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.
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4 comments:
Dear Mr Siew,
Many thanks for your piece to Weekend which I found very thoughtful. My estate has been sold off collectively, much against my wishes. I was in the sale committee before I had to resign (I disagreed with the sale but the CSA required that all SC members sign the CSA within 2 weeks of 1st signature). Since then, I have started my own blog which centred on educating minority owners of their rights, the predicaments, the implications and consequences of enbloc sales. It also served as a support site for other minority owners who felt left in the dark by their own pro-sale neighbours and sale committees.
I have responded to your particular post with my own experiences as well as feedback I've gained from corresponding to others in similar situations. Do have a look at it as I value your constructive feedback.
enblocsingapore.blogspot.com
To dr minority: I've looked at your blog. I would say that your points are probably valid, and hopefully the proposed legislative reforms will go some way towards addressing them. But on the other hand, I don't think it would be healthy for the legislation to be overly-prescriptive. So a balance needs to be struck.
Also, my own sense is that sellers really need to do more and stand up more. If you do not want to sign, nothing in the world can make you sign. I agree that it could all end up being a moot point, since an 80% majority can still obtain a collective sale order. But that goes to the very heart of the legislation, which is a different discussion.
>>Also, my own sense is that sellers really need to do more and stand up more. If you do not want to sign, nothing in the world can make you sign.<<
This is premised on the idea that sellers know the law, procedures, rights and consequences of a collective sale. Something that isn't easy to achieve given that the only sources of information sellers have are (a) agent presentation (b) Statutes. For sellers who have been through multiple enbloc sales, they are more aware of the protocols, but for a vast majority who are encountering an enbloc sale for the first time, information is very thin (and biased in the context of (a)).
One also has to be made of stern material to stand firm in face of pressures to sign :) I've seen a colleague, staunchly against the idea that her home will be gone in a year's time, refusing to sign about 6 mths back. Now she's resigned to it (place has been sold subject to STB approval) and is on the verge of caving in. It wears one out, knowing yet not knowing what will happen to your home.
Re overly-prescriptive legislation (maybe it's just me, but isn't that an tautology?).. Given that legislation is an evolving creature, I can only hope that the current flaws can be corrected to strike a balance not only on the level of prescription but on the level of fairness for all home owners.
Many thanks for responding. Having read some of the other postings in your blog, it is obvious you are of stern material :)
To dr minority: Yes, I have heard and read accounts of how tough it is to be an objecting owner in the face of overwhelming pressure from majority sellers. And I have a lot of sympathy for people in that position. I don't know what can be done though, apart from bemoaning the sheer ugliness that unadulterated greed brings out in some people.
You say that "sellers [have to] know the law, procedures, rights and consequences of a collective sale" before they stand up. Well, what is stopping them from reading up themselves, doing their own research, even just reading your blog? Or if they are lazy, engaging a lawyer? When your home is at stake, isn't spending a few thousand dollars a small price to pay? Yes, it is not ideal and probably unfair, to be forced to spend money to defend one's rights and home. But what is the alternative? If someone tells me that he lives in a condo yet he is unwilling to spend a few thousand bucks for professional advice to help him protect his own home, then my own inference from that is that he doesn't want to protect it badly enough. And then I have limited sympathy if he loses his home against his will.
It is always open to people to resist and to fight. Often it is an uphill task. But then people just have to ask themselves -- is it worth it? If it is worth fighting for, then fight, and put in the resources and effort to put up a good fight. Otherwise, the conclusion must be that it is not worth fighting for.
I think the unfortunate reality is that the law reforms will address some of the problems with the status quo, but not all. But I promise you, if/when the time comes to speak on this in Parliament, I will definitely speak up.
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