How Small Businesses Can Use The Re-Align Framework To Re-negotiate Leases. Act Now!

Time is running out if you have not already taken steps to re-negotiate your lease. Good news is that the fight is not over.

With border restrictions and the safe distancing restrictions in place, many businesses are still suffering from slow business and reduced crowds as we get into 2021.

The lack of bargaining power for micro and small businesses or tenants means that these businesses continue to be faced with challenging contractual obligations that they must fulfil.

The Re-Align Framework (“Framework”) was introduced so that businesses can get relief by renegotiating and terminating selected types of contracts with their counterparties.

You must however meet the eligibility requirements.

Eligibility for the Re-Align Framework

Your business will be eligible for relief under the Framework if:

  • Your business’s annual revenue for Financial Year 2019 does not exceed S$30 million at a global group level; and
  • Your business experienced at least a 70% reduction in monthly average gross income between 1 July 2020 and 31 December 2020, compared to the same period in 2019.

Contracts covered for relief under the Re-Align Framework

A contract is covered for relief under the Framework if:

  • It is governed by Singapore law;
  • It was entered into before 25 March 2020;
  • It has at least 1 party who has a place of business in Singapore; and
  • It falls within the following categories (“specified contracts”), which are likely to have substantial obligations that may need renegotiation:
    – Leases or licences for non-residential immovable property which have a term of 5 years or less;
    – Contracts for the supply of goods and services;
    – 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);
    – Rental agreements for commercial equipment or vehicles;

Steps to take

  1. Notice of Negotiation
  • You may serve a Notice of Negotiation on the counterparty of the contract (“Other Party”) within the period of 15 January 2021 to 26 February 2021.
  • You should serve the Notice of Negotiation using the electronic system. To do so, you must have an email address, as well as the email address(es) of the Other Party.
    – If you are acting on behalf of an entity that is a party to the contract, you can use this link and do so via CorpPass.
    – If you are an individual who is a party to the contract, you can use this link and do so via SingPass.
  • If you are unable to serve the Notice of Negotiation using the electronic system, you may do so by downloading a physical copy of the Notice of Negotiation and serve them on the Other Party using other modes of service.
    – If you are acting on behalf of an entity that is a party to the contract, you can download this form.
    – If you are an individual who is a party to the contract, you can download this form.
  • You may serve the Notice of Negotiation on the Other Party using these other modes of service. You will need to exhaust the service methods in the following order.
    – Email;
    – Internet-based messaging system or messaging system on the website, blog, social media or networking website;
    – Mode of service specified under the contract for giving notice (if any) and prepaid registered post; or
    – Prepaid registered post.
  • You should enclose all of the following supporting documents together with your Notice of Negotiation.
    – A copy of the contract (if the contract is not in writing, you will need to provide a description of how the contract was made and its terms in the Notice of Negotiation);
    – The documents showing that Annual Revenue does not exceed $30 million; and
    – The documents showing a fall of at least 70% in average monthly gross income.(You may refer to this link to assist you with the preparation of your supporting documents.)
  • Once a Notice of Negotiation is served, a moratorium will be in force to prevent the Other Party from taking legal and enforcement actions against you for obligations not performed. The moratorium will typically expire 8 weeks after the date of Notice of Negotiation.
  1. Negotiation Period
  • There will be a 4-week Negotiation Period after the service of the Notice of Negotiation for both parties to renegotiate the terms of the contract or termination of the contract.
  • During this 4-week Negotiation Period, the Other Party cannot lodge or serve a Notice of Objection.
  1. Successful renegotiation
  • If parties have come to a successful renegotiation of the contract, they can proceed with the amended terms or terminate the contract on their own terms.
  1. Unsuccessful renegotiation
  • If renegotiation of the contract is unsuccessful, there are 4 possible outcomes.
    1. If the Other Party objects to your eligibility to seek relief under the Framework, the Other Party will have to serve and lodge a Notice of Objection within the 2-week Objection Period.
      The Other Party may only object to your Notice of Negotiation on 1 or more of the following grounds:
      – You do not satisfy the eligibility criteria for relief.
      – The Notice of Negotiation was not served in accordance with section 45 of the COVID-19 (Temporary Measures) Act. (E.g. You did not serve the Notice of Negotiation between 15 January 2021 and 26 February 2021.)
      – The contract is not a specified contract or is a contract of national interest.
    2. If the Other Party objects to your eligibility and wishes to obtain compensation from you if the contract is ultimately terminated, he must lodge and serve both a Notice of Objection and a Notice for Compensation within the 2-week Objection Period.
    3. If the Other Party does not object to your eligibility but wishes to obtain compensation from you, he must lodge and serve a Notice for Compensation within the 2-week Objection Period.
    4. If the Other Party does not object to your eligibility, the contract is deemed terminated 2 days after the end of the 2-week Objection Period or on a date agreed between all the parties to the contract. The default terms of termination under the Framework (Part 4 of the Second Schedule, COVID-19 (Temporary Measures) Act 2020) will apply to the termination of the contract.
  1. Notice for Adjustment
  • If you and the Other Party do not agree to the default terms or are unable to mutually agree on terms of termination, either party may seek an appointed Assessor to determine the adjustment of rights and obligations under the contract fairly.
  • Either party must lodge and serve the Notice for Adjustment within 2 weeks after the end of the 2-week Objection Period. The Notice of Adjustment will need to be accompanied by:
    – A copy of the Notice of Negotiation and all documents which were enclosed in the Notice of Negotiation; and
    – All supporting documents to support the proposal for adjustment of the rights and obligations under the contract.
  • To serve the Notice for Adjustment, this must be done with the electronic system mentioned above and links will only be available from 27 February 2021 onwards.
  1. Review of Notice of Objection / Notice of Compensation / Notice for Adjustment by Registrar
  • If, upon review, the Registrar is satisfied with the Notice of Objection / Notice of Compensation / Notice for Adjustment, the Registrar will email to the parties:
    – An acknowledgment of receipt.
    – A notice of the appointment of 1 or more Assessors to make a determination.
    – A notice of the date and place for the hearing (if applicable).
  • If the Registrar refuses to accept a Notice of Objection or the Notice of Objection is withdrawn by the Other Party, the contract is deemed terminated 2 days after the end of the 2-week Objection Period or on a date agreed between all the parties to the contract.
  • The Registrar will email the parties:
    – A notice of the appointment of 1 or more Assessors to make a determination.
    – A notice of the date and place for the hearing (if applicable).
    if a determination is required to be made by an Assessor on the adjustment of the rights and obligations of the parties and their assignees upon a termination.
  1. Hearing and determination by Assessor
  • Where Notice of Objection and/or Notice for Compensation is lodged and accepted by Registrar
    • An Assessor will be appointed to first make a determination on:
      – Notice of Objection – your eligibility for relief under the Framework and the date of termination of the contract if you are eligible and/or
      – Notice of Compensation – the Other Party’s eligibility for the compensation and the amount of compensation.
  • A determination on the adjustment of rights and obligations under the contract will not be made at this point.
  • If you are deemed eligible and your contract is terminated, parties are encouraged to negotiate and agree on the adjustment of rights and obligations under the contract, with reference to the default terms under the Framework.
  • However, if parties cannot come to an agreement and either party wishes to seek an Assessor’s determination on the adjustment of rights and obligations, that party must inform the Registrar (copying the Other Party) within 7 days from the date of the determination that he wishes to seek an Assessor’s determination on the matter.
    The Registrar will proceed to appoint 1 or more Assessors to make a determination on the adjustment of rights and obligations of the parties upon the termination of the contract.
  • Where only Notice of Adjustment is lodged
  • The Registrar will appoint an Assessor to make a determination on the adjustment of rights and obligations of the parties upon the termination of the contract under the Framework.
  • Mode of Hearing
  • Hearing will typically be conducted over email and any request for clarification or further documents will also be made over email by the Assessor.
  • The Assessor may suggest having online hearings or physical hearings (at a venue advised by the Registrar) if a need arises.
  • Lawyers cannot represent the parties but may be accompanied by an interpreter.
  • If a party is absent, the Assessor will deem it that he or she is withdrawing the notice or may proceed to make a determination on the case in the party’s absence.
  1. Informing parties of Assessor’s determination
  • The Registrar will inform parties once the Assessor has made a determination.
  • The Assessor’s determination is final, binding and not appealable.

In Summary

The first step is the check if you are eligible for this Framework.

Take note of the short and urgent timelines of when you can file and how you can file the Notice. Remember no later than 26 February 2021 served by email or other methods of service. File your Notice of Negotiations immediately to protect your position and avoid legal proceedings at least for 8 weeks.

Typically, this Framework will affect tenants most who either need to exit or to renegotiate their leases. Expect that some landlords may not agree with your proposals and file a Notice of Objection or Notice of Adjustment.

If there is an objection or notice of adjustment filed, the Assessor will determine the merits on the facts and supporting documents. You or your appointed representative from your Company will have to personally present your case to the Assessor either by email or in person.

Have all your supporting documents and proposal ready and explain why your proposal should be accepted or sustainable for the Assessor to see in your favour.

The process may seem tedious, but it is not difficult. Act now and activate the Framework.

 

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The contents and views set out above are those of the author(s) and/or are personal views and for information only. It does not constitute in any way any legal advice or representation to the reader even if the facts appear similar to your fact situation. You are strongly encouraged to seek legal advice should you have any legal issues.