ST: Selling en bloc: New rules will help improve process - 02 Sep 07

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Sep 2, 2007
Selling en bloc: New rules will help improve process
Proposed changes aimed at addressing concerns of transparency and
clarity in conduct of sale
By Joyce Teo, Property Correspondent

WHILE the collective sale boom that has been on the boil here for
two years has enriched many Singaporeans, others have been left
angry and frustrated by the process.

Many claim that the collective sale process could be made clearer
and more transparent with the major players more accountable.

Last week, the Government proposed a raft of changes aimed at
addressing many of these concerns.

Additional consent requirement

Now: An estate may be sold only if there is consent from owners
representing a minimum set percentage of the overall value of shares
in the development.

This stands at 80 per cent if the condominium is older than 10
years; 90 per cent if less than 10 years.

Change: A new level of consent requires approval from owners
representing at least 80 per cent of the building's area if the
development is more than 10 years old, or 90 per cent if it is less
than 10 years old.

This differs from a proposal mete in March, in which majority
consent would have been required based on the number of units.

Why: This is aimed at addressing the imbalance in voting rights in
some mixed developments.

The share value in a mixed development is generally 1:4:5 for
residential, office and shop units respectively, which means that
office and shop owners tend to get a greater weightage of voting
rights.

Collective sale committee

Now: Owners can start a collective sale attempt any time by forming
an ad hoc sale committee and there are no rules on the procedures.

Change: A collective sale committee, with not less than three
members or more than 14, can be formed only if more than half of the
owners present at a general meeting of the Management Corp agree.

The period of notice for a general meeting to decide on and appoint
a sale committee will be specified.

Anyone standing for election to the sale committee must declare his
interest or relationship, if any, with a developer, property
consultant or law firm.

Why: Many owners have complained that they were not consulted on
whether to start a collective sale in their estate or on the
formation of a committee.

The change means a collective sale attempt can start only if the
owners have discussed the matter at a general meeting and agreed to
proceed to explore possibilities of a sale. The notice period
ensures that all owners will get sufficient warning of the meeting.

Now: No rules on who can be in the sale committee.

Change: A person standing for election must be an owner or a nominee
of an owner. However, co-owners cannot be elected at the same time.

The person must also be subject to the same criteria as for those
standing for election to the Management Corp Council. For example,
he must be at least 21 years old.

Why: This ensures that the sale attempt is driven by responsible
persons who are owners. It also ensures that a single owner - who
may own more than one unit - cannot dominate a sale committee.

Now: No rules on the number of sale committees that can exist
concurrently.

Change: Only one sale committee can exist for a development at any
one time.

Why: Some developments have more than one committee pursuing a sale,
which creates confusion for owners.

Now: No restrictions on a sale committee's lifespan.

Change: The committee's role will cease when the collective sale
agreement lapses.

Why: This means a committee cannot persist in making sale attempts
when the majority of owners are no longer interested in selling en
bloc.

Now: Uncertainty over whether the sale committee can use Management
Corp funds.

Change: A sale committee can not use Management Corp funds for its
activities except to convene general meetings.

Why: This means majority owners have to come up with the money for
any pre-sale preparations such as the valuation report.

Now: Uncertainty over whether the sale committee has the mandate to
appoint the property consultant and the lawyer.

It typically chooses the consultant and the lawyer without
consulting or informing owners, and owners are deemed to have
signified their agreement to the sale committee's choices when they
sign the agreement to sell.

Change:Unless otherwise decided at a general meeting, a sale
committee can select a property consultant and a lawyer. However,
before deciding, the appointments must be considered at a general
meeting.

Why: Clarifies the step of selecting the consultant and lawyer thus
keeping owners in the loop.

Now: No requirement for minutes of sale committee meetings to be
displayed or sent to owners.

Change: A sale committee must either (a) display minutes of its
meetings on a notice board within seven days and for at least 14
days; or (b) pass the minutes to all owners within seven days of
each meeting.

Why: Some owners have complained about being kept in the dark on the
sale process. This would fix it.

This can be tedious, though owners can choose to get a third party
for the job, which would add to pre-sale costs.

Now: Sale committees are not required to meet owners to discuss the
apportionment formula, appointment and fees of lawyers and property
consultants, and terms and conditions of the collective sale
agreement and sale and purchase agreement.

Change: A sale committee must discuss the apportionment formula, the
appointment and fees of lawyers and property consultants, and terms
and conditions of the collective sale agreement and the sales and
purchase agreement at a general meeting.

Why: This is to ensure that owners get the opportunity to discuss
key issues and take them into consideration before consenting to a
sale.

Collective sale agreement

Now: Lawyers are not required to witness the signing of the
collective sale agreement. The property consultant usually witnesses
this.

Change: A lawyer should be present to witness the signing of the
collective sale agreement, if signed in Singapore, and to explain
the legal terms and liabilities and address any doubts that the
owners may have.

Why: Some owners have complained of being forced to sign the sale
agreement under duress and that they have no clear idea about the
terms.

This will ensure that owners are fully aware of the implications of
the agreement they have entered into. The Horizon Towers saga has
highlighted the potential liabilities sellers can face.

But this creates more work for lawyers and they will have to charge
higher fees, lawyers say.

Now: No regulations on the collective sale agreement's format.

Change: Sale committees are to provide a preface to the agreement,
listing where to find key information such as the reserve price,
apportionment method, lawyer fees and so on.

Why: This will ensure that owners know the agreement's important
points before signing.

Now: Owner's consent to the sale takes effect right after he signs
the collective sale agreement.

Change: An owner can change his mind within a five-day cooling- off
period after signing the agreement. However, he can do so only once
for the same agreement.

Why: This lets owners get out of a contract if they feel that they
had been forced to do so under duress or misrepresentation. However,
this step may affect consent level updates.

Now: Sale committees are to give updates of the consent level every
eight weeks. Lawyers are not required to certify the updates on
consent level, which is typically reported by just the property
consultant.

Change: Sale committees are to give monthly updates of consent
levels with a lawyer to certify these.

Why: This is aimed at helping owners make informed decisions on
whether to sign the agreement and address concerns over the accuracy
of consent level updates.

Sale of development

Now: Mode of sale is not regulated.

Change: Every launch for sale must be by public tender or auction.
If it fails, the sale committee can negotiate with any bidder to get
the best deal.

But a sale by private treaty must be concluded within 10 weeks of
the close of the tender or auction.

Why: This addresses concerns over whether the sale committee has
done its utmost to get the best price.

Now: A sale application must include a valuation report not more
than three months old.

Change: A valuation report from an independent valuer should be
submitted on the date the tender closes.

Why: In a fast-moving market, prices may change significantly within
three months. A report as at the tender date will help the sale
committee evaluate bids and assures owners that they will not sell
at a price below market value.

This also means that majority owners have to fork out several
thousand dollars or more for the report, whether or not the sale
succeeds.

Now: An advertisement of a collective sale application must include
details such as the owners' names and unit numbers and names of the
mortgagees and chargees.

Change: The advertisement can dispense with much of this
information, such as the names.

Why: This is to reduce costs, and accord a certain degree of privacy
to the owners.

Strata Titles Board

Now: The Strata Titles Board can have up to 30 members.

Change: Increase the number of deputy presidents and members in the
board.

Why: The aim is to shorten time needed by the board to consider sale
applications.

Now: A financial loss is deemed if an owner's sale proceeds after
any deduction allowed by the Strata Titles Board is less than the
price he paid for his unit. But there is no clear definition of the
allowable deductions.

Change: The deductions the board will allow when evaluating
financial loss claims suffered by those opposed to selling en bloc
are set out clearly. These include stamp duty and legal fees.

Why: The board can throw out a sale application on the grounds of
financial loss. While owners can rely on precedents set by the
board's decisions as a guide, which show that renovation costs, for
example, cannot be deducted, the rule will provide certainty to
owners who intend to make financial loss claims.

Now: There is no explicit provision to prohibit a person from
claiming financial loss if the unit was sold after a collective sale
has been awarded to a buyer.

Change: The purchase price of a unit will not be considered for
financial loss claims if it was sold after a sale has been awarded
to a buyer.

Why: This confirms that such transactions will not qualify for
financial loss claims.

Now: The Strata Titles Board will allow an application if no
objecting owners suffer financial loss and if it does not find any
bad faith in the process.

Change: The board can raise the sale proceeds for minority owners
who have filed valid objections. It will authorise the sale only if
the majority agrees. Each owner will have to contribute 0.25 per
cent of his proceeds, or $2,000, whichever is higher.

Why: This addresses complaints of minority owners who feel that they
have not been treated fairly in the distribution of the sale
proceeds.

Now: The Strata Titles Board must dismiss any applications that fail
to comply with the procedural requirements, even if they are just
cases of technical non-compliance.

Change: The board will be empowered to disregard any technical or
procedural irregularity if it is satisfied that the irregularity
will not prejudice any owner's interest.

Why: Majority owners need not redo the application process just
because of a technical error that does not prejudice any owners. If
this rule had been in place, there is a chance that the Horizon
Towers sale application may not have been thrown out at the board's
level, said a lawyer.

Return of funds

Now: Under the law, the buyer-developer is entitled to the funds in
both the sinking fund and the Management Corp fund after a
successful collective sale.

In practice, the owners-sellers will negotiate with the buyer on the
return of the money.

Change: Once a collective sale has been legally completed, money in
the sinking fund and the management fund will be returned to the
owners promptly.

Why: Clears up a grey area to ensure that owners get the money in
the funds.