease or licence comes to an end. A tenant could be liable to pay double rent or other charges for the period after the expiry of the lease or licence, even though the failure to vacate the premises is through no fault of their own. The Bill provides that, in such situations, the tenant will not be liable to its landlord for failing to vacate the property, except as otherwise prescribed by the Minister for Law. Further details will be announced at a later date.
2. Relief measures for landlords
On 3 June 2020, MOF, IRAS, ESG and MAS announced a package of measures aimed at helping landlords with their existing loan commitments and ease their cashflow needs. The new measures complement previous relief measures announced by MOF, MAS and the financial industry.
a. Enhanced credit reliefs for landlords
i. Individual landlords
Landlords who are individuals (“individual landlords”) and are current in their loan repayments as at 1 February 2020 can defer both principal and interest repayment up to 31 December 2020 if they are required under the Bill to provide their tenants rental waivers or payment rescheduling. Individual landlords who successfully apply for a reduction in rental waivers on the grounds of financial hardship are also eligible for this relief measure. Interest will accrue only on the principal amount deferred and no interest will be charged on the deferred interest payments.
Individual landlords can also opt to extend the loan tenure by up to the corresponding deferment period to ease monthly instalments when they resume regular repayments. Their credit scores will not be affected when they take up payment deferments.
This enhanced relief measure for individual landlords will be provided on an opt-in basis. MAS cautions that since payment deferments and loan tenure extensions will result in higher overall interest costs, borrowers should carefully consider the additional interest costs they will eventually have to bear, and balance this against their need for cashflow relief.
When applying for the relief, individual landlords should submit to their bank or finance company (i) a copy of IRAS’ notice of cash grant (which IRAS will start issuing in July 2020), (ii) the relevant tenancy/lease agreements, and (iii) a declaration of the relief to be provided to their tenants.
ii. SME landlords
Landlords who are SMEs can already apply to defer principal payments on their commercial and industrial property loans. Landlords who need additional credit to meet their immediate cashflow needs can apply for loans under ESG’s Temporary Bridging Loan Programme or Working Capital Loan Scheme through their banks and finance companies.
iii. Larger corporate landlords including S-REITs
The larger corporate landlords, including S-REITs, are encouraged to approach their banks or finance companies to explore funding solutions to meet their cashflow needs, e.g. payment deferrals or temporary loan covenant waivers.
iv. No automatic enforcement of loan covenant breaches
Banks have provided assurance that there will be no automatic enforcement of loan covenant breaches with landlords as a result of the constraints and requirements imposed on the landlords by the Bill. Banks will work closely with landlords to address any such loan covenant breaches (e.g. debt service covenant and interest service covenant), such as by granting a waiver of the breach and/or revising the loan covenants to take account of the current circumstances.
b. Further extension of time for distribution of taxable income for S-REITs
MOF and IRAS had announced on 16 April 2020 that S-REITs would have an extended period of up to 12 months from the end of their financial year (“FY”) 2020 to distribute their taxable income derived in FY2020, to qualify for tax transparency.
In view of the new rental relief measures under the Bill, MOF and IRAS will further extend the timelines for S-REITs to distribute their taxable income derived in FY2020 and FY2021:
- For taxable income derived in the FY ending in 2020, S-REITs will have until 31 December 2021 to distribute them.
- For taxable income derived in the FY ending in 2021, S-REITs will have until 31 December 2021 or three months after the end of FY2021, whichever is later, to distribute them.
Extended timeline announced on 16 April 2020
FY ending in 2020
3 months after financial year end (“FYE”)
12 months after FYE
31 December 2021
FY ending in 2021
3 months after FYE
31 December 2021 or
(Source: MAS website www.mas.gov.sg)
The extension will give S-REITs more flexibility to manage their cash flows amid a challenging operating environment due to Covid-19. IRAS will provide further details of the change by the end of June 2020.
3. Other amendments introduced by the Bill
a. Cap on late payment interest or charges for specific contracts
The Act provides businesses and individuals who are unable to meet certain payment obligations because of Covid-19 a temporary moratorium from enforcement actions during the prescribed period (until 19 October 2020). However, under the Act, arrears continue to accrue and attract late payment interest and charges during this temporary moratorium.
To provide additional relief in such situations, the Bill introduces amendments to cap late payment interest and charges. The cap will not apply to secured loan facilities given to SMEs, as well as hire purchase agreements taken out with banks and finance companies. Further details, such as the contracts that will be covered by this measure and the prescribed interest rates, will be announced at a later date.
These amendments are expected to be implemented in mid-July 2020.
b. Relief for delay in construction-related or supply-related contracts
The Bill also provides relief for a contract affected by a delay in the performance or breach of a construction contract or supply contract due to a Covid‑19 event.
The relief will apply to a contract between A and B (“affected contract”), where:
- the affected contract does not fall within a prescribed class of contracts;
- the affected contract is in force during the prescribed period (20 April 2020 to 19 October 2020);
- during the period from 1 February 2020 to 19 October 2020 (both days inclusive), the affected contract (between A and B) is affected by a breach or delay in a construction or supply or related contract (which need not be between A and B); and
- that breach or delay is due to Covid-19, and occurs during the period from 1 February 2020 to 19 October 2020 (both days inclusive).
Where the relief applies, A or B may make an application to the Assessor, who will seek to achieve an outcome that is just and equitable in the circumstances. The Assessor may adjust some of A’s and B’s contractual obligations. The contractual obligations that may be adjusted by the Assessor will be prescribed by the Minister for Law. This relief will not apply to all types of contracts.
MinLaw is considering the scope of this relief and the Assessor’s powers, and will release details at a later date.
- Second reading speech on the Covid-19 (Temporary Measures) (Amendment) Bill
- MinLaw press release: New rental relief framework for SMEs
- MinLaw website: About the Covid-19 (Temporary Measures) Act 2020
- MAS press release: Additional loan and cashflow support for landlords and businesses affected by Covid-19
- Annex to MAS press release: Relief measures for landlords
In addition, we have a cross-disciplinary Covid-19 Legal Task Force consisting of Partners across various practice areas to provide rapid assistance. Should you have any queries, please do not hesitate to get in touch with us at email@example.com.