Click here for more insights on the Singapore Covid-19 (Temporary Measures) Act 2020.
In the midst of the coronavirus (COVID-19) crisis which continues to evolve rapidly, the Singapore Parliament passed the COVID-19 (Temporary Measures) Act 2020 (the “COVID-19 Act”) on 7 April 2020.
The COVID-19 Act offers temporary relief for the next 6 to 12 months to certain contracting parties who are unable to meet their contractual obligations amidst the severe business disruption inflicted by the pandemic.
Landlords should be particularly aware of the following measures introduced under the COVID-19 Act which have impact on their rights and obligations under the lease agreements with their tenants:
- Temporary relief for tenants who are unable to pay rent;
- Temporary measures concerning remission of property tax on leased properties; and
- Temporary relief for the landlord on loan repayment obligations under their credit facilities secured by their properties.
What types of contracts are covered by the COVID-19 Act?
In this article, we specifically look at how the COVID-19 Act applies to the following contracts which landlords had entered into before 25 March 2020:
- Leases or licences of non-residential immovable property. Such contracts include leases of office premises, retail shops and industrial and warehouse spaces but exclude residential property; and
- Loan facilities granted by licensed banks or financial institutions to landlords, which are secured against commercial or industrial immovable property, or any plant, machinery or fixed asset located in Singapore.
Temporary relief for tenants who are unable to pay rent
When can a tenant claim relief under the COVID-19 Act?
A tenant may claim relief under the COVID-19 Act by serving a notification for relief on its landlord, subject to the following conditions being met:
- The tenant is unable to pay rent or other money due on or after 1 February 2020: Here, the key consideration is on the tenant’s inability to pay rent or other money due under the contract. For instance, a tenant will unlikely be granted relief from its payment obligations if its business is affected by the COVID-19 pandemic, but not to such an extent as to affect its ability to pay rent. Thus, tenants which are financially substantial commercial entitles or multi-national companies are unlikely to qualify for relief under the COVID-19 Act.
- The tenant’s inability to pay rent or other monies must be, to a material extent, caused by the COVID-19 pandemic: This may be due to the tenant having to take steps to comply with any law, regulation or direction of the government that is in place to address the pandemic, including the closing of the premises or a significant down-scaling of operations.
How can a landlord resist the grant of relief to the tenant under the COVID-19 Act?
Having received a notification for relief from its tenant, the landlord may grant the relief sought by the tenant.
However, if the landlord feels it has grounds to dispute the tenant’s eligibility for relief, it may challenge the grant of relief by applying to the Registrar of assessors to appoint an assessor to make a determination on whether the tenant is entitled such relief sought under the COVID-19 Act. Each party shall bear its own costs for any proceedings before the assessor.
The appointed assessor will consider, amongst others, the financial capability of the tenant to pay rent and will seek to achieve an outcome that is just and equitable in the circumstances. Possible outcomes may:
- Favour the landlord (e.g. the assessor orders the tenant to pay rent);
- Favour the tenant (e.g. the assessor orders the landlord to return possession of the premises to the tenant after the right of re-entry under a lease is exercised); or
- Constitute a compromise between the contracting parties (e.g. ordering a moratorium on rent payment but to review the moratorium every few months).
The parties cannot be represented by a lawyer at proceedings before an assessor, whose decision shall be final and binding on all parties to the application. There is no appeal from an assessor’s determination under the COVID-19 Act.
What actions by the landlord are prohibited?
In the event a notification for relief is served by the tenant, unless successfully challenged by the landlord on application to the Registrar of assessors, the COVID-19 Act prohibits landlords from taking the following actions:
- The landlord cannot commence or continue legal proceedings against the tenant due to non-payment of rent;
- The landlord cannot terminate any non-residential leases due to non-payment of rent; and
- The landlord cannot exercise its right of re-entry, forfeiture or any other right with an equivalent outcome due to non-payment of rent.
The above applies notwithstanding any contrary provisions under the underlying leases.
A landlord who contravenes the provisions under the COVID-19 Act without reasonable excuse will be guilty of an offence that may lead to a fine of up to S$1,000, and any actions taken by the landlord in contravention of the COVID-19 Act provisions will be invalidated.
What actions by the landlord are not prohibited?
Landlords should note that beyond the prescribed actions described above that are restricted during the interim period, the COVID-19 Act does not prevent the landlord from exercising its other contractual rights under the lease that are not covered under the new temporary legislation. We highlight three points below that landlords should keep in mind.
Firstly, while the COVID-19 Act effectively defers the tenant’s obligation to pay rent, landlords may still exercise other contractual rights under the lease or licence. For example, if the tenant who is entitled to relief does not pay rent, the landlord may offset the rental payment due by deducting the corresponding sum from the security deposit held by the landlord. This is because such action does not have direct cash flow implications on the tenant.
Secondly, the COVID-19 Act does not extinguish a tenant’s obligation to pay rent at all, but merely prevents the landlord from taking the prescribed legal actions during the pandemic which effectively defers the tenant’s rental payment obligations. The tenant must eventually pay to the landlord the rent which has accrued over the period of non-payment which remains outstanding.
Thirdly, in the absence of any express provisions under the lease or licence agreement, the COVID-19 Act does not allow the tenant to unilaterally terminate the lease or licence, and neither does the said Act entitle the tenant to a waiver or deferral of any rent in the event of such early termination. Ultimately, it should be kept in mind that the COVID-19 Act serves only to temporarily alleviate the financial burden on contracting parties, and not to diminish the sanctity of the underlying contract.
Remission of property tax and transfer of benefit in relation to property tax remitted
The COVID-19 Act provides that the benefit of any property tax remission granted by the Minister of Finance to property owners must be fully passed on to their tenants, if such remission is provided in response to the COVID-19 pandemic. Such passing of benefit must be unconditional i.e. it cannot be subject to any re-negotiations over the lease terms, which will be deemed void.
The corresponding amount of reduction in the property tax may either:
- be paid to the tenant as a lump sum or by way of instalments, or
- be off-set against the rent payable by the tenant to the landlord.
In practice, the benefit of the property tax rebate is most likely to be set off by the landlord against the rent payable by the tenant, as this avoids the landlord paying out of pocket.
Thereafter, landlords must keep and retain in safe custody, for a period of 3 years after the end of the period to which the prescribed remission relates, records evidencing compliance of the abovementioned provisions under the COVID-19 Act.
Failure on the part of the landlord to comply with the above without reasonable excuse is an offence that may lead to a fine of up to S$5,000.
Relief for landlords in repaying secured loans
While the measures mentioned above are ostensibly in place to help tenants, the COVID-19 Act and the Monetary Authority of Singapore (“MAS”) have also introduced measures to help landlords who have secured loan repayment obligations that may usually be paid from rental income on their properties.
The COVID-19 Act specifically allows corporate landlords whose shareholding comprises at least 30% Singapore citizens or Singapore Permanent Residents, with a turnover that does not exceed S$100 million in the latest financial year to obtain temporary relief from legal actions on their secured loan facilities. Where such landlords have entered into loan agreements with licensed local banks and finance companies before 25 March 2020 and such loans are secured against any non-residential property in Singapore (i.e. commercial or industrial immovable property), they may also serve a notification for relief on the lender if:
- they are unable to meet their loan repayment obligations that are to be performed on or after 1 February 2020; and
- their inability to meet their repayment obligations is to a material extent caused by COVID-19.
If these conditions are met, the landlord’s mortgagee may not commence legal proceedings against the landlord or its sureties, nor can it enforce its security over the mortgaged property.
Moreover, corporate landlords who are small and medium enterprises (“SME”; defined as enterprises with an annual sales turnover of up to $100 million or an employment size of up to 200 workers) can look to improve their cash liquidity by taking advantage of collaborative support measures offered by the MAS and participating banks and financiers that allow them to defer the payment of principal and pay only interest on secured term loans up to 31 December 2020. These SMEs can also elect to extend their loan tenure by up to the corresponding deferment period. Unlike the relief granted under the COVID-19 Act, however, eligible landlords under the MAS measures do not have to show evidence that they are or how they are impacted by COVID-19.
Practical considerations moving forward
The COVID-19 Act measures are a necessary intervention in this unprecedented time of crisis and economic disruption.
The Act seeks to alleviate the financial difficulties faced by SMEs and individual tenants by giving them a temporary time-out on their rental payment obligations if they are unable to do so. Similarly, landlords who depend on rental income to repay their debt facilities are similarly assisted by the possibility of having their loan repayment obligations deferred. However, it must be noted that the payment obligations due are not waived, and remain due and payable on a later date.
It is the common hope that this period of crisis will not be protracted, and in this context the design and operation of the COVID-19 Act measures are relatively straight forward. Over time, stakeholders may well find gaps in these emergency new temporary laws which will require clarification, and perhaps further regulations may be introduced to resolve such new problems as they arise.
In the meantime, the new laws serve the purpose of creating breathing space to encourage contracting parties to come to agreed compromises and find win-win solutions. The panel of assessors deployed by the Ministry of Law should also ensure that a just and equitable outcome is reached between contracting parties in the event of a dispute.
Click here for more insights on the Singapore Covid-19 (Temporary Measures) Act 2020.