Wednesday, 3 October 2007

Speech on the Land Titles (Strata) (Amendment) Bill: 20 September 2007

Until the Horizon Towers case broke, I didn't have that much of an interest in en bloc sales. I knew that there were huge amounts of money to be made, but that sort of speculation is not for me.

I also knew that there was a lot of anger and unhappiness, but I did not have much sympathy for majority sellers who had changed their minds or minority sellers who objected. I felt that majority sellers should have read the contract, obtained proper legal advice and/or thought carefully about their decisions, while a large part of me agreed with the urban rejuvenation objective of the collective system process.

Horizon Towers itself didn't change my mind -- it is hard to shake the feeling that the majority sellers had simply changed their minds, when the market skyrocketed after their sale. And that's exactly what I wrote in TODAY back in August.

But in the course of researching that article and finding out more about the process and what people were complaining about, I realised that there was a lot more to it than my over-simplistic instinctive feelings. There were very legitimate, very genuine questions about the way the system worked, and about whether practical reality was in sync with its fundamental objective and premise.

(And here, I must give a lot of credit to the Enblocing Singapore blog for doing so much legwork and providing so much resources -- props to Dr Minority for all the hard work he's done and continues to do!)

At the same time, my girlfriend's mother's estate has commenced on an en bloc sale. (There was some laughter when I declared that in Parliament -- I must say it wasn't without some embarrassment.) So I had even more reason to dig deep and think hard.

In the end, putting aside the "en bloc raiders" and the havoc they can wreak, and the fundamental merit of collective sales, I decided to focus on the central weakness that the amendments failed to address. The law as amended will strengthen procedural protections for owners. But it will still be completely silent on the question of apportionment.

As can be seen from my speech, this emphasis on procedural safeguards creates a loophole that permits what I would call a daisy-chain of reciprocal back-scratching to satisfy the law, without actually protecting anyone's interests. While I am heartened by the Deputy Prime Minister's assurance that he will look into this, I hope that his investigations will not be limited to feedback from the so-called industry stakeholders -- who are the very parties with vested interests in the first place.

As to his response to my suggestion for valuers to declare their business dealings with the marketing agent in question (that the valuer must be independent anyway, so the general meeting can question their bona fides), while it sounds attractive and simple in theory, the practice would be quite different.

After all, the valuer is being engaged to provide a valuation report, and as I understand it, that frequently takes place late in the process, i.e. once the approval threshold has been crossed. In other words, everyone knows that the valuer is being appointed to provide a report to support an application to the Strata Titles Board.

By that time, at least 80% of owners would, by definition, already have decided in favour of the sale. So why would they question the valuer put forward by their marketing agent, when it is in their interest to have a valuer endorse the method of apportionment that they have agreed to use?

The other point I found unsatisfactory concerns the nature of the sales committee. DPM made it very clear, that the amendments are not intended to change the nature (and hence duties and obligations) of the sales committee. I'm not sure if that is a sustainable position.

Previously, the sales committee could be self-appointed, with a shaky, murky basis in law. But now, the sales committee must be elected by the owners in a general meeting. Surely the fact that the sales committee is elected by the owners in a general meeting must count for something, and must have some implication at law.

I suppose at this stage, there is little else to do but to wait and see, if the amendments are sufficient to address the unhappiness surrounding en bloc sales. Let's just give them a chance first.

Speech on the Land Titles (Strata) (Amendment) Bill

Mr Speaker, Sir, I rise in support of the Bill. But first, I should declare my interest such as it is, in this matter. My girlfriend's mother's estate is currently undergoing a collective sale process.

Sir, there has been a great deal of attention on collective sales in recent months. The ongoing Horizon Towers case has shown up some of the inadequacies in the existing legislation. It is also a cautionary tale on the potential repercussions when things go seriously wrong.

At the same time, there is a lot of unhappiness with the status quo. From anecdotal evidence, a lot of owners are unhappy with the ongoing en bloc efforts in their respective estates. Some do not want to sell. Some feel that the proposed sale is unfair to them. Some believe that they will be unable to obtain an equivalent replacement unit in the current market.

And the unhappiness is not limited to locals. Expatsingapore.com is an online forum that is very popular to foreigners, and many of them have posted negative comments on the forum about their unhappy experiences, either as minority owners or as tenants forced to leave their "en bloc-ed" homes at very short notice.

All the shenanigans surrounding en bloc efforts have adversely coloured many foreigners' perceptions of Singapore as a safe, secure place, where the system works in a fair and transparent manner. It is not uncommon to see comments from foreigners about wanting to leave Singapore and never coming back, because of how they are being treated either as tenants or as minority owners.

That is the context within which this Amendment Bill is being debated. And this Bill is long overdue given the long simmering complaints about the current legislation.

Indeed, I understand that many developments have been rushing to obtain the requisite 80% approval threshold for their collective sale agreements before this Amendment Bill comes into effect. That is so that those sales will come under the current legislation, and avoid the new rules.

That is, to my mind, testament to several things: the extent to which the current rules are perceived to be "pro-sale", the extent to which the new rules are seen to correct that imbalance, and the blatant disregard of many collective sale committees (CSCs) for notions of fairness and the interests of minority owners.

Sir, there are many positives in the Amendment Bill. It creates a statutory footing for the sale committee as a committee elected by the management corporation in a general meeting. It injects a tremendous amount of sorely needed transparency into the collective sale process, a process that has come under severe criticism, criticism which, in my view, is wholly justified.

That being said, there remains a significant omission from the Bill. The Bill seeks to do a lot of things but they are primarily aimed at ensuring procedural fairness. The Bill does not appear to do much in terms of substantive fairness which, in this case, would centre around the method of apportionment of the sale proceeds. It is as if we are saying that it is enough for the form to be proper and nevermind the substance.

Apportionment of sale proceeds

In particular, the Bill fails to address the matter of apportionment of sale proceeds. That is possibly the single most contentious issue in an en bloc sale. Indeed, the Deputy Prime Minister had, in a written answer to my question provided on Monday, disclosed that this was one of the most common grounds of objections raised by minority owners to the Strata Titles Board.

Sir, I understand that all collective sales in Singapore adopt one of four methods of apportionment recommended by the Singapore Institute of Surveyors and Valuers. These four recommended methods are by:

(1) Share value;
(2) Strata area;
(3) Average of share value and strata area; and
(4) Valuation and share value excess.

The SISV also recommends "any other method" which sounds like an oxymoron to me. But I understand that "any other method" is commonly understood to mean any combination of the above four methods that is fair and equitable.

Unfortunately, the SISV does not also provide recommendations and guidelines on when each of the methods should be used. That has somewhat inevitably led to CSCs selecting the method which is most likely to achieve the requisite majority to approve a sale. There may be a perfunctory attempt at justifying the method being adopted but this is seldom satisfactory. Since the pot of sale proceeds is finite, the chosen method usually advantages the majority, to the detriment of the minority who are normally the owners of the bigger units.

It seems to me a little irresponsible of the SISV to recommend methods of apportionment without also providing detailed guidelines on how to apply them in a fair and equitable manner. It is tantamount to giving a loaded gun to a soldier without also providing the necessary training and guidance in its usage. Is it then any wonder that the recommendations are frequently abused in such a manner as to effectively oppress minority owners?

It is true that when the majority owners apply to the Strata Titles Board for a collective sale order, they have to include a valuation report on the matter of apportionment use. But this seems to be more an exercise of going through the motions than of truly independent and critical evaluation and consideration.

Let me just cite the example of a valuation report that I have seen. In this case, the report basically set out and described the different methods of apportionment, without any critical analysis of the applicability or suitability of each method to the development in question. The valuer then proceeded to state its recommendation, which just happened to be the method that the sale committee had already chosen.

The valuer opined, and I quote:
"In view of the above methods and having regard to all relevant information, we are of the opinion that the 50% share value and 50% strata area method is a fair and equitable method of apportionment. We also understand that this method of distribution has also obtained the endorsement of more than 80% of the owners in the Collective Sale Agreement."

There was no analysis, no explanation, no justification. Just a bald assertion that the method in question is a fair and equitable method, with a telling reference to the endorsement of the majority owners. No reference to the other methods of apportionment recommended by the SISV. No comparison of the relative merits of each method. No statement as to whether this method is more fair and equitable than the others, or whether any other method would be more fair and equitable.

Sir, if that is not simply going through the motion, I do not know what is.

It does not help that Singapore is small and the industry is small. Everybody knows everybody else. A valuer who provides a report that does not meet a marketing agent's requirements will probably not receive any more work from that agent and probably any other agent. Bearing in mind the critical role played by marketing agents in this entire process, including suggesting and recommending valuers for such reports, everyone has a vested interest in not rocking the boat.

Indeed, I have been told by a minority owner who was in the pro-tem CSC for his estate that the marketing agent in his case actually told him that the agents will always ensure that their regular surveyors are engaged and that their regular surveyors will always agree with their proposed method.

Sir, all this simply means that when it comes to the single most important issue in an en bloc sale, minority owners are left with little protection from the law. The law creates a mechanism that permits and facilitates the collective sale of estates which, in itself, represents a significant derogation from property rights in the first place. And then the law fails to go on to ensure substantive fairness. I personally believe that to be a major failing in the system.

Be that as it may, it seems to me that the Ministry has consciously decided to adopt an approach based primarily on procedural fairness. That being the case, I would ask that the Deputy Prime Minister consider an amendment to the legislation to require that all valuation reports submitted to the Strata Titles Board include a declaration by the valuer as to its relationships, if any, with any of the majority owners or the marketing agent handling that transaction and, in particular, the amount of business that it had done with that marketing agent in the preceding 12 months.

I also understand that the Senior Parliamentary Secretary, Ministry of the Environment and Water Resources, is the Chairperson of the Council of the SISV. I hope that she can provide the appropriate feedback to the Institute for their consideration and action.

If the SISV does issue well-thought-out guidelines, then a valuer would have to justify any deviation from or inconsistency with those guidelines. This would then help the Strata Titles Board to better evaluate whether the transaction is in good faith in relation to the method of distribution of the sale proceeds. This is the responsible approach and would do wonders for fairness and transparency in the collective sales process.

Increase in sale proceeds payable to objecting minority owners

Sir, I will now briefly touch on some other areas that I believe can be further refined.

Firstly, the Amendment Bill introduces a new provision that permits the Strata Titles Board to grant a collective sale order, subject to a condition that the sale proceeds must be paid from the proceeds of sale of all subsidiary proprietors, seems to me inequitable in that it penalises minority owners who do not file an objection. It essentially compels all minority owners to file an objection. If the minority owner does not sign the CSA but also does not file an objection, then he suffers a double whammy.

Firstly, the Board is not empowered to increase his sale proceeds.

Secondly, his share of the sale proceeds will be reduced, since he will also have to contribute to the amounts paid to objectors.

This seems unfair. After all, the majority owners are the ones who are keen and enthusiastic to complete the sale. So it only seems fair that they bear the cost of any additional payment to objectors. This is especially when they have the choice of whether to agree to making such payment, through the requirement for the CSC's consent.

Furthermore, the aggregate cap on the sum that the Board may order seems overly low. Collective sales typically involve payouts to owners in millions. 0.25% of $1 million is only $2,500. Any increase in the amount payable to objectors that is ordered by the Board will not be meaningful. Given that the consent of the CSC is required, there seems no reason why the aggregate cap should be so low, since the CSC can always withhold its consent if it feels that the amount being ordered is too high.

Collective sales committees

Secondly, the Amendment Bill goes a very long way towards resolving the ambiguities and uncertainties surrounding the selection of the CSC. But some issues remain.

For instance, the CSC is now a committee elected by the subsidiary proprietors at a general meeting of the management corporation. But the amendment Bill does not set out the extent of control that general meetings can have over the CSC, such as the power to issue directions to the CSC. The Bill also does not provide for the situation where all CSC members resign, as has happened with Horizon Towers.

In addition, the Amendment Bill leaves the nature and duties of the CSC hazy. Do CSC members have a duty to act in the best interests of all subsidiary proprietors, or only those who have signed the CSA? Does a CSC member even have any duty to act in the best interest of anyone other than himself or herself?

And for whom do the solicitors and the marketing agents act? To whom do they owe their contractual and fiduciary duties? The CSC? The management corporation? All subsidiary proprietors? Or only those owners who have signed the CSA? This latter point is especially important with respect to solicitors, because it would then guide them in their discharge of their duties. It seems from anecdotal evidence that some solicitors behave as if they are only acting for the CSC while other subsidiary proprietors believe that the solicitors are acting to protect their own best interests. This is not a desirable state of affairs.

Sir, these issues are not addressed in the amendment Bill. Perhaps they are governed by other areas of law, in which case, I would be grateful if the Deputy Prime Minister would clarify the position.

Mixed developments

Thirdly, the Amendment Bill specifies that a motion at a general meeting of a management corporation for the purposes of a collective sale shall be decided by the value of votes cast for and against that motion. It goes on to explain that the value of a vote is equal to the share value. That is in paragraph 10 of the proposed new Second Schedule.

This may create a back-door through which owners of commercial units in mixed developments could oppress owners of residential units. The Bill introduces an additional approval requirement, ie, 80% or 90% for developments younger than 10 years, of owners by floor areas. This additional approval requirement is meant to address the common situation in mixed developments where commercial units have very high share values in comparison to residential units.

But requiring motions at general meetings to be decided by votes based solely on share value may result in commercial owners controlling the CSC, to the exclusion of residential owners. While residential owners are still entitled to withhold their approval from the sale, this seems very similar to the current situation where majority owners control the CSC and minority owners are not represented, which would lead to the very situations of animosity and unhappiness that this Bill seeks to avoid.

Appeals against decisions of Strata Titles Board

Finally, the Strata Titles Board is a tribunal constituted under the Building Maintenance and Strata Management Act (BMSMA). Under the BMSMA, decisions of the Board may be appealed to the High Court only on questions of law. In other words, questions of fact cannot be appealed to the High Court.

The Bill introduces a new rule permitting the Strata Titles Board to ignore procedural defects and errors in an application for a collective sales order where such defects and errors do not prejudice the interest of any person. The question of whether the interest of any person has been prejudiced is a question of fact. Under the proposed new rule, the Board's decision on that question of fact will not be subject to appeal.

Considering that this decision of the Board could well be critical in determining whether a collective sale order is granted, I would suggest that it may be appropriate to reconsider the provisions of the BMSMA excluding appeals to the High Court on questions of fact.

Conclusion

Sir, the collective sale mechanism has been highly controversial in recent months. It was introduced for the objective of ensuring urban rejuvenation by the private sector. It obviates the need for compulsory acquisition by the Government of decaying estates.

I think the jury is still out on whether collective sale is good for Singapore on the whole, given that it is essentially a balancing exercise between the need for urban rejuvenation, the economic use of land, and our interest as a society in preserving our physical and architectural heritage, our memories and our sense of rootedness. Here, I would echo the comments of my parliamentary colleagues who have spoken before me about the importance of maintaining memories and a sense of community. But I think we are past that, and that is not what we are debating today.

Indeed, the figures released by the Deputy Prime Minister earlier this week suggest that the collective sale process has been meeting its objective of urban rejuvenation. The average age of all developments which applied for collective sale from January 2005 to end-August 2007 was 25.9 years. Having said that, this figure should be monitored on an ongoing basis, as any dip in this figure may indicate that the collective sale process is being used, not for urban renewal, but for the maximisation of economic value of estates, regardless of their condition. Any such indication would merit further discussion on whether it is a healthy development and whether it is desirable for the en bloc process to be used for such purposes.

Given that collective sales are here to stay in Singapore, it is incumbent on Parliament to ensure that we properly balance and protect the interests of competing groups of property owners. This Bill is long overdue in how it implements a long-overdue regime to govern the procedural aspects of the process.

Having said that, the Bill fails to address a central issue of apportionment of sale proceeds, as well as a few areas that I have discussed. Whether collective sales will continue to be dogged by the anger and unhappiness that have clouded so many in recent months bears monitoring. If they do, then it is clear that this Bill has been insufficient, in which case I trust that the Ministry will revisit the statute and reconsider the need to address the issues I have discussed, in particular, that of apportionment.

Sir, with that, I support the Bill.

Response by the Deputy Prime Minister (extracts)

[...]

Mr Alvin Yeo asked several questions about the sale committee, scope of its duties, whether it has fiduciary duties, and Ms Irene Ng also asked about that. Mr Siew Kum Hong likewise asked for the nature of the sale committee, the rights and duties, what kind of duty of care that they have to act and in whose interest.

[...]

Our policy intention in introducing these changes is to instill some order and transparency into the various processes. That is the major intention. So, to that end, we have structured the manner in which the sale committees are formed, how they may function and so on. It is not our intention, in these amendments, to change the substantive law regarding their potential duties or liability, whether under common law, or as Ms Irene Ng asked about lawyers, whether under the law governing advocates and solicitors, it is not the intention of these provisions to change the substantive law concerning these matters. Whatever the legal position is, it will remain the same.

[...]

Mr Siew Kum Hong expressed his unhappiness with the guidelines, especially the guidelines issued by SISV, on how proceeds should be apportioned or distributed. I would look into this. But let me say that we understand that the SISV is working on refining valuation guidelines which are often used when valuers are asked to determine apportionment in sale proceeds. Of course, we are not able to specify in the law a standard apportionment method because there are a multitude of factors to consider in deciding on a single method of distributing the sale proceeds, including share value, size of unit, market value, and so on. So it would be very difficult to specify one standard method that you could apply to all sizes, designs and types of developments. But I take his point about the guidelines, and we will have discussions with the SISV.

Mr Siew Kum Hong also asked about the provision permitting STB to order an increase in payment. I think his view was that it is inequitable to order the increased payment to be paid by all subsidiary proprietors. It is not inconsistent with the provisions in the existing law because just as all owners contribute towards the fees incurred for en bloc sale, it is not unfair for them to contribute towards an increase in the sale proceeds ordered by STB. But this is why we have kept the maximum amount that an owner may potentially have to contribute as 0.25% of the sale proceeds, or $2,000, whichever is higher. Individually, it may be a small amount - Mr Siew made the point that it is a small amount - but collectively, it will give the STB a fairly meaningful amount which it can use in cases where it is satisfied that it is inequitable to do so.

Mr Siew Kum Hong also talked about having motions at the general meeting of the MC to decide on the basis of share values, and he thought it derogates from the benefits of the new requirement of the 80%/90% decision to have en bloc sales. The additional requirement of the area is actually to address the specific problem of residential owners holding less share value, despite owning a substantial floor area when it comes to deciding whether to sell the development en bloc. In dealing with that specific issue, we have decided that we should not alter the fundamental basis by which decisions are made at general meetings in a strata development. Even if, as Mr Siew Kum Hong pointed out, commercial owners were to dominate at the general meeting, they will still need to comply with all the procedures and requirements which we have set out in the Schedules and hold the required meetings to keep all owners informed.

Mr Siew Kum Hong also talked about appeals against STB's decisions. At the moment, it is currently limited to questions of law. I think he proposed whether it is time to consider removing that restriction. When we first enacted the provisions on en bloc sales by majority consent, we had to address this issue. We decided then that the Strata Titles Board, not the courts, would be the appropriate body to hear the application and objections as they would invariably be non-legal issues which lend themselves more to mediation rather than adjudication by the courts. We think this is still the case. As most objections relate to claims of financial loss or transactions not made in good faith, they are not really legal issues which lend themselves to adjudication by the courts. Also, allowing appeals on non-legal points, I think would lead to unnecessary delays in the whole en bloc process.

I think the final point raised by Mr Siew Kum Hong is whether the valuer should declare his interest, say, with the marketing agent. Here, it is noted that our new provisions already provide that there must be an independent valuer, independent in the sense that he must not have an interest in the en bloc development. In any case, the owners in the general meeting convened to appoint a marketing consultant and valuer can still require that they disclose this and other interest.

2 comments:

fluffsTer said...

Kum Hong, for this and all your other efforts at trying to make Singapore a better place, I thank you from the bottom of my heart. You don'thave to, but you fight these battles all the same. I only wish more people here would wake up from their apathy and stop being comfortable where they are. People like you renew my faith in humanity.

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