TODAY asked me to write this one, and it's a bit of a hot potato. I knew that when I started on this piece. It seemed to me quite likely that I'd end up offending everyone in some way.
En bloc is an incredibly emotive issue, and understandably so. I'd be mad as hell if I had to sell my house when I didn't want to. The stories of coercion and underhanded methods highlight the unpleasantness when sheer, naked greed gets out of hand. Add to that the envy, even jealousy, of common people without the means to ride on this apparently surefire gravy train, and you have a very potent mix indeed.
The Horizon Towers case places many of those elements front and center. There is a lot of money at stake -- the big bucks due to the sellers back in February have now been eclipsed by the bigger bucks that the buyers would have already made if the sale had gone through, thanks to the market's exponential rise. There is jealousy, of the neighbouring Grangeford which parlayed a four-month delay into a deal more than twice as sweet.
And there is suspense aplenty, now that the owners have decided not to extend the deadline for the Collective Sale Agreement (if I remember correctly from the news reports, it would have expired on 11 August 2007). That decision, coupled with the decision to appeal the Strata Titles Board's decision, means that the owners are betting that the High Court would reverse the Board's decision (which would mean that the sellers have not breached the Sale and Purchase Agreement with the purchasers), but that any such reversal would not result in the sale being consummated at the original price.
That's a bit of a gamble. Firstly, the Board has not released its grounds for decision, which means that the owners could not possibly evaluate the chances of success with that much certainty. Secondly, under the Building Maintenance and Strata Management Act, decisions of the Board can be appealed only on a point of law. This means that if the Board had based its decision on a finding of fact (as opposed to a point of law), that finding of fact cannot be appealed. Finally, based on my brief skim of the relevant legislation, it is not clear to me that the High Court would, if it does decide to reverse the Board's decision, not at the same time grant an order for collective sale, since the original application would then have been good in law and was made before the expiry of the SPA.
On a more general note, I'm not personally convinced that the objective of continual urban rejuvenation warrants the heartache and psychic costs of en bloc processes. A recent Straits Times article on some landmark estates that are being torn down raises very valid issues as to the destruction of our physical memories and architectural heritage.
And in many ways, it becomes self-fulfilling -- the very statutory mechanism designed to ensure renewal, which as I understand it is unique in the world, destroys the incentive for home-owners to maintain their estates, since they know that they can simply cash out of a decrepit estate through a collective sale if the property market allows.
It's quite clear that the status quo is unsatisfactory on so many levels and in so many aspects. When the Ministry of Law conducted its public consultation exercise on legislative reforms back in April and May, it stated its expectation that the amendments would be enacted by Q3 of this year. Well, we only have two Parliamentary sittings left (in August and September) if that target is going to be achieved. It would not come a moment too soon.
Now for a closer look at the law
Weekend • August 11, 2007
Siew Kum Hong
WHAT a difference six months make. The Horizon Towers collective sale grabbed headlines with its benchmark-setting pricing, but later soured when the neighbouring Grangeford was marketed (and eventually sold) at more than double the price on a per square foot of potential gross floor area basis.
In the past week, the elation greeting the dismissal — the first in seven years — by the Strata Titles Board (STB) of the application for a collective sale order has turned to worry and fear in the face of threatened lawsuits.
The STB has yet to issue the grounds of its decision or to provide any details other than that the application was dismissed "on technical grounds".
Still, solicitors for the purchasers — Hotel Properties Limited, Morgan Stanley Real Estate and Qatar Investment Authority — have wasted no time in issuing a letter of demand to the majority sellers for allegedly breaching the sale and purchase agreement (SPA), in failing to make a proper application for the collective sale. Clearly, this move was all about money — and there's a lot of it.
Since the deal was struck in February, the property market has skyrocketed. The buyers' paper gain is estimated at between $800 million and $1 billion, representing returns of 160 per cent to 200 per cent after just six months.
As Senior Counsel K Shanmugam, representing the buyers, told Channel NewsAsia: "It's a substantial loss."
The STB dismissal and the subsequent legal maneuvering will have sent reverberations throughout the entire en bloc market in Singapore.
Fundamentally, it drives home the point to prospective en bloc sellers that, just like any other commercial transaction, there are very real commercial and legal risks in collective sales.It is a truism that risk and rewards go hand in hand, and collective sales are no different.
And the risks are heightened when such huge sums are at stake.
The 173 majority sellers in Horizon Towers are finding this out the hard way — while each seller stood to pocket $2.3 to $4 million from the sale, they now face up to $5.78 million each in potential liability. To be fair to the buyers, they also undertook risks in the blockbuster deal.
The figure $500 million might look like a bargain now, but it set a record back in February. If the market had crashed in March, few would have sympathised with the buyers for their paper loss. What is sauce for the goose must also be sauce for the gander.
After all, it was an arms-length transaction with all parties having their own professional advisers. When so many millions are at stake, it is only fair to treat all parties involved as big boys able to protect their own interests. It seems disingenuous to me, for en bloc sellers to claim they were not aware of their legal obligations.
With so much at stake, inexperienced sellers could and should have engaged lawyers to advise them personally. It is the sellers' own responsibility to ensure they understand all their liabilities and comply with all legal obligations.They also could and should have negotiated for terms they are comfortable with.
If a seller is uncomfortable with the collective sale agreement (CSA) which binds the sellers collectively, he or she could always not sign it. If the concern is over the SPA with the purchaser, then a seller can seek to impose greater controls and oversight over the actions of the sale committee before signing the CSA. It is difficult to sympathise with a seller who sees only the promised dollar signs and signs without fully understanding its implications.
These include a seller's potential liability to purchasers for another seller's default under the SPA, or the typical obligation under the CSA to indemnify the other sellers for losses arising from his or her own breach.
The next developments in Horizon Towers will be very keenly-watched.
While I would not underestimate the buyers' resolve to pursue legal action, actual litigation would not be in anyone's best interest and is hence unlikely. The two prior dismissals by STB in 2000 are instructive — in both cases, the majority sellers succeeded on the second try.
What is indisputable, however, is that there is an urgent need for perceived deficiencies and controversies in the existing law to be resolved. The Law Ministry had conducted a public consultation exercise on this earlier in the year. Even though the en bloc market may be slowing down, legislative reform in this area — such as clarifying how sales committees are appointed — would still be none too soon.
The writer is a Nominated Member of Parliament and corporate counsel, commenting in his personal capacity.