How Small Businesses Can Use The Re-Align Framework To Renegotiate Existing Rental Leases

From 15 January 2021 to 26 February 2021, small businesses and individuals can use the Re-Align Framework to renegotiate their contracts, including rental leases. 

This will come as a relief as COVID-19 is still adversely impacting businesses more than one year on. Even as PM Lee Hsien Loong noted that there is light at the end of the tunnel in the speech announcing the transition to Phase 3, entire business sectors, such as aviation, tourism, hospitality, nightlife and others remain in limbo. 

Read Also: Phase 3 Is Here: 5 Things Businesses Need To Know

What Is The Re-Align Framework?

The Re-Align Framework is an extension of the COVID-19 (Temporary Measures) Act, providing a quick and fair way for businesses to renegotiate contracts given the current business climate. 

If parties are unable to renegotiate terms, the contract may be terminated. In this case, tenants will remain liable for outstanding obligations as detailed by the Re-Align Framework, but will not need to pay early termination penalties.

What Types Of Contracts Does The Re-Align Framework Cover?

The Re-Align Framework applies to contracts that are i) governed by the Singapore law; ii) entered into before 25 March 2020; iii) has at least one party with a place of business in Singapore; and iv) falls within the following categories:

  1. Leases or licences for non-residential immovable property which have a term of 5 or less years
  2. Hire-purchase and conditional sales agreements for commercial equipment or vehicles (except agreements entered into with banks and finance companies regulated by the Monetary Authority of Singapore (MAS)
  3. Rental agreements for commercial equipment or vehicles
  4. Contracts for supply of goods or services

As we can see in the above list, a wide variety of contracts are covered by the Re-Align Framework. 

We will zoom in on the leases for non-residential properties in this article. Businesses also need to be aware that leases or licences for non-residential properties which have a term of more than 5 years are excluded.

There are also other types of contracts that are excluded from the Re-Align Framework. Projects that are deemed as national interest may not be terminated, but may still be eligible for renegotiation of the price.

Are You Eligible To Apply The Re-Align Framework?

The Re-Align Framework is meant primarily for small businesses and individuals carrying their business or trade to renegotiate contractual obligations. To be eligible for the Re-Align Framework:

  1. A business’ annual revenue must not exceed $30 million (at group level)
  2. The business must have experienced at least 70% fall in monthly average gross income for the period 1 July 2020 to 31 December 2020, compared to 1 July 2019 to 31 December 2019

In addition, Non-Profit Organisations (NPOs) can also use the Re-Align Framework if they satisfy the above criteria and are:

  • Registered or exempt charities (as provided in the Charities Act)
  • Members of the National Council of Social Service
  • National sports associations
  • National disability sports associations
  • Specified arts and culture societies
  • Specified trade associations

How To Apply The Re-Align Framework To Renegotiate Your Rent?

If your businesses has been significantly affected and you want to renegotiate the terms of your rental agreement, you can use the Re-Align Framework between 15 January 2021 to 26 February 2021 to do so. This is a hard deadline that you cannot afford to miss.

Here’s the steps to take.

Step 1: Serve Notice of Negotiation

Affected businesses have to serve a Notice of Negotiation on the counterparty(ies) to their contract between 15 January 2021 to 26 February 2021. Relevant counterparties include, where applicable:

  • Any other party to the contract
  • Affected business’ guarantor or surety, or the issuer of a performance bond, in relation to the affected business’ obligations under the contract
  • Any assignee of any party to the contract

You should serve the Notice of Negotiation using the electronic system and you must also have an email address as well as the email address (es) of the relevant counterparties. 

  • If you are acting on behalf of an entity that is a party to the contract, you can do so via CorpPass (link to be available from 15 January 2021). 
  • If you are an individual who is a party to the contract, you can do so via SingPass (link to be available from 15 January 2021).

You should only serve your Notice of Negotiation by other modes if you are unable to use the electronic system. For example, if you are unable to obtain a SingPass or CorpPass Account, you don’t have an email address or you don’t have the relevant counterparties’ email address(es). In such a scenario, you may download the form to serve your notice to counterparties’ via email addresses by which you have corresponded with on matters concerning the contract in question or, if there is no such email, an email address which the counterparties have presented to you as the email address to which communications to them may be sent.

Only if you are unable to serve your notice by email, you may do so by an internet-based messaging system (such as WhatsApp) or the messaging system on the website, blog, social media or networking website owned by the counterparty, provided you have corresponded with them via that messaging system regarding the contract in question.

If you are unable to do serve your notice by any of the previous modes, you may do so by sending it to BOTH the mode of service specified under the contract for giving notice (if any) AND prepaid registered post(keep a copy of the registered post slip as proof of service).

Step 2: Renegotiate Contract During 4-Week Negotiation Period

After serving your Notice of Negotiation, there will be a 4-week Negotiation Period. Parties are encouraged to renegotiate terms of the contract or termination of the contract.

During the 4-week Negotiation Period, your counterparties cannot lodge or serve a Notice of Objection.

Some examples of terms you can renegotiate include:

  • Rent
    • Lowering monthly rent 
    • Charging rent on the basis of gross turnover
  • Payment of outstanding amounts
    • Extending time for outstanding payments
    • Waiving late payment fees and interest charges
  • Extending or shortening contract
  • Decreasing security deposit or using it to pay outstanding amounts

Step 3: Counterparties Serves Notice of Objection and/or Notice of Compensation During A 2-Week Objection Period

A 2-week Objection Period commences at the end of the 4-week Negotiation Period.

If parties are able to renegotiate their terms, you can continue with the new agreement. Otherwise, your landlord may wish to seek compensation.

There are only certain grounds that your landlord or counterparty can object to your Notice of Negotiation:

  • The contract in question is not an eligible contract or is a contract of national interest
  • You do not satisfy the eligibility criteria for the relief
  • The Notice of Negotiation was not served in accordance with section 45 of the COVID-19 (Temporary Measures) Act. For example, if you did not serve the Notice of Negotiation between 15 January 2021 and 26 February 2021.

If your landlord wishes to dispute your eligibility, but at the same time also wishes to obtain compensation from you if the contract is ultimately terminated, your landlord must lodge and serve both a Notice of Objection and a Notice for Compensation within the 2-week Objection Period.

The Notice of Objection must include:

  • A copy of the Notice of Negotiation and all document which were enclosed in the Notice of Negotiation
  • All supporting documents to support reasons for objecting to your eligibility under the Re-Align Framework

If your landlord does not dispute your eligibility, but wishes to obtain compensation, he must lodge and serve a Notice for Compensation within the 2-week Objection Period.

Again, this must be done by the electronic system referred to above. 

  • For those acting on behalf of an entity that is a counterparty to the contract, a Notice of Objection can be done via CorpPass (link to be available from 13 February 2021). 
  • For an individual who is a counterparty to the contract, a Notice of Objection can be done via SingPass (link to be available from 13 January 2021).

If no Notice of Objection is served during the 2-week Objection Period, the contract is deemed terminated 2 days after the end of the Objection Period or on a date agreed by all parties.

Step 4: Either You Or Your Landlord Lodge And Serve Notice for Adjustment

If no Notice of Objection is served during the 2-week Objection Period, the contract is deemed terminated 2 days after or a date agreed between all parties. The default terms of termination under the Re-Alignment Framework then applies.

In general, tenants must:

  • pay rent up to the date of termination, pro-rated if necessary
  • reinstate premises in accordance with the contract and deliver vacant possession on or before date of termination. Otherwise, you will need to pay any sum set out in the lease agreement or compensate the landlord for any losses suffered.

Your landlord can offset accrued liabilities against your security deposit and any advance payments, but must return any remaining amount within 4 weeks.

If parties do not agree to default terms or are unable to agree on terms of termination between themselves, any party may seek an appointed Assessor to determine the adjustment of rights and obligations under the contract fairly.

To do this, within 2 weeks after the end of the 2-week Objection Period, parties must lodge the Notice for Adjustment with the Registrar and serve the Notice for Adjustment to the relevant counterparties. This has to include:

  • A copy of the Notice of Negotiation and all document which were enclosed in the Notice of Negotiation
  • All supporting documents to support the proposal for adjustment of the rights and obligations under the contract

Again, this must be done by the electronic system referred to above. 

  • For those acting on behalf of an entity that is a counterparty to the contract, a Notice of Objection can be done via CorpPass (link to be available from 26 February 2021). 
  • For an individual who is a counterparty to the contract, a Notice of Objection can be done via SingPass (link to be available from 26 January 2021).

Step 5: Registrar Reviews Notice of Objection / Notice of Compensation / Notice for Adjustment

Upon reviewing the relevant documents, the Registrar will send, through email, to the parties:

  • An acknowledgement of receipt
  • A notice of the appointment of one or more Assessors to make a determination concerning the Notice of Objection / Notice of Adjustment / Notice of Compensation, as the case may be
  • If applicable, a notice of the date and place for the hearing

The Registrar may also refuse to accept the Notice of Objection or, if the Notice of Objection is withdrawn, the contract is deemed terminated 2 days after the end or a date agreed between all parties.

If a determination is required to be made by an Assessor, the Registrar will send, through email, to the parties:

  • A notice of the appointment of one or more Assessors
  • If applicable, a notice of the date and place for the hearing

Step 6: Assessor Conducts Hearing And Makes Determination

Where a Notice of Objection and/or Notice of Compensation is lodged

If your landlord or other counterparties lodges a Notice of Objection and/or Notice for Compensation, and they are accepted by the Registrar, an Assessor(s) will be appointed to make a determination on:

  • Your eligibility under the Re-Align Framework and the date of termination of the contract if applicable (Notice of Objection)
  • Your landlord’s eligibility for compensation and amount of compensation (Notice of Compensation)

No determination on the adjustment of rights and obligations will be made at this point.

If you are deemed eligible and your contract is terminated, parties are encouraged to refer to the default terms under the Re-Alignment Framework.

If parties cannot agree and wish to seek an Assessor’s determination, that party must inform the Registrar (while copying other parties) within 7 days from the date of the determination(s) that he wishes to seek an Assessor on the matter. The Registrar will proceed to appoint one or more Assessors to make a determination on the adjustment of rights and obligations of the parties.

Where there is no Notice of Objection and/or Notice of Compensation, and only Notice for Adjustment lodged

The Registrar will appoint an Assessor to make a determination on the adjustment of rights and obligation of the parties upon the termination of the contract under the Re-Alignment Framework. 

The hearing will generally be conducted over email. The Assessor(s) may request further documents by email. Assessor(s) may suggest having online hearing (via Webex) or physical hearings (at a venue advised by the Registrar). No parties may be represented by an advocate and solicitor at such proceedings. If a party is absent from the hearing, Assessor(s) will be deem him as having withdrawn his notice or may proceed to make a determination on the case.

Step 7: Registrar Informs Parties of Assessor’s Determination

After a determination has been made, all parties will be informed. There is no appeal against an Assessor’s determination, and it will be binding on all parties to the contract.

Eligible Property Owners Can Receive A Landlord Hardship Relief

If you or your landlord is also a small business, there is a Landlord Hardship Relief in the event of an early lease termination by a tenant under the Re-Align Framework.

Eligibility for the Landlord Hardship Relief:

If you are an individual; sole proprietor; or a company incorporate solely to hold the interest in one or more immovable property, and owned by one or more individuals and sole proprietors who also meet the following criteria:

  • individual or sole proprietor (or shareholder of the landlord company) depends on rent for a significant portion of his income, such that the average monthly income from renting the property amounts to more than 50% of his average monthly gross income
  • Gross annual income of the individual or the sole proprietor (or shareholder of the landlord company) does not exceed $107,500

Landlords who are eligible should serve and lodge the Notice for Compensation during the process listed above.

Need Financing Support During This Period?

From now till 31 March 2021, SMEs can enjoy extra financing support of up to $5 million through the Temporary Bridging Loan Programme.

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