Understanding the options available under the Re-Align Framework

Article by Ronald JJ Wong and Stacey Lopez

Photo by Ketut Subiyanto from Pexels

Since the onset of the COVID-19 pandemic, the Singapore government has launched several schemes to help provide relief to businesses in Singapore adversely affected by the COVID-19 pandemic. The latest scheme implemented by the Singapore government is the Re-Align Framework, launched on 15 January 2021.

In this article, we seek to address some of the frequently asked questions about the Re-Align Framework.

1. What kind of relief does the Re-Align Framework offer?

The Re-Align Framework allows:

eligible businesses to renegotiate and/or terminate certain specified contracts;
eligible landlords to seek compensation from the tenant for early termination of the lease; and
eligible hirers/renters under a lease, hire-purchase agreement and/or conditional sales agreement for commercial equipment or vehicle to negotiate a repayment scheme for accrued arrears

(see Section 43 of the COVID-19 (Temporary Measures) Act 2020 (the “Act”)).

We will address each relief in turn below.

2. Are all contracts covered under the Re-Align Framework?

Not all contracts are covered under the Re-Align Framework.

For a contract to be covered under the Re-Align Framework, it must satisfy the following criteria:

The contract must be governed by Singapore law;
The contract must have been entered into before 25 March 2020;
At least one of the parties to the contract has a place of business in Singapore; and
The contract is described in Part 1 of the Second Schedule of the Act (“Specified Contracts”);

(see Section 42(1) of the Act).

Specified Contracts include:

A lease or licence for non-residential immovable property which has a term of 5 years or less;
A contract for the supply of any goods or services;
Hire-purchase agreement and/or conditional sales agreement for commercial equipment or vehicles (except agreements entered into with banks and finance companies regulated by the Monetary Authority of Singapore); and
A lease of commercial equipment or vehicle.

Examples of contracts not covered by the Re-Align Framework include:

Consumer contracts;
Employment contracts;
Financial and insurance contracts; and
Construction and supply contracts.

If you need assistance in relation to contracts not covered by the Re-Align Framework, you may look to the various other schemes rolled out by the government that provide relief packages for such contracts.

3. Does my business qualify for the Re-Align Framework?

To qualify for the Re-Align Framework:

The business must have commenced business before 1 September 2020;
The business must have experienced at least a 70% decrease in revenue for the period of July to December 2020 compared to the period of July to December 2019;
The business’ annual revenue must not exceed $30 million at a global group level.

Renegotiating and/or terminating a specified contract and landlord hardship relief

4. How do I kick start renegotiation and/or termination of a contract under the Re-Align Framework?

If your business is eligible under the Re-Align Framework and the contract you wish to renegotiate and/or terminate is a Specified Contract, you would have to lodge and serve a Notice of Negotiation on all parties to the contract to commence negotiation and/or termination of the contract under the Re-Align Framework.

When lodging a Notice of Negotiation, you must include the following documents: https://www.mlaw.gov.sg/files/ReAlign/ListofSupportingDocs.pdf

Take note that you only have a window period of 15 January 2021 to 26 February 2021 to lodge the Notice of Negotiation. If you miss the deadline of 26 February 2021, you would not be able to seek relief under the Re-Align Framework.

To find a copy of the Notice of Negotiation, go to https://www.mlaw.gov.sg/realign/process-renegotiation.

Take note that you must serve the Notice of Negotiation within 2 days from the date of the Notice of Negotiation, i.e. if the Notice of Negotiation is dated 15 January 2021, you must serve the Notice of Negotiation by 17 January 2021 (see Section 41 of the Act).

5. How do I serve a Notice of Negotiation on the counterparty to the contract?

The prescribed mode of service is as follows:

5.1. Option A: The Government’s electronic system (using your Singpass or CorpPass account)

This is the preferred mode of service. If you choose this option, you must have an email address as well as the email address of the counterparty to the contract.

5.2. Option B: Email

If you are unable to serve the Notice of Negotiation via Option A, you may serve the Notice of Negotiation by sending it to:

the counterparty’s last known email address; or
an email address the counterparty has represented as the email address at which such communications may be sent i.e. the email address listed on the counterparty’s website or name card.

If the Notice of Negotiation is served via email, service of the Notice of Negotiation takes effect at the time the document is received in the recipient’s email inbox.

5.3. Option C: Social Media, WhatsApp, Telegram, etc.

If you are unable to serve the Notice of Negotiation via Options A and B, you may serve it via other electronic channels through which you and the counterparty had previously corresponded on regarding the contract, e.g. Facebook chat, Whatsapp, Telegram, etc.

5.4. Option D: Prepaid registered mail

If you are unable to serve the Notice of Negotiation via Option A, B, and C, you may serve the Notice of Negotiation via prepaid registered mail.

If the Notice of Negotiation is sent via prepaid registered mail, service of the Notice of Negotiation takes effect on the 2nd day after the document was posted (even if it is returned undelivered). To illustrate, if the Notice of Negotiation was posted on Monday, it would be deemed served on Wednesday.

Do keep a copy of the post slip of the prepaid registered mail as proof of service.

Note: If you send serve the Notice of Negotiation using Options A-D above, you would also need to send the Notice (together with supporting documents) to the Registry at COVID19-RAF-REGISTRY@mlaw.gov.sg.

6. What happens after I serve a copy of the Notice of Negotiation on the counterparty to the contract?

6.1. Moratorium

Once the Notice of Negotiation is lodged, there will be a Moratorium. During the Moratorium period, certain actions are prohibited (see Part 2 of the Fifth Schedule of the Act for the list of prohibited actions).

An example of an act prohibited during the Moratorium Period is the commencement of legal and/or enforcement actions by any party to the contract against another for failure to perform any contractual obligation under the contract due after the date of the Notice of Negotiation.

For example, if a tenant serves a Notice of Negotiation on the landlord, the landlord is prohibited from commencing legal action against the tenant for unpaid rent due after the date of the Notice of Negotiation.

How long does the Moratorium Period last?

In the case where a Notice of Negotiation is lodged and served, the Moratorium Period begins on the date of service of the Notice of Negotiation and ends on the earliest of the following:

8 weeks after the date of service of the Notice of Negotiation (only if no other Notice other than the Notice of Negotiation is served);
The date the Notice of Negotiation is withdrawn;
Where the Registrar determines that no Assessor needs to be appointed;
The date the last Notice for Adjustment is withdrawn;
The date the Notice for Compensation is withdrawn and no Notice of Objection and no Notice for Adjustment has been lodged and served;
The date the Assessor renders a determination on the issue

(see Section 1 of Part 1 of the Fifth Schedule of the Act).

6.2. Negotiations

From the date of service of the Notice of Negotiation, parties to the contract have a 4-week Negotiation Period to negotiate (see Section 41 of the Act). Parties should use this time to seriously engage with each other to generate various options that would help all parties adjust to the “new normal” business climate.

In the case of renegotiating and/or terminating the contract, some options for you to consider when trying to find a mutually suitable arrangement include:

Lowering the monthly rent;
Pegging the rental amount to the hirer/renter’s revenue earned;
Deferring payment of arrears for an agreed period of time; and
Terminating the contract but on less harsh terms, i.e. no payment of early termination fees.

If any party to the contract feel that they require a third party to help move negotiations along, they may approach the Singapore Mediation Centre or the Law Society Mediation Scheme to seek assistance.

7. I received a Notice of Negotiation. What are my options?

The Re-Align Framework seeks to encourage parties to a contract to discuss how the terms of the contract may be varied to help all parties adjust to the “new-normal”.

As such, should you receive a Notice of Negotiation, we strongly encourage you to first engage in negotiations with the party that served the Notice and explore different ways to find a mutually suitable arrangement.

Should parties come to an agreement on how to vary the terms of the contract and/or terminate the contract, that’s great! Parties can then proceed with the amended contract and/or terminate the contract based on their agreed terms.

Should parties be unable to reach agreement, refer to point 8 below for further options.

8. What happens if negotiations fail under the renegotiation/termination route?

Should negotiations fail, there are several possible scenarios:

Parties allow the contract to be deemed terminated under the Act;
The counterparty may lodge and serve a Notice of Objection; or
Either party may lodge and serve a Notice for Adjustment.

Further, eligible landlords may also lodge a Notice for Compensation.

8.1. Allow the contract to be deemed terminated under the Act

If parties are unable to reach an agreement during the 4-week Negotiation Period, they may choose to allow the contract to be deemed terminated under the Act 2 days after the Objection Period ends (see Section 49(1) of the Act).

The Act gives certain rights and imposes certain obligations on the parties to the contract upon termination of the contract under the Act, such as:

On or before the date of termination, the tenant must reinstate the property in accordance with the terms of the lease. Failure to do so would result in the tenant being liable to pay the landlord:
1. any sum set out in the lease for the failure to reinstate the property (if applicable); or
2. any loss suffered by the landlord as a result of the tenant’s failure to reinstate the property (including any costs incurred by the landlord to remedy the breach).
On or before the date of termination, the tenant must deliver vacant possession of the property to the landlord. Failure to do so would result in the tenant being liable to pay the landlord:
1. any sum that the tenant is liable to pay under the law or lease for the continued possession of the property; and
2. any interest, late payment charge or any other charge on the sum mentioned at (b)(i) above.
On or before the date of termination, the hirer of the good must:
1. deliver up the good to the owner in accordance with the terms of the agreement; and
2. pay to the owner the difference (if any) between the sum of all instalment payments for the remaining period of the agreement after the date of termination and the price that the owner could obtain if the good is sold or disposed of at the time the good is delivered up by the hirer.

To see the full list of rights and obligations of the parties upon termination of a contract under the Act, see Part 4 of the Second Schedule of the Act.

Once the contract is terminated under the Act:

Prospective liabilities under the contract are generally extinguished, i.e. future obligations under the contract post the date of termination of the contract will be extinguished. However, certain clauses under the contract will continue to survive the termination of the contract such as confidentiality clauses and restraint of trade clauses;
Outstanding liabilities owing under the contract prior to the date of termination remain outstanding; and
Any security deposit held by the landlord/owner has to be returned to the tenant/hirer after offsetting any amount of arrears accumulated by the tenant/hirer under the contract.

8.2. Lodge and serve a Notice of Objection

If you receive a Notice of Negotiation and object to the counterparty’s eligibility under the Re-Align Framework, you should lodge and serve a Notice of Objection within 2 weeks after the close of the 4-week Negotiation Period (see Section 46(1) and (2) of the Act).

Take note that you must serve the Notice of Objection within 2 days from the date of the Notice of Objection, i.e. if the Notice of Objection is dated 15 January 2021, you must serve the Notice of Objection by 17 January 2021 (see Section 46(1)(a)(ii) and Section 41 of the Act).

When lodging a Notice of Objection, you must include the following documents:

A copy of the Notice of Negotiation including all supporting documents that were enclosed to the Notice of Negotiation; and
All supporting documents to support your reason(s) for objecting to the counterparty’s eligibility under the Re-Align Framework.

The matter is then sent to an Assessor who will assess the matter. The Assessor will first consider whether there is any valid ground of objection (see Section 66(1)(a) of the Act).

In the event that the Assessor determines that there is no valid ground of objection, the Assessor will then determine the date of termination of the contract and the rights and obligations of the parties upon termination of the contract under the Act (see Section 66(1)(b) of the Act).

8.3. Lodge and serve a Notice for Adjustment

If any party is not satisfied with the rights provided and/or obligations imposed on the parties by the Act upon termination of the contract under the Act, that party may choose to lodge and serve a Notice for Adjustment within 2 weeks after the close of the 4-week Negotiation Period (see Section 47(1) and (2) of the Act).

When lodging a Notice for Adjustment, you must include the following documents:

A copy of the Notice of Negotiation including all supporting documents that were enclosed to the Notice of Negotiation; and
All supporting documents to support your proposal for adjustment of the rights and obligations under the contract.

Take note that you must serve the Notice for Adjustment within 2 days from the date of the Notice for Adjustment, i.e. if the Notice for Adjustment is dated 15 January 2021, you must serve the Notice for Adjustment by 17 January 2021 (see Section 47(2)(b) and Section 41 of the Act).

The matter would then be referred to an Assessor who will make a determination on the issue(s) such as liabilities and obligations with appropriate adjustments upon termination of the contract (see Section 66(6) of the Act).

8.4. Lodge a Notice for Compensation

If you are a landlord who is affected by the deemed termination of the lease under the Act, you may in addition to lodging a Notice of Objection or Notice for Adjustment, seek compensation from the tenant for early termination of the lease by applying for the Landlord Hardship Relief and serving a Notice for Compensation.

To apply for the Landlord Hardship Relief, the landlord must lodge and serve a Notice for Compensation within 2 weeks after the 4-week Negotiation Period (see Section 51(1) of the Act).

When lodging a Notice for Compensation, you must include the following documents: https://www.mlaw.gov.sg/files/ReAlign/LandlordHardship-SupportingDocs.pdf

Take note that you must serve the Notice for Compensation within 2 days from the date of the Notice for Compensation, i.e. if the Notice for Compensation is dated 15 January 2021, you must serve the Notice for Adjustment by 17 January 2021 (see Section 41 of the Act).

To qualify for the Landlord Hardship Relief:

The landlord must be:
- an individual;
- a sole proprietor; or
- a holding company incorporated solely to hold the interest in the immovable property that is the subject of the lease or license in question whose shareholders are individual(s) and/or sole proprietor(s) who meet the criteria in (b) and (c) below;
The rental income from the property in question amounts to 50% or more of the individual / sole proprietor / holding company’s income;
The individual / sole proprietor / holding company’s annual income does not exceed $107,500.00

(see Part 2 of the Third Schedule of the Act).

The amount of compensation payable by the tenant to an eligible landlord would be determined by the Assessor. Some factors the Assessor may take into consideration in determining a just and fair amount to be paid by the tenant to the landlord includes:

the length of time required by the landlord to find a replacement tenant; and
the landlord’s expected loss of rental income as a result of the tenant’s early termination of the contract

(see Section 66(7) of the Act).

Negotiating a repayment scheme for accrued arrears under a lease, hire-purchase agreement and/or conditional sales agreement for commercial equipment or vehicle

9. I am a renter and/or hirer of commercial equipment or vehicle and I wish to repay the accrued arrears I owe under the contract over a period of time. What relief can I seek under the Re-Align Framework?

If your business is eligible under the Re-Align Framework and the contract is a lease, hire-purchase or rental agreement for commercial equipment or vehicles (except agreements entered into with banks and finance companies regulated by the Monetary Authority of Singapore), the Statutory Repayment Scheme (“SRS”) allows you and the counterparty to the contract to negotiate a repayment schedule for you to repay the accrued arrears under the contract.

The SRS covers rental arrears only from 1 February 2020 to the day before the date of the Notice of Revision (see Section 53(4)(a)(i) of the Act).

To illustrate, if you lodged a Notice of Revision on 15 January 2021, and there are accrued arrears since 1 November 2019, only the portion of accrued arrears commencing from 1 February 2020 up to the day before the date of the Notice of Revision (i.e. 14 January 2021) is covered under the SRS. The accrued arrears from 1 November 2019 up to the day before 1 February 2020 (i.e. 31 January 2020), would not be covered under the SRS.

Do note that if you choose to take up the SRS, you will not be allowed to seek termination relief under the Re-Align Framework and vice versa.

10. How do I kick start negotiations under the SRS?

If your business and the contract in question qualifies for the SRS, you would have to lodge and serve a Notice of Revision on all other parties to the contract to commence negotiation of a repayment schedule for you to repay your accrued arrears under the SRS.

When lodging a Notice of Revision, you must include the following documents: https://www.mlaw.gov.sg/files/ReAlign/ListofSupportingDocs.pdf

Take note that you only have a window period of 15 January 2021 to 26 February 2021 to lodge the Notice of Revision. If you miss the deadline of 26 February 2021, you would not be able to seek relief under the Framework.

The Notice of Revision must set out the repayment schedule in accordance with Section 53(4) of the Act. Under Section 53(4) of the Act, the repayment schedule must satisfy the following requirements:

The repayment schedule must cover the following amounts:
1. Moneys payable under the contract from February 2020 to the day before the Notice of Revision;
2. Any interest imposed for late payment for the moneys in (1.1) above. The interest rate to be imposed for late payment will either follow that stipulated in the contract or 5% (whichever is lower);
The amount in (1) must be repaid in equal instalments on a monthly basis;
The period of repayment must not exceed 18 months; and
The first instalment must be payable by 26 March 2021 (1 month after the close of the window period to lodge a Notice of Revision)

To find a copy of the Notice of Revision, go to https://www.mlaw.gov.sg/realign/process-repayment-scheme

11. How do I serve a Notice of Revision on the counter party to the contract?

The prescribed mode of service of a Notice of Revision is the same as that for service of a Notice of Negotiation (see point 5 above).

Take note that you must serve the Notice of Revision within 2 days from the date of the Notice of Revision, i.e. if the Notice of Revision is dated 15 January 2021, you must serve the Notice of Revision by 17 January 2021 (see Section 53(b) and Section 41 of the Act).

12. What happens after I serve a copy of the Notice of Revision on the counterparty to the contract?

12.1. Moratorium

A Moratorium is imposed (see point 6 above).

How long does the Moratorium period last?

In the case where a Notice of Revision is lodged and served, the Moratorium begins on the date of service of the Notice of Revision and ends on the earliest of the following:

Where no Notice of Objection is served, 6 weeks after the Notice of Revision is served;
The date the Notice of Objection is withdrawn;
The date the Assessor renders a determination on the issue

(See Section 3 of Part 1 of the Fifth Schedule of the Act).

12.2. Negotiations

From the date of service of the Notice of Revision, parties to the contract have a 4-week Negotiation Period to negotiate (see Section 41 of the Act). Parties should use this time to seriously engage with each other to generate various options that would help all parties adjust to the “new normal” business climate.

In the case of negotiating a repayment scheme under the SRS, some options to consider when trying to find a mutually suitable arrangement include:

Deferring repayment of accrued arrears for an agreed period of time; and
Repaying the accrued arrears over an agreed period of time.

13. I received a Notice of Revision. What are my options?

See point 7 above.

14. What happens if negotiations fail under the SRS?

Should negotiations fail, there are several possible scenarios:

The counterparty may lodge and serve a Notice of Objection; or
Parties may choose not to do anything and allow the repayment schedule set out in the Notice of Revision to form part of the contract.

14.1. Lodge and serve a Notice of Objection

If you do not agree with the proposed repayment schedule, you may choose to lodge and serve a Notice of Objection.

You must lodge and serve the Notice of Objection within 2 weeks after the close of the 4-week Negotiation Period (section 54(1) of the Act).

When lodging a Notice of Objection, you must include the following documents:

A copy of the Notice of Revision including all supporting documents that were enclosed to the Notice of Revision;
All supporting documents to support your reason(s) for objecting to the Notice of Revision; and
Your proposed repayment schedule and all supporting documents to support your proposal (if any).

The grounds on which you may lodge a Notice of Objection are:

The contract is not a lease of commercial equipment or hire-purchase agreement or conditional sales agreements for commercial equipment or vehicles;
The party that lodged the Notice of Revision is not eligible under the Re-Align Framework;
The Notice of Revision was not served within the stipulated time frame (i.e. by 26 February 2021); and
The repayment schedule is not in accordance with Section 53(4) of the Act

(see Section 54(2) of the Act).

That means, even if you feel that the repayment period proposed is too long and/or the proposed monthly repayment sum is too low, you cannot lodge a Notice of Objection on that basis.

The matter is then sent to an Assessor who will assess the matter.

Factors that the Assessor will consider when determining the matter include:

Whether there is any valid ground of objection; and
What the repayment schedule should be;

(see Section 66(8) of the Act).

14.2. Parties allow the repayment scheme to form part of the contract

If parties are unable to reach an agreement after the 4-week Negotiation Period and no Notice of Objection is lodged, the repayment schedule set out in the Notice of Revision is deemed to form part of the contract as from the date of the Notice of Revision (see Section 56 of the Act).

In the event of any conflict between the terms of the repayment schedule and the terms of the contract, the terms of the repayment schedule shall prevail.

15. What happens if the hirer/renter fails to pay any instalment under the repayment schedule?

If the hirer or renter fails to pay any instalment under the repayment schedule within 14 days after the date on which the instalment is due to be paid under the repayment schedule, the SRS will cease to apply and all outstanding arrears will become immediately due (see Section 57 of the Act).

Miscellaneous

16. Confidentiality of proceedings

All documents and information provided throughout the entire process from the service of the Notice to the conclusion of the matter are strictly confidential. This means that you are not allowed to share any document and/or information exchanged throughout the process with any party outside the proceeding, unless you obtain the consent of the counterparty to do so (see Section 71(1)-(2) and 75(1) of the Act).

Should you be found to have disclosed any such document and/or information to a third party outside the proceeding without the consent of the counterparty, you will be liable to a fine not exceeding S$1,000.00 (see Section 71(3) and 75(2) of the Act).

17. Determinations made by the Assessor

Should the Assessor require parties to appear before him for the purpose of determining any issue, lawyers are not permitted to attend such proceedings except with the permission of the Assessor (see Section 69 of the Act).

Parties to the contract are bound by the decision of the Assessor and are not allowed to appeal against the Assessor’s determination (see Section 68(3) and (4) of the Act).

The Assessor’s determination may, with the permission of the Court, be enforced in the same manner as a judgment or an order of the court (see Section 68(1) of the Act).