On 24 March, the government announce closures for all bars and entertainment venues likes night clubs, discos, cinemas, theatres, and karaoke outlets, where there is a high risk of transmission due to sustained close contact over a period of time.
The closure came into effect on 6 March at 11.59 pm on 26 March and is expected to be in place until 30 April or later if the situation doesn’t improve.
Unfortunately, the sudden closure, though necessary, puts business owners of such entertainment outlets in a bind. In fact, owners of other businesses face similar pressures due to a significant decline in business due to strict social distancing measures.
With little to no customers, these businesses suddenly have to grapple with having no income at all.
One business owner told TOC that he is now unable to pay his housing and car loans. On top of that, the landlord that owns the premises where his business is located continues to insist on rental payments during this shutdown period.
The owner noted, “A lot of us are stranded in such a situation where we are unable to pay rents when the shop is closed. Staff are all forced to go.”
Looking for a way to cope with this difficult situation, the business owner told TOC that they had tried to use force majeure to terminate the lease on their business property and get a refund of their deposits. Unfortunately, the government has not qualified the COVID-19 outbreak under this category, which gives landlords the upperhand on their tenants.
As described by international law firm Pinsent Masons, force majeure clauses are contractual clauses that changes the obligation of a party when an “extraordinary even” beyond their control prevents one or all of the parties from fulfilling their contractual obligations.
Pinsent Masons explains: “Force majeure is a general legal concept and where courts may declare that a particular event, such as a pandemic like Covid-19, is a force majeure event.”
Now if a contract does not have a force majeure, the affected party could look into other provisions of the contract for potential routes out of this particular difficulty. If that is unavailable as well, it is possible for the business owners to rely on the “doctrine of frustration of contract.”
Basically, this means showing that an unforeseen event beyond the control of both parties has made the contract impossible to fulfil — in this case, being unable to make rental payments due to an unavoidable loss of business — and that it would be unfair to hold the tenants to the contract.
The business owner said to TOC, “We should have got more help from the [government] in handling the landlords.”
He continued, “The staff and business owners are uncertain if this closure will extend beyond a month, and taking risks such as seeking loans to tide over the closure is unthinkable.”
On 28 March, former Mediacorp DJ and now entrepreneur, Daniel Ong, took to Instagram to share the state of his food and beverage business and the mounting losses he is suffering as a tenant during this pandemic.
On his first post, Mr Ong pleaded with landlords in the country to waive rentals for two to three months given current situation, tagging major landlords that operate malls and business properties.
He explained, “Having your top line decline by 70-80% only means there’s no way we can sustain this. No matter how deep your pockets.”
He pleaded, “Give us a fighting chance. As at right now, we are not going to make it.”
In another post about an hour later, Mr Ong shared more details about his operating expenses per month and explained why using his current premise for other forms of business is not a viable solution to the problem.
He noted that suggestions to pivot to takeaway or online orders would not cover the cost of staff wages and rental which are S$40,000 and S$25,000 respectively.
He again pleaded with landlords to be merciful, “When times are good… we’ve just paid rentals that have doubled or tripled over the years. It’s a give and take relationship. Can you be on the other side for once?”
Petition crops up urging the government to step in
As tenant start to feel the financial pressure from this burden, a petition was started on Change.org urging the government to work with landlords to curb rental fees for businesses affected by the pandemic.
Comments on the petition illustrate how landlords are refusing to help their tenants.
Tsang Guan Quan said: “I’m signing because [my] landlord has refused to help us [and] we [are] no longer sustainable.”
Similarly, Zan Koh said, “Struggling with my business and the landlord has refused to reduce a cent for the rental after I approached him.”
Laura Chiu added, “Landlord doesn’t want to give a rebate unless I sign a new lease and my lease is unfortunately ending in May.”
Another person who signed the petition, Haden Hee, owns a restaurant and said that “if there is no freeze of rental in shopping malls during this period, the business won’t be able to survive past 2 months.”
Why the Resilience Budget doesn’t quite help business owners
Recently, Deputy Prime Minister and Finance Minister Heng Swee Keat announced the Resilience budget, a stimulus package to help Singaporeans during this economic downturn caused by the pandemic.
Unfortunately, most of the assistance seems geared towards helping out individuals. While the budget does offer a 100 percent rebate on property tax for landlords of commercial properties for the whole year that a business is affected by tourists, businesses in non-residential properties may just get only 30 percent.
The business owner speaking to TOC pointed out that if a property tax is based on 15 percent of rent, then landlords would get a saving of about 45 days of rent. However, it is up to the landlords to extend the help to their tenants. While the government has urged landlords to do so, tenants are ultimately at the mercy of their landlords.
The business owner suggested to TOC that even if the government were to offer a 25 percent wage subsidy during this time, entertainment outlets will still be unable to pay the rest of the 75 percent of wages as there is no revenue at all.
When the closure was announced on 24 March, business owners stayed cautiously silent over the matter until they received further details on what the government might have in store to help them out. However, when the budget was announced in detail on 6 March, it failed to address their concerns.
Possible solutions to ease the burden of business owners
While the Monetary Authority of Singapore (MAS), together with the Association of Banks in Singapore (ABS), the Life Insurance Association (LIA), the General Insurance Association (GIA), and the Finance Houses Association of Singapore (FHAS), have announced a package of measures on Tuesday to help ease the financial strain of loans and insurance premiums on individuals and SMEs caused by the COVID-19 pandemic. It does not address the ongoing issue of rentals by tenants.
One possible solution to this predicament is to have the government categorise the COVID-19 as a natural disaster, thus allowing tenants the option of invoking that force majeure exit clause. Right now, landlords are holding tenants to fulfil the terms of the lease even even when the latter have no income due to this sudden closure. Declaring the pandemic a natural disaster would place tenants on equal footing as their landlords.
Another option would be to have the banks defer the repayment period, similar to measures that other countries have already announced. This would protect landlords as well in this situation who are themselves beholden to banks due to loans.
What other countries have done to help businesses during the pandemic
In the United Kingdom, landlords are not allowed to evict their tenants in the case of non-payment for the next three months. These, and other measures that protect commercial tenants, are included in the emergency Coronavirus Bill that is currently making its way through the UK Parliament. This means that no businesses will be forced out of their premises for missing a payment in the stipulated period.
Meanwhile in Malaysia, banks are diving debtors a six-month grace period for non-payment. This was announced after the country’s announced an extended period of the movement control order (MCO) which is now slated to last until 14 April.
Bank Negara Malaysia (BNM) announced an automatic moratorium for all individual and small-medium enterprise loans for that period. While BMN announced that interest will continue to accrue on the referred repayments, some banks have announced that it will not be compounding interests on those loans.