SINGAPORE - Small businesses affected by Covid-19 may terminate their contracts without penalty if they are unable to agree on new terms with the other party, under proposed laws introduced in Parliament on Monday (Nov 2).
These will apply only to commercial contracts, including those with the Government, under the third set of proposed amendments to the Covid-19 (Temporary Measures) Act. They were tabled by Second Minister for Law Edwin Tong on an urgent basis, allowing the changes to be debated on Tuesday.
Called the Re-Align Framework, it will cover only businesses under a specified annual revenue cap that have experienced a significant fall in revenue due to Covid-19.
Details are being finalised as consultations with the industry are ongoing, and will be set out later in subsidiary legislation, said Second Minister for Law Edwin Tong at a media briefing on Monday.
"We'll find a way to scope it such that this will cover the majority of small and micro business in Singapore," said Mr Tong, who is also Minister for Culture, Community and Youth.
The purpose of the framework is to give small and micro businesses some power to renegotiate their options with counterparties, he added.
For the contracts to be eligible under the framework, they must be governed by Singapore law, and were entered into before March 25 before the impact of Covid-19.
One of the parties of the contract must also have a place of business in Singapore.
These contracts may be leases or licences for non-residential immovable property; the sale and purchase of goods and services; rental agreements for commercial equipment and commercial vehicles; and hire-purchase or conditional sales agreements for 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 passed in Parliament, it will take effect for only a limited period of six weeks to allow parties to assess if they wish to renegotiate their contracts.
This is to ensure that while parties have a chance to work out new contractual terms against the backdrop of the current business environment, the framework will not create "uncertainty all around", said Mr Tong.
If parties decide that they want to renegotiate their contracts, they will then have to serve notice on the other party or parties.
Parties will have four weeks to renegotiate the terms. If they fail to agree on new terms, the contracts can be terminated without any penalty.
But any earlier debts or liabilities from the contract will continue to stand, said Mr Tong.
If any disagreements arise, either on the party's eligibility or the amount owed upon termination of the contract, parties may seek the help of a MinLaw-appointed assessor, who will make the final decision.
In the case of small landlords who may face financial hardship from tenants terminating their leases early, the framework will ensure that tenants pay additional compensation, with the amount to be determined by an assessor.
Eligible hirers and renters of commercial equipment and vehicles can also opt for a repayment scheme, instead of terminating their contracts, under the framework.
For example, private hire drivers whose incomes have been affected by Covid-19 will not need to terminate their hire-purchase agreements but will get time to repay their loans.
Mr Tong said he hopes businesses will be able to renegotiate new terms or decide to terminate their contracts without having to turn to the assessors.
"(The Re-Align Framework) was designed to be quite self-explanatory in many ways," said Mr Tong.
"What we'd like to do is to have the parties in the market, look at the framework and decide for themselves whether or not it's possible - even without invoking the assessors... to come up with a renegotiation on their own as far as possible. That will be the ideal," he added.
The Covid-19 (Temporary Measures) Act 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 for eligible small and medium-sized enterprise (SME) tenants and sub-tenants who have been hit hard by the coronavirus pandemic under a rental relief framework.
The Act was amended a second time in September to grant assessors enhanced powers so that they can specify the amount of rent to be waived in some cases under the rental relief framework.
Contracts not covered under Re-Align Framework
- Consumer contracts
- Employment contracts
- Insurance contracts
- Leases or licences for non-residential immovable property which have a term of more than five years
- Contracts made in connection with a financial transaction, or for the supply of financial services (except hire-purchase)
- Construction and supply contracts
- Contracts for the carriage of goods for freight by sea, land or air, including any contract for freight forwarding and logistics services
- Contracts for the supply, storage, transportation, collection, treatment or disposal of certain hazardous materials
- Commodity contracts
- Contracts for factoring of receivables
- Contracts (or series of contracts) for the transfer of a business or part thereof as a going concern
- Contracts where the application of the Re-Align Framework is inconsistent with Singapore's international obligations (for example, aircraft financing contracts falling under the Cape Town Convention)
- Contracts affecting essential services and national interest (Note: Parties may use the framework to renegotiate their contracts but cannot terminate them).