Small businesses hit by Covid-19 can ask for contract renegotiation from Jan 15 to Feb 26

SMALL enterprises hit hard by the Covid-19 pandemic will have a six-week period to renegotiate business contracts that they have difficulties fulfilling.

Eligible companies can serve a notice of negotiation from Jan 15 to Feb 26, 2021 on other parties involved in certain contracts, the Ministry of Law (MinLaw) said on Thursday.

Once the notice is served, a business has four weeks to renegotiate contract terms. The other parties are barred from pursuing related legal and enforcement actions in that time.

The latest details from MinLaw shed more light on the Re-Align Framework that kicked in on Nov 3, after amendments to the Covid-19 (Temporary Measures) Act were passed.

MinLaw noted in a statement that the fundamental assumptions behind some companies' contracts "may have changed significantly and no longer be valid in a new Covid-19 normal" as they rejig their business models to face changing conditions.

The ministry called it critical to let these businesses adjust for the long term as the various government support schemes are wound down.

Should firms struggle with unproductive contracts, "assets and resources will be locked in, instead of being freed up to drive business and economic recovery", MinLaw added.

Businesses that had revenue of less than S$30 million for FY2019 and saw monthly average gross income fall by at least 70 per cent year on year for the second half of 2020 are eligible.

Contracts covered by the Re-Align Framework include leases for non-residential property for terms of less than five years, as well as rental agreements for commercial equipment or vehicles, and sale and purchase contracts for goods and services.

On the other hand, 14 types of contracts are excluded, including employment, insurance, commodity contracts, and freight and logistics services agreements. Also, contracts of national interest can be renegotiated - but cannot be terminated.

If no successful renegotiation is reached after the four weeks are up, contract counterparties have another two weeks to object, and an independent assessor will be appointed to determine the parties' obligations when the contract is terminated.

Otherwise, the contract will be axed two weeks and two days after the renegotiation period ends, should the counterparties decide not to lodge a notice of objection.

Parties that disagree with the default terms of termination and cannot reach an agreement will get two more weeks to apply for an assessor's decision, which is binding and cannot be appealed.

But, for small landlords that fear financial hardship from lease terminations, such property owners have two weeks after the negotiation period to file a notice for compensation.

This would qualify eligible landlords for compensation in the event of an early lease termination under the framework, with the amount to be determined by an assessor.

The framework does not apply to contracts inked after March 25 or terminated before Nov 2. But contracts scuttled from Nov 2 on, whether under the framework or otherwise, can be subject to framework terms of termination if a notice of negotiation is served.

More information is available online at www.go.gov.sg/re-align/.