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SINGAPORE – Small businesses affected by Covid-19 can terminate their contracts without penalty if they cannot agree to new terms with the other party, based on proposed laws presented in Parliament on Monday (November 2).
These will apply only to commercial contracts, including those entered into with the Government, under the third set of proposed amendments to the Covid-19 (Temporary Measures) Act. They were introduced by the Second Minister of Law, Edwin Tong, on an urgent basis, which allowed the changes to be discussed on Tuesday.
Called the Re-Align Framework, it will cover only companies with a specified annual income cap that have experienced a significant drop in revenue due to Covid-19.
Details are being finalized as consultations with the industry continue, and will be laid out later in subsidiary legislation, Second Law Minister Edwin Tong said at a press conference on Monday.
“We will find a way to achieve it in a way that covers the majority of small and micro enterprises in Singapore,” said Mr Tong, who is also Minister of Culture, Community and Youth.
The purpose of the framework is to give small and micro enterprises some power to renegotiate their options with their counterparts, he added.
For contracts to be eligible under the framework, they must be governed by Singapore law and were entered into before March 25 prior to the impact of Covid-19.
One of the parties to the contract must also have a registered office in Singapore.
These contracts can be non-residential real estate leases or licenses; the sale of goods and services; commercial equipment and commercial vehicle rental contracts; and rental contracts with the option to purchase or conditional sale of commercial equipment and commercial vehicles.
However, certain contracts will be excluded from the framework, such as consumer, employment and insurance contracts. (See sidebar below)
If the proposed framework is approved in Parliament, it will come into effect for only a limited period of six weeks to allow the parties to assess whether they want to renegotiate their contracts.
This is to ensure that while the parties have the opportunity to develop new contractual terms in the context of the current business environment, the framework will not create “uncertainty all over the place,” said Mr. Tong.
If the parties decide that they want to renegotiate their contracts, they will have to notify the other party or parties.
The parties will have four weeks to renegotiate the terms. If they do not agree on the new terms, the contracts can be terminated without penalty.
But any previous debts or liabilities from the contract will remain in effect, Tong said.
If any disagreement arises, either about the party’s eligibility or the amount owed upon termination of the contract, the parties may seek the assistance of a MinLaw-appointed advisor, who will make the final decision.
For smallholders who may face financial difficulties due to tenants terminating their leases early, the framework will ensure that tenants pay additional compensation, the amount of which will be determined by an appraiser.
Eligible lessees and commercial vehicle and equipment lessees can also opt for a reimbursement plan, rather than terminating their contracts, under the framework.
For example, private rental drivers whose income has been affected by Covid-19 will not have to terminate their lease-to-own contracts, but will have time to pay off their loans.
Tong said he hopes the companies can renegotiate new terms or decide to terminate their contracts without having to turn to advisers.
“(The Re-Align framework) was designed to be quite self-explanatory in many ways,” said Mr. Tong.
“What we would like to do is have the parties in the market, look at the framework and decide for themselves if it is possible or not, even without invoking the evaluators … to reach a renegotiation on their own so far as it is possible. That will be the ideal, “he added.
The Covid-19 (Temporary Measures) Law was first passed in April, with laws allowing parties to defer their contractual obligations without penalty for six months.
In June, the Act was amended to require landlords to waive rent to eligible tenants and subtenants of small and medium-sized businesses (SMEs) that have been severely affected by the coronavirus pandemic as part of a relief framework from rental.
The law was amended for the second time in September to give evaluators greater powers to specify the amount of rent that will be waived in some cases under the rent relief framework.
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Contracts not covered by the re-alignment framework
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– Consumer contracts
– Employment contracts
– Insurance contracts
– Leases or licenses of non-residential real estate that have a duration of more than five years.
– Contracts entered into in connection with a financial transaction or for the supply of financial services (except rent-to-own)
– Construction and supply contracts
– Contracts for the transport of goods for maritime, land or air freight, including any contract for the transport of goods and logistics services.
– Contracts for the supply, storage, transport, collection, treatment or disposal of certain hazardous materials
– Commodity contracts
– Accounts receivable factoring contracts
– Contracts (or series of contracts) for the transfer of a company or part of it as a going concern
– Contracts where the application of the Re-Align Framework is incompatible with Singapore’s international obligations (for example, aircraft finance contracts governed by the Cape Town Convention)
– Contracts that affect essential services and the national interest (Note: the parties can use the framework to renegotiate their contracts but they cannot terminate them).
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