COVID-19 amendment Bill passed to enhance relief for SMEs

This article is produced by CMS Holborn Asia, a Formal Law Alliance between CMS Singapore and Holborn Law LLC.

On 5 June 2020, Parliament passed the COVID-19 (Temporary Measures) Amendment Bill (the “Bill”). Through the Bill, the COVID-19 (Temporary Measures) Act 2020 (the “Act”) passed earlier in the year, will provide further relief especially to small and medium enterprises (“SMEs”) affected by Covid-19. As expected, the Bill focuses on rental relief and late payment interest relief, both key factors in affecting SMEs’ cash flow during the economic downturn.

Key amendments to the Act introduced by the Bill:

  1. Cap on late payment interest or charges for specific contracts
    • Businesses and individuals who are unable to meet their payment obligations due to Covid-19 were provided with a temporary moratorium from legal action for the prescribed period (currently until 19 October 2020). However, even in these cases, arrears continue to accrue and attract late payment interest and charges during this temporary moratorium.
    • The amended Act provides relief by introducing a cap on late payment interest and charges, which for some contracts may be a zero rate. This relief is only available to specific contracts falling under the “scheduled contract” scope, which covers supply agreements, event and tourism-related contracts, secured loan agreements, construction contracts, hire-purchase and conditional sales agreements, leases and licences of non-residential property, options to purchase and sale and purchase agreements with housing developers and rental agreements for commercial equipment.
    • Parties who wish to benefit from this relief should serve a notification for relief to the other party electronically, at which point the creditor will not be able to terminate such contracts due to late payments during the prescribed period.
  2. Additional rental relief framework for eligible SMEs (shared by Government and landlords)
    • Eligibility: Rental relief is available for eligible SMEs, i.e. those with annual turnover of less than SGD100 million and that have suffered a 35% or more year-on-year drop in average monthly revenue in April and May 2020.
    • Applicable Rentals: The relief can be applied to leases or licences commencing before 25 March 2020 and that are in force on 1 April 2020. The relief is shared equally between the Government and the landlord, such that tenants of commercial properties will receive 4 months of rental relief in total, and tenants of industrial and office properties will receive 2 months of rental relief in total.
    • Relief Process: Landlords can apply to check on their tenant’s eligibility for the additional rental relief, with the exact assessment procedure to be set out in subsidiary legislation to follow. How the relief works from the tenant’s perspective is that they can simply not pay the rent if they qualify for the relief conditions. From the landlord’s perspective, the portion of rental relief to be borne by the Government will be covered through a cash grant disbursed by the Inland Revenue Authority of Singapore. Details of the cash grant process will be set out in subsidiary legislation.
    • Exception for Landlords: Landlords who are unable to provide rental relief due to financial hardships of their own may also seek an assessment and exception. The assessment will consider whether the rental income constitutes a substantial part of their total income and the annual value of their properties. If eligible, landlords need only provide half of the additional rental relief required under the Act.
  3. Deferred rental repayment scheme for tenants with rental arrears
    • Eligibility: Tenants eligible for the added rental relief provided by landlords may also elect to serve a notice on their landlords to begin a statutory repayment scheme for a specified portion of their rental arrears accumulated between 1 February 2020 to 19 October 2020. The period of delayed rental repayment eligible are 5 months of base rent (for commercial properties) and 4 months of base rent (for industrial and office properties).
    • Timeline: Tenants must begin the first instalment of their repayment no later than 1 November 2020 after serving the notice. Thereafter, tenants will be able to repay arrears over an extended period of time in equal instalments under the repayment scheme. In addition, interest on the repayment of rental arrears is capped at 3% per annum.
    • Termination / Default: To provide some protection for landlords, tenants who terminate their leases or licences, or fail to abide by the repayment scheme will have the statutory repayment scheme cancelled. In such instances, the landlord will be entitled to demand immediate payment of all rental arrears or take steps under the contract for rental arrears unpaid.
    • Security Deposit: Landlords are also able to call on tenants’ security deposits to offset any rental arrears during this period, provided they leave an amount equivalent to 1 month’s rent as remaining security deposit.
  4. Relief for tenants unable to vacate business premises due to Covid-19
    • Under the amended Act, tenants may apply for relief where they are experiencing difficulties vacating their business premises at the end of their leases or licences because of Covid-19. To qualify, tenants must serve a notification for relief on their landlords and meet any other conditions prescribed by the Minister. Eligible tenants will not be liable to their landlords for failing to vacate their business premises.

Now would be an opportune time to conduct a nuanced review of contractual obligations and relief eligibility to assess where you may be exposed to risk or alternatively may be entitled to make claims. Please do not hesitate to contact any of our team members for further information and support.