Covid-19 (Temporary Measures) Act 2020 enhanced to cover contracts with housing developers, prohibit unilateral increase of charges: Allen & Gledhill

18 May 2020

The Ministry of Law (“MinLaw”) has implemented, effective 13 May 2020, enhancements to temporary relief under the Covid-19 (Temporary Measures) Act 2020 (“Act”). In summary, the types of contracts covered under the Act have been extended to contracts relating to the purchase of homes made with housing developers, and a prohibition has been included against the unilateral increase of charges.

To effect the enhancements, the Schedule to the Act has been amended by the Covid-19 (Temporary Measures) Act 2020 (Amendment of Schedule) (No. 2) Order 2020 which adds two new contracts to the list of contracts covered by Part 2 of the Act. These are options to purchase (“OTPs”), and sale and purchase agreements (“S&P Agreements”) or agreements for lease (“AFLs”) for residential property between housing developers, namely, private housing developers and the Housing & Development Board, and buyers. The Covid-19 (Temporary Measures) (Temporary Relief for Inability to Perform Contracts) Regulations 2020 have been amended by the Covid-19 (Temporary Measures) (Temporary Relief for Inability to Perform Contracts) (Amendment) Regulations 2020 to prohibit additional actions relating to the unilateral increase of charges in respect of all types of contracts set out in the Schedule to the Act.

The measures in Part 2 of the Act, which deals with temporary relief for inability to perform contracts, took effect from 20 April 2020, and will last for six months (i.e. until 19 October 2020) in the first instance (“relief period”).

Inclusion of OTPs and S&P Agreements/AFLs

An OTP is granted by a housing developer to an intending buyer for the purchase of residential property. OTPs generally provide for the payment of a certain portion of the purchase price when the OTP is exercised. An S&P Agreement or AFL is granted by a housing developer to a buyer for the sale and purchase of residential property. In a press release issued on 13 May 2020, MinLaw stated that since the Act commenced, it has received feedback that some buyers who have entered into such contracts have difficulties making payments because of Covid-19, and stand to lose their booking fees or deposits as a result.

Seeking relief

Like other contracts covered by Part 2 of the Act, for relief to apply, these contracts must have been entered into before 25 March 2020, with the contractual performance due on or after 1 February 2020, and the inability to perform the contractual obligation has to be materially caused by a Covid-19 event. However, the relief does not apply to any actions already taken before 13 May 2020.

MinLaw encourages the buyer or intending buyer to seek an extension as needed from the developer in the first instance. If the buyer or intending buyer and developer are unable to agree on the terms of the extension, or if negotiations with the developer are not possible, the buyer or intending buyer may apply for relief by serving a Notification for Relief (“NFR”) in the prescribed form on the developer.

Where the contract is an OTP, the developer will then be prohibited from withholding or forfeiting any part of the booking fee paid under the OTP during the relief period.

Where the contract is an S&P Agreement or AFL, the developer will then be prohibited from terminating the agreement on the basis of the buyer’s non-payment. However, it should be noted that:

relevant payments (e.g. down-payment and progress payments) under the S&P Agreement or AFL continue to accrue and remain payable after the relief period; and
if the buyer terminates the S&P Agreement or AFL, the developer may still forfeit payments, if such a course of action is provided for in the S&P Agreement or AFL.

Housing developers may also serve an NFR to seek temporary protection from being sued during the relief period if they are unable to perform any contractual obligation due to Covid-19.

The details on the process for serving an NFR and the conditions and framework for how disputes are to be resolved under the Act, which will apply in the instance of these contracts, may be found at www.mlaw.gov.sg/covid19-relief. Parties are encouraged to discuss and reach a mutual agreement. Should a compromise not be reached even after an NFR is served, either party to the contract may make an Application for an Assessor’s Determination. The Assessor will consider both parties’ arguments, and will seek to achieve an outcome that is just and equitable in the circumstances.

Where the Act does not apply

The Act does not apply in any of the following cases:

Contracts where the seller is not a housing developer (e.g. a reseller).
Cases involving non-residential property.
The inability to make payment is for reasons unrelated to Covid-19.
The payments under the contract were due before 1 February 2020.
The OTP booking fee is already forfeited, or the S&P Agreement or AFL is already terminated before 13 May 2020.

Prohibition of unilateral increase of interest rates, charges, and other types of actions

In circumstances where an NFR has been served, the Act has been enhanced to prohibit the increase of any charges or interest rates payable under the contract, unless (i) the increase is specified in the contract or was the result of a formula or reference rate set out in the contract, (ii) the increase relates to a charge that is provided in the contract in relation to the recovery of expenses reasonably incurred in the ordinary course of business, or (iii) the party unable to perform agrees to the increase.

This enhancement to the Act resulted from queries and feedback received by MinLaw that some parties were seeking to impose additional interest and charges for late payment that are not provided for in their contracts, even though an NFR had been served. MinLaw has reiterated that among other things, the Act gives certain non-performing parties temporary relief from making payments. In such a situation, landlords, for example, are not permitted to unilaterally increase interest rates or impose new charges on delayed payment, in order to prevent or discourage parties from seeking the relief granted under the Act.

It should be noted that the prohibition against the increase of any charges or interest rate payable under a contract extends to all types of contracts set out in the Schedule to the Act. The Covid-19 (Temporary Measures) (Temporary Relief for Inability to Perform Contracts) (Amendment) Regulations 2020 further prohibit, for the duration of the relief period, upon service of an NFR, the following:

Imposition of new charges under the contract without the further agreement of the non-performing party.
Requiring any part of a security deposit given pursuant to the contract to be replaced by the non-performing party except with the further agreement of the non-performing party.

Reference materials

The following materials are available on the MinLaw website www.mlaw.gov.sg:

The following subsidiary legislation is available on the Singapore Statutes Online website sso.agc.gov.sg:

Further information