Landmark ruling on figuring loss in en bloc sales; CPF amount withdrawn and accrued interest not allowed in determining loss
Business Times 6 Feb 2007
Reported by Kalpana Rashiwala
The prospect of CPF losses cannot be used to stop an en-bloc sale, the Strata Titles Board (STB) ruled yesterday. In a landmark decision, it said the principal amount withdrawn from CPF accounts and the accrued interest cannot be taken into account when determining whether a financial loss has been suffered by owners involved in such a sale.
The board made the point in a decision approving the $385 million collective sale of Waterfront View in Bedok to a joint venture between Far East Organization and Frasers Centrepoint.
Waterfront View is a privatised HUDC estate. The STB tribunal, with the board's deputy president Alfonso Ang presiding, did not agree with the view of Yeo Loo Keng and his wife Cheryl Lim Pui Yew - who are objecting to the collective sale of Waterfront View - that their 'net proceeds of the sale are insufficient to redeem our mortgage and CPF charge' and that this amounted to a financial loss. The Yeos had an outstanding mortgage of $341,118.90 as of Oct 11 last year, which they could repay from their $660,377 share of proceeds from the en-bloc sale, even after making allowed deductions.
The CPF Board wrote to the couple in November last year, confirming that 'if the sale proceeds after deducting the outstanding housing loan owing to the mortgagee DBS Bank Ltd is insufficient to fully refund the principal amount withdrawn and accrued interest to both your CPF accounts, the CPF Board does not require both of you to make good the shortfall to your CPF account in cash.
'Instead only the net sale proceeds (i.e. the selling price less outstanding home loan) is required to be refunded to your CPF account', the CPF Board said in its letter.
The STB tribunal said in its ruling that the section of the Land Titles (Strata) Act that should apply is Section 84 (A) (7) b, which allows the board to throw out a collective sale application if it is satisfied that the proceeds to be received by any objecting party are insufficient to redeem any mortgage or charge on the property.
In view of the CPF Board's statement that it will allow the redemption, the Yeos could, with the proceeds of sale, redeem both the bank mortgage and discharge the CPF charge on their property. DBS Bank has the first charge on the property and CPF Board has second charge.
The tribunal said it is therefore satisfied that the Yeos' objection does not come within the ambit of this clause in the Act.
The Act also defines a financial loss - which could be grounds for STB to throw out a collective sale application - as having been incurred by an owner if the sale proceeds he receives, less any deductions allowed by STB, are less than the price he paid for his property.
The STB tribunal further ruled that the privatisation fee for converting Waterfront View from a former HUDC estate to a private estate - $19,535 per unit - be allowed as a deductible expense in determining whether a financial loss has been suffered by owners in a collective sale. This is because the process of converting the title is a necessary expense, without which Waterfront View will not be eligible for en-bloc sale.
Additionally, the tribunal upheld earlier decisions by STB on the following deductibles - that interest and renovation costs not be allowed but that the cost of legal fees and stamp duty at the time of purchase of the property be allowed.
It also ruled that a penalty the Yeos paid to DBS Bank for early loan repayment should not be an allowable deduction because it is a 'private contractual matter' between the bank and the Yeos.
Under the grounds of decision read by Mr Ang, the Yeos 'do not suffer a financial loss based on the net proceeds of sale less the allowable deductions - legal costs and stamp duty at the time of purchase and the costs of privatisation'.
The couple bought their apartment at Waterfront View in 1994 for $515,000 and will receive a gross sum of $660,377.35 in the collective sale. 'They had not suffered any financial loss even if deductions allowable are taken into account,' the tribunal said.
It turned down an application by the majority owners' counsel, Michael Kuah of Lee & Lee, to require the Yeos to fully bear the costs of calling expert witnesses and law firm Lee & Lee's fees for the STB hearing. Among other things, the tribunal said the objections raised by the Yeos were 'not frivolous' and they were acting within their rights in objecting to the collective sale.
BT understands the costs of the entire application to STB - including about $60,000 legal fees charged by Lee & Lee for the proceedings, plus a further $20,000 for expert witnesses, and the costs of placing notices in the newspapers - could work out to about $300,000 to $400,000. The amount has already been set aside through sums of about $1,000 per unit, collected separately from the majority owners. Leong Yung Chang of Veritas Law Corporation, representing the Yeos, said his clients are considering whether to appeal against the STB ruling.
And some additional reporting from the Straits Times (6/2/07) on this matter, by Jessica Cheam:
A disappointed Mr Yeo said: 'CPF might say we do not need to make up the shortfall, but it is our money being written off in the end, as I'm being forced to sell.'
He added: 'Future home owners will have to think very carefully before deciding on an en-bloc sale.'
Although Mr Yeo lost the case, STB deputy president Alfonso Ang pointed out that the report on the proposed method of distribution of sale proceeds filed by the sale committee 'fell short of the high standard expected especially when involving a project of this size'.
Under the committee's proposal, the total sale will be distributed evenly among all units regardless of storey or size - an issue Mr Yeo contended with, as he paid a premium for a high-floor unit with a reservoir view.
I feel sorry to Mr Yeo Loo Keng and Cheryl Lim, but they fought for what they believed in. Good for them.
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