Extra rental waivers for SMEs with at least 35% fall in revenue

ADDITIONAL rental waivers - with the cost borne by landlords - will apply to small and medium-sized enterprises (SMEs) that have suffered at least a 35-per-cent fall in revenue, on top of mandatory waivers funded by the government, under new legislation to be introduced on Friday.

Previous direct monetary assistance provided by landlords, including the passing on of property tax rebates, can be used to offset the rental waivers mandated by the amendment Bill. Landlords that are unable to provide the additional waivers can seek an assessment, with qualifying landlords only needing to provide half the mandated waiver.

"Landlords have to do their part, tenants have to do their part, and together, with a bit of sharing of the pain, we hope that as many as possible can pull through," said Law minister K. Shanmugam.

The Bill also sets out a statutory repayment scheme for arrears, provides relief for tenants which cannot vacate their business premises due to Covid-19, and caps late-payment interest or charges for specific types of contracts. It amends an earlier act which provides temporary relief for some contractual obligations in light of Covid-19.

The new legislation, under which the government and landlords share the cost of mandatory rental waivers for SMEs, was announced by Deputy Prime Minister and Finance Minister Heng Swee Keat in last week's Fortitude Budget, with more details from the Law Ministry on Wednesday. SMEs are defined as firms with turnover of up to S$100 million at the group level in 2019.

With the government providing landlords with the equivalent of about two months rent for qualifying commercial properties, and about one month for industrial or office properties, landlords must in turn grant a two-month waiver of base rent for April and May to SME tenants in qualifying commercial properties, and a one-month waiver of base rent for April to SME tenants in industrial or office properties. Base rent excludes any gross turnover payable, maintenance fees and charges for services such as cleaning and security.

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On top of this, there are additional waivers for SMEs which have seen a "significant drop" in revenue: at least a 35-per-cent year-on-year fall in average monthly revenue in April and May, at the outlet level. The tenancy must have been entered into before March 25 this year.

Eligible SMEs in commercial properties will get another two months' base rental waivers, and those in industrial and office properties, another one month. These additional waivers will be absorbed by landlords. For eligible SMEs which are sub-tenants, the master tenant must grant these waivers too. Landlords may apply to government assessors to assess a tenant's eligibility for relief.

Landlords may seek an assessment if they cannot provide the additional waiver on grounds of financial hardship. Said Mr Shanmugam: "Qualifying landlords, particularly the smaller landlords, with one property and (where rental forms) a substantial part of their income - we will set out the criteria - they will only be required to give half the amount of waiver."

The assessment will also take into account the annual value of the landlord's properties.

SMEs that qualify for the additional relief can serve notice on their landlords for a statutory repayment scheme of outstanding arrears accumulated from Feb 1 till Oct 19, with payment of the first instalment by Nov 1, 2020. Industrial or office tenants can carry over up to four months of arrears, and commercial tenants, up to five months. Arrears are to be paid in equal instalments for up to nine months or the remaining term of tenancy, whichever is shorter, with interest capped at 3 per cent per annum.

If the tenant fails to make a payment under this scheme, or terminates the lease, then the landlord will be entitled to immediate payment of all the arrears and can take steps under the contract for unpaid rentals.

The amendment Bill also provides relief for tenants which are unable to vacate non-residential property after their lease expires, but before Oct 19, which is when the temporary relief prescribed period ends. Tenants which serve a notification for such relief and meet certain conditions will not be liable to their landlords for failing to vacate the property, except as otherwise prescribed by the Law Minister.

The Bill will also cap late-payment interest or charges for specific types of contracts, with details to come.

The Covid-19 (Temporary Measures) (Amendment) Bill will be introduced on Friday. If approved, the amendments will be implemented in end-July, and tenants eligible for the rental relief will be notified in due course.