Contract relief plan draws cautious support from landlords, tenants

Singapore

A NEW Bill that may give businesses a reprieve from contractual obligations including rent payments has drawn initial support from landlords and tenants, but also underlying concern about whether they are just kicking the can down the road.

Under the Covid-19 (Temporary Measures) Bill, a tenant whose business is affected by the coronavirus outbreak is entitled to suspend rental payments for six months.

Under the Bill, a landlord cannot terminate the lease or licence due to non-payment of rent, if the reason is Covid-19. This covers rental payments due from Feb 1 onwards, and where the agreement was entered into before March 25.

But to be clear, the obligations are only suspended, not removed - rent still accrues and will eventually have to be paid after the six months are over.

The Bill will be introduced in Parliament next week. The measures will be in place for six months from the commencement of the Act, and can be extended for another six months.

Businesses said the temporary ease on rental - and by extension, cash flow - would be welcome, but were cautious in saying if they would actually make use of the measures. Some key concerns are that the rent remains money owed, and whether companies would be in any better shape to pay the accrued amount.

"It will help us in terms of cash flow, but the rent is still something owed and still has to be negotiated with landlords. We can't come together and negotiate only after six months," said SaladStop's managing director Adrien Desbaillets.

"The worry is that some people may not take drastic enough measures now to sustain the business, thinking they will figure it out when the time comes," he added. "Landlords may run into a huge difficulty... how much can they collect after six months?"

Damien Tan, chief operating officer at menswear retailer Benjamin Barker, said the Bill would only be used to "buy precious breathing time while we continue to negotiate with landlords". Retailers still need to pay the outstanding rental - a "substantial" amount, he noted.

Dandy Partnership's chief executive officer Rohit Roopchand thinks tenants will probably divert more cash to paying staff, given the relief, with the hope that business picks up soon enough to start paying landlords back. But if that doesn't happen, "I imagine the government would need to step up or tenants would be out of business".

Scanteak CEO Jamie Lim said the break from rental obligations would give them more flexibility in deploying their reserves.

The Restaurant Association of Singapore and an informal tenants' group of over 400 brands similarly said members would need time to "appreciate the ramifications" of delaying payment on businesses in the longer term.

On the other hand, industry players also questioned the Bill's cost to landlords, despite its good intentions.

A market watcher observed that commercial landlords' cash flow and quarterly dividends may be impacted, depending on the proportion of tenants that won't be paying rent.

There may be ways that landlords could maintain cash flow, such as using security deposits to offset rent, but most are still trying to come to terms with the Bill, the observer said.

CGS-CIMB analyst Lock Mun Yee concurred that the absence of cash flow is likely to adversely impact commercial landlords in the short term, depending on the number of tenants and quantum.

The axe may also fall harder on smaller landlords with less resources, like those of strata-titled malls. "It's not a relief to us actually," said Henry Mok, president of Bugis Cube, even though he believes it is a good move to help tenants.

Mr Mok was unsure if tenants that are already struggling to pay rent currently will be able to pay essentially double the sum six months later. And meanwhile, the landlord still has to repay interest and mortgage on the property, as well as dole out rental rebates to tenants.

For now, property bigwigs CapitaLand and Frasers Property appear to be putting their weight behind the Bill.

"With their short-term cash flow pressure alleviated, tenants will be more empowered to keep to their lease commitment and stay open for business. This maximises the potential for a speedy recovery when the crisis abates," said Andrew Lim, CapitaLand's group chief financial officer.

"Tenants and landlords are in a long-term symbiotic relationship," added Mr Lim, who is understood to have been part of consultation for the Bill. "It is in our interest to see our tenants ride through this with us."

Frasers does not expect that the Bill will impact many of its tenants, however, "(it) will continue to work closely with (its) tenant community" to overcome the crisis together.

Far East Organization and APM Property Management are understood to be studying details of the Bill.

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