COVID-19 (Temporary Measures) (Amendment No 4) Bill

Order for Second Reading read.

1.33 pm

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

The Minister for Finance announced in his Ministerial Statement on 26 July this year that the Government would provide an additional two weeks of direct rental support for qualifying tenants and owner-occupiers of privately-owned commercial properties. This was because the tightened safe management measures under Phase Two (Heightened Alert) imposed a number of restrictions.

The Minister for Finance also said that the Government would consider requiring landlords to provide a matching two-week rental waiver for eligible tenants.

This Bill introduces the legislative framework to implement the mandatory rental waiver by the landlords. Let me briefly explain the rationale behind this Bill.

There were two Phase Two (Heightened Alert) periods, 16 May to 13 June and 22 July to 18 August, both this year.

During these periods, dining in was not allowed. Indoor mask-off activities were restricted. Operating capacity was decreased. These restrictions impacted some businesses. Rental expenses were a persistent pain point.

The Government decided to support through the Rental Support Scheme, or RSS for short. The RSS is part of a broader suite of measures put in place to address the impact of Phase Two (Heightened Alert) measures. These include the Jobs Support Scheme and the various COVID-19 grants. In total, more than $2 billion has been set aside to cushion the business impact of Phase Two (Heightened Alert).

Let me now explain the key features of the Bill.

Eligible tenants will receive from their landlords two weeks' waiver of gross rent, including service and maintenance charges.

To qualify, they must be tenants of privately owned commercial properties and they must meet three criteria.

One, they must be a small and medium enterprise (SME) or a specified non-profit organisation with annual revenue of not more than $100 million.

Two, their tenancy must have been entered into before 20 July 2021 if it is a fresh lease; if it is a renewal, then renewed before 20 July 2021.

Three, their tenancy must be in force from 5 August to 18 August 2021 and they must have experienced at least a 20% drop in their average monthly revenue at the specific property during both the Phase Two (Heightened Alert) periods compared to the Phase Three period from 28 December 2020 to 7 May 2021. That is the reference period.

This third criterion is an additional criterion. It is not required for the two RSS payouts from the Government. Those payouts include half a month of rent for the period of 14 May to 29 May 2021, which has been disbursed starting from 6 August and half a month of rent for the period of 22 July to 18 August 2021, which will be disbursed in October.

If tenants meet the first two criteria, they will receive a Notice of Rental Waiver automatically from the Ministry of Law (MinLaw) in the first half of October 2021.

Tenants who do not receive a Notice but assess that they meet all the criteria can make a manual application. We will announce, in due course, the date on which applications open and other administrative details.

If the tenant also meets the third criterion – that is, a 20% drop in revenue – then the tenant will not be liable to pay rent in respect of the period of 5 August to 18 August 2021 provided that the tenant sends a copy of the Notice and proof of the revenue drop to the immediate landlord within 28 calendar days of the date of the Notice. This can be done via email, which is preferred, to minimise potential disputes between landlords and tenants, or registered mail.

If the rent has already been paid, the equivalent amount can be offset against their next rental payment.

In designing the framework, we also considered the interests of landlords. We recognise that some landlords have been proactive. They provided assistance to their tenants in the form of direct payments and rental waivers. These landlords can offset such assistance from the rental waiver obligations if the assistance was provided in respect of rental obligations incurred on or after 16 May 2021, which was the start of the first Phase Two (Heightened Alert) period.

Some landlords may themselves face financial hardship in having to provide the mandated rental waiver, for example, retirees who depend on the rental income for their day-to-day expenses. They can apply for relief to be assessed by an independent Rental Waiver Assessor who will take into account specific factors in each case. There will be objective criteria, including the annual value of their property and whether the rental income forms a substantial part of their total income. If they meet the criteria, the Assessors can exempt them from providing the rental waiver.

There may be different circumstances on the part of landlords, which warrant special consideration, for example, landlords who gave their tenants flexibility and relief by providing short-term lease extensions with significantly reduced rent.

It is not possible to define the criteria to account for all these circumstances in full within the legislation. Hence, the Bill includes a provision to give the Assessors greater flexibility and discretion to take into account exceptional circumstances of landlords and to determine if it is just and equitable to make appropriate adjustments to the rental waiver obligations between the landlord and tenant.

Finally, besides the rental waiver framework, the Bill also introduces minor amendments relating to Part 10A of the Act.

Part 10A allows construction project parties to seek an assessment on the determination of adjustments to the contract sum arising from foreign manpower salary increases.

These amendments are largely administrative in nature to make clear that different application fees can be prescribed for an initial application for a determination and to allow MND to charge application fees for subsequent determinations made after the initial one.

Mr Speaker, in conclusion, I would like to take the opportunity to thank the representatives from the various industry groups, and individual landlords and tenants who engaged with my Ministry in helping us come up with this Bill. With that, Mr Speaker, I beg to move.

Question proposed.

Mr Speaker: Are there any clarifications? Mr Dennis Tan.

1.41 pm

Mr Dennis Tan Lip Fong (Hougang): Mr Speaker, it is clear that whenever there are some forms of safe management measures, related restrictions imposed on our dining and retail businesses, whether it is a complete ban, such as during the circuit breaker, or with fewer restrictions like those imposed under our recent Phase Two (Heightened Alert) in May and June and again in August, many in F&B or retail will suffer a drop in business.

Under today's Bill, the Government is introducing the new rental waiver framework, which will require all private commercial landlords to provide two weeks of rental waiver to qualifying tenants. This is being implemented to assist small and medium enterprises (SMEs) during the recent two rounds of Phase Two (Heightened Alert).

Under the rental waiver framework, eligible tenants will receive a total of about one and a half month's of rental support, for which a month's rental support comes from the Government's Rental Support Scheme announced earlier.

Under this framework, once the Bill is passed, eligible tenants can expect to receive a Notice of Rental Waiver and a declaration form distributed along with their second Rental Support Scheme payout in October. Tenants who wish to claim the rental waiver must, among other requirements, show that they have suffered a drop of at least 20% in their income for the two Phase Two (Heightened Alert) periods in May to June and August 2021 as compared to the Phase Three period between December 2020 and May 2021.

Procedurally, tenants will be required to send a copy of their notice, a completed declaration form and the supporting documents to their immediate landlord via email or registered post within 28 days. The supporting documents include the profit and loss accounts of a tenant as evidence to show the drop in income.

Mr Speaker, I have a question regarding the evidence required to show the drop in income. I am concerned whether the requirement of strict profit and loss statement may be a little bit too onerous for some of the small businesses, especially those who may not have an in-house accounting or finance department or staff. To seek external help for a claim of just half a month's rental waiver may not be cost-effective to many micro businesses.

I would, therefore, like to seek clarification with the Minister as to how stringent is this documentary requirement to show evidence of a drop in income and whether it is restricted to the businesses' profit and loss statements properly drawn up or the Ministry will be open to alternative evidence showing the drop in business income compared to previous months.

Separately, I am also concerned with the shortness of time given for the submission of such financial statements and I would like to ask the Minister whether there can be more flexibility with the time limit of 28 days.

Next, I also wonder whether the Bill in question could have been drafted to provide for the rental waiver framework to apply generally in future whenever there are changes in safe management measures (SMMs) like the onset of circuit breaker, Phase Two or Phase Two (Heightened Alert), with restrictions on dining in and other operating conditions on retailers of businesses.

We may not need to have a further amendment Bill to provide for a specific date in future when another similar Phase Two (Heightened Alert), for example, is called. Perhaps this can be looked into in future, if necessary.

Mr Speaker, still on the topic of rental, according to property company CBRE's comments on URA's statistics for the second quarter 2021, some higher categories of grades of office buildings have seen positive take-ups or upward revision of rentals while other categories of grades of properties face falling rents and slower take-up.

They observed, "That the office leasing market performances in the second quarter is a tale of two halves. Leasing momentum gets apace as business sentiment improves and more staff were allowed to return to the office."

They then noted that this was then affected by Phase Two (Heightened Alert) in May and June, leading to work-from-home becoming the default again. They reported that the retail rental markets were affected by Phase Two (Heightened Alert) in this last quarter.

CBRE noted that select retailers were snapping up choice locations in the second quarter. With such consolidation by so-called "select retailers" or even bigger players, reduced available space of choice for smaller retailers had caused their rentals to remain at elevated levels with weaker revenues due to prevailing safe distancing measures.

If that is the case, I hope the Government will see how they can better support the SMEs and smaller retailers and businesses, prevent undue speculation by the bigger players and ensure that the playing field is still level. My concern is that SMEs, especially the micro SMEs, may still face business pressure and lower sales arising from SMMs and challenges of COVID-19 generally, and may struggle more with their business rentals as compared to other more established or bigger businesses.

Mr Speaker, aside from the concerns that I have raised, I support the Bill.

1.46 pm

Mr K Shanmugam: Before the Member leaves, I missed the part on business rentals. Perhaps he can explain that to me again? I did not quite get the point on business rentals.

Mr Dennis Tan Lip Fong: I thank the Minister, for that clarification. Maybe I will read it in a slower manner. Just reading what CBRE reported that in the second quarter, select retailers were snapping up choice locations in the second quarter. And the concern I have here is: would the consolidation by the so-called "select retailers" or bigger players, reduce the available space of choice for the small players, the smaller retailers; in the meantime, while causing their rental to remain elevated with weaker revenues as a result of the current prevailing social distancing measures?

If that is the case, I hope the Government will see how they can better support the SMEs and especially the smaller retailers and businesses, possibly, if need be, to prevent undue speculation by the bigger players and ensure the playing field is still level.

Let me reiterate, Minister. My concern is that the SMEs, especially the micro SMEs, may still feel business pressure and lower sales arising from the SMMs and challenges of COVID-19 generally and may struggle more with their business rentals as compared to other more established or bigger businesses.

Mr Speaker: Mr Zhulkarnain Abdul Rahim.

1.48 pm

Mr Zhulkarnain Abdul Rahim (Chua Chu Kang): Sir, I declare my interest as a practising lawyer and same declaration as to the previous Bill, when I spoke earlier. I thank the Minister for the explanation.

I rise in support of this Bill as it sets out the rental relief framework for tenants so that an Assessor can cost effectively and efficiently determine rental waiver allocations between the landlords and tenants, and those down the tenancy chain.

The framework also ensures fair co-sharing of the rental obligations between the Government, landlord and tenant.

I just have two quick clarifications. One, basically, on those tenants who are having difficulties in terms of claiming the rental waiver. They may be the elderly tenants, they are not IT-savvy and may not understand their obligations under the Rental Waiver Framework, like having to serve the Notice of Rental Waiver within a specified time in order to claim for the rental waiver. Or they may not know what are the requisite financial documents because they do not keep proper profit and loss statements, for example.

In this regard, may I ask the Minister, whether MinLaw will be able to provide some guidance or assistance to this group of tenants should they face any difficulties in the process and, if so, how can they go about getting the necessary assistance?

My second clarification is that in respect of the assessment and determination which now includes the entire PTO chain, I think it makes an efficient and holistic determination by the Assessor of all stakeholders in the chain. But may I get some clarifications on the approach to be taken if not all parties in the PTO chain had been joined to the proceedings or disclosed to be part of the PTO chain at the material time of the determination?

Those are my two quick clarifications, Minister. All in all, I stand in support of the Bill and I welcome the Rental Waiver Framework.

1.50 pm

Mr K Shanmugam: I thank both Members for their questions.

On Mr Zhulkarnain Abdul Rahim's question on less savvy tenants and how can they navigate the framework more easily, we have considered the experience from last year and put in place some measures. Some tenants are not conversant in English. They found the framework difficult to understand. So, we made the processes as simple as possible and also the various resources to explain the scheme, including infographics; these will be translated into other languages. We also work with partner agencies and industry associations to ensure that these resources are disseminated quite widely. And webinars will be organised to explain the scheme to stakeholders and address queries.

On Mr Zhulkarnain's other question, we are making it mandatory for the party making the application to inform all parties along the PTO chain. The determination may affect the rental waiver to be enjoyed by all. So the determination should be binding on all, because people can be affected.

Turning to the points made by the Member, Mr Dennis Tan, on the first point about tenants who may not be keeping detailed accounts, I think the starting point is that the tenants have to show that their income has gone down, business has gone down, from that specific premise. I think we can all agree on that. The question is how.

We accept that some tenants may not have kept detailed accounts, may not be able to show it in the way that the normal profit and loss accounts are kept. The law allows – and this is not the first piece of legislation; previous COVID-19 legislation as well – them to swear a statutory declaration that their business has gone down by the required amount and attach whatever evidence they have.

Of course, even if it is not a profit and loss account, what they have must be helpful to come to that conclusion. Otherwise, the question is, how did they know? If they have other material, something to show that their business has come down and that is probative, that will be accepted. It does not have to be a properly drawn up profit and loss account in the way accountants will understand.

Making a statutory declaration is a serious matter, but we provided for it last year and some people did do it. If the landlord refuses to accept that, then it is a matter between landlord and tenant, and they can then go for assessment, too.

The final question is a much broader one from Mr Dennis Tan. It is that he sees the market moving, consolidation by select retailers. I assume, by that, he means the more successful, perhaps the more high-profile retailers, and they are causing the rentals to go up and that is affecting SMEs. This is not a situation that arises only during COVID-19. The more successful ones are prepared to pay the rental and that impacts on other retailers who may not be as successful and who are then squeezed out from, say, prime locations. And sometimes, it is a cycle: if you are not in the prime location, then your business does not go up.

I sympathise with it but those are quite outside the framework of this particular piece of legislation. And that relates to really how you structure the market and what sort of approach we want for the economic structure. Does the Government or Government agencies intervene to tell landlords what they can charge, what sort of tenants they can have or they must have a certain mix of tenants, whether we can or ought to do it and how do we make sure that SMEs have a decent stake in the business? Because that is in everybody's interest. How do you get to that is something that I am sure MTI and to some extent, MOF, will have considerably more interest than MinLaw has.

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.