David vs Goliath: Airview Towers Sale Dismissed by High Court

One man versus an estate worth $202 million, including top lawyers Harry Elias Partnership, well known enbloc agent DTZ Debenham Tie Leung, and Bukit Sembawang Estates. And Mr Ken Lee, representing himself, won against Goliath and got the sale kicked out. You can read the articles here.

What happened? Where did it go wrong? The case hinges on a clause in the CSA and the deadline of 12 mths to get the 80% majority consent. The CSA clause regulates the rights of a signatory (someone who signs the CSA) to sell their unit, after they have signed the CSA. In the case of Airview, according to the news report, 2 owners had signed the CSA and then decided to sell their units. The buyers however, only signed the CSA after the 12 mth deadline, even though they had "agreed all along to the sale". The SC and their lawyers argued that their late signing should not penalise the entire sale, because "their failure to sign was due to 'mistake or inadvertence' and so was a technicality". Justice Lee Seiu Kin however ruled that the 12 mth deadline must be adhered to, and if any one misses the deadline, they cannot be counted towards the 80%.

Why would anyone sell their flat, some might ask? Why get out of such a windfall?

For various reasons - urgent need to sell (eg emigration, business despatching family overseas), or owners wishing to capitalise on the enbloc fever. Say a person bought their flat for $1m, and it's now going enbloc and he stands to gain $1.8m. He puts it on the market for $1.4m; any buyer stands to gain $0.4m and that owner transfers the risk of enbloc sale collapsing to the buyer; owner gets a guaranteed 'windfall' of $0.4m while buyer accepts possibility of getting $0.4m.

What clause is this in the CSA, that forces this buyer to join the enbloc majority?

This one, which you should find in most CSAs (with some variation):-

Each of the Selling Owners (people who signed the CSA) hereby represents, warrants and covenants as follows:-
... not to do any of the following from the date of signing this agreement by each of the Selling Owner in respect of his strata unit:
(a) grant an option to purchase
(b) sell
(c) agree or contract to sell
(d) assign or transfer by whatever means;
unless third party/parties having such benefit thereof shall also join in as a party to this Agreement by signing the same forthwith or any Supplemental agreement if required by the SC; provided that the particular Selling Owner shall indemnify the other Selling Owners from any claims, losses, damages and/or otherwise arising therefrom.

A variation I've seen includes a condition, that this sale must be subject to the approval of the SC (yes, they rule your life). What this clause means is that if you signed the CSA, you can only sell your unit to someone who MUST agree to sign the CSA AND any other documents required by the SC. It also means that the seller is responsible for any claims or damages if anything botches up. But is this fair? Why should you as a seller, if you have legit reasons to sell, be held responsible if the managing agent and/or lawyers do not follow up on the sale and chase the new owners to sign the CSA? Why should you also be penalised for signing the CSA, by having such a clause that effectively limits the potential number of buyers (or worse, they must be approved by the SC)? Shouldn't the onus be on the marketing agent and SC to convince the new buyers to sign the CSA, rather than it be your job?

It remains to be seen what's the aftermath of the Airview Towers dismissal - will the 2 unit sellers get into trouble? Will Bukit Sembawang sue the majority owners, like in Horizon Towers? Will the 2 unit buyers get into trouble for not signing the CSA in time? Will Bukit Sembawang let the sale slide, as the news report suggests?

What cannot be denied though - that it is rather sneaky of the managing agent and/or lawyer for the SC to brush off the late signing of the CSA by the 2 unit sellers, as a mere 'technicality'. They really should have known better.

Moral of story - Be careful of what you sign. If the 2 unit owners never signed the CSA, they would not have gotten into any trouble that they might be in now.

Print Page

Tags: collective sales, condo, en bloc, en-bloc, en-bloc sale, enbloc, enbloc sale, property, collective sale, singapore, Airview Towers

Horizon Towers Contacts Needed & Comments Raised

The initial post on the Horizon Towers' STB dismissal has generated over 160 (and counting) comments, in true MSN style of rapid fire and response. I do not believe in censorship nor do I want to stop people from commenting to one another, so I'll put some of my comments here rather than be drowned out by the continuing discussion (and often speculation) on the plight of Horizon Towers.

Firstly, if there are any Horizon Towers owners/residents reading the blog, a major newspaper reporter who specialises in collective sale reporting is looking for contacts to interview with regards to the situation in Horizon Towers. If you'd like to talk to the reporter, please let me know - enblocsingapore@hotmail.com . I'll hook you up. The reporter is bona fide, and anonymity can be maintained should you choose. It'll be good to get some information from the residents and owners, to at least calm some of the very rampant speculation. Just note that if you have been advised by your lawyer(s) not to speak to the press, then you should comply.

Now aside from the glaring question of who sues what where how when, two other issues have turned up in the comments - (a) is the CSA still valid for it to be resubmitted to STB (b) during the owners' meeting where they decide what to do next, should any voting be public or confidential.

Voting, Anonymity and Why Current Enbloc Favours Certain Parties Over Others

I'll address the latter (b) first. For a while now, I have been advocating the fact that the current system of enbloc procedures is not efficient and mindful of the needs and concerns of owners. What I'm referring to is the fact that any signature collection for the CSA can last for a year.

Think of it this way - if a powerful political party is given not a short period of time to campaign for votes (as is currently practiced), but a whole year to garner votes, and by garnering I mean actively in-your-face constant reminders to vote for them and why it's good to vote for them etc, do you think elections will be fair? No, because (1) a sustained campaign is only feasible to the party with the financial resources and clout to do so; any party that does not have that power will face serious problems trying to get their own votes, (2) there is a very real risk of wearing down - a voter might vote irrationally simply because they want to get it over with.

The period of time to collect a CSA is 1 year. That favours a sustained campaign by the agent and sale committee to push for a sale, and to wear out resistance if any. Unlike voting, CSA signature collection is not anonymous either. In other words, the agents and SC know who voted and who didn't. They are under no obligation to keep that confidential (see your CSA, are there any clauses which require that such information be kept confidential? Doubt so). Any owner who signs on the CSA can see who else has or hasn't signed. They can then persuade, coerce, even threaten their neighbours, resulting in an ugly community divided into two.

When the owners meet to decide the fate of their estate, one commenter said that any voting should be kept confidential. Absolutely. No raising of hands. Have proper ballot cards for all registered SPs to decide, and that result should be compiled by an independent party.

This should be the way with CSAs as well, to be honest. Hold 2 voting sessions in a 4 month period (not 1 year and given the bullish property market, even pro-sales owners should think a year too long), with voting done anonymously but verified and certified by an independent party. Failure to achieve 80% means accepting that it's not going to happen, and owners moving on with their lives.

CSA and SPA Validity

I want to preempt by saying I'm not a lawyer nor trained in Law. I read things carefully and logically. All discussion is based purely on rational and not legal reading, so CAVEAT EMPTOR (BUYER BEWARE - READ AND ACCEPT AT YOUR OWN RISK!). One commenter asks if Horizon Towers wishes to resubmit, can they 'reuse' the CSA?

Okay, there's TWO contracts involved in a collective sale. The Collective Sale Agreement (CSA) which binds the owners, sale committee, outlines the responsibilities of agents and lawyers (sometimes), method of distribution etc etc. The Sale and Purchase Agreement is a contract between the buyer (the developer in most cases) and the seller (the majority owners).

Each of these two contracts vary, sometimes subtantially, between estates. This depends on the law firm hired and the SC's decision to include/exclude certain clauses, indemnities, conditions etc.

Typically, the CSA will have a number of expiry or period of validity clauses. The Horizon Towers (HT) CSA should contain them as well, outlining when the CSA will lapse (eg when 80% is not achieved by a particular expiry date, when no SPA is achieved, when no application to STB is made etc). Assuming that the CSA has a clause to the effect that (for example) if STB approval is not issued within 12 mths from the execution of the CSA, it means that so long as HT has not reached that deadline, the CSA is still valid. Hence, everyone who signed on that CSA is still bound by it. They can extend the deadline (if permitted in the CSA), eg to apply to STB to obtain approval but the signatures stand.

The SPA should likewise contain clauses that outline its validity subject to an STB order. For example, if the STB dismisses the application within X number of months from the date of the SPA, then the agreement shall be deemed to be cancelled etc. It might even outline claim clauses eg "the purchaser shall have no claim whatsoever against the owners for compensation, costs, damages" etc. So in all likelihood, if the HT SPA contains such a clause, the STB dismissal would have cancelled it BUT not the CSA. If the CSA goes past the expiry date and no submission to the STB has been made, then the SC will need to recollect signatures again. I do believe that if HT SC decides to resubmit, since the SPA has been nullified, they'll need a (most likely) redrafted SPA to submit to STB as part of the documentation.

That's my (amateurish) reading of it. Do let me know if it's wrong, but like I said, it'll depend on the individual CSA and SPA. The best advice on this would be to seek a lawyer. And no, I don't have the HT documents. :P

It's a really rough time for HT owners, both majority and minority I'm sure. All the best to everyone there.

Tags: Horizon Towers, collective sale agreement, CSA, sale and purchase agreement, SPA, collective sale, collective sales, condo, en bloc, en-bloc, en-bloc sale, enbloc, enbloc sale, singapore

VICTORY for Horizon Towers - Enbloc Application Dismissed

[Updated 4 Aug morning to include news reports and names of law firm/agent as printed in the news]

Given the hundreds of enbloc applications that have gone through STB, isn't it ironic that there's been very few STB dismissals so far? Prior to Horizon Towers, the only two cases I could gather were Mandalay Court (March 2000) and Grenville Condominium (June 2000), both occurred right after the Land Titles (Strata) Act amendments in 1999. Mandalay and Grenville were dismissed due to procedural errors in their enbloc sale application, and in both cases relating to extraordinary general meetings (EOGMs) either being held late (Mandalay) or not being held (Grenville). Because of this technicality, STB dismissed their applications. Subsequently, both estates' SCs reapplied for a 2nd application to STB and both were approved.

On 3rd August, Singapore Stock Exchange News listed the following announcement about Horizon Towers:-

Following the hearing of the Strata Titles Board ("STB") in connection with the application (the "Application") by the vendors of the Property for the STB to order the sale of the Property in accordance with the Option to Purchase, the Company wishes to announce that the STB has on 3 August 2007 dismissed the Application.

The Company understands that the Application was dismissed by the STB because the Application had been made by the vendors without full compliance with statutory requirements. Horizon Partners is currently considering the STB's decision and reserves all its rights, including its rights against the subsidiary proprietors of the Property who signed the collective sale agreement and the Sales Committee of the Property.

An inside source highlighted that the dismissal was done due to possible procedural errors. From the 3 main news sources, here are their 'sketchy' descriptions of these errors (all dated 4 Aug 07):-

CNA: "applicants failed to include certain documents"; "some papers were defective"
BT: "insufficient notices were posted and some documents were not filed"
ST: "a notice put up on July 11 last year saying that owners with 80.81 per cent of share values in Horizon Towers had signed the sale agreement. A sale needs 80 per cent consensus. But only 79 per cent had agreed to the sale at that time, lawyers said." (Incidentally, they did achieve 84% but I guess the point here was that on 11 July the notice was incorrect.)

Update: ST 8 Aug 2007 gave clearer details of the law firms and lawyers involved.
HPL - SC K Shanmugam and William Ong of Allen & Gledhill
Majority owners - SC Jimmy Yim of Drew & Napier, SC Chelva Rajah or Tan Rajah & Cheah.
Minority owners - Kannan Ramesh, Senior partner of Tan Kok Quan Partnership, Phillip Fong, Senior partner of Harry Ellias Partnership.
A company owning several units hired Dr SK Phang who enlisted SC Michael Hwang.
Agent for Horizon Towers remained, as far as I could tell, First Tree Properties Pte Ltd (BT 22 Aug 2006).

The interesting points are:-

1. Again, STB emphasises the need for all applications to conform to the law in terms of procedures. Note that the merits of the application (done in good faith, method of distribution, financial loss) were not considered in these dismissal cases so far. It appears even seasoned law firms and enbloc agents may stumble over the legal protocols needed for enbloc sales. The moral of the story - make sure you adhere to the law. To the letter.
   
2. For those who are against the sale, it means not just objecting on the grounds of lack of transparency/lack of good faith/poor distribution/financial loss, but documenting meticulously every single letter/event/meeting that has ever occurred with regards to the enbloc as well as taking minutes/recording the sessions. Such information may turn out to be very useful later on. It also means that people have to be brave to object to the sale of their homes (preferably as a collective group), and that means objecting on all fronts - not just on the enbloc sale but on the procedures that were done to begin, move and secure the sale. Some agents and law firms are being paid hundreds of thousands if not millions to sell your homes and by golly, why should they have it easy? :)
   
3. Most CSAs/SPAs have indemnity clauses protecting SCs and majority owners from anything but acts of God (okay I exaggerate but you get the idea.. read your own CSA/SPA). Can Hotel Properties Ltd sue the SC/majority owners for procedural mishap?
4. A deja-vu may occur again when the new amended enbloc legislature kicks in later this year. I've already seen one CSA with contract-out clauses, or clauses that attempt to bypass the new laws. Even a clause that compels majority owners to agree that an EOGM occurred to elect the SC (a new proposed amendment to the law) even when it didn't actually happen. What will be the consequences for all owners (majority/minority) when the law is changing and people (including lawyers) are caught in the middle, waiting to see what fixes/amendments need to be done to their enbloc process? In the meantime, can current CSAs be worded such that they bypass or circumvent the new laws? Surely this can't be the case?

Tags: Horizon Towers, STB Dismissal, collective sales, condo, en bloc, en-bloc, en-bloc sale, enbloc, collective sale, property, singapore, real estate, Enblocing Singapore, Enblocking Singapore

25-35% Failure Rate for En-blocs - Business Times

It's ironic that while the Straits Times have embarked on an exercise of fantasy when they wrote articles that perpetuated en-bloc millionaire aspirations, the Business Times came up with an article that gave pause for thought, and a reality check. Selected excerpts follow.

Given that our areas of Holland and Newton have been escalating in terms of reserve prices, with Elmira Heights at Newton now going for $1070 psf and Holland Tower at Queensway going for $1000 psf, the prices of new developments will rapidly exceed $2000 in these areas in the near future. There is absolutely no way any resident can afford to buy a new unit here without pumping in substantial amounts or taking out a hefty loan again. Equally importantly, these prices are rapidly driving up rentals in the areas to the extent that mid-level to upper-level expats on their various forums are making conscious decisions not to work in Singapore any longer or move further from town in order to afford decent sized (and priced) rentals.

Failure rate hits 24-35% for en bloc deals
Business Times 22 Feb 2007
By Arthur Sim (BT)

Asking prices may be going up, but not all collective sales are going through. About 25-35 per cent of more than 100 last year either fell through or are still on the market after failing to achieve reserve prices, property consultants say.

No green light: Grangeford Apartment has yet to achieve the required 80 per cent mandate from owners to sell and the rising price of replacement property could be the reason.

Sy Wan, who is on the collective sales committee for Grangeford Apartment in Grange Road, says some residents fear they will not be able to afford a similar new apartment in the neighbourhood if they sell. Mr Wan himself is looking at a Housing and Development Board flat.

Last year the official price index for uncompleted non-landed properties in the Core Central Region, which includes Districts 9, 10, 11, rose 6 per cent in Q4 and 25.4 per cent for the whole year.

..

Prices of prime collective sale properties have been rising lately. In October 2006, Ardmore Point sold for $1,369 psf per plot ratio. By December, The Parisian nearby sold for $1,734 psf per plot ratio, or 25 per cent more.

CB Richard Ellis executive director (investment sales) Jeremy Lake expects fewer transactions this year. 'It's extremely difficult to get 80 per cent because the market is almost too good and some owners are not prepared to commit to the minimum,' he says. Also, sellers' concerns about increasing replacement costs 'have become more evident' in the past three to six months.

Colliers International estimates over 30 of 110-130 collective sale sites launched last year remain unsold.

Director (investment sales) Ho Eng Joo estimates that 70 per cent of collective sales in 2006 were in Districts 9, 10, 11 - the traditional enclave of the well-to-do. Yet many could be looking at downgrading. 'En bloc sellers are becoming increasingly concerned about the replacement price for new homes because they have gone up substantially,' Mr Ho says.

Savills Singapore estimates that of 120 residential developments put on the market in 2006, 43 have not been sold or are still on the market.

Director (marketing and business development) Ku Swee Yong reckons most sellers are looking at 10-15 per cent upward adjustment. But he cautions owners not to ask too much, as developers also have to factor in rising charges and, more recently, higher construction costs. 'Property prices have been rising over the past 12 months, but associated development costs have also risen significantly,' Mr Ku points out.

...

Tags: en-bloc failure, failure rates, collective sale, collective sales, condo, en bloc, en-bloc, en-bloc sale, enbloc, enbloc sale, property, real estate, singapore