FAQs for Rental Relief Framework for SMEs

Note: The FAQs are subject to the details set out in the subsidiary legislation to the COVID-19 (Temporary Measures) (Amendment) Act, which will be implemented by end-July 2020.

Rental relief provided by Government and Landlords

a. Why has the Government decided to implement this rental relief framework?

The rental relief framework seeks to help affected SMEs with their cash flow by providing for the fair handling of their accumulated rental obligations, and a fair sharing of economic hardship due to the impact of COVID-19 among the Government, landlords and tenants.
The Government does not ordinarily intervene in private contracts. However, due to the economic impact of COVID-19 on SMEs, the Government has decided to take targeted and temporary measures to intervene to safeguard the economic structure for common good. The rental relief measures are necessary to support SMEs and the broader economy, which will in turn help property owners continue to enjoy the stable value of their assets in the longer term.

b. How many months of rental relief can an eligible SME tenant (including subtenants and licensees) obtain?

Eligible SMEs which are occupying tenants (including subtenants and licensees) can receive a total of 4 months’ waiver of base rental for qualifying commercial properties (e.g. shops), and a total of 2 months’ waiver of base rental for industrial and office properties, comprising the following:

a) Government assistance: Occupying SME tenants in qualifying commercial properties and industrial/office properties will receive the rental relief through a waiver of rent from their landlords. Property owners (including owner-occupiers) will receive support through the: (a) Property Tax Rebate for Year 2020 announced in the Unity and Resilience Budgets; and (b) Government cash grant announced in the Fortitude Budget.

To ensure that these measures benefit the intended beneficiaries, the Act will mandate that eligible SMEs in qualifying commercial properties receive 2 months’ waiver of their base rental, and eligible SMEs in industrial and office properties receive 1 month’s waiver of their base rental. This will provide rental relief to eligible SMEs (i.e. with not more than $100 million in annual turnover reported in the Year of Assessment 2019) with qualifying leases or licences (i) entered into before 25 March 2020; or (ii) entered into before 25 March 2020 but expired and renewed automatically, or in exercise of a right of renewal in the contract.

b) Additional rental relief to be provided by landlords: Eligible SMEs who have seen a significant drop in their average monthly revenue due to COVID-19 will receive an additional 2 months’ waiver of base rental for qualifying commercial properties, and an additional 1 month’s waiver of base rental for industrial and office properties. The Act will mandate that landlords provide this additional rental relief to eligible tenants automatically, by way of rental waivers.

c. What period does the rental relief cover?

The rental waiver through the Government assistance will apply to the rental for the months of April and May 2020 for eligible occupying SME tenants in qualifying commercial properties, and April 2020 for eligible occupying SME tenants in industrial and office properties as long as their leases or licences were (i) entered into before 25 March 2020 or (ii) entered into before 25 March 2020 but expired and was renewed automatically, or in exercise of a right of renewal in the contract. This period of rental waiver corresponds to the start of the Circuit Breaker when businesses were clearly impacted by COVID-19.
The additional rental waiver provided by landlords to tenants substantially impacted by COVID-19 will apply for the months of June and July 2020 for eligible SMEs in qualifying commercial properties, and May 2020 for eligible SMEs in industrial/office properties, as long as their leases or licences were (i) entered into before 25 March 2020 or (ii) entered into before 25 March 2020 but expired and were renewed automatically, or in exercise of a right of renewal in the contract.
In cases where rent has already been paid for the relief period, the tenant can either apply the rental waivers to the next immediate month(s) of rent, or if this is not possible, receive a refund from the landlord.

d. What are the eligibility criteria for an SME tenant to qualify for the additional rental relief from their landlords?

Occupying tenants (including subtenants and licensees) will need to satisfy all criteria below to be eligible for the mandatory rental relief co-shared by landlords:

a) SME at the group level (≤$100 million turnover in 2019);

b) Substantial drop in average monthly revenue during COVID-19 (average monthly revenue from April to May 2020 on an outlet level reduced by 35% or more, compared to April to May 2019); and

c) The tenancy must have been: (i) entered into before 25 March 2020; or (ii) entered into before 25 March 2020 but expired and was renewed automatically, or in exercise of a right of renewal in the contract.

e. What if a tenant was not operational during the April to May 2019 period – how will the drop in revenue be assessed?

The reason why the same period of time for a year on year comparison was used is to account for seasonal fluctuations in revenue.
Where tenants were not operational during the April to May 2019 period, the revenue could be compared to other periods that will reflect whether the tenant’s performance has been impacted by COVID-19. For leases or licences that are even shorter, more information will be provided in due course.

f. Can the rental waivers be offset by any waivers or other forms of assistance that a landlord had passed on to his tenant prior to the implementation of the Act? What can be considered for the offset, if allowed?

The rental waivers may, subject to conditions, be offset by any previous direct monetary assistance provided by the landlord to the tenant (or subtenant/licensee) from February 2020 onwards and/or any passing on of the Property Tax Rebate from property owners to their tenants.
More information on the types of assistance from landlords that can be under the Act will be provided in due course.

g. When will the Covid-19 (Temporary Measures)(Amendment) Act come into force?

The Act will come into force by end-July 2020. Agencies are currently working out the details and processes for the implementation of the relief.

h. When will landlords be informed of their obligations? When will tenants be informed of their eligibility?

It is estimated that, starting from end-July 2020, IRAS will issue the notice of the cash grant or nominal notice to the eligible property owners.
The waivers will be effective by operation of law once the notice of cash grant is issued to the eligible property owners, and the tenant is not required to take any further steps.
IRAS will provide more details of the cash grant on its website, once the details are worked out.

i. What should landlords and tenants do in the meantime, before receiving the notice of cash grant from IRAS?

Landlords and tenants are encouraged to work towards a mutual arrangement to implement the rental waivers provided for in the Act - a rental waiver for the period of April to July 2020 for eligible SMEs in qualifying commercial properties, and April to May 2020 for eligible SMEs in industrial/office properties. Landlords should proceed to provide immediate rental relief to their SME tenants, especially those that have suffered substantial impact due to COVID-19.
Given the widespread and obvious impact of COVID-19 on the economy, it should be clear in the majority of cases whether tenants qualify for relief. For example, it should be clear whether a tenant is an SME, and whether the tenant’s business suffered from the circuit breaker measures in April and May 2020.
In the minority of cases where the landlord has some doubt, we encourage both parties to work together and share the necessary information. It is in the interests of both parties to communicate effectively, so that the position is clear and the waivers can work smoothly. When the Act comes into force, the Act will require tenants to provide the information required by the landlord.

j. Can a landlord take steps against an SME tenant for non-payment of rent for the months of April and May in the meantime?

A landlord ought not to take such steps, since the Act mandates rental waivers for the period of April to July 2020 for eligible SMEs in qualifying commercial properties, and April to May 2020 for eligible SMEs in industrial/office properties.
When the Act comes into force, it will provide for a moratorium on enforcement action for non-payment of rent by SME occupier tenants (i.e. those who are operating on the rented premises).
At any time, tenants who are unable to pay their rent due to COVID-19 and who require protection from legal or enforcement proceedings by their landlords, may serve a Notification for Relief under the existing COVID-19 (Temporary Measures) Act. Once the Notification for Relief is served, the landlord may not terminate the lease nor take any of the prohibited actions stated in section 5(3) of the Act on the basis of non-payment of rent up to 19 October 2020.

k. What if my landlord does not provide me with the rental waiver? Are there any penalties for non-compliance by landlords?

Under the Act, the rent that is payable by eligible tenants to their landlord for the months of April and May 2020 (and if applicable, June and July 2020 as well), is statutorily waived once IRAS issues the notice of the cash grant or nominal notice to eligible property owners. Eligible tenants are, by law, not liable to their landlord in respect of rent for those months and do not need to take further action to obtain the rental waiver.

Landlord’s application for assessment

l. What can a landlord do if he is not satisfied that his tenant is eligible for the additional rental relief?

Landlords will have the opportunity to apply to have an Assessor determine whether the tenant satisfies the eligibility criteria to receive the additional rental waiver.
The legislation will require that tenants provide the necessary information to determine eligibility to the landlord upon request.
The Assessor’s determination will be binding on both the landlord and the tenant.

m. What can a landlord do if he is unable to afford a rental waiver?

The Government recognises that there are landlords who may face genuine financial hardship.
Landlords who are unable to afford to give the mandated rental waiver may seek an assessment by the Assessor on the grounds of financial hardship.
The Assessor will take into consideration the annual value of the landlord’s properties and the proportion of the landlord’s dependence on the rental income for his livelihood.
If the landlord meets the grounds of financial hardship, the Assessor can halve the amount of additional rental relief that needs to be provided by the landlord. The Assessor’s determination will be binding on both the landlord and the tenant.

n. What is the process and criteria for assessment?

More information on the application process and assessment criteria will be shared in due course.

o. Will tenants have access to the assessment mechanism, either to challenge a landlord’s assertion of financial hardship, or to ascertain whether they are eligible?

The assessment mechanism will use objective criteria to determine tenants’ eligibility and landlords that are facing financial hardship.
If tenants are of the view that they are eligible but have not received a copy of the Notice from IRAS, they may seek clarification from IRAS. More details will be provided on IRAS’ website in due course.

p. If a landlord’s share of the waiver is halved, who will bear the other half? Will the Government absorb this?

If the additional rental relief that has to be paid by the landlord is halved, the tenant will have to pay his share of the rent accordingly. Both landlords and tenants alike have to play their part to pull through this difficult period.

Repayment scheme for rental arrears

q. What can a tenant do if he needs more time to repay his accumulated rental arrears?

Eligible SMEs that qualify for the additional relief by landlords may elect to serve notice on their landlords to take up a prescribed repayment scheme for a specified portion of rental arrears accumulated from 1 Feb 2020 up till 19 Oct 2020 (corresponding to the prescribed period of relief for non-performance of contractual obligations provided for under the Act). The notice should be served no later than 19 Oct 2020.
Upon serving the notice, tenants must start payment of the first instalment no later than 1 Nov 2020. Under the repayment scheme, tenants can pay for a specified portion of their arrears over a period of time (up to 9 months, or the remaining term of the tenancy, whichever is shorter) in equal instalments, with the interest payable on such arrears capped at 3% per annum.
For commercial properties, the maximum amount of arrears that can be paid in instalments will be 5 months’ base rent. For industrial/office properties, the maximum amount of arrears that can be paid in instalments will be 4 months’ base rent.
If the tenant fails to make a payment under the statutory repayment scheme within a prescribed period of time, or the tenant terminates the lease or licence, or the landlord terminates the lease agreement for any other default by the tenant, the statutory repayment scheme will be cancelled, and the landlord will be entitled to:
- Immediate payment of all the arrears
- Take steps under the contract for rentals not paid

r. Can the tenant’s security deposit be used to offset other rental arrears?

Landlords may draw on the existing security deposits to offset accumulated rental arrears. They may do so until there is the equivalent of 1 month of rent remaining in the security deposit.
At the end of the repayment period, the tenant will be obliged to reinstate the security deposit to the contractual amount.

s. How can a tenant serve a notice on his landlord to defer the payment?

More details will be provided in due course.

t. What if tenants do not comply with the repayment schedule or terminates the tenancy before the arrears are paid up?

All outstanding arrears, including interest and other charges, will be accelerated and immediately payable in accordance with the terms of the original contract, and the landlord will be entitled to exercise any of the landlord’s rights under the contract for non-payment of rent and the interest and other specified charges if:

a) Instalment payments under the scheme are not paid within a prescribed time after they become due;

b) The tenant terminates or repudiates his lease agreement during the rescheduled repayment period; or

c) The lease agreement is terminated due to other defaults by the tenant.
Tenants who have rescheduled the payment of arrears will have to provide specified documents and information to their landlords if: (a) the lease agreement is terminated or repudiated during the repayment period; and (b) there are 2 or more rescheduled repayment instalments outstanding.
The documents and information to be provided will include filing a statutory declaration on their statement of accounts from April 2020 until the termination or repudiation of the lease. The tenant will also be required to set out how he proposes to repay the outstanding rental arrears.