Enhancements to the COVID-19 (Temporary Measures) Act – Paving the path to economic recovery

Enhancements to the COVID-19 (Temporary Measures) Act – Paving the path to economic recovery

In an earlier article on Notes from the Bar, we discussed the implications of the Covid-19 (Temporary Measures) Act 2020 (the “Covid-19 Act”) allowing the deferment of certain contractual obligations by businesses and individuals in Singapore.

Since that time, the Singapore government has introduced further measures to help businesses and individuals cope with the economic effects of Covid-19. In relation not the purpose of the measures taken by the Singapore government, the comments of Minister for Law K Shanmugam SC during an interview with CNBC on 7 April 2020 are noteworthy:

“You’re looking at economic devastation. Businesses destroyed, people’s lives ruined, and in such a situation, you don’t talk contract. You talk equity, you talk justice, you talk about what is the right thing to do.”

This article will discuss the further measures implemented in Singapore and their implications on affected businesses and individuals.

Additional types of contracts covered under the Covid-19 Act

On 13 May 2020, the COVID-19 (Temporary Measures) (Temporary Relief for Inability to Perform Contracts) Regulations 2020 (the “Regulations”) was enacted to supplement the Covid-19 Act.

One of the new provisions in the Regulations relate to the inclusion of options to purchase and sale and purchase agreements between developers and purchases of residential property into the scheduled contracts covered under the Covid-19 Act.

Introduction of new interest rates and charges to contracts not allowed

The Regulations also saw the introduction of provisions to the effect that once a contracting party has given a notice for relief under the Covid-19 Act, increase of any charges or interest rate payable under the contract are in general not allowed unless the change is further to a pre-existing provision or formula found in the contract.

Under the Regulations, imposition of new charges under the contract and requiring any part of a security deposit given pursuant to the contract to be replaced by the non-performing party are not allowed without the further agreement of the non-performing party.

Additional rental relief for tenants of commercial and industrial properties and offices

On 5 June 2020, the COVID-19 (Temporary Measures) (Amendment) Bill was passed in Parliament and measures providing for rental relief for tenants of commercial properties who have been affected adversely by the closure of business operations in Singapore due to Covid-19 were introduced.

In essence, tenants of commercial properties (i.e. shops) who have been adversely affected by Covid-19 will not be liable to their landlord in respect of rental payments for the month of June and July 2020. Tenants of industrial properties and offices will not be liable to their landlord in respect of rental payment for the month of May 2020.

In order to qualify for the further rental reliefs, tenants must have been adversely affected by Covid-19 such that their revenue has fallen by 35% or more when compared with the same period in the preceding year.

These further rental reliefs supplements the existing reliefs provided by the Singapore government in the form of property tax rebates given to landlords and which must be unconditionally passed on to tenants further to the enactment of the COVID-19 (Temporary Measures) (Transfer of Benefit of Property Tax Remission) Regulations 2020 on 13 May 2020.

Individual and SME landlords who are affected by the loss of rental income due to Covid-19, specifically the reliefs granted under the Covid-19 Act, are able to seek relief by making an application to the Assessor to discount their obligation to co-share rental obligations with their tenants. Relief to these landlords will be granted based on criterion such as whether the landlord’s income has been substantially affected by rent relief measures under the Covid-19 Act.

Repayment Scheme for Rental Arrears

Provisions introducing a repayment scheme for tenants of commercial properties, industrial properties and offices who are currently in arrears of rent for the period from 1 Feb 2020 up till 19 Oct 2020 were also enacted on 5 June 2020.

Tenants must be eligible for the additional rental reliefs to qualify for the scheme and will need to serve notice on the landlord of their intention to take up the repayment scheme. Office tenants and Commercial tenants can clear rental arrears of a maximum of 4 and 5 months respectively. by way of instalment payments of 9 months or for the duration of the remainder of the tenancy (whichever is shorter).

When a tenant defaults under the scheme, landlords will be entitled to terminate the lease and take steps to recover all of the arrears in rent.

No claims for holding over against tenants due to Covid-19

Further to the amendment of the Covid-19 Act on 5 June 2020, tenants of commercial leases will also be given relief from claims by the landlord for overstaying at the premises after the expiration of the lease if the failure to vacate is due to Covid-19. Tenants will need to serve a notification for relief on the landlord to seek relief under the Act.

Our comments

As many business were affected by the closure of the country during the circuit breaker in Singapore between 7 April 2020 to 1 June 2020 and the limited opening of the economy for essential services in Phase 1 between 2 June 2020 to 26 June 2020, the introduction of the further measures is a much welcome move and in some cases, a lifesaver for operators of businesses in Singapore.

Given the often-unequal bargaining powers between landlord and tenant, reliefs from rental are intended to level the playing field somewhat and afford tenants some reprieve from the obligation of paying rent.

However, as opined in our earlier article on the Covid-19 reliefs in April, this is only a temporary respite as the rental reliefs would only last until July at the longest and contractual obligations will be “revived” come the expiration of the prescribed period, which is currently slated to end on 19 October 2020. As such, business and individuals should be financially prudent and take robust measures to get their operations started up quickly nevertheless.

Photo by Aljoscha Laschgari on Unsplash

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