Small businesses hit by Covid-19 pandemic can renegotiate contracts for 6 weeks from mid-Jan

If negotations are unsuccessful and the parties cannot come to an agreement, the contract will be terminated early without penalty. ST PHOTO: KELVIN CHNG

SINGAPORE - Small and micro businesses significantly affected by the Covid-19 pandemic will be able to renegotiate certain types of contracts with their counterparties from Jan 15, the Ministry of Law (MinLaw) said on Thursday (Dec 10).

These businesses will have a six-week period to enter into renegotiations under the Re-Align Framework. The last day to do so will be Feb 26, said MinLaw.

The framework was passed urgently in Parliament last month to help smaller businesses cope with the fallout from the pandemic.

If negotations are unsuccessful and the parties cannot come to an agreement, the contract will be terminated early without penalty.

The framework does not apply to contracts that were terminated before Nov 2.

Hirers and renters of commercial equipment or vehicles whose revenues have fallen by 70 per cent or more and are struggling to meet regular payments can opt for a Repayment Scheme instead of terminating their contracts early.

This is an instalment plan that will allow them to pay their accrued arrears within 18 months.

I am an affected businessman. Am I eligible to renegotiate my contract?

A business is eligible for the Re-Align Framework if it meets two criteria.

First, its annual revenue for the financial year 2019 must not exceed $30 million on a global group basis.

Second, it must have experienced at least a 70 per cent fall in monthly average gross income for July to December this year, compared with the same period the previous year.

Only certain commercial contracts apply under the framework. These include leases or licences for commercial property, hire-purchase and conditional sales agreements for equipment or vehicles.

Rental agreements for commercial equipment or commercial vehicles as well as contracts for sale and purchase of goods and services may be covered under the framework.

In addition, the contract must be governed by Singapore law, and it must have been entered into before March 25 with at least one party who has a place of business in Singapore.

How do I start the renegotiation process?

A business that wants to invoke the Re-Align Framework will have to serve a notice of negotiation on the other party or parties using the designated forms. This must be done between Jan 15 and Feb 26 next year.

The notice of negotiation must be accompanied by relevant supporting documents, including financial statements, proving eligibility under the framework.

The forms and list of supporting documents needed will be made available here.

In the four weeks after the date of the notice of negotiation, the business and the other contractual party or parties must renegotiate the terms of the contract.

The parties are encouraged to make full use of the four weeks to try to reach a compromise, said MinLaw.

To avoid parallel proceedings on the same matter while negotiations are in progress, the other party or parties cannot, during the four weeks, take legal or enforcement actions against the business for not performing its contractual obligations.

What if we are unable to agree on new terms?

If parties cannot come to an agreement on new terms, the other party or parties may lodge an objection with the registrar on the eligibility of the business within two weeks after the negotiation period ends.

A copy of the notice of objection must also be served on the business.

Then, an assessor appointed by MinLaw will decide whether the business is eligible for the framework, as well as the parties' obligations upon terminating the contract.

Until the assessor makes a decision, the contract will not be terminated and its obligations will continue to run.

If the other party or parties do not lodge and serve a notice of objection by the end of the two-week objection period, the contract will be deemed terminated after two days.

What happens if the contract is terminated under the framework?

If a contract is terminated under the framework, a set of default terms will apply.

In general, this means the business will not be liable for future obligations after the date of termination. But any obligations accrued up to the date of termination remains payable and enforceable.

In the case of a commercial property lease, for example, the tenant must pay rent up to the date of termination. This may be pro-rated, if necessary.

The tenant must also reinstate the premises in accordance with the contract and deliver the vacant property on or before the date of termination. If the tenant fails to do so, he must pay any sum set out in the lease agreement or compensate the landlord for any losses suffered.

If at least one party believes that the default terms of termination should not apply or should be adjusted, and if they cannot reach an agreement, the party may seek a MinLaw-appointed assessor to decide on the terms. This must be done within two weeks after the end of the objection period.

Decisions made by the assessors are binding and cannot be appealed against. Parties can seek legal advice but legal representation will not be allowed.

I am a small landlord who will be financially affected if my tenants terminate their leases early. What can I do?

Small landlords will receive compensation if their tenants terminate their leases early under the Re-Align Framework.

The landlord must lodge a notice of compensation with the Registrar and serve it on their tenant or tenants within two weeks after the negotiation period ends.

The compensation amount will be decided by a MinLaw-appointed assessor.

To be qualify, the landlord must be an individual, a sole proprietor or a holding company of individual(s) and/or sole proprietor(s).

Second, the monthly average rental income of the landlord must be more than half of his monthly average income.

Third, the landlord's annual individual income must not exceed $107,500.

More information on the Re-Align Framework and the application process can be found here.

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