Renegotiation of Contracts: Re-Align Framework

The Re-Align Framework announced by the Ministry of Law on 10 December 2020 will allow small and micro businesses significantly affected by the COVID-19 pandemic to renegotiate certain types of contracts with their counterparties (the “other party”). If parties are unable to successfully renegotiate, the framework provides for the termination of the contract.

When will you be entitled to relief?

If your business (including companies and Limited Liability Partnerships) has

1. annual revenue not more than $30 million dollars at a global group level; and
2. experienced at least a 70% fall in monthly average gross income between July to December 2020 compared to between July to December 201s

For Non-Profit Organisations, relief is available to you if your NPO falls under the following categories:

• A registered or exempt charity;
• A member of the National Council of Social Service;
• A national sports association;
• A national disability sports association;
• A specified arts and culture society; or
• A specified trade association

Conditions:

1. The contract is governed by Singapore law;
2. The contract is entered into before 25 March 2020;
3. One party to the contract has a place of business in Singapore; and
4. The contract is a specified contract which has substantial obligations that require renegotiation or restructuring

Your contract is a specified contract if it falls under the following categories:

• A lease or licence for non-residential immovable property which have a term of not more than 5 years.
• A hire-purchase and conditional sale agreement for commercial equipment or vehicles. (Excluding those entered into with banks and finance companies).
• A rental agreement for commercial equipment or vehicles.
• The contract is for the supply of goods and services.

Contracts not falling within the above categories are excluded from the framework. These include consumer contracts, employment contracts, insurance contracts, etc.

Relief provided and how to apply for relief

If you think you are eligible, please serve the Notice of Negotiation (“NoN”) on the other party to the contract and all other required parties between 15 January to 26 February 2021. After which, there would be a 4-week Negotiation Period (“Negotiation Period”) starting the date of the NoN where parties can renegotiate terms of the contract or the terms of termination of the contract.

Following successful renegotiation, the terms of the contract may be amended or termination of the contract on the agreed terms.

Unsuccessful Renegotiation of terms of contract

If the renegotiation of terms is unsuccessful, there are three courses of action which can be taken by the other party can take during a 2-week Objection Period (“Objection Period”) following the end of the Negotiation Period.

a). The other party may object your eligibility for relief

The other party may lodge and serve a Notice of Objection on 1 of the following grounds:

1. The contract is not a specified contract or is a contract of national interest
2. You do not satisfy the eligibility criteria for relief
3. The NoN was not served in the proper manner
4. If the other party is a landlord, he may wish to seek compensation from you

b). The other party may lodge and serve a Notice for Compensation on the relevant parties.

The other party does not object to your eligibility for relief

c). Where the other party accepts your eligibility for relief under the Framework, he does not need to serve and lodge a Notice of Objection. If nothing is served and lodged, the contract is deemed terminated 2 days after the end of the Objection Period or on a mutually agreed date.

If the contract is terminated under the framework, a set of default terms applies. This would generally include that you will not be liable for future obligations after the date of termination, subject to exceptions. However, accrued obligations are not discharged.

In the event the parties are unable to agree on the terms of termination under the contract, the procedure is stated in the next paragraph.

Unsuccessful negotiation of terms of termination of contract

If the parties are unable to agree on the consequences of termination, either party may serve and lodge a Notice of Adjustment within the specified time to seek an Assessor’s determination on the adjustment of rights and obligations under the contract on a just and fair basis.

After the Assessor has made a determination, it cannot be appealed against and it is binding on all parties to the contract and their assignees.

Contract Affecting Essential Services and National Interest

A contract Affecting Essential Services and National Interest cannot be terminated under the Framework. However, renegotiation of the price of the contract is still available by serving a Notice of Negotiation for Contract of National Interest. Where renegotiation fails, the party seeking renegotiation may lodge a Notice of Repricing with the Registrar to seek an adjustment of the price by an Assessor.

A contract is considered Affecting Essential Services and National Interest:

• If the contract is terminated, it will likely affect essential services or the Government or public authority’s ability to carry out its functions; and
• The contract is certified as a Contract of National Interest by the relevant Minister

The process for serving and lodging a Notice of Negotiation for Contract of National Interest can be found here: https://www.mlaw.gov.sg/realign/process-essential-services

Landlord Hardship Relief

In the event of an early lease termination by a tenant under the Framework, the landlord is eligible for hardship relief/compensation if:

1. The landlord is an individual, a sole proprietor or a holding company of individual(s) and/or sole proprietor(s).
2. The landlord depends on rent for a significant portion of his income, such that the average monthly rental income from the property is more than 50% of his monthly average income.
3. The landlord’s annual individual income does not exceed S$107,500.

If you think you are eligible for the hardship relief and has been served with the Notice of Negotiation, you may serve and lodge a Notice for Compensation.

Repayment Scheme for hirers and renters of commercial equipment

The repayment scheme is available to hirers and renters of commercial equipment and vehicles to pay outstanding arrears and installments under the Framework as an alternative to termination. The following are eligible contracts:

• A hire-purchase or conditional sales agreement for commercial equipment or commercial vehicles which are not entered into with a bank or finance company
• A rental agreement for commercial equipment or commercial vehicles.

Do note that if you believe you are eligible for the repayment scheme, you may serve the Notice of Revision on your financing or leasing company and required parties between 15 January to 26 February 2021.

If you require assistance regarding an identical issue or have any questions regarding the preparation of a Notice of Revision, please contact us.

Please note that this article does not constitute express or implied legal advice, whether in whole or in part.