COVID-19: Hotels & Leisure sector in Singapore secure temporary suspension of contractual obligations and rental relief under the COVID-19 (Temporary Measures) Act of 2020

By Sandra Seah, Eef Gerard Van Emmerik

04-2020

Tourism and leisure is a vital sector of Singapore's economy. Based on the latest Q3 2019 figures, the most recent before the outbreak of COVID-19, Tourism Receipts for that quarter alone stood at S$7.4 billion and hotel room revenue stood at S$1.1 billion. Singapore is also a popular MICE destination and is one of the world's top "meeting cities". 

COVID-19 has brought international travel to a stand-still and, as a testament to the current weak demand, it was announced that Singapore Changi Airport's Terminal 2, one of its 4 large terminals, will be closed for 18 months during this period. 

In response to COVID-19, Singapore's Parliament recently passed an emergency omnibus act, covering various temporary measures including mandatory social distancing, economic stimulus measures and rent relief. As part of the COVID-19 (Temporary Measures) Act ("COVID-19 Measures Act"), the hotels, leisure and tourism industry was singled out for special relief from legal obligations at this time. 

1. Deposits protected, cancellation fees waived

Meeting and event organisers often place substantial deposits to reserve event venues in Singapore, with such venues typically booked months in advance. 

Organisers may now find that those meetings and events cannot take place due to COVID-19, and face the prospect of having those substantial deposits forfeited. 

The new COVID-19 Measures Act has clarified that organisers will not have their deposits forfeited so long as the event is cancelled due to COVID-19. This measure applies retrospectively to all cancellations that occurred from 1 Feb 2020 onwards. Cancellation fees also cannot be levied by venue operators against organisers.

In the same vein, hotels and property owners who are not able to host events due to labour or other supply shortages arising from COVID-19 may also inform organisers and seek relief from performance on the basis of the COVID-19 Measures Act.

In order to benefit from the COVID-19 Measures Act, a party who cannot perform due to the pandemic needs to notify the other party in accordance with section 9 of the Act. Such relief is not automatic, and therefore parties should take proactive action to issue the notice.

The above applies not just to event and premises deposits, although these are likely to be the most common use of the relief measures. Any tourism-related contract where a deposit has been placed or a cancellation fee incurred can enjoy relief pursuant to the COVID-19 Measures Act.

2. Compromises or settlements before April 2020 to be honoured 

The COVID-19 illness had been circulating in a rather widespread manner around the world since January 2020; on the other hand, the COVID-19 Measures Act was signed into law in Singapore on 7 April 2020. During the interim period, many events and contracts have already been called off. 

As such, legislators are cognisant that parties involved in the tourism industry may have already come to an agreement, compromise or settlement on cancelled events and other tourism industry contracts.

Compromises or settlements that have already been agreed will not be affected by the COVID-19 Measures Act, and cannot be re-opened or re-litigated even if a party considers that they might enjoy a better outcome on the basis of the newly enacted Act's terms.

3. Hotel operators and managers will enjoy rent free periods from landlords 

Many hotel operators either lease buildings from or have entered into management agreements with building owners. 
The COVID-19 Measures Act orders all landlords to pass along certain property tax remissions (ordered as a separate economic stimulus) to tenants by way of lump sum, instalment payment, or, set-off against future rent payable under lease agreements

Landlords must also not subject the above payment to any condition (whether a condition precedent or subsequent), including any change to any term or condition of the lease or licence agreement with the tenant; and any such condition which the owner purports to impose is void.

Insofar as a hotel operator leases the premises, it will enjoy cost savings from the Singapore property tax remissions. 

For management contracts, it is presently unclear whether the remissions should be automatically passed along from the property owner or how such cost saving could be accounted for under a management contract. We recommend that hotel operators initiate discussions with building owners in this regard.

In the event of disputes relating to the transfer of the property tax remission, whether on the basis of a pure lease or hotel management arrangement, the owner or tenant may apply for the dispute to be heard and determined by a Valuation Review Panel pursuant to the COVID-19 Act. 

The deadline for review is not the usual 7 year limitations period, but much shorter, being 12 months after the end of the remission period.

If a party disagrees with the Valuation Review Panel, disputes may be appealed at the Singapore High Court level.

4. Temporary Relief from Rental Payments or Other Tourism Contract Obligations

As the hotels & leisure sector has been deemed by the Singapore government as exceptionally exposed to economic pain arising from COVID-19, commercial leases and tourism-related contracts have been specially designated as protected contracts under the COVID-19 Measures Act. 

As such, hotel tenants who are unable to pay rent may also seek relief by issuing a notice to the landlord that it is unable to pay rent. As a result of issuing such notice, the COVID-19 Measures Act will kick in such that the landlord cannot take action to evict such tenant for non-payment of rent during the COVID-19 period.

In the same vein hotel managers who are unable to meet their obligations to the building owner under the management contract, or essentially any other tourism industry business who faces problems with performing their obligations, can seek relief by issuing a notice to the other party. 

As a result of issuing notice pursuant to the COVID-19 Measures Act, a host of typical legal enforcement actions such as bringing a lawsuit, evictions and so forth will be suspended for the COVID-19 pandemic period.

Any disputes on such suspension of obligations can be referred to an Adjudication Panel, and as this is intended as a temporary measure typical legal dispute resolution mechanisms cannot be availed for this specific set of circumstances. 

Please note, the suspension relates to the COVID-19 period only, and once the authorities determine that the threat has passed and the economy is recovering, the suspension will be lifted. As such, we recommend pursue adjudication earlier in the process if it is unable to meet obligations rather than face the prospect of obligations suddenly falling due at the end of the special relief period.

This article is produced by our Singapore office, Bird & Bird ATMD LLP, and does not constitute legal advice. It is intended to provide general information only. Please note that the information in this article is accurate as at 13 April 2020. We will continue to monitor the situation and provide updates on any changes as soon as these are communicated to us. Please contact our lawyers if you have any specific queries.