COVID-19 (Temporary Measures) (Amendment) Bill

Order for Second Reading read.

6.45 pm

The Minister for Law (Mr K Shanmugam): Mr Speaker, I beg to move, "That the Bill be now read a Second time".

This Bill comes before Parliament in the midst of very serious challenges faced by us, which both Ministers and Members of Parliament have spoken about a number of times.

In my speech, I will explain why we need this intervention, explain the principles behind the Bill and set out the key features of the Bill.

Just under two months ago, I moved an urgent Bill in this House – the COVID-19 (Temporary Measures) Bill, which I will refer to as “COVID 1”. COVID 1 was, in itself, a major intervention.

In my speech then, I explained why intervention was needed – economic shock, unprecedented in magnitude in terms of impact and the speed with which the impact was felt.

I also set out the principles for such intervention. The starting point is always the sanctity of contract – a fundamental, key aspect of the rule of law and we do not lightly intervene.

But sanctity of contract cannot be an absolute. I said that intervention is needed when the core interests of our people are at stake and there is a need to safeguard the fundamental integrity of the economic structure for the common good. Such intervention has to be reasonable and of generally limited duration.

In COVID 1, we put in what I called a “legal circuit breaker”. It provided a framework to hold in abeyance the strict enforcement of certain legal rights for a period of time.

The objective was to give businesses some cash flow relief and breathing space to make adjustments. For example, if a business tenant is unable to pay rent during the relief period because of COVID-19, the landlord cannot evict the tenant during the relief period. The moratorium runs until 19 October 2020.

At the time, I emphasised that COVID 1 only deferred contractual obligations. I also explained to this House that the Bill gave businesses breathing space. It also gave the Government some time to take in feedback, assess the evolving situation, conduct a deeper analysis and decide whether more substantive interventions were needed.

Over the past two months, we have done precisely that. We have monitored feedback, assessed the situation, thought carefully about what else needed to be done. And we have decided to intervene in a more substantive way to deal with the issue of rent. And also, intervene in some other areas. I will explain why.

Two months ago, the circuit breaker began. For many, including the businesses most affected by those measures, April now feels like a lifetime away.

Globally, we were looking at 1.2 million infections and 67, 000 dead. As of 1 June, we are looking at more than 6 million infections and more than 370,000 dead.

Various restrictions had already been put in place by then, but the circuit breaker caused a substantial increase in the restrictions.

The situation today? The Deputy Prime Minister and other Ministers have explained in considerable detail.

I will just recap two key points. The economic situation and outlook has deteriorated substantially. MTI is now forecasting a contraction of between 4% and 7%. And there is a lot of uncertainty.

We are taking a cautious approach in lifting the circuit breaker measures. Many industries are affected. And for some, the impact has been near catastrophic.

Latest data from the Department of Statistics, some just released today. If you look at F&B sales in March 2020, they declined by 23.7%. In April 2020, they declined by 53% on a year-on-year basis. Retail sales, if you exclude supermarkets, hypermarkets and convenience stalls, retail sales in March 2020 declined by 13.3%. In April 2020, nearly 61%.

These numbers do not even show the full impact of the circuit breaker because data for May 2020 is not out yet. We can, obviously, expect the numbers to be very weak.

Revenue has fallen but meanwhile fixed costs continue. For many businesses, in the F&B, retail sector, two significant components of such costs are manpower and rent.

As regards manpower, the Government through the various Budgets has put in the Jobs Support Scheme, waived the Foreign Worker Levy and put in a number of other schemes to help, together with partners like NTUC.

This Bill seeks to deal with the rental obligations, amongst other things.

Many landlords have taken a helpful approach and a long-term view. They have shared the burden with their tenants.

Nevertheless , we received a lot of feedback from struggling SMEs that they need more time to recover. Many cannot operate until Phase Two, and even then only partially.

Landlords’ concessions have been uneven. Many landlords have rendered substantive assistance, but several others have not.

The point is that accumulated arrears should be handled fairly.

I will share one piece of feedback as an illustration. This is a tenant who is a mother of two young children. She started a company two years ago, providing enrichment lessons to children. She leased some space for the business as a sub-tenant. She renewed her lease for one year, just before COVID-19 hit.

All revenue that came in went to support the business – payment of rent, salaries for trainers and other operational costs. But from February 2020, parents began to keep students away. Classes have been suspended since March 2020. Her landlord has offered her 10% discount for April and May 2020.

COVID-19 is quite an unforeseeable event, both in magnitude and speed of impact. It is wiping out the hard work that many people have put in into their businesses.

So, if landlords insist on payments that tenants cannot afford, tenants will have to give up. Landlords then have to take their chances to recover something in the insolvency proceedings, together with other creditors.

Landlords will then also have to find replacement tenants. In this market, not realistic.

Therefore, it is in everyone’s interests to take a sensible approach, ensure everyone comes out of this together, ready to recover.

If you look at restaurant booking platform Chope, they did a survey: 81% of their respondents said they would not be able to operate beyond the next six months, based on cost and revenue that they had during the circuit breaker period.

After watching all of this carefully, taking in the feedback, looking at the numbers that were coming in, we decided that there is a need for a substantive intervention.

The challenge that rent poses to small businesses, is not a problem unique to Singapore. A number of other countries have seen that and they have intervened. I will just give the examples of Australia and Germany.

In Australia, landlords are required to offer rent waivers and deferrals to SME tenants. And SME tenants are allowed to repay the deferred rent over a period of at least 24 months, interest-free.

In Germany, landlords are not allowed to terminate a tenancy for non-payment of rent. And arrears with accumulated interest can be repaid before 30 June 2022; that means, two years of extension.

Let me now move, Mr Speaker, to the premises underlying this Bill. What is necessary in this situation is a fair sharing of obligations because of the exceptional times that are before us. The fair sharing has got to be between the Government, the landlords and the tenants.

On the Government’s part, you have seen four Budgets amounting to almost $93 billion, including two months' rental assistance for retail, F&B tenants; one month for office and industrial tenants, as well as broad salary support and other credit-easing facilities.

So, if you look at the rest of the burden, what is a fair sharing of the remainder between landlords and tenants? And the related question is, will the market left to itself be able to find an equilibrium that reflects the principle of fairness?

The answer to these two related questions depends on a number of points.

First, all Singaporeans, including landlords, have a shared interest in seeing our SMEs do well. Second, in a climate like this, expecting market forces to push towards a fair equilibrium is not realistic. Third, what is the alternative if we do not intervene?

SMEs play, as I have said, a critical role in the Singapore economy. In 2019, the 260,000 SMEs in Singapore contributed to 45% of our GDP and 72% of our employment.

If many of our SMEs for whom a stable cash flow is fundamental, are unable to survive, the domino effect on the rest of the economy will be very substantial and a lot of jobs will be at stake. Our people will suffer.

For landlords, their asset value will be affected by the broader economy. There is a clear correlation between growth of property prices and economic growth. If our SMEs do well, the economy is given a boost, property owners will continue to enjoy the stable value of their assets. If viable SMEs go under because of temporary cash flow difficulties, the economy as a whole suffers, the value of property will also suffer.

So, the essential point: everyone has a stake in the viability of the SMEs.

My third and final point is: go back to the eligibility criteria. They cover SME renting commercial, industrial or office space for the operation of their business and those with a turnover of not more than S$100 million per annum and where they had a reduction in turnover of more than 35%, which is a substantial hit.

Mr Speaker: Order. Let me call on Deputy Leader.

Debate resumed.

Mr Speaker: Minister, please resume.

6.59 pm

Mr K Shanmugam: Thank you, Sir. Let me now take Members through the key features of the Bill.

The Bill has three key aspects. First, landlords will be required to ensure that the benefits of Governments assistance are given to the actual, intended beneficiaries. That is, the SME tenants operating in rented premises and this will include licencees.

Second, landlords may also be required to provide a further waiver of up to two months’ of rent to qualifying SME tenants.

And third, SMEs who qualify for the rental waiver will also be given time to repay some of their remaining rental arrears, at an interest rate that will be capped.

As said earlier, most of these reliefs apply to SME tenants, including sub-tenants and licencees.

The rental relief framework will also apply to eligible Non-Profit Organisations and eligible tenants of Government properties.

The Deputy Prime Minister announced property tax rebates from the Resilience and Unity Budgets. The Government will be providing approximately two months of rental assistance for eligible SME tenants of qualifying commercial properties and approximately one month of rental assistance for eligible SME tenants of other non-residential properties; basically, industrial and office properties.

This will be done via rental waivers, granted by landlords.

Agencies are working out the details, which will give landlords clarity on the relief that they are required to offer; and give tenants clarity on the relief that they will get. This will be set out in subsidiary legislation.

The Bill will require landlords to match what the Government is doing. They will be required to grant qualifying SME commercial tenants an additional waiver of two months’ rental, of base rent; and qualifying SME industrial and office tenants an additional one month’s waiver of base rent.

This additional relief will apply to SME tenants who have suffered at least a 35% drop in average monthly revenue in April and May 2020, compared to the same period in 2019. This will be calculated at the rental unit or outlet level.

Tenants must have entered into their tenancy before 25 March 2020, or extended such a tenancy to get this relief.

There are smaller landlords who face genuine hardship. For example, retirees who have purchased a small commercial property, and the rental yield from that property forms a very large proportion of their income. For this group, they may seek an assessment on grounds of financial hardship. The assessment will take into consideration the annual value of the landlord’s properties, and whether the rental income forms a substantial part of his or her total income.

Qualifying landlords will only be required to give half of the additional rental waivers. And we will set out the criteria for landlords to qualify for this in subsidiary legislation.

During our consultations, stakeholders have asked for clarity on a few matters. Landlords wanted more clarity on when their obligations will be triggered. Tenants wanted clarity on when they will be entitled to the relief.

For the landlords, their obligations will be triggered when IRAS issues the notice of the cash grant or nominal notice to eligible property owners. IRAS will provide more details of the cash grant on its website, once it works the details out.

Meanwhile, to preserve the status quo, the Bill provides for a moratorium on enforcement action for non-payment of rent in the time between the Act coming into force and the triggering of the landlords’ obligations.

Even before the Act comes into force, tenants who are unable to pay their rent and require protection from eviction can serve a Notification for Relief under COVID 1, as it exists today.

Second, we recognise that many landlords may have already given relief. This could be in the form of rental waivers or rebates. These landlords will be able to set off the equivalent value against the amount of waiver that they are required to give under the Bill.

The kinds of reliefs that landlords have given and which can be taken into account for this purpose will be set out in subsidiary legislation.

Third, what if the tenant has already paid the rent for the months in which relief is meant to be granted or for the months for which relief is meant to be granted? In such a situation, the landlord will be required to credit any amounts already paid to the tenant. This may be in the form of the waiver being applied in the next month of rent that is due. If the lease is coming to an end, the landlord will have to provide a refund to the eligible tenant.

Fourth, MAS has separately announced some additional relief from banks and finance companies in relation to landlords’ existing loan repayment obligations. Individual landlords who have been required to provide relief to their tenants under this Bill can apply to defer both principal and interest payments on their commercial and industrial property loans till the end of the year. So, if moratorium is given until October for tenants; landlords will get assistance from their financial institutions.

They can also apply for an extension of loan tenure by up to the corresponding deferment period to make the monthly instalments more manageable.

SME landlords who face financial difficulties can already apply to defer the principal repayments on their mortgages under the industry relief package that MAS announced some weeks ago.

Larger landlords can likewise work with their banks and finance companies if they require assistance.

Those who need to access additional credit to meet their immediate cashflow needs can either apply for mortgage equity withdrawal loans or loans under ESG’s Temporary Bridging Loan Programme or Working Capital Loan Scheme, if they qualify.

SME tenants who are eligible for the additional relief described above can also get relief under the third plank of the Bill. They will be allowed to defer payment of a part of the rental arrears accrued from 1 February, until 19 October 2020. They will have to start repaying the arrears from November 2020. These arrears, of course, do not include, for example, the four months which have been waived – these are no longer payable.

Tenants can elect to repay their rental arrears in equal instalments, with payment of the first instalment to start no later than November 2020 and that can be done during the duration of the remaining term of their tenancy, up to a maximum of nine months, with interest capped at 3% per annum. If the tenancy is shorter, then, it has got to be paid during the term of the tenancy.

For commercial properties, the maximum amount of arrears that can be paid in instalments, will be five months’ base rent. For industrial and office properties, the maximum amount of arrears that can be paid in instalments will be four months’ base rent.

This means that landlords take on some credit risk. As a safeguard, we will provide that all outstanding arrears, including interest and other charges, will be accelerated and immediately payable in accordance with the terms of the original contract, if instalment payments under the scheme are not paid within the prescribed time after they become due; or if the tenant terminates or repudiates his lease agreement during the rescheduled repayment period; or if the lease agreement is terminated due to other defaults by the tenant.

Landlords may also draw the existing security deposits to offset accumulated rental arrears during the repayment period. They may do so, until there is the equivalent of at least one 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, as provided in the contract.

In addition, we will require tenant who have rescheduled the payment of arrears, to provide specified documents and information to their landlords if the lease agreement is: one, terminated or repudiated during the repayment period; and two, there are two 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 licence. The tenant will also be required to set out how he proposes to repay the outstanding rental arrears.

This will ensure transparency and accountability, but only in respect of tenants who terminate and have at least two months of the repayments instalments outstanding.

If any criminal behaviour is revealed – for example, if the tenant was using the period of relief to fraudulently dissipate assets – then there could be criminal sanctions. Tenants will also be expected to negotiate in good faith the terms of repayment.

Any Court, when deciding whether the conduct is criminal, will likely take into account the totality of the conduct.

We have also heard concerns from the REITs about potential constraints on their operating income and cashflow. REITs are concerned that they may be liable for additional tax and that their abilities to meet financial covenants in bank loan agreements could be affected. They also worry that this could have a knock-on impact on S-REIT investors and the S-REIT industry as a whole.

We discussed this matter carefully with MOF, IRAS, MAS, the banks. MOF and IRAS have temporarily extended timelines for the distribution of taxable income by S-REITs to qualify for tax transparency treatment. Leverage limits for S-REITs have also been increased from 45% to 50%. This will give S-REITs more flexibility to manage their cash flows and prevent them from incurring additional tax expenses.

Corporate landlords, which include S-REITs, can also approach their banks or finance companies to explore funding if they face cashflow issues.

Banks have also assured MAS that there will be no automatic enforcement of loan covenant breaches for landlords impacted by the requirements under this Bill.

Besides cash-flow difficulties, what has been happening in the industry is that people face difficulties in a variety of other ways. For example, take tenants whose tenancies expired or were expiring during circuit breaker period who had difficulties moving out because they were not allowed to go back to the office or shop to pack up or they could not find any movers or they are delayed because they cannot find workers to carry out the work, to put the place back to the original condition.

In such cases, it would be unfair for the tenant to have to pay double rent or similar charges under the contract or the law. The Bill allows us to deal with these situations, through subsidiary legislation.

We will provide that a tenant who cannot vacate the premises due to COVID-19 may serve an NFR under the COVID-19 (Temporary Measures) Act. And the tenant will be protected from enforcement. In addition, the tenant will not be liable for double rent.

In some situations, it might be fair for the tenant to pay some amount, especially if the tenant continued to derive benefit from the premises. We will prescribe the circumstances and how that amount can be assessed.

Finally, we have also received feedback that stoppage of construction work has led to difficulties. There are also difficulties with supply-related contracts. These difficulties have also been caused to contracting parties, who may not themselves be parties to a construction or supply contract.

For example, a developer who has entered into a contract to fit out an office may be unable to do so within the timeline stipulated in the contract because of COVID-19 restrictions on construction work. That would expose the developer to liquidated damages for failure to deliver the fitted out office on time, through no fault of the developer.

The second example, say the tenant has entered into a tenancy agreement which provides for a three-month rent-free period for the purposes of renovation and fitting out, but is unable to proceed with construction works due to the COVID-19 restrictions, effectively losing the benefit of the rent-free period entirely.

The third example, a live example, a company, say Company A rents scaffolding materials from Company B, until 14 April for a project. When the circuit breaker kicked in on 7 April, Company A could not return scaffolding materials because of the circuit breaker. Company B says it is going to charge for an additional month of hiring fee.

In these cases, the affected parties are not parties to the construction contract but they are parties to contracts that are nevertheless affected by the stoppage in construction work or other circuit breaker measures.

The Bill therefore provides a mechanism for parties in some of these contracts to seek relief. They will be allowed to apply to an Assessor, who may then make a determination to either adjust the manner in which prescribed obligations are to be performed; or vary a prescribed term in a contract in order to achieve a just and equitable outcome.

The precise scope of contracts, the obligations to be covered and the kinds of adjustments that Assessors may make will be set out with more clarity in subsidiary legislation. A similar approach will be taken for supply related contracts.

Let me now quickly touch on some on the other amendments.

COVID 1 was passed and came into force in April this year. As of 1 June, we have had more than 4,000 Notifications for Relief and about 500 applications for determinations have been filed. During this period, we have observed that the operation of the Act has been effective. The fact that out of the 4,000 Notifications, only slightly more than 10% have come forward, suggests that most of the others had managed to settle it.

And because of the clarity of the previous Act, our understanding is that a lot of people have managed to deal with their issues along the lines provided for in the legislation without having to even file an NFR.

But we have been talking to the Assessors to get feedback on how it is working. So, we are making some clarificatory amendments.

For example, the information and matters disclosed in the course of proceedings before an Assessor, are to be kept confidential.

For late payment, payment arrears and interests that accumulate during the relief period under COVID 1, we will put a cap on how much late payment interest there can be. The cap will not apply to secured loan facilities given to SMEs, as well as hire purchase agreements taken out with banks and finance companies.

MAS has worked with banks and finance companies on various relief measures to support individuals and businesses affected by COVID-19. These measures include principal repayment deferments for SME secured loans and hire purchase agreements. Borrowers can also extend their loan tenure to spread out their loan repayments over a longer period.

Banks and finance companies will also take into account their borrowers’ repayment ability after the relief period and adjust repayment plans if necessary.

Mr Speaker, Sir, let me now conclude. The reliefs contained in this Bill will have substantial impact. All in all, up to 260,000 SMEs may benefit from the Government rental assistance. There are an estimated 31,000 SMEs in the F&B and retail sectors. They, their employees will benefit from the additional relief that is being granted.

We are moving this Bill to help our SMEs. We hope that businesses will be able to make good use of the easing of pressure to focus on transforming and levelling up to thrive in our new operating environment. And a large number of office and industrial tenants will also benefit.

While it is unusual, let me conclude by saying a little about the process for preparing this Bill, which runs into about 40 pages or so. At first sight it looks simple enough: two months plus two months. But it is actually quite complex. Just to take one point: how do you pass down the waiver of rental relief through three or four layers of intermediate landlords? What happens if one of them is a non SME? And multiple questions of that sort. And when does it take effect? When would the landlords give the reliefs and to whom? And how do you handle the moratorium and the best balance between the different interests.

And the aspects relating to smaller landlords, REITs, the types of tenants who should qualify. And of course, the other contracts that should be dealt with in a myriad of situations.

It was a significant effort to conceptualise, crystallise, get the feedback from different stakeholders, take in the feedback and then, draft the legislation in about three weeks.

I saw the best of the Public Service: how different agencies came together, worked round the clock. MTI and ESG gave us the data which allowed us to work out where the balance ought to be, who ought to qualify. They attended all our meetings, including with stakeholders, helped to tweak our proposals and also worked their own loan schemes, and identified for us how the loan schemes may help.

MAS played a crucial role in re-assuring the REITs as well as the landlords, and talking to the banks. They also attended all the meetings, including stakeholder meetings. IRAS, MCCY, MHA, MND, HDB, JTC.

If I can say this – all roads lead to MOF and all roads lead from MOF as well. They attended all our meetings, very supportive, facilitated and agreed to pay for the bill.

The private sector lawyers: Patrick Ang and Sushil Nair. I mentioned them during COVID 1. They did a lot of work here as well. The Committee members – I will put it as part of the record of my speech without having to mention all of them. [Please refer to Annex 1.]

Different stakeholders, if I can put a note down for the exceptional team in MinLaw, they put their heart and soul into this, led by the Permanent Secretary and Deputy Secretary, a team of highly motivated and talented young officers, worked round the clock. And Justice Kannan Ramesh and his valuable expertise was very useful for us. And finally, AGC. The three lawyers: Lee Chuan Huei, Hema Subramanian and Leong Kit Yu who worked until 5.00 am regularly for the entire two weeks.

This legislation could not have been drafted in most places in three weeks, let alone conceptualise, crystallise and draft, led by our Attorney-General, Mr Lucien Wong.

I said some things about him during the Second Reading of COVID 1. I was trying to be understated. I think it helped tremendously that we had one of the best corporate lawyers in the world helping us from day one, word for word, conceptualising it, checking every word. I think Singapore is extremely fortunate to have him in Public Service. Checking everything and making sure that it works, and again, working into the early morning hours, every day. Attorney-Generals do not do that in most places. But it gave me a lot of confidence that he was doing that.

So, in this Bill, preparing it, we saw the best of the Public Service at work – coming together, working for the benefit of the broader public.

I wish to thank them and put on record their contributions.

Question proposed.

7.22 pm

Mr Christopher de Souza (Holland-Bukit Timah): Sir, a main aim of this Bill is to support SMEs. SMEs are important to our economy. They are responsible for the employment of more than 70% of our country's workforce, about two million workers. However, during the circuit breaker, many have been left with empty offices or shops that rack up rent, incurring costs. This does not account for other operating costs, such as manpower costs. Reducing the costs that SMEs face will in turn help them support their workers.

One of the main thrusts of the Bill is instituting rental waivers for SMEs, co-paid by the Government and the landlord. The period is four months for SME tenants at commercial properties for the months of April to July and two months for those in industrial and office properties for the months of April to May. This is good as it targets a significant expenditure many of our SMEs face and targets the period where SMEs are most adversely affected.

According to news reports, one important criterion is that there must be a 35% fall in average monthly revenue from April to May 2020 compared to the same period last year. Such targeted help is good. It is fairer that landlords not have to take haircuts if their tenants' revenues had not been adversely affected. Would the Minister clarify what happens if the company was a new company or a new tenant such that the comparison to the previous year is either impossible or is an inaccurate comparison?

Then, there is the landlord. From various news articles on this Bill, it looks to be that there is some distinction being drawn between large corporations and less large landlords through the use of the phrase "financial hardship". This is good as the considerations and ability to bear the "pain", so to speak, differs between smaller private landlords compared to large corporations. I would like to request of the Minister that a wide range of financial hardship should be considered as smaller landlords can also find themselves in vulnerable situations.

Just yesterday, Sir, 4 June 2020, I received an well-crafted email from a resident of Ulu Pandan. And I quote from that email, and this is to support the point that I am making about the need to differentiate between different types of landlords.

In that email, my resident wrote, "Dear Mr de Souza, I hope this letter finds you well in these tough times. I would like to seek your advice regarding one of the Government's new Bills, the one which would mandate a four-month rent free period for tenants, paid for equally by the Government and landlords. I would like to ask if the Government has any plans to differentiate between large landlords of significant capital reserves as compared to small family-owned companies. I am currently living on monthly rental revenue and honestly, I would not get to keep much of it after the banks take their due. It is my sincere wish that the Government would take into account of those in my position when discussing the proposed Bill.

Given the current economic situation, landlords in my position are already facing problems with rent collection as well as waivers and haircuts demanded by our tenants. To further absorb an additional two months of rent would be too much for many to bear. Of course, I begrudge not the tenants for their plight. COVID-19 is a natural and unexpected disaster that strikes at all levels of society. I just hope that they would try to understand that investing our savings into property should not entail a different treatment than those who invested in other forms of assets.

Finally, I am thankful of the Government’s courage and decisiveness in drawing down on reserves so as to combat these unprecedented financial challenges. In times of crisis, we as a society must come together and help our neighbours as best we can. I only hope that we would be allowed to contribute according to our means."

I spoke with my resident this morning before coming to Parliament over the phone and I said I would definitely raise his well-worded point of view in Parliament this afternoon.

Drawing from my resident's message, the point I am making is this.

One, yes, I support the help given to tenants. Certainly. Two, the support is timely and needed. But three, we need a flexible system to differentiate between large corporate landlords and the landlords who have invested in small commercial shophouses and spaces as a form of, say, retirement income. It is for this reason that I am asking the Minister for "financial hardship" to be defined broadly and flexibly to strike the right balance, between the smaller landlords and the larger corporate landlords. And I hope the Minister would be able to expand on this request of mine in the good Minister's reply.

Onto another point, Sir. It has been mentioned that direct monetary assistance previously rendered by the landlord to the tenant can be counted as part of the landlord's contribution to rental waiver. Would the Minister clarify whether agreeing to lower the rent, and not waiving rent, is also considered direct monetary assistance? And if so, whether the rental waiver support from the Government and also the landlords' contribution to the rental waiver will be calculated based on rent pre-reduction or the newly agreed rent?

While the law has tried to strike a balance between the landlords and the tenants, it can only go so far in achieving an outcome that all parties will find mutually acceptable in the long-run. Landlords and tenants need each other and I hope that they will continue to have constructive discussions to support each other through this unprecedented crisis.

It was reported that landlords can apply for assessment as to whether the SME is eligible and that eligible tenants will be notified in due course. It may be in the words of the draft Bill, but would the tenant also have access to the mechanism of assessing whether one, the landlord is indeed one that faces financial hardship or two, whether or not they are indeed an eligible tenant.

Besides rental waivers, the Bill also provides for rental repayment schemes to allow rent to be repaid in installments instead. Would the Minister clarify as to whether eligibility of this rental repayment scheme depends on whether the tenant had previously defaulted pre-COVID-19 or not? Further, what will be done to ameliorate the knock-on effect such deferment has on private individual landlords who would face financial hardship owing to the lack of cashflow?

For tenants who are unable to move out, there is a change to the normal law of tenancy in saying that landlords will not get double rent for the period of holding over. Will the Minister clarify as to how this will interact with rental waivers?

I should mention, Mr Speaker, that I am an advocate in private practice and I sometimes do have to delve in landlord-tenant disputes – just wanted to put that on the record.

The second main thrust of the Bill is that relating to contracts other than rents. The Bill looks to cap late payment interest, charges for arrears and so on. I welcome the reduction and limitation of late payment interest as this will help reduce snowballing debt.

The last clarification I want to seek of the Minister is whether further adjustments will be made to the insolvency framework so that non-viable businesses can still exit smoothly. For example, where a business owner has made the hard decision to stop his trade in these times and seeks to venture into a new trade to overcome the difficult economic environment presented by the pandemic.

In conclusion, Sir, the MinLaw team, along with other Ministries and agencies such as the Attorney-General Chambers have thought out of the box and pushed through this exceptional legislation in double quick time, if not in triple quick time. Indeed, sanctity of contract and the avoidance of retrospective measures are what we should all aspire to to ensure the certainty of the bargain struck by two contracting parties. But, Sir, these are unprecedented times. MinLaw has acted swiftly. This Bill, if passed, will reduce the pain businesses are feeling. And if it can reduce retrenchments; if it can help keep wages from being cut or further cut; if it strikes the right balance between tenant and landlord, if it gives that needed life buoy, as we come out of the circuit breaker and into the gradual reopening of the economy, then I say the effort is worth it, and the Bill should be supported.

7.33 pm

Ms Jessica Tan Soon Neo (East Coast): Mr Speaker, the COVID-19 pandemic and the circuit breaker measures have had significant impact on businesses.

Over the last two months, I have received many appeals for assistance from my residents who are SME business owners as they are facing cashflow problems. The retail sector has been amongst the hardest hit as they have had to close their physical premises. While some of them have been able to move their business online, overall business still has been impacted. In the meantime, there are business costs and obligations still to be met and they still have to be paid.

The latest Department of Statistics data has also shown that in April there has been a dramatic drop in performance of 40.5% and this is the largest since 1986.

For many SMEs, rent is a large part of the business cost making up about 25% to 30% of overall business cost. Even as some businesses are able to start and reopen this week, they are not able to resume pre-COVID levels of operations immediately, and business demand will likely remain low.

The Bill seeks to help SMEs ease some of the burden by ensuring that their accumulated rental obligations are shared among the Government and landlords.

The interventions in the Bill are quite substantive as it mandates that landlords will have to waive rent for SME tenants. For eligible SME tenants in commercial properties, the landlords are required to waive two months of rent and tenants of industrial and office properties will receive one month’s waiver of rent. The Bill also requires landlords to pass the Government granted tax rebates in cash grants as part of the Fortitude Budget to the SME tenants.

The Bill does take a targeted approach and is reasonable. It does not apply across the board to all SMEs and businesses. Eligibility for the relief are for SMEs with less than $100 million turnover that rent premises for their businesses and are facing cashflow difficulties as a result of COVID-19. So, to be eligible, SMEs also have to fulfil two other criteria of a 35% or more drop in average monthly revenue from April to May on a year-on-year basis, and the tenancy must have been entered before March 25 of this year

Landlords are also not required to help larger SME tenants who may have better access to financing or tenants who have seen an increase in business during the period such as supermarkets.

Can Minister share if there has been an assessment of whether the rental relief measures will unnecessarily prolong the exit of unviable businesses, or benefit such businesses at the cost of landlords and taxpayers’ monies?

The rental reliefs do weigh in favour of tenants. At this point, I do want to declare my interest as I am a board member of a commercial REIT. Minister did mention that other stakeholders, including landlords and REITs, have been consulted. Minister has also shared that some of the views and concerns of these stakeholders who have been impacted are being addressed? For example, the cashflow difficulties that have been expressed as well as the measures and mechanisms are being put in place to support these landlords.

While I am supportive of this amendment Bill, I am concerned that landlords may face financial hardship as a result of the additional rental waiver they have to provide to SME tenants. For some of the smaller landlords, they may be dependent on the rental income to meet their own financial obligations.

The Bill does state that for landlords who face difficulties in providing the additional waiver to SME tenants, it does provide some reprieve. The landlords though will still have – if they are eligible for that reprieve – will still have to pay half of that obligation. And the landlords if they seek assessments on grounds of financial hardship, the assessments will take into consideration if the rental income forms a substantial part of their total income and the annual value of their properties. Is that how it is going to be assessed? And can Minister also share the assessment process and also how long that would take?

SMEs play a crucial role in Singapore’s economy making up a majority of companies and do provide employment for more than two million Singaporeans. So I do agree that SME tenants do need support during these tough times as they have been hard hit by the COVID-19 pandemic. The rental reliefs will allow the SMEs the space to recover and in turn save jobs. So, I support the Bill.

7.39 pm

Mr Murali Pillai (Bukit Batok): Mr Speaker, Sir, I join the hon Members who spoke before me to support the amendment Bill.

The hon Minister for Law took pains to outline the exceptional circumstances warranting intervention in the area of rent payable by SMEs as an exception against the principle of sanctity of contract. I fully agree with him. We are dealing with survival of SME tenants that employ a substantial number of Singaporeans. We cannot afford to just depend on each individual landlord to determine what concessions should be granted to the tenants’ whose businesses are massively haemorrhaging. Such actions would be too slow and uneven and livelihoods will be at stake.

I must however acknowledge and commend the actions of a good number of landlords who took unilateral action to help the tenants. For these landlords, I am glad to note that the amendment Bill is worded in a way that would take into account what these landlords unilaterally have done in assessing what further relief should be given by them to these tenants. Whilst small businesses will be the immediate beneficiaries under the amendment Bill, in the long run, as hon Minister mentioned, this amendment Bill actually protects the landlord’s interest too because it will ensure that the tenant’s market will not collapse. So, just like COVID 1, this should not be seen as an anti-landlord bill.

Before moving on, I would like to applaud the consultation undertaken by the officers of MinLaw and all the other Government agencies that the hon Minister mentioned in coming up with this Bill. They worked, in the words of the hon Member Mr Christoper de Souza, "triple time" in taking consultation from the ground, identifying the big bug bear that SMEs have and providing concrete solutions through this Bill.

Turning to the amendment Bill, I seek clarification on three areas and will end with a suggestion.

First, on the benefits that the sub-tenants will get under the amendment Bill. As I recall, during the Second Reading of COVID 1, the hon Minister for National Development, Mr Lawrence Wong stated that tenants are not mandated to pass on property tax rebate to sub-tenants. He explained that the reason for not mandating this is because, in his words, “there is a whole range of commercial arrangements” and there is no contractual relationship between the property owner and sub-tenant.

As I understand, the Government under this Bill is prepared to pay cash grant to sub-tenants if they are in possession of the properties. If the sub-tenants do not get the flow through of the benefit of the property tax rebate, based on my understanding, they will get a lower amount than the tenants in possession. Will this also affect the rebate that these sub-tenants get from their landlord? Because as I understand from the hon Minister's speech, the Government – for commercial tenants – will give two months' rental rebate and then the landlords will follow up with two months. There is a bit of a principle of reciprocity in action. So, will this affect what the sub-tenant will get?

Next, on clause 7 of the Amendment Bill, I note that it is proposed that a tenant who is holding over a property after the expiry of a tenancy owing to a COVID-19 event will not be liable to the landlord. I welcome this amendment. It makes eminent sense to provide such relief. The control measures in place would make it difficult for the tenant to vacate premises, restore the property to its original state and yield vacant possession to the landlord.

May I ask whether there is a corollary provision to protect the landlord who may have a back-to-back arrangement with a new tenant under which he has to deliver vacant possession on the original due date? Such tenants may not be able to rely on COVID 1 if they entered into this lease after the trigger dates. For example, if they enter into the lease after 25 of March 2020.

In this regard, I note that in the amendment Bill, a Part 8 is proposed to provide relief to parties to downstream contracts affected by delay in performance or breach of a construction contract, supply contract or related contract. It does not appear that Part 8 applies to leases.

If my understanding is correct, may I please ask why leases, or for that matter, all the other scheduled contracts are excluded? As a matter of policy, I think it would have been better if parties in affected contracts that suffer a knock on effect arising from the application of the COVID-19 (Temporary Measures) Act on scheduled contracts should also have recourse under this Act.

Third, I note that in addition to the rental relief, the Amendment Bill also provides for a statutory repayment schedule for accumulated rental arrears commencing from the month of November 2020 in equal installments. I support this additional measure. The hon Minister refers to this as the third plank. I further note that the landlords will not be able to charge contractual interest beyond the prescribed rate on the outstanding rent. This makes sense as it would otherwise whittle the effect of the rental reliefs that are being provided under this amendment Bill.

The hon Minister mentioned that the prescribed rate is no more than 3% per annum. May I please ask the basis upon which this 3% interest rate is arrived at and also, what would be the applicable time period for this interest rate to run?

Finally, a suggestion. The hon Minister mentioned that potentially 260,000 SMEs may be beneficiaries under this amendment Bill once passed. May I please ask how would they be made aware of the reliefs under this amendment Bill so that they would be able to take advantage of these measures and keep their businesses alive. With that, I support the Bill. Thank you.

Mr Speaker: Minister Shanmugam.

7.47 pm

Mr K Shanmugam: I thank the Members for speaking, for expressing their support for this Bill. Mr Pillai asked for clarification on what a sub-tenant gets under the rental waiver and he pointed out that Minister Lawrence Wong had said during COVID 1 that the Bill did not mandate for the rebate to flow to the sub-tenant.

Let me clarify that the Government's intention has always been for the businesses that have actually been impacted by COVID-19 to benefit from this Government assistance. In some cases, the businesses may be sub-tenants. Minister Lawrence Wong, at that time, said, "the Government strongly urges and encourages all master tenants to pass on the savings from the rebate to their sub-tenants and to share the burdens during this time of uncertainty and difficulty."

Minister Lawrence also explained that mandating further passing on of the rebates is difficult and complex because of the nature of the relationships that can arise. This is why, in my opening speech, I said this is actually quite a complex issue. But we studied it and we decided that the complexity can be solved and can be dealt with. And that is why, here we are mandating it.

What we decided to do was not only enhance the Government assistance but also put in place a framework that ensures that the assistance reaches the intended beneficiaries who are the actual company or business that is using the premises for business. Conceptually, how this works is – to answer Mr Pillai's specific question – the Bill does not require cash to move from the Government to the property owner to the actual tenant or sub-tenant. What it does is put in place a framework of rental waivers mandated by law.

Given this mechanism, the concern that is raised on behalf of subtenants not getting the two months of rental waiver does not arise. We did it very carefully and specifically because if you require the money to be passed down, then there can be all sorts of arguments as to who it would pass down to, when was it passed down and so on. But by law, we are saying that rental is not payable. So, that is a very different proposition. Automatically, the subtenant does not have to pay his intermediate landlord, and the intermediate landlord does not have to pay the ultimate landlord. What each of those in between might lose is that mark-up.

So, the number of months of rental waiver a tenant will get does not depend on whether he is the tenant or sub-tenant. Everyone will get two months on this waiver mechanism. We will set that out very clearly in subsidiary legislation. IRAS will give a notification of cash grant to the owner of the premises because the owner of the premises has already received the money, everyone else does not have to pay rental. It is actually conceptually cleaner and neater.

Mr Christopher de Souza asked about cases where an SME is a new company, which makes comparison to the previous year impossible or inaccurate. That is another complexity which we did think about.

First of all, the reason why the same period of time was taken for a year-on-year comparison – it is a fairly normal thing and we did it to avoid seasonal fluctuations in revenue. But where the tenants were not operational during the April to May 2019 period, we will choose another best appropriate period that will reflect whether the tenant's performance has been impacted by COVID-19. That, again, will be in subsidiary legislation. For leases and licences that are even shorter, we will also work out the criteria.

Mr Christopher de Souza asked whether landlords who agreed to lower the rent will be able to set off the deduction against the rental waivers that they must provide. We want to be careful. The rental waivers by landlords will be calculated based on base rent payable by the tenant for the applicable period. Landlords will be allowed to set off any direct monetary assistance that they have already given against the rental waiver that they are required to provide. Or if they have already provided rental waiver, of course, they can take that into account. The types of assistance from landlords that will be considered direct monetary assistance under the Act will also be prescribed.

Ms Jessica Tan asked about who the Assessors will be, the process for seeking assessment and the estimated timelines. A panel of Assessors, professionals, a fair number of legal and accounting professionals – they have already been appointed. More will be appointed to consider applications for assessments by landlords. With regard to timelines, we will make the process as simple as we can. We have made it very simple under COVID 1. The actual time taken for determinations to be made depends very much on the parties themselves and whether they adhere to the timelines. But, we will make them short and fast.

Mr Christopher de Souza asked whether tenants will have access to the assessment mechanism either to challenge the landlord's assertion of financial hardship or to ascertain whether they are eligible.

The criteria for landlords facing financial hardship as well as the tenants' eligibility will be objective. As for tenants, it will be IRAS which will make the assessment. If the landlord wants to challenge that, he can. If the tenant wants to challenge the landlord's assertion of financial hardship, which will again be based on annual value of the property and what proportion of the rental income forms part of his total annual income, they will be allowed to challenge.

Mr Pillai asked how we arrived at the 3% cap on interest in the repayment schedule and when it starts accruing. The 3% interest is comparable to the median rate of secured bank loans in April 2020 and takes into consideration the landlords' cost of capital with property as security. We are aware that some landlords' cost of capital could be higher than 3% but this rate is intended to strike a balance between the needs of landlords who have their own financial obligations, and the tenants who do face significant challenges repaying their rental obligations under these fairly extraordinary circumstances.

Interest at that cap rate will apply from the time that the rent was originally due and payable but the rent and interest will only be payable in accordance to the repayment schedule. Interest at that cap rate will continue during the schedule repayment period until the arrears are paid off. To be clear as well, only arrears that accrue from 1 February 2020 until 19 October 2020 can be repaid under this repayment schedule.

Mr Murali Pillai referred to clause 7 on the relief for tenants who are unable to vacate their premises after the expiry of lease because of COVID-19. He asked about whether there is a corollary provision to protect the landlords who have a back-to-back arrangement, with a new tenant to deliver vacant possession by a certain date. This is why I said this legislation is not simple, though it looks simple at first glance. There are many related contracts that need to be thought through and we have provided for it. The landlord can serve a Notification for Relief on the new tenant. We imposed the rules that for those two months, there can be no work; and if there is a knock-on effect, that has got to be taken into account.

So, the landlord can tell the new tenant he cannot deliver vacant possession on time and the new tenant cannot terminate the lease on that ground. This will give the landlord and the new tenant time to work out a compromise. If they cannot agree, they can apply to an Assessor who will make a determination to reach a just and equitable outcome.

Mr Christopher de Souza asked about the interaction between this relief and the rental waivers. There is non interaction. The rental waivers apply to the period during which the tenancy subsists. Holding over or double rent is only relevant when the tenancy has already ended and is not subsisting.

Mr Murali asked about whether leases are covered under Part 8. Part 8 may apply to all contracts that may be affected by an upstream delay in construction, except those which may be prescribed. Some contracts will be excluded.

We are looking at categories that should be excluded. For example, employment contracts should never be subject to these sorts of laws. But we also take the approach that only contracts which are actually written in, will be affected by the law as well and that will be gazetted.

Ms Jessica Tan asked if I could share how we have addressed the concerns of other affected stakeholders besides tenants and she mentioned that she is on the board of a REIT. We consulted landlords, bigger landlords as well as smaller landlords, we consulted REITs, we consulted business people and of course, we had substantial assistance from MTI, ESG, MOF, MND, MAS, bankers and so on.

So, in the process of formulating these measures, we consulted all of them. We held engagements with all of them, got their views, we actually took substantive feedback and amended, adjusted our proposals where we thought that we ought to do so. We could not take all the suggestions. You will see, as I have set out in the opening speech for the Second Reading, how we have come in to help the REITs, the landlords as well as the tenants, some by MinLaw, some by MAS talking to the banks, and some by IRAS and others, waiving some rules, amending them to help the REITs, for example.

Mr Christopher de Souza mentioned that some distinction should be made between large corporate landlords, and smaller landlords who may themselves be facing financial hardship. We considered this carefully. We considered the factors that should be taken into account as to when landlords should considered to be unable to provide the additional rental waiver. We think that the two factors to be taken into account are the annual value of their properties and the proportion the rental forms of the landlord's total income. This will allow us to distinguish between larger landlords and those who are heavily dependent on rental income for their livelihoods. The precise proportions, percentages will be set out in subsidiary legislation.

Mr Murali Pillai asked about the steps the Government is taking to ensure that those who are eligible for the rental reliefs are aware of this. I would say, I think businesses who need relief would be very aware of this legislation. In fact, they are waiting for it. We have had a fair bit of publicity. It was in Deputy Prime Minister's Statement last week. MinLaw has put it out. I would be very surprised if anyone who qualifies is, at this point in time, not aware that they are going to get some benefits. We will put it out as much as we can. And IRAS will notify property owners who have eligible tenants and the property owners will have to notify their tenants and sub-tenants as well.

Ms Jessica Tan asked whether the rental relief measures would unnecessarily prolong the exit of unviable businesses, or benefit such businesses at the cost of landlords and taxpayers’ monies. This is a very serious and important, fundamental question which more than troubled me and was front and centre in my consideration in deciding whether or not to intervene. Because we need to help but it cannot become a crutch and it cannot be such that unviable businesses, therefore, continue because we are using taxpayers' money.

So, the starting principle, I would say is this. It is fairness. When we have imposed the circuit breaker rules for two months telling businesses not to operate, then I think we ought to give relief for that period. If we accept that COVID-19 was an exceptional event, then we ought to legislate for that as well in that whether it is viable or unviable, that is something that no one could have predicted.

Second, the risk is not so much looking at unviable businesses but looking at viable businesses. Even perfectly viable businesses, given the kind of hit that I have pointed out – 60% drop in turnover in April and probably as bad if not more for May – viable businesses will go down, their employees will go down, people will lose a lot of money. That is our focus. So, I would say it is not as if we are asking them to get down to a cruise liner and everyone is going to be saved. We are throwing them a lifeline of a few months rental waiver.

But the seas are still rough because Phase Two, it is not as if immediately, business is going to go back to normal. And then Phase Three, how many people are going to go out? How many people are going to spend money? What about the safe distancing measures? In a restaurant, how many can sit? So, business conditions are going to be tough. The seas are going to be rough. People would have to swim very hard. So, it will only be the very fit, the viable businesses that will survive that period even with the relief that we are giving. And none of us knows how long this will last.

In addition to the measures already taken under COVID 1, we are also considering measures to assess certain micro and small businesses which may need help in winding up or where appropriate, with debt restructuring. But that is a larger piece of work. It is still work-in-progress and we do it when we can do it. This answers Mr de Souza's question on whether the Government has any plans to make further adjustments to the insolvency framework so that non-viable businesses that need to exit are able to do so smoothly.

Sir, I think I have covered all the questions. I thank again those who have contributed to this effort. Mr Speaker, I beg to move.

Mr Speaker: Are there any clarifications?

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. – [Mr K Shanmugam].

Bill considered in Committee; reported without amendment; read a Third time and passed.