COVID-19 impact on commercial leases: what we can learn

COVID-19 impact on commercial leases: what we can learn
13 Jan 2021

COVID-19 impact on commercial leases: what we can learn

COVID-19 has brought about a range of unprecedented issues for businesses in Singapore pertaining to commercial leases. With the pandemic causing a dramatic downturn in trade for countless companies, this has led to many being unable to meet their rental agreements. Meanwhile, landlords remain responsible for property loans, placing a significant burden on both parties to find a workable solution.

To resolve some of the immediate stresses brought on by the pandemic, including commercial evictions, insolvency proceedings and unpaid rent, the Singapore government introduced the 'COVID-19 (Temporary Measures) Act 2020'. This gives businesses a range of protections regarding commercial leases signed or renewed before 25 March 2020.

With these provisions lasting for 6-12 months from the commencement of the act on 1 February 2020, an experienced commercial lawyer in Singapore can assist your business overcome pandemic-related issues regarding your commercial lease.

Understand the aspects of commercial leases impacted by COVID-19

Although many contractual obligations have been impacted due to COVID-19, below we discuss some of the most common issues experienced with commercial leases.

Rent

Under normal circumstances, a commercial lease agreement does not include a rental waiver unless the building suffers extensive physical damage that halts trading. However, the Temporary Measures Act has made it so landlords cannot evict a tenant for not paying their rent. Also, the landlord cannot commence legal action against the tenant to recover unpaid rent for 6-12 months following the act’s commencement.

However, it is important to note that this legislation does not allow businesses to stop paying rent altogether. In fact, the amount of rent owed, as well as any relevant interest, will continue to accrue throughout this period. Ultimately, this provision simply provides businesses with temporary relief as they look to navigate this challenging time.

Termination

With the Temporary Measures Act 2020 in place, both tenants and landlords can still mutually agree to terminate a contract. But this legislation has added extra protections for tenants, as they can no longer have their contracts terminated because of defaulted payments during the period outlined by the act. Speaking to a highly qualified commercial lawyer in Singapore is the easiest way to find out about your options.

Closure of premises

Tenants may be able to terminate their commercial lease by claiming that government restrictions have made the contract untenable. For example, if the landlord refuses the tenant access to the property due to coronavirus-related restrictions, the tenant may try to make a claim for breach of quiet enjoyment. However, if the landlord has to break the law to keep the property open, the tenant’s claim will likely be unsuccessful.

What to learn moving forward

As we look towards the future of commercial leases, COVID-19 has raised a range of concerns that could dramatically alter how we assess risks. For instance, parties entering into a new agreement will need to consider how they are covered against long-term pandemics and other similar crises.

They may have to factor in how tenants are responsible for delays in payment by creating extra contingency clauses to protect both parties during unforeseen events. Plus, it will become even more essential for landlords and tenants to work together to produce a fair agreement for both parties.

Meanwhile, both landlords and tenants should always seek legal advice from a commercial lawyer before signing any kind of lease. This will ensure your rights are protected and you secure the best terms for your business.

If you have concerns about your lease, consult our expert commercial lawyers in Singapore to receive advice regarding your specific circumstances.

For more information, please contact our Business Development Manager, Ricky Soetikno, at rickysoetikno@harryelias.com.

Contact: 

Pauline Lee

Partner
Head, Real Estate
T: 
+65 6361 9879
F: 
+65 6557 0147
E: 
PaulineLee@harryelias.com

Justin Chia

Partner
Head, Restructuring and Insolvency
T: 
+65 6361 9814
F: 
+65 6438 0550
E: 
Justin@harryelias.com