Mandatory rent waiver raises risks for private landlords: property consultants

Singapore

THE government's move to bolster rental support will extend another lifeline to tenants, many of whom are small and medium-sized enterprises (SMEs), industry players have said. But they add that legislating that landlords also contribute may put these landlords in a more difficult position.

A cash grant to offset rent for SME tenants, amounting to S$2 billion in total, was announced on Tuesday. SME tenants are defined as those with not more than S$100 million in annual turnover, based on corporate tax and individual tax returns for the 2019 year of assessment.

A new law will also be introduced next week, requiring landlords to grant rental waivers to SME tenants who have suffered a "significant revenue drop".

If passed, tenants in commercial properties will get a total of four months of rental relief - shared equally between the government and landlords. Other SME tenants in industrial and office properties will also be given some relief.

The new Bill will also cover provisions on temporary relief from onerous contractual terms such as excessive late-payment interest or charges. It will also let tenants repay their arrears in instalments, Deputy Prime Minister Heng Swee Keat said in Parliament on Tuesday.

"The government does not ordinarily intervene in contracts after they have been entered into. However, as the Minister for Law had explained in his second reading speech on the Covid-19 (Temporary Measures) Bill, in exceptional situations such as this, the government needs to intervene, through legislation, with temporary targeted steps to safeguard the economic structure for the common good," he said.

Government tenants will also get more rental relief. Commercial tenants and hawkers will have two more months of rent waived; industrial, office, and agricultural tenants will receive one more month of waiver.

Mr Heng added that the government will ensure that these measures flow through to help sub-tenants, many of whom are SMEs.

Tenants, including sub-tenants who feel they were left out in earlier budgets, welcomed the measures but sought more specifics. A retailer who declined to be named said: "How is 'revenue drop' defined? Everyone would be hit severely as long as they cannot open."

A sports vendor, a sub-tenant in a government property, asked about the kind of support to be passed on to sub-tenants. With other sub-tenants, she had petitioned the authorities for rental relief after receiving insufficient rebates from the main tenant. "Currently, it's as if we're being fined for closing," she added.

Singapore Tenants United for Fairness, an informal group of mall tenants, called the improved rental and wage support "fair and much needed", given that most of them have had zero or near-zero revenues in the past two months.

But Christine Li, head of research for Singapore and South-east Asia at Cushman & Wakefield, warned that the new law could push landlords into further financial difficulty, especially those with a larger proportion of SME tenants in their properties.

"Many asset owners and operators are faced with drastically reduced operating income from concessions and rebates they have to dish out to save struggling tenants. Assets that thrive on the intensification of real estate and human interactions could also experience a much longer-term fundamental drop in the future demand.

"By subjecting them to the mandatory rental waiver for their tenants, it could create a bigger problem down the road, when these asset owners are unable to reposition their properties in time to tide through the difficult period," she said.

Colliers International noted that the Covid-19 Bill, which allows tenants to defer rent for up to six months, created "a lot of risk to landlords and the entire eco-system" arising from tenants' ability to pay rent afterwards.

However, co-sharing the rental waivers with the government "should ensure a better collective outcome for both tenants and landlords", it said.

The Reit Association of Singapore (Reitas), which has flagged the Covid-19 Bill's potential detriment to landlords, on Tuesday said the virus' economic impact should be shared "fairly and equitably" among the government, landlords, businesses and other stakeholders. It said it awaits the full details of the measures to assess their impact on its members.

The Real Estate Developers' Association of Singapore (Redas), meanwhile, urged its landlord members to work closely with tenants to provide "the necessary assistance on a win-win approach".

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