Landlords to give SME tenants more rental relief under proposed amendments to COVID-19 laws

Landlords to give SME tenants more rental relief under proposed amendments to COVID-19 laws

Landlords will have to dig into their pockets to provide small- and medium-sized enterprise tenants with more rental relief under amendments to COVID-19 regulations set to be introduced in Parliament on Friday (Jun 5). Jeraldine Yap with more.

SINGAPORE: Landlords will have to dig into their pockets to provide small- and medium-sized enterprise (SME) tenants with more rental relief under amendments to COVID-19 regulations set to be introduced in Parliament on Friday (Jun 5).

As long as the leases or licences were in force on Apr 1, commercial property owners must waive the base rent for two months – June and July – for SME tenants that have seen “significant” revenue declines due to the pandemic. Landlords of industrial and office properties will be required to grant eligible tenants with a one-month base rent waiver for May.

Base rent excludes the variable rent based on a tenant’s gross turnover, as well as maintenance fee and other service charges.

READ: Parliament passes wide-ranging Bill to assist those unable to fulfil contractual obligations due to COVID-19 outbreak

These rental waivers to be borne by landlords will come on top of already-announced rent support from the Government, the Ministry of Law (MinLaw) said on Wednesday (Jun 3) as it laid out its proposed amendments to the COVID-19 (Temporary Measures) Act.

Altogether, the proposed framework mandates a “co-sharing of rental obligations” that will provide SME tenants at commercial properties with four months’ worth of rental relief, while those at industrial and office properties get two months.

Other proposed amendments include allowing SME tenants to repay rental arrears through instalments and the introduction of a cap on late payment interest or charges for specific contracts.

The wide-ranging Act, which was passed in Parliament on Apr 7 and took effect on Apr 20, grants those who cannot fulfil contractual obligations amid the virus outbreak with temporary relief for six months.

But businesses, especially SMEs, continue to face financial concerns and uncertainties from the COVID-19 pandemic.

This required a “substantive intervention” by the Government, said Law and Home Affairs Minister K Shanmugam at a media briefing on Tuesday ahead of the announcement. 

“In early April, we intervened through the COVID-19 (Temporary Measures) Act, to give time for companies to pay their rental. This time round, it's an even more substantive intervention. It gives rental waiver for SMEs.”

The relief measures will help nearly 260,000 SMEs employing more than 2 million people to cope with the impact of the “circuit breaker” and a slow recovery ahead as Singapore reopens in a phased approach, he added.

“TRYING TO STRIKE A BALANCE” 

SMEs eligible for the landlords’ rental waivers are defined as those with annual turnover of no more than S$100 million in 2019.

They also have to fulfil two other criteria – having seen a 35 per cent or more drop in average monthly revenue from April to May on a year-on-year basis, and have entered into the tenancy before Mar 25 this year.

Landlords can apply for an assessment of this eligibility “within a specific time” and the case will be examined by an assessor. More details will be announced at a later date. 

If landlords have passed on tax rebates and any direct monetary assistance to tenants from February, this can be used to offset the required rental waivers.

Landlords that are unable to provide tenants with the additional rental waivers may seek an assessment on “grounds of financial hardship”.

This may apply to smaller landlords who only own one property and have rent as a substantial part of their income, said Mr Shanmugam. He added that the Government will set out the criteria and landlords that qualify will only have to provide half of the waivers. 

Apart from having landlords step up to provide rent relief, the amendment Bill will also require property owners to pass on the Government-granted tax rebates and the new S$2 billion cash grant to their SME tenants in the form of base-rent waivers.

The latter, announced as part of the latest Fortitude Budget, gives tenants at eligible commercial properties cash grants amounting to about 0.8 month’s worth of rent. Those in qualifying industrial and office properties will receive 0.64 month’s worth of rent.

READ: Fortitude Budget: S$2.9 billion to boost and extend Jobs Support Scheme; SMEs to get more rental relief

Combined with the property tax rebates, total government support will offset about two months of rent for tenants at commercial properties, and about one month for those at industrial and office properties. 

To ensure the Government’s support reaches its intended beneficiaries, MinLaw said the Bill will make it mandatory for tenants of commercial properties to get a two-month waiver of their base rent covering April and May, as long as leases were in force on Apr 1. Similarly, those in the industrial and office properties will have their base rent waived for one month in April. 

Altogether, SME tenants in commercial properties should get rental relief totalling up to four months starting from April to July, while others at the industrial and office properties will receive two months’ worth of rental help covering April and May.

These rental waivers also apply to eligible SMEs who are sub-tenants and licensees, MinLaw said, adding that its framework aims to set “a baseline position for the handling of tenants’ rental obligations”.

Rental relief for SME tenants
(Infographic: Ministry of Law)

“We are trying to strike a balance,” said Mr Shanmugam, noting that landlords and tenants have to do their parts.

“Together, with a bit of sharing of the pain, we hope that as many as possible can pull through.” 

REPAY ARREARS IN INSTALMENTS 

The proposed amendments set to be tabled will also allow SMEs to pay a “specified portion” of rental arrears that are accumulated from Feb 1 until Oct 19 via instalments.

Tenants will first have to serve notice on their landlords before being able to repay the arrears in equal instalments over an extended period of up to nine months or the remaining term of their tenancy agreements, whichever is shorter.

READ: Businesses call for fair tenancy law to solve ‘growing’ imbalance in landlord-tenant relationship amid COVID-19 outbreak

The first instalment must be paid no later than Nov 1 this year. The interest payable on such arrears will be capped at 3 per cent per annum.

If a tenant fails to make payment or terminates the lease, the repayment scheme will be cancelled. This means that the landlord will be entitled to an immediate payment of all arrears, or be allowed to take steps as specified in the contract, the ministry said.

OTHER TEMPORARY RELIEF 

The COVID-19 outbreak has also made it difficult for tenants to vacate their premises at the end of their leases, the ministry said, citing feedback. In some instances, tenants have had to face penalties such as paying double rent. 

Another proposed amendment to the COVID-19 laws will look to provide such tenants with some relief.

“This relief will apply where, due to COVID-19, the tenant is unable to vacate a non-residential property after the end of the lease or licence and before the expiry of the prescribed period i.e. before Oct 19, 2020,” MinLaw said in its press release.

After meeting these conditions and serving a notification for relief on the landlord, tenants will not be liable for failing to vacate the property.

READ: COVID-19: Legal relief for those who buy homes from developers 

Arrears also continue to be accrued and are subject to late payment interest and charges, despite the Act providing businesses and individuals with a temporary moratorium until Oct 19.

As such, the Bill will also propose a cap on these late payment interest or charges for arrears that arise due to COVID-19 under specific contracts.

Creditors will also not be allowed to terminate these contracts due to late payments during the prescribed period until Oct 19.

The ministry said various stakeholders were consulted for the amendments, including representatives from industries such as retail and food and beverage, as well as legal, accountancy and property development professionals.

The amendments, if passed, will kick in at the end of July and tenants eligible for rental relief will be “notified in due course”, the ministry said.

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Source: CNA/sk

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