11 June 2020
Introduction
On 5 June 2020, the Parliament of Singapore passed regulations requiring owner-landlords to provide much needed rental waivers to small and medium-sized enterprises (SMEs) facing liquidity pressures arising from COVID-19. SMEs in Singapore are generally considered to be businesses with annual sales turnover of not more than S$100 million or fewer than 200 employees.
This rental relief program supplements the earlier announced property tax rebates, which required non-residential building owners to pass on the tax rebates to tenants by way of rental waivers.
The new COVID-19 rent waiver regulations represent an intervention by the government in the commercial leasing market in Singapore, and are similar to efforts in other jurisdictions, such as the states of New South Wales and Victoria in Australia, to alleviate the economic stress experienced by SMEs during these times. This is a lifeline for SMEs, which have been forced to close or reduce operations for a relatively prolonged spell, many without any income, during Singapore's COVID-19 circuit breaker that mandated closure of non-essential businesses.
Tenancies that will benefit from rent waivers must have been entered into before 25 March 2020, regardless of whether renewed after 25 March 2020.
This new rental waiver is impacts a broad range of non-residential tenancies, including licenses, leases and sub-tenancies for retail, commercial, office and industrial space.
Key Aspects of COVID-19 Rent Waiver Regulations in Singapore
The key aspects of the new rental waiver regulations are summarised below:
| SME Turnover Criteria | No more than S$100 million in turnover for the year 2019. |
| Rent Waiver Eligibility Criteria | The tenant SME must have suffered at least a 35% year-on-year drop in average monthly revenue from April to May 2020 as compared to the same period in 2019.
Sub-tenants or licensees of premises are also eligible if they are SMEs and meet the 35% revenue drop criteria.* *This is different from the earlier property tax rebate initiative, which required owners to pass on the property tax rebate to their direct lessees or licensees, but not sub-tenants. |
| Will users of co-working spaces enjoy rental waivers? | Possibly if the user is an SME and experienced the quantifiable 35% drop in revenue from April to May 2020.
Co-working space users should also look into the terms of their agreement with co-working space providers to see if the terms can be characterised as a lease or licence. The waiver will apply to base rent only for lease or licenses of space. Waivers do not apply to services or other variable components of the rental sum. |
| Effective Date | The regulations come into effect at the end of July 2020. |
| Relevant Period for Rent Waiver |
Commercial and retail property: waiver of base rent amount for June and July 2020. Industrial and office property: waiver of base rent amount for May 2020. |
|
What is "base rent"? |
Base rent excludes variable rent that is typically calculated based on a tenant's turnover, e.g. where a commercial landlord takes a percentage cut from a store's sales. Variable rent is likely to be zero for retail stores closed during the circuit breaker.
Maintenance fees and other service charges are also excluded from base rent. |
| Can landlords appeal? |
Yes, landlords may seek an assessment on financial hardship grounds to appeal against the requirement to provide rental waivers to its commercial, office and industrial tenants. Factors to be considered in the assessment include:
It seems generally less likely that large landlords will benefit from the assessment provision, and this provision seems targeted at small-time landlords such as individuals who earn almost all their income from rental of property. |
| Effect of landlord request for assessment |
If a landlord succeeds in the assessment, the landlord will only be required to provide half of the prescribed rental waiver amount to its tenants. |
The new rental waiver relief is part of a spectrum of measures for a fairer sharing of rental obligations among landlord, tenants and the government. It is however, a temporary balm to help SMEs tide over this difficult period. Unviable business will ultimately still exit the market. As Law Minister Mr Shanmugam aptly put it, "the measures cannot be a crutch".
For further information, please contact:
Sandra Seah, Partner, Bird & Bird
sandra.seah@twobirds.com
