Landlords will have to dig deeper to help their pandemic-battered tenants under an upcoming Bill that some observers feel could level the playing field between commercial owners and tenants.
The Government will provide a $2 billion cash grant to help offset rent costs for small and medium-sized enterprise (SME) tenants. If SMEs have seen their revenues fall significantly in recent months, then their landlords may be obliged to grant them rental waivers. The plan is to ensure this through a new Bill that will be introduced in Parliament next week.
If passed, the Bill would grant eligible SME tenants in commercial properties that have suffered a significant revenue drop a total of four months of rental relief. This would be shared equally between the Government and landlords.
SME tenants in industrial and office properties would also be given some relief in the Bill.
It will be disbursed by the Inland Revenue Authority of Singapore to property owners from the end of July. Landlords are required to pass on the benefit to their SME tenants.
Taken together with the property tax rebates, the Government will offset about two months of rental for eligible SME tenants of commercial properties, and about one month for tenants of industrial and office properties. This should help more SMEs, which account for 72 per cent of employment here, stay afloat.
The new Bill will also cover provisions on temporary relief from onerous contractual terms such as excessive late payment interest or charges. It will also let tenants repay their arrears through instalments.
These measures could result in real estate investment trusts (Reits) taking a hit in near-term cash flows, analysts say.
If rent rebates are calculated from March, DBS Equity Research estimates that most retail Reits listed here may have to cough up an additional one month to 1.6 months of rental rebates out of their pockets.
Office and industrial Reits that have a larger proportion of SME tenants may also have to fork out more.
The Jobs Support Scheme addressed some of the pain from payroll expenses, so companies will not retrench employees.
But if other costs such as rent are not reduced, firms cannot survive to keep those workers employed, noted TSMP Law joint managing partner Stefanie Yuen-Thio.
Industry players are awaiting more clarification next week on the new Bill.
“For instance, does it apply to all landlords? Would a big landlord like CapitaMall Trust be treated the same way as a small landlord that owns one or two shop units?” said Singapore Management University law don Eugene Tan. “Will there be any exemptions for landlords?”
He sees the new Bill as a possible attempt to determine a fair arrangement between landlord and tenant in a situation like a pandemic, notwithstanding contract agreements.
“The notion of what is fair cannot just be defined by a contract. When landlords insist on contractual terms being fulfilled, especially in an unprecedented crisis, it can have a crushing effect on tenants. And the Government recognises a need to intervene here,” Associate Professor Tan added.
What would be ground-breaking is if the new Bill rewrites some of the terms after the contract is in force, Ms Yuen-Thio noted.
“That said, I think it is the right thing to do – the pandemic is unprecedented and the market cannot rely on (every) landlord to do the right thing,” she said.
“Whether the Bill will lead to a more lasting change to the landlord and tenant framework is a more difficult question to tackle.
“While you can justify having statutory restrictions on undesirable business practices, such as when terms are too onerous, I would be against a Bill that attempts to put too many limits on the ability of landlords to negotiate contract terms.
“This may lead to depressed real estate prices, which would have a knock-on effect on every land owner in Singapore.”