One Committee to Rule Them All: Management Committees and Sales Committees

Back in Jan 2007, I blogged about the potential conflict of interest when a member of the Management Committee (MC) is simultaneously a member of the Sales Committee (SC) in an estate (you can read that here). I wrote (and I repeat): "The mandate of the MC is to maintain or update/upgrade the development whereas the mandate of the SC is to sell off the development in whatever condition it is in, as quickly as possible".

Over the last few days, two condominiums over at the East Coast have fully realised the consequences of this conflict of interest, when their MC contains pro-sale members, or SC members. You can read about the troubles brewing at Mandarin Gardens and Bayshore Park here , here and here.

These conflicts of interest are not illegal. In fact, the LT(S)A's Third Schedule only requires that a member of the SC discloses his/her indirect or direct interests in "any property developer, property consultant, marketing agent or legal firm, being an interest that could conflict with the proper performance of his functions as a member of the collective sale committee" (Third Schedule LT(S)A, Sect 2). So from the side of the SC, so long as the member is not involved with any of the stakeholders in the sale, it's alright. On the side of the MC, the BMSMA states that so long as the member of the MC does not have any "pecuniary interest, direct or indirect, in any contract, proposed contract or other matter which is before any meeting", it is alright as well. Nowhere in the law does it require that the member of the MC must declare and remove him or herself should s/he have any direct or indirect interest in a collective sale process. The consequences are felt at at least 2 estates now, and I'm sure countless others unreported in the media. The government needs to realise this is happening and do something.

How many of you undergoing enbloc sales have a member of the SC that is also in the MC? I've already stated in my Jan 2007 blog why this works so well in lubricating the sale process, so it's almost natural for the pro-sale group to have a member in both SC and MC. I have one in my own ex-estate - the Chairperson of the MC is the Chairperson of the SC. I can only hope that any estate involved in an enbloc sale, do their best to ensure that a member of the SC cannot be a member of the MC, and require that he/she withdraw him/herself from the MC once they are elected into the SC.

I've started a poll on this matter. Feel free to pitch in.

Previous poll results are (rank ordered):

Why are you a stayer?
My home is more than just about money: 18 (52%)
My right to a home should be sacrosanct: 17 (50%)
I love my neighbourhood: 16 (47%)
My home is a part of my identity: 9 (26%)
I'm not offered enough money: 7 (20%)
Pragmatic reasons (School, Church etc): 7 (20%)
I'm too old to move: 0 (0%)
Total voted: 34

It would appear that the top 3 reasons for people choosing to fight against an enbloc of their homes, is that they believe that their home extends beyond its value as a financial asset, that they should have the right to keep their homes, and because of the neighbourhood they live in. These are three really important reasons that unfortunately the government has chosen not to factor at all into their policy making process. A pity. Because these are the three most important reasons that establishes one's identity and affiliation to home and nation. Any wonder why some of the comments on my previous post suggests strongly that I should emigrate elsewhere, where there's less likelihood of my home undergoing enbloc?

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Tags: Mandarin Gardens, Bayshore Park, sales committee, sale committee, collective sale committee, management council, collective sale, collective sales, condo, en bloc, en-bloc, en-bloc sale, enbloc, enbloc sale, singapore

To Enbloc or Not to Enbloc, That is the Question for 2008

Concerns about the US Economy and the Global Economy in general, economic slowdown worldwide. Research reports from real estate firms like CB Richard Ellis (here) which points to a drop in interest in private non-landed investment sales (as compared to the government tenders):

"Compared with the heightened investors’ interest in en bloc acquisitions seen in 2007, demand for private residential land turned lukewarm in the first quarter of 2008. Developers were observed to be less keen to acquire sites compared to last year as most of them have built a relatively strong inventory of freehold residential sites from the robust collective sales market in 2007. Purchases were limited to choice locations as response to recent new launches was subdued." (CBRE Singapore MarketView Q1 2008)

UBS Investment Research (available here) is even more cautious, pointing out that "real economy and home prices could worsen here, before recovering in 2009", and with negative news from Dakota Crescent and Sentosa Cove, home prices could be forced down further, with "high end prices most at risk due to lack of foreigner interest". They also pointed out that some of the enbloc sales that were bought during the frenzy last year, may now no longer be generating profits (if at all):

"Prices at some locations seem to have already fallen by 15% or more, bringing into question the profitability of certain sites bought by listed developers such as SC Global and Ho Bee."

So why do people still persist in trying for enblocs this year?

1. Condo raiders and investors who bought units last year, need to push for enbloc sales this year, before prices plummet and they can't even sell on the open market for any profit (or worse, a loss). Unless they have holding power to tide them through in estates that some of them have encouraged to deteriorate (hence making it hard for rentals), they are in financial trouble.
2. Estates that have achieved 80% consensus but failed to achieve a good bid, are now retrying, with many agents urging owners to accept a lower RP. They need to do this before their 1 year mark to obtain a sale expires, and they have to restart the collection of 80% again. Now adjusting the RP, especially to lower it, WITH OR WITHOUT owner agreement/permission is entirely up to how the CSA is drafted, so as always check with your lawyer on the conditions that allow SCs to adjust the RP downwards. You can read the BT Article on the race against enbloc clock here.
3. Plain arrogance and stubbornness, as overheard from a rather loud conversation between what appears to be SC members at a coffee cafe a few days back. They were absolutely convinced that "owners are sheep" and can be pushed into the sale, and that they must achieve the sale or no agent will take them on anymore. Colourful languages were used to describe owners who refused to sign the CSA, including the use of the words "idiots", "hammer them", along with various rather interesting suggestions such as not cleaning their corridors, ignoring maintenance near their flats, and for one member, even encouraging his kids to play the piano louder at nights, to irritate the stayer next door. Pats on each others' backs followed after such great suggestions. Pity no name of estate was divulged or I'd SO be contacting stayers there. Tip to SC folks: Don't discuss strategies in a public area where potential anti-enbloccers might overhear you and blog about it :)
   

I'm sorry but I was quite tickled by the SC conversation that I just had to write about it. Pity I didn't bring my trusty digital recorder but even then, the ambient noise in the cafe would make the audio hard to listen to. But thankfully not for God-given natural ears :)

I should visit that cafe more often lol :)

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

Messing the Estate - Management 'Allowing' Ads

A poster on condosingapore's forum laments that his estate, which is currently undergoing enbloc, has become cluttered and badly maintained due to the increasing number of advertisements on the walls, along the corridors, on mailboxes, in the lifts, etc. When he asked the security guard, the guard said that the management council had given instructions to allow the advertisers to put them up.

This is not the first time it has happened, and chances are if you check the SC list, you'll find members of the MC in there, which would point to the main reason this is allowed - to make the estate look less appealing to owners, residents and tenants so that they are more likely to sign the CSA. Even if the enbloc is completed, advertisers should not be allowed to enter and place things up. More importantly, the management council has a duty to all owners. Through the council, the management corporation has a duty to "(a) to control, manage and administer the common property for the benefit of all the subsidiary proprietors constituting the management corporation" (Building Maintenance and Strata Management Act 29.1.a). I seriously doubt any SP would say that the ads are beneficial to them.

So what can you do?

1. Obtain a copy of the by-laws for your estate from the managing agent (if it's not already on your notice boards in the estate). In it should have clauses on vandalism or inappropriate advertisements in the estates.
2. Write to the management council pointing out that there are unknown peoples putting up ads and are therefore vandalising the property. If such notices are not removed, you can file a complaint to STB (using the form here) to lodge a report against the management council for failing to perform their function.
3. I think the threat of this is sufficient for them to take down such ads and ensure the estate is clean. The guard can serve as witness (in a written statement) although I don't think that's even necessary since you're not attributing blame but merely pointing out that the MC is not performing their function in accordance with the by-law.
   

Relevant sections of the Building Maintenance and Strata Management Act:
29 Duties and powers of management corporation in respect of property
32 By-laws for common property
101 General powers to make order to settle disputes

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Tags: vandalism, collective sale, collective sales, condo, en bloc, en-bloc, en-bloc sale, enbloc, enbloc sale, real estate, singapore

Is This Possible? A Transparent Sales Comm?

I found this pro-enbloc blog set up by the Bedok Court Condominium Sales Committee. (They have an older one here.) Now normally I would not advertise pro-sale blogs since there's hardly a need to broadcast them (they have plenty of resources from the agents to do their own advertising).

However, this blog is interesting in that it looked like they took the higher road of announcing all their meetings, % voted, % present, minutes from the meetings, who are the sales committee, where they stay, what were the motions passed, who were the agents they contacted etc. In other words, they are in many ways attempting what the new amendments would like sales committee to do on their own accord - to be as fair, transparent and equitable to all owners as possible.

It's a good step towards ensuring the enbloc process respects both majority and minority owners.

What I'd like to see in the Bedok Court blog though -

1. Activating the comments so that people can post comments on the meetings say, and get feedback from the sales committee. If the SC is attempting to be transparent, why stop comments?
2. Minutes of the SC meetings to be put up as well, so all Bedok Court owners are kept informed of the discussion and important issues raised therein.
3. The ability for owners who are not keen to sell to have a dialogue with the sales committee, and have this dialogue in a public space such as the blog (or an internet discussion forum etc).
   

Too often, I've seen sales committee ignore and disrespect non-signatories and people who may choose not to sell. The mentality is that if they can achieve 80% they don't need to care about the remainder. What I'd really like to see, is a sales committee who endeavour to do their utmost best to get every owner on board, and to address concerns that minority owners may have, especially if it's sentimental reasons. For example, I've not seen any sales committee work with their marketing agent to secure or obtain replacement units for people who wish to stay in the same area. After all, how hard is it for the investment division of a major estate agency to contact their sales division and attempt to work out a good deal on behalf of minority owners who wish to remain in the vicinity?

I can only hope Bedok Court will take the high road, and not the bulldozer road (ie bulldoze through everyone until you obtain 80% then bulldoze the minority completely).

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Tags: Bedok court, collective sales, condo, en bloc, en-bloc, en-bloc sale, enbloc, enbloc sale, property, collective sale, singapore, real estate

Horizon Towers Update: A Trust that Failed

On Friday night, HPL (the buyers) filed an affidavit with the High Court, suing the majority sellers including the SC members. You can read that article here. In particular, the affidavit alleged that some members of the SC "tried to defeat the collective sale by encouraging the other majority sellers to go back on the agreement".

The majority owners met on Friday night from 8pm to close to midnight as well, to decide the next moves. You can read the reports from Business Times, Straits Times and CNA here. In essence, the SC disbanded/quit at the end of the night, leaving the majority owners completely directionless. The SC was disbanded because the CSA stated that a minimum of 5 was needed in the committee and that quorum was not met (with only 3 left).

Some points to be made so far:-

1. Check your own CSA. Almost every one will have a minimum number of owners needed to be in the SC. This is typically 3 (which is the number needed to represent owners for the STB application) but it can vary depending on the PSC that drafted the CSA. Indirectly, as this case showed, it also allows a SC to be disbanded leaving owners without leadership.
2. The affidavit cites, among other things, the fact that some SC members have (presumably on their own motives) encouraged sellers to rescind the CSA. Yet every majority owner is sued by HPL. The actions of a few SC members have given the fuel needed by HPL to show that the owners (and SC) were not doing their best to secure the sale. What it also points to, is the unquestioning faith many owners place on their SC members to do the best for all owners. People forget that (and not just in HT but in many estates) some SC/PSC members (a) are not even residents (b) are not duly elected (c) are individuals out to make a profit (d) are not necessarily suddenly going to develop strong ethical responsibility to all owners when thrown into the lawsuit fire (neither are they obliged to). After all, as the HT reports showed, those who want to step into the SC insist on "blanket immunity from legal proceedings". It's typically the first thing all PSC members will ask for - indemnity and exclusion from liability. It's in most CSAs.
   
3. The new amendments might resolve some of these problems since it shifts responsibility from SC to owners to ensure everything is as transparent and fair as possible, including the need to revert to owners for the election of SC, agent, lawyer, approval of sale etc through formal general meetings. But some estates are trying to avoid going through such 'hassles'. Will the HT case haunt them in the near future? Isn't it safer to let the new amendments to the LT(S)A kick in and work within the new framework, rather than rush through things and risk legal repercussions?
   

The tv show X-Files theme is applicable here: TRUST NO ONE. Can you put the fate of your home (and more) in the hands of a group of self-motivated people (some of whom don't stay in your estate) who gathered together to sell an estate, with standard CSA clauses to protect them, while often giving them rights to do many things without asking owners for consent under the current law?

At the end of the day, the HT case shows just how complex and intricate the legal transaction of a collective sale and its consequences are, and how many people are unaware of this. And while outsiders may speculate about what could've been avoided, what might have gone wrong, how the majority owners and SC might remedy, who to blame, etc, I'm absolutely certain each of these outsiders, myself included, do not want themselves to be a HT owner at this very moment.

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Tags: horizon towers, collective sale, collective sales, en bloc, en-bloc, en-bloc sale, enbloc, enbloc sale, singapore

Parliament Debates Land Titles (Strata) (Amendment) Bill

Over 400 suggestions from 100 submissions. Result - 30 proposed amendments to the Land Titles (Strata) Act.

News have started to trickle in and you can find details on CondoSingapore forum, here and here. The idea, according to Prof Jayakumar, is to make the enbloc sale more transparent, fairer and clearer. Debate is to continue next month, with the Amendment Bill gazetted by October 2007.

Some of the proposed amendments are listed below. I've noted in blue those that were in the original amendment proposal outlined in Mar 2007:-

• Requirement for sales committee to be formally appointed in a general meeting, and SC members have to declare any vested interests related to the deal
  
• Sales committee required to conduct a general meeting to discuss appointment of lawyer, agent, property consultant
• Providing updates on bids received and how sales proceeds will be divided
  
• 'Cooling period' of 5 days after the CSA is signed, in case owners changed their minds. Can only be done once.
  
• Owners' voting rights to be decided by the area of their flats in addition to share values
• Every home owner must have a lawyer explain their legal rights in the CSA
• Having a lawyer present to clarify doubts when owners sign the CSA and key terms and clauses to be listed upfront in the legal document
• Lawyer to be witness to the signing of the CSA
  
• STB to be given power to increase the amount minority owners get from sale proceeds for (say) renovation costs done recently
  

An excellent point raised by Philip Fong of Harry Elias Partnership is to implement a code of best practices: "There are no regulations as to how much information is actually given to the owners, so they know enough to raise questions. So in that sense, what I think would be worthwhile to consider is for the appropriate authority to come up with a code of best practices and if there are deviations from these practices, then they must be justified by the sales committee."

Some initial observations - unless there are more proposed amendments to be rolled out in the near future, it looks like (a) the emphasis is on transparency issues more than fairness issues (b) the 10 year arbitrary margin for triggering 80% enbloc consensus remains unchanged, despite many home owners hoping that something will be done about the senseless destruction of their homes. What MinLaw needs to remember is that the primary drive, the main reason for having enbloc sales, is the idea of urban renewal in the first place (which necessitates looking at the 10 year mark), and not the idea of profiteering (which would necessitate looking at transparency issues).

I'll continue to update you on the Parliament's discussion of the Amendment Bill as and when information comes in.

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Tags: Singapore Parliament, Land Titles (Strata) Act, Amendment bill, collective sale, collective sales, condo, condo, en bloc, en-bloc, en-bloc sale, enbloc, enbloc sale, property, singapore, real estate

Conflicts of Interest II - Sale Committee vs Management Council

I posted a while back what are the implications if a member of the management council (MC) sits in the sale committee (SC), largely centered around the problem of conflict of interest. You can read about this here. Since then, I've heard of more and more SC members who are members of the MC, in some cases dominating the MC completely.

Can you do anything about it? Maybe :) The Building Maintenance and Strata Management Act (2004) (BMSMA) makes for interesting reading. Did you know that as a subsidiary proprietor (SP aka owner), you can write an application into the management corporation to make available for inspection certain documents kept by the MC? (BMSMA 47(1)-(4)). Why is this even useful?

Because you can ask for:-

1. The names and addresses of the chairperson, secretary and treasurer of the MC as well as the managing agent.
2. The minutes of the general meetings of the MC
3. Book and statement of accounts

Why would you need these? (1) is useful to know. (2) will be relevant later when I explained another section of the BMSMA. (3) is useful because of the period between the date of legal completion and date of vacant possession, which I've explained here and here before. You want (3) to have evidence that the existing level of expenditure is maintained by the developer, when they take over your estate. I'll explain (3) in greater detail in a future post, especially considering the recent forum articles about developers entering the premises and constructing showflats even while people are staying there, or deteriorating existing levels of service and maintenance quality. Knowing what are the typical monthly expenditures for maintenance is good ammunition should you wish to challenge the developer for not holding up their end of the promise to maintain the estate at its original level (if stated in the SPA).

But (2) is interesting for the conflict of interest issue. For this, you need to know BMSMA Article 60 - Disclosure of Interests in Contracts, Property, Offices, etc. 60(5) states clearly:

Every member of a council who holds any office or possesses any property whereby, directly or indirectly, duties or interests might be created in conflict with his duties or interests as a member of the council shall declare at a meeting of the council the fact and the nature, character and extent of the conflict.

In other words, if you have someone in the SC who is also in the MC, that person must declare "the fact and the nature, character and extent of the conflict". Not only must he declare the nature of the interest (60(1)(a)), he shall not take part in any discussion, consideration, or vote on any matters related to the enbloc sale (60(1)(b)), and even be asked to withdraw by the chairperson (60(1)(c)) unless the council explicitly requests for information from the SC/MC member.

The declaration must be made at council meetings and the secretary must document every declaration in the minutes.

This is why you need the minutes, preferably before anyone doctors the documentation and inserts in any declaration. After all, if the SC/MC member fail to comply with this requirement, he/she is liable on conviction of a fine not exceeding $5000 or jail not exceeding 12 mths or both.

Do verify this with a lawyer or the managing agent. Check your minutes - was any declaration made? If not, why not? If the SC/MC member is convinced there is no conflict of interest, it is not up to him to assert that, since 60(5) above states that the SC member, who holds an office (in the SC), and has interests in selling the estate (which contradicts the role of MCs in upkeeping and maintaining the estate), directly or indirectly, is in conflict with his duties or interests as a MC member. Even after declaring his interests, unless asked by the MC, he is not allowed to discuss, participate in any discussion, on any enbloc matter raised in the MC meetings.

Given the complexity of this conflict of interest, should the SC/MC member not give up one committee seat or the other? If not, one must ask, why not? After all, if it's often a thankless voluntary job being in such committees, why take on 2 thankless voluntary jobs?

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Tags: conflict of interest, conflicts of interest, sale committee, management council, management committee, management corporation, mcst, collective sale, property, enbloc sale, enbloc, en-bloc sale, en-bloc, en bloc, condo, collective sales, real estate, singapore

Myth #9: Understanding the Law and Knowing Your Rights

Nominated MP Siew Kum Hong wrote an op-ed piece to Weekend on 11 August 2007, which highlights his very thoughtful views of enbloc sales in general, and the Horizon Towers situation in particular. I will not reproduce his entire piece, but you can find it on CondoSingapore's Forum here. Note - Mr Siew has his own blog and has posted additional comments on his piece here.

I do want to comment on some of his points, specifically his argument that "just like any other commercial transaction, there are very real commercial and legal risks in collective sales":-

"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."

What Mr Siew said above is the correct interpretation of the law, and of common sense, truth be told. Everyone should read carefully the terms and conditions of anything they sign (be it credit card application, signing up an account on a website, installing a software). But the reality is very different of course (how many read the Microsoft terms and agreements before clicking on the "I agree" checkbox?). But putting aside human laziness to read such text, there's another set of very real problems that works in favour of the sale committee, the marketing agent, lawyers and developers, ie the enbloc sale:-

1. Anyone with a non-law degree, much less a non-law PhD, will struggle with the CSA and the Sale and Purchase Agreement (SPA). In densely packed multiple subordinate and embedded clauses, these contracts can induce migraines simply by attempting to understand it. If people can barely understand it, how can owners who (a) can't understand English, (b) can't understand legal English, (c) do not have the resources to get a lawyer to read it, realise what rights they have or do not have? If the law requires that the advertisement and announcement of the sale be in 4 languages, why can't the law require that the CSA be in 4 languages as well as plain English?
2. Most people assume that the sale committee (SC) are selfless people, who represent their interests and rights, and hence will not question in detail the intricate clauses in the CSA/SPA, which is almost always drafted by the SC and lawyers without input from the owners. Most estates have no say whatsoever in the nomination, election, voting and ratification of the SC. How much harder, then, for input into the drafting of a legal document like the CSA or SPA?
3. The approach advocated by most agents, including the professional enbloc firms, is that a SC should not be consultative in the drafting of the CSA; they see this as only taking up more time and a waste of time. So they advocate that the CSA be prepared and at the first Owners' Meeting, have it ready for signing. "Take it or leave it" without any choice in revisions. At what point can an owner negotiate for terms? They simply can't and can only do so by not signing the CSA. But if 80% are ignorant enough to do so, then what good does your refusal do?
4. The best method to ensure a CSA or SPA is truly representative of all owners, including minority owners, and to impose greater control and oversight on the SC is to require that owners who have reservations on the sale/CSA to be a member of the SC as well - a form of check and balance or an alternative voice that gives critical feedback to the over-riding pro-sale mentality. However, every CSA I have seen thus far has a clause requiring that each SC member must sign the CSA within a time frame (typically 7 to 30 days). This immediately excludes any form of "control" or "oversight" when owners who have reservations about the sale cannot offer his/her services to the community, except perhaps as a minority voice posting on a blog.
5. The problem is input by owners into any drafting of the CSA, much less SPA (which is mainly handled by the SC and lawyer in conjunction with the developer), is near impossible. The law does not require it, nor does it form a legal objection in any way when STB hears of it.
   

Mr Siew has his heart in the right place, and has talked about the legal aspect of any contract that one must be cognizant of. Unfortunately, the reality on the ground which many enbloc estates are facing, is that people who wish to negotiate, feedback, discuss about the CSA or SPA, are not given the opportunity to do so. It is a myth that one can know and negotiate one's rights in an enbloc sale. Transparency, accountability, and due process, go against the nature of a quick sale, after all.

And even more unfortunately, only the law can change this.

Tags: Siew Kum Hong, collective sale, collective sales, en bloc, en-bloc, en-bloc sale, enbloc, enbloc sale, real estate, singapore

Staying Ahead of the Game - Protem 'Inside Trading'

A look at the expat forum's thread on enbloc sales and you'll see it swamped by local Singaporeans trying to jump onto the 'enbloc wagon' by trying to suss out where the next 'enbloc potential' is and getting a unit or two there just before they hit the enbloc sale road. Speculators are jumping around the East Coast, lurking in condos in hope that some poor chaps will unsuspectingly sell their homes to an enbloc investor who can then cash it all in and reap the millions (the going rate nowadays, as they say).

But what happens if certain people within the estate have privileged information that an enbloc is going to occur, and buy up units in said estate before any enbloc announcements?

Yes, the only group of people who are aware of such things are the Protem Sale Committee (PSC) members. In an email, I was told this happened in an estate where members of the PSC who already own units there, decided to buy up other units in the estate, and shortly thereafter announced to everyone that they will be starting the enbloc sale.

Why should this be a problem?

• From the perspective of a unit owner who wishes to sell their home (for whatever reason) - usually if word goes around of an impending enbloc, the owner would either sell at a premium or hold back on selling, at least until the amount s/he could get is known. In this situation highlighted above, most owners who sold their units to the PSC were not aware of any enbloc and hence sold it 'on the cheap'. To the people who were planning to do the enbloc.
• From the perspective of a unit owner in general - Most owners will want to wait and see what are the pros and cons of selling their units collectively. They therefore want a PSC/SC that represents them and are fair in their dealings with agents/developers/lawyers. But if owners know that the PSC members have several units in their estate, bought precisely because of an oncoming enbloc, what confidence is there that they do not have ulterior motives of their own? Are they truly representing owners or themselves? Are they selling for the benefit of everyone (which might require taking a higher RP for example), or for their own benefit (which might be a lower RP but faster sale, since they have bulk purchases)?
• From the perspective of the law - the new amendments will address a key issue of transparency. Any PSC members who utilises privileged information not available to public (including all owners) for their own benefit is not trying to be transparent to everyone. In fact, it is the exact opposite since they are most likely to have their own motivations and drives to push the sale through (eg have to pay off hefty loans taken up from snapping up units). The law needs to protect owners from such 'insider traders' and to have procedures in place that require all owners to declare when they bought their units (and have such information open for scrutiny).

In the meantime, the wild wild west continues.

Tags: protem sale committee, pro-tem sale committee, protem sales committee, pro-tem sales committee, collective sale, collective sales, condo, en bloc, en-bloc sale, property, singapore, real estate

Who Needs a Pro-Tem Sale Committee?

In an worrying twist to the en bloc madness, I witnessed over the weekend a troubling new incident. Now, traditionally, to begin the en bloc process, the following stakeholders are involved in the following sequence :-

1. Step One: PTSC - Group of like-minded subsidiary proprietors (aka owners) get together and commit to the task. This is the pro-tem sale committee (PTSC) which need not be voted in or nominated.
   
2. Step Two: Agent - The PTSC contacts property agents (typically real estate investment division) to draw their attention to the estate, and to ask them to give presentations to the PTSC.
3. Step Three: Owners - The PTSC nominates the most suitable agent to present to the remaining owners and begin the CSA.

I went to an agent presentation this weekend, in an estate in District 10, one of the few remaining super prime estates near numerous conveniences (embassies, up and coming eating places, schools, national park etc), and the above order is reversed. In other words:-

1. Step One: Owners invited to agent presentation. Agent obtained information on SPs on their own accord (this was found out quickly when not all SPs received the invitation letter).
2. Step Two: Agent encouraged those SPs present to nominate them as their en bloc agent.
3. Step Three: Agents then begin the process of soliciting PTSC members.

What this means is that the agent actually went into an estate, without any official invitation by any SP at all, to offer their services, make a presentation on selling the estate collectively, and then asks owners who would like to form the PTSC.

The key word here is "without any official invitation by any SP". Has the Wild Wild West expanded its frontier again in the story of enbloc madness? Can any agent go into an estate now, particularly one in a prime location, and present themselves as a suitable agent for the SPs?

Technically, yes.

The law is so open about the protocols for starting en blocs that nothing prevents this from happening. In fact, nothing can stop any number of agents (typically citing that they have X number of developers they're in talks with, who have expressed 'deep interest' in the land) from going into an estate uninvited, unwarranted, and give their sales pitch. Again and again. Without any invitation by any SP.

This brings new meaning to "representing the interests of all subsidiary proprietors" when they begin the process without any SP in mind at all, or without their permission. It certain indicates strongly that this is a self-serving agent who has taken the term "proactive" to a whole new level. And with such an agent, how can any owner be assured that they will be sufficiently represented, or their assets protected from any unscrupulous methods or tricks that an agent might do?

We're not talking about some chap putting a leaflet under the windscreen wiper of your vintage Rolls Royce when it's parked outside. We're talking about a guy walking into your home unannounced, saying he's interested in your car, he has your details, no need to testdrive he's already checked it all out, and claiming he has several buyers interested in it. Just agree to him being your sole agent and he'll sell your car for you, whether you wanted to or not. The buyer will of course pimp it up (or in mrbrown's term, zhng your car).

My good friend who stayed in this estate felt very angry about this whole deal, and especially violated by this agent who came into the estate without permission and started talking about selling it all off.

If the law does nothing about this, I fear more agents will be attempting the same trick in hopes of securing that juicy agreement that will fatten their coffers courtesy of a successful en bloc.

Tags: sale agents, en bloc sale agents, collective sales agents, collective sales, condo, en bloc, en-bloc, en-bloc sale, enbloc, enbloc sale, property, collective sale, singapore, real estate, Enblocing Singapore

The Worrying Trend of Self-Replicating Committees

A good friend just contacted me, upset and frustrated. Her estate, Botanic Gardens View (BGV), has popped out another Sale Committee. Out of the blue. With another property agent (Huttons) while the first Sale Committee (SC) is still active (with CBRE). Looks like a two way fight has begun in her estate to garner interest and signatures.

The difference that the 2nd SC and agent is offering for owners of BGV? 1-for-1 exchange.

In and of itself, an enticing carrot and certainly a compromise for those owner-occupiers who wish to continue staying there. Move out for 3 years, move back in, presto, brand new apartment.

Except it's not really a collective exchange - the flats are 30% smaller, there's no guarantee what floor, face, etc you'll get. It's also doubtful if people opting for the exchange will have any say whatsoever in the design of the new apartments. In other word, not only are you getting a smaller flat, you're going in blind.

That's partly why collective exchanges are (a) damn difficult, (b) handled with finesse by a few small law firms such as Phang & Co, (c) appealing but in reality having the potential to shortchange owner-occupiers in the end.

But the carrot isn't the point. The worrying fact is that while the first SC has barely started to get around to collecting signatures, the second has emerged. Each with their own carrots.
Who's to say a third, with Ah Beng Agency ("we force your signature by hook or by crook, both sure painful wan") will not emerge? Or a fourth, or fifth? I wrote about the problem of multiple SCs in the past, in the case of Watten Estate, and it looks like BGV's hit with that issue too.

With the development charge increase, developers are now getting fussier in selecting which en bloc to go for (if any). But now all it takes is an eager agency to step in, offer their services (often 'free') so long as a group of like-minded owners is willing. And prime spots like BGV are in demand nowadays, with agencies very keen to win the 80% signature race and get the windfall (along with the owners of course).

Sure it means 'greater choice' for owners, but think this through:-

1. If an owner signs the CSA with Agent A, can he sign the CSA with Agent B as well? What are the consequences if he does so, and which CSA is valid (or are they nullified)?
2. One CSA is already legally tricky (full of legal terms, definitions, loopholes even), but two? Agents and lawyers will give you the short and sweet version during their presentations of what's included in the CSAs, but you can NOT trust what is said because it is what is NOT said that is equally important (sometimes more so). Many en bloc'd estates are now beginning to realise that their CSAs contain clauses that give a lot of their rights away, or have hidden clauses that allow SCs to do unscrupulous things (such as 'bribe' fencesitting minority owners with your money). Considering the multi-million dollars nature of some of the sales, you must be careful and go through each clause. That's double the time needed now, what with 2 CSAs/agents/lawyers/SCs.
3. Under what conditions will one SC bow out of the competition? If two SCs were to compete within the same estate, and each owner can sign only ONE CSA, that's a 50% distribution between the 2 CSAs. This means one may never achieve 80% unless one SC quits and nullifies their CSA. So when should one SC quit in favour of the other (considering both are self-interested/selfish groups who's going to blink first in the showdown)? Under what protocols (eg if an SC is able to achieve 50% in 6 mths time, the other should give up) or rules of the competition?
4. 2 SCs = 2 aggressive groups of people out for your signature = double the hassle and double the annoyance if things get out of hand between the 2 SCs. Given that there's no need for professionalism between the two competitors it can become a slugfest with owners caught in the middle (eg half-truths hurled against the opposite party). Imagine - Monday Huttons rings your bell, Tue CBRE rings your bell, Wed Huttons comes back to clarify some stuff CBRE might have said, Thu another party calls you to say that "the other party smokes pot", Fri both parties call you to say that "the competitor is in league with Voldemort, don't go near them". Sat you just want to cast the Cruciatus Curse on the SCs. Sun you plan to expelliarmus the annoying SC mugglies and boot them out of the estate.
   
5. Shouldn't there be some regulations that management committees can set up for the creation of SCs, to curb the potential rampant replication? Considering that any SC must work with the MC, or for that matter, obtain the owners' list from the MC, couldn't MCs impose non-refundable fees for any SCs that wish to set up shop? Such fees must come from the SCs themselves, and cannot be deducted from the sale proceed if successful. The fees can then go into the sinking funds for communal use, and should be a significant sum (eg $5000 per SC member) to deter the frivolous creation of SCs. That way, owners know that these SCs are serious about their intention to help sell the estate, and not there for their own self-interests.

In the meantime, I wish BGV owners good luck in their 2 way fight. Looks like it's going to get complicated.

Tags: botanic gardens view, botanic garden view, taman serasi, multiple sales committees, multiple sale committees, collective sale, collective sales, condo, en bloc, en-bloc, en-bloc sale, enbloc, enbloc sale, property, singapore, real estate

Measures to Ensure Transparency - Deconstructing a Parliamentary Discussion

The Pariah sent me a link to what looks like a 'transcript' of the parliamentary discussion around en bloc sale committees and the en bloc process in general, dated 22 May 2006. This was between A/P Ho Peng Kee, Snr Minister of State for Law, and Mr Chiam See Tong, Opposition Member. You can read the transcript here.

The discussion centered around en bloc sale committees (SCs) and the need for transparency, fairness, and accountability ('do not abuse its powers'). Let's take the points raised in this discussion paragraph by paragraph. In no way is this intended to be a direct attack on A/P Ho, but it is meant to open up a space for further debate on what is seriously lacking in the legislation, and on the issue of transparency.

Para 2: "The Board takes all objections seriously and examines them very carefully."
While this is true, the issue here is that the STB is bounded by what the legislation defines clearly as permissible objections - financial loss (defined in a limiting manner), acting 'in good faith' (again, defined in a limiting manner), and being partisan to the redevelopment. Given these tight boundaries, what 'objections' fall through the cracks, which can then be thrown out as legally excluded? Issues of intrinsic value of home, valuation of units that are factored in the original sale price but excluded in the en bloc method of apportionment, aggressive behaviours of SC/agent/law firm, lack of transparency, etc.

Para 3: "the Board had, on two occasions, dismissed the applications because the procedures set out in the legislation were not complied with."
Two out of what must be close to 100 en bloc sales by now, is not a lot. IF, however, one counts how many en bloc sales has to go TO THE STB (ie did not achieve 100%), then the number rises substantially. Has the government or the STB asked (and produced findings) on why these estates never achieved the 100% consent? Note the addition qualifier - "set out in the legislation" - which means there are numerous owners who might have complained about the issues mentioned above, but couldn't because these are not set in legislation. Furthermore, the proposed changes include one which aims to make it such that minor non-compliance with procedures would not cause the sale to be dismissed.

Para 4: "[Requiring the CSA to be signed within 12 mths will make it such that] all owners.. will not be kept in suspense for an indefinite period."
How about all owners being subjected to repeated en bloc attempts, on an almost regular basis? The 12 mth limit to an enbloc process will not preclude SCs from forming again and again. Unfortunately, I don't think the government has a record of how often estates repeat the enbloc process.
More importantly, while I applaud the effort to make the update of the enbloc process accessible to people in 4 different languages, more needs to be done to make the CSA itself accessible to laypeople, not just in different languages, but in everyday English rather than its current legalistic form.

Para 5: "[The proposal to require a general meeting to start a SC] will also serve as notice to all owners of a possible en bloc sale initiative being started."
I think this is the clearest case of where the policy makers are not in touch with "the ground". The fact is that almost all en bloc initiatives are started by a broadcast letter by the marketing agent to ALL owners, requesting them to attend an owners' meeting (or in some cases even a general meeting). Any agent with enbloc experience knows that the initial stage of announcing to all owners in as public a manner (notice boards, registered letters to owners etc) is crucial in getting the prerequisite 80%. Will the EOGM requirement change anything? Not likely.

Para 6: "I expect many useful points [from the public consultation on proposed changes] will be incorporated into the final amendment Bill."
I certainly hope so!! Over 100 feedback was sent to MinLaw, surely that has to cause them to consider some of the problems with current, and proposed, law.

Para 7: "the sale committee is perhaps the most important component in the en bloc sale process."
Absolutely, but posting "minutes of the sale committee.. so that all owners, whether majority or minority, will be kept au fait with the discussions" (Para 8) is insufficient. Anyone in the business world will easily realise that minutes are cleaned up versions of what transpired in a meeting. A transcript might be better, but an even better solution would be to require the sale committee to comprise of both pro- and anti-sale members. Something that Prof Jayakumar suggested but was not seen in the proposed changes.

Para 10: "[the idea of legislating a 1-to-1 exchange] is one area where we should leave it to the owners to decide, because not all owners may want a replacement flat."
Do read Pariah's blog for more details on collective exchange; she's probably the most knowledgeable person in terms of exchange. She points out that the suggestion raised by Chiam is not that everyone must receive a replacement flat via an exchange, but that the option be legislated such that should an owner want a replacement flat rather than cash payout, they may do so. Australia is looking into such a suggestion, as mentioned previously, and perhaps Singapore should consider it seriously too.

Para 10: "I know on the ground that owners who want a replacement, in fact, negotiate with the developers who are buying the property."
Wow. Can anyone who has in fact negotiated with the developers please contact me, so that I can believe this statement?
(a) Most agents don't even bother offering possible replacement flats for displaced owners (ie the investment arm is separate from the residential sales arm).
(b) Most CSAs do not include or build into it the possibility for owners to obtain a discount or first dibs, much less negotiate, with the developers on new units. If it does, it means a much lower sale proceed and that might upset investor-owners who prefer the higher premium.

I would dearly love to obtain a negotiated replacement flat, but was never given that opportunity at all. Those I've spoken to recorded the same situation. The whole issue of negotiating for new units before it is built, or even planned (or designed), is highly complicated, perhaps on par with the process of exchange. Unless A/P Ho is referring to owners approaching the developer/new unit agents and asking for a discount because they sold the land to them. In which case the usual discount would be given, rather than a special one, I suspect. Most sales agents want their commission after all.

Did the parliamentary discussion address the issue of transparency? Only narrowly defined, and certainly not enough to tackle the increasing dissent and frustration over the aggressive machinations of SCs. But for all the points raised above, they are made outside of parliament and it's a small voice in a sea of greed. I can only hope some of the feedback sent by the little people, actually make a dent in the law.

Tags: Singapore Parliament, En bloc parliamentary debate, sale committee transparency, collective sales, real estate, singapore, condo, en bloc, en-bloc, en-bloc sale, collective sale, enbloc, enbloc sale, property, Enblocking Singapore, Enblocing Singapore, Enbloccing Singapore

Myth #8 - Transparency - Advantage to Who?

I've been asked this in an email and thought it's important that this be discussed here - the issue of transparency.

Let me begin with a quote from a recent ST article on minority owners and a side-conversation I overheard: "A consultant's role in a collective sale is to help owners make informed decisions, but 'there will always be owners who, for different reasons, will not want to sell, no matter the price, and we respect that" - Ms Tang Wei Ling, DTZ Debenham Tie Leung.

Now the side-conversation, overheard at The Coffee Connoisseur while sipping coffee. A property agent was seated next to me, trying to persuade his client, over the phone, to part with $4.7 million for presumably a flat or house. He kept on saying to the client, that he is very certain the property's value will increase next week, and wants the client to commit to the sale today. Off the phone, he told his friend (colleague/partner/wife/girlfriend) the client was indecisive and he just had to say something to make the client sign (and hence gain his commission). This includes of course saying things to persuade the client. Now obviously the property value MIGHT increase; we don't know except in hindsight. And if the client commits, he can never know if it'll go up or down. So in a way, he's not telling a lie - just half-truths.

An email was sent to me from someone undergoing an enbloc in her estate. She was frustrated with the lack of information from both the SC and the marketing agent. She said she has to initiate information from the agent and often they are not forthcoming. Often, the SC was not forthcoming and refused to reply to her. How many of you have encountered this situation?

She asks if there's any regulation regarding the issue of transparency. After all, given the DTZ quote above, an agent's job is to help inform owners (ALL of them) to help them facilitate the enbloc sale.


The proposed en-bloc law changes are supposed to tackle the issue of transparency (as stated in the position paper) but whether that will happen remains to be seen. What is the case now is this:-

• Transparency is not an issue that STB will consider as a matter that can block an en bloc sale.
  
• Information is a double-edged sword. The more information you have, the more informed your decision can be. But it also means the more likely you are to ask questions or critique certain things, or be dissatisfied with certain aspects of the en-bloc process.
• Hence, agents often encourage that transparency be kept to the barest minimum, to minimise potential slow down to the enbloc process from too many queries raised, too many complaints etc. By the barest minimum, it means being around for Q&A during the CSA signing, so that they can persuade you to sign; writing letters to all owners informing them of the stages of the process etc; how much you'll be getting etc. The 'positive' aspects that will push the sale forward. That is their job after all.
• What don't they tell you? The minutae of the CSA clauses - that's the job of lawyers. And unless you are trained to read legal documents, CSAs are as foreign as doctors' scribbles. Agents and SCs are not likely to tell you, for example, that once you have signed the CSA, you give the SC near-total rights to anything and you can't sue them. They don't tell you that while the RP can be revised upwards (if stated in the CSA) given market conditions, that the SC is under no obligation to do so (to guarantee a quicker sale, rather than a maximum profit). They don't point out what are the other representations that the SC might have heard, what alternative methods of distributions they turned down and exactly why. They don't tell you why they chose a particular method of distribution and be made to defend that choice. All these information may work against you signing the CSA, and selling your unit collectively.

So is there 'transparency'? Only very narrowly defined (and which can be legally upheld in court) in the form of the agents/lawyers being present for Q&A, letters sent out etc. BUT the information given may not be complete so as to allow owners to make "informed decisions", but rather half-truths or worse, withholding information, so that the sale can proceed expeditiously.

That's why you need to read up on en-blocs yourself. Use the information on blogs such as mine and Pariah's, forums, etc to check on information not forthcoming. They might keep such things from you, but that doesn't exclude you from learning on your own.

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

Asset Valuation and Market Equilibrium

It's often rare nowadays to see something published in the Straits Times's Forum pages on en bloc sales, much less a letter and a response. Let me reprint the 2 letters first and then discuss them :-

Collective property sales: Check the frenzy
Straits Times Forum
19 May 2007
By Magdeline Goei (Ms)

I AM all in favour of collective property sales in land-scarce Singapore, but measures should be put in place to check the frenzy we are witnessing now. This, in my opinion, is not healthy for the economy and not healthy for the fabric of Singapore.

When we buy an apartment, the price we negotiate reflects the view, layout, floor level and prestige factors such as in the case of a penthouse. But we are not able to negotiate the share value allocated to the apartment, which is set by the developer and approved by the Commissioner of the Buildings Management Unit.

Share values were established purely for the apportionment of running costs in a development. They may be fair for the apportionment of running costs, but it in no way follows that they are a fair reflection of the respective stake owners have made in a development. Therefore, they should not be taken into consideration in the calculation of price or in important collective-sale decisions.

When it comes to valuing apartments, marketing agents do not take into consideration floor levels or prestige factors. This means the apartment on the second level will get the same price as one on the 20th level. This is not the practice in the real world. Is this fair?

Hopefully, amendments to legislation will incorporate the following:

• Valuations must give due recognition to different floors;
• Voting rights in collective-sale decisions should be weighted according to the size of the flat, not the share value allocated to it as is currently the case. This is because we have no say in the allocation of share value but we have a say in the size of our apartment.
• A bigger say must be given to owner-occupiers as they will need to acquire a replacement property and may suffer a loss; and
• The bar should be raised from the current 80 to 85 per cent. This will still allow steady growth in prices - which we all desire - but will moderate the current feverish pace of collective sales.

Collective sales can be a useful engine of growth in the key property sector of our economy. But now that they have become so important and so frequent, it is vital that the upcoming review of legislation corrects certain imbalances which have become apparent.


Let the market find its equilibrium for collective property sales
Straits Times Forum Online
22 May 2007
By Tay Sing Poo


I REFER to the letter, 'Collective property sales: Check the frenzy' (ST, May 19), by Ms Magdeline Goei.

In any asset valuation, the asset's terminal valuation is a key consideration. In collective property sales, the terminal value of a private estate is merely its land value.

The potential yield of a piece of land on redevelopment depends on its locality, prevailing plot ratio, land size and legislations on development control.

Considerations such as higher floors, layout, good views and prestige such as that of a penthouse do not affect the potential yield of a piece of land.

In an efficient market, prices reflect these considerations. I am fully confident that the current legislation on collective property sales is still relevant and that the Singapore property market is efficient.

The issue at hand is thus not with flaws in our legislations but how well informed buyers of Singapore properties are.

Overly legislative controls and frequent reviews will disrupt what is already an efficient market.

We should let the market find its equilibrium for collective property sales.

----

Mr Tay brought out two issues in counter to Ms Goei's comments - (a) Land value as potential yield and (b) market efficiency.

Land value as potential yield
What Mr Tay seems to be confusing is that Ms Goei is not talking about the 'terminal value' or land value, which is the prerogative of any developer wishing to pay for the land. She's referring to the Collective Sale Agreement's method of apportionment (or method of distribution). In most enblocs, the popular method is "50/50" or each owner will get a chunk of the sale proceeds based on 50% of their unit size and 50% of their share values. Ms Goei's point is that irregardless of the land value, the method of apportionment must take into account other valuative factors that a unit in the estate has (be it unit height, view and yes, unit size).

After all, according to Mr Tay's logic, all methods of apportionment should exclude unit size, and take into account share values only, since a unit's size does not "affect the potential yield of a piece of land". In fact, taken to its logical conclusion, methods of apportionment should be distributed equally among all owners irregardless of share values, unit size, floor height, view, feng shui, what have you, since all these do not affect potential yield.

So why, one must ask, do agents and the STB allow for the 50/50 method of apportionment? Why not allow for a 33/33/33 method of apportionment that factors in valuation of individual unit according to its uniqueness, share value, and unit size?

1. Equity. When an owner purchases a flat, he/she pays a premium for particular selections - unit size, floor height, angle/view. It is only fair for that owner, when collectively selling, to gather back some of that premium. Otherwise, if we use Mr Tay's logic, even the smallest unit in the 3rd basement level under the carpark next to the unmarked grave would be distributed the same amount as the 3 storey penthouse suite in the same estate.
   
2. Laziness. We've been through briefings by agents which went for the popular 50/50 method, and by some more fastidious agents that tried to include the valuation method (unfortunately they did not reveal the weighting in their calculations, claiming it proprietory). It's more complex but it's possible, and it's a question of whether they'll do it or not.
3. Greed. Some SC members will lose out if the 33/33/33 method was used. There are cases where SC members would calculate the profits they'd gain from the various agents' methods of apportionment, and took that into account when deciding who they'd award the contract. So if the members had units that would disadvantage them if the 33/33/33 method was used, why select these agents?

Market efficiency
I'm not fully familiar with economics but I do believe that any economic argument almost never takes into consideration irrational conditions such as ideological considerations (eg government's best interest to let the market escalate, the greater division of income gap and disappearance of the middle class) or social considerations (eg the house is more than a mere 'asset' but a 'home' to many). The point of dissent and frustration for many who asks for regulation of enbloc sales arise from these reasons.

1. The current 'efficient' market is creating a situation where middle class Singaporeans will not be able to invest in a condominium as a form of upgrading their social status. With prices skyrocketing, only the upper class and foreigners with capital will invest in non-landed residential property, and rent them out. One of the 5 'C's will become increasingly harder to obtain. It isn't just how 'well informed' buyers are, but how 'cash ready' they are in order to purchase what many perceive to be a sign that they have 'made it' in Singapore.
   
2. As a consequence it is creating the so-called 'New Poor' in Singapore, where the middle class have to remain in the HDBland. Note the attempt to appeal to this group, when the government tried to build HDBs with the trimmings of private condominiums (private facilities, branded fixtures etc).
   
3. A unit in a non-landed residential estate is to many BOTH an asset and a home to some. The current en bloc legislation is creating a market that is weighted in favour of developers and not home owners, much less owner-occupiers. Left to its own, many owner-occupiers will be forced to downgrade, squat, downsize or become a refugee, as the Pariah often pointed out.

Will the government slap back the capital gains tax that some argued stopped the property market frenzy in 1997 to 2004? I don't know, but left unchecked, the 'efficient market' is creating problems that economics often excludes in their rationalisation.

Tags: method of apportionment, method of distribution, collective sale agreement, CSA, collective sale, property, enbloc sale, enbloc, en-bloc sale, en-bloc, en bloc, condo, collective sales, real estate, singapore

Bound to Happen - Multiple Sales Committees

The Electronic New Paper on Saturday reported that the Watten Estate Condo in Bukit Timah has:

1. 2 Sales Committees
2. 2 Marketing Agents (DTZ Debenham Tie Leung and Dennis Wee)
3. 2 Law firms (unknown with DTZ, Phang & Co with DW)
4. 2 Collective Sale Agreements
5. 2 Methods of Distribution (DTZ = Straight Cash Offer, DW = Hybrid Deal)

You can read the actual article here (with pictures of the ads).

This was bound to happen. With absolutely no regulation to stipulate how many SCs can be formed, how often they can be formed, who they should comprise etc, there is no limitation to how many SCs can be created in any estate, subject to these SCs obtaining an agent and a law firm to represent them. Another big reason why the collective sale legislation needs to be seriously reviewed. I've been asked before - can an estate have more than one SC/CSA - and I said legally there's nothing stopping an estate from having 100 SCs/CSAs. Now it's happened.

Some questions that must be raised:-

1. If an owner signs on BOTH CSAs, which one applies? Both? The earlier dated one? Since both CSAs are legally binding, what happens to the owner? Previous reports by en bloc law firms have stated, quite categorically, that a CSA is a contract and one cannot renege it. If this is the case, once an owner has signed on both CSA what will happen?
   
2. However on earth, if both SCs, agents, law firms are not going to coordinate their efforts (since I'm assuming both will be highly competitive to obtain the prerequisite 80%), are both law firms going to monitor whether a particular owner has NOT signed on the other parties' CSA? There has to be a checking mechanism, presumably, to ensure that said owner has signed on only one CSA. Of course, given the legal language that is embedded in many such documents, some owners may get royally confused on what is required of them (ie not to sign the other CSA).
   
3. Given that the two CSAs are equally valid documents in the single collective sale (depends on which CSA you sign), what happens to owners who signed the first CSA, and then realised that the 2nd CSA (formed later) is more appealing/equitable/profitable? Can they renege the first in favour of the 2nd, given the special circumstances? Or are they stuck, which would seem unfair since most who signed the first CSA obviously would've thought that that particular CSA was the only option they had.
   
4. Is there not some sort of professional courtesy angle that should apply to law firms and agents (SCs are excused), that compels them not to step onto each others' turf? I mean, once law firm/agent X finds out that the estate is already handled by law firm/agent Y, should they not abstain from representing the estate, to prevent potential conflicts and confusion from arising? Or is it really a free-for-all no-holds-barred winner-takes-all goldmine grab? How does this reflect on the professionalism of such law firms and agencies?
5. What is to stop multiple SCs from sprouting up now, with the latest SC offering a higher RP, better method of apportionment, a free lucky draw for a unit in the redevelopment thrown in?
   
6. I noticed in one of the ads reprinted in the NP article, that the term "hybrid en bloc" has been trademarked. I'm assuming this was trademarked by a particular law firm that specialises in such mechanisms. Is this allowed, and if so, what implications does that have if the government wishes to pursue a process similar to the New South Wales' Renewal Plan (fairly similar to a legislated collective exchange mechanism)? Does that mean any hope of a hybrid deal is impossible without the permission of the firm, or without paying royalties to them?

I can imagine the consequences: (a) don't like your current SC, think they're not aggressive enough or too kiasu, start your own SC, ask your neighbour to start their own SC, see who gets to the finishing line first; (b) hybrid deals will become increasingly rare or even impossible unless someone comes up with an alternative mechanism (and then trademarks that, ad nauseam, think "mutant deal" "rojak deal" "fusion deal" "mixture offer" etc).

That, folks, is what happens when we leave things to "market forces" :)

Tags: collective sale agreement, collective sales agreement, multiple sales committees, multiple sale committees, collective sale, collective sales, condo, en bloc, en-bloc, en-bloc sale, enbloc, enbloc sale, property, singapore, real estate, Enblocing Singapore

Guerilla Tactics II - Quorum, EOGMs and Management Councils

This is a follow up to the post titled Guerilla Tactics. Was going through the Singapore Statutes (Yes, makes for fun reading), and found some interesting bits that have direct bearing on en-bloc sales, especially the START of it.

As I've pointed out before, the first point of contact between any marketing agent interested in offering their services to your development, is the management council. They typically then become the Sales Committee. But to do that, they have to be ratified in an Extraordinary General Meeting.

Did you know the regulations for EOGMs are set out in the Statutes? Look for the Building Maintenance and Strata Management Act 2004, First Schedule. This is of course my understanding of the Statutes, and lawyers (of which I am not) are the best people to confirm this, but unless your management council (MC) or sales committee (SC) are comprised of lawyers, I doubt anyone keeps a close eye on these regulations. But here are some nice bits:-

• A group of subsidiary proprietors (SPs) MUST submit a 'requisition' to the Management Council to initiate an EOGM. Now this has to be done formally in writing, to the MC's secretary.
  
• This group of SPs must comprise at least 20% of the total share values of the development. This approximates to 20% of your total no of owners (Schedule 14(1)(a)). Now this is possible if the SC and friends can get together to create the requisition but say in a development of 100 units, you need about 20 people to initiate the EOGM. In reality, that is often not easy or they don't even bother with this.
  
• Any business conducted in any general meeting (including the EOGM) must be held by the MC, not the SC. The SC can be there, but the chairperson of the MC must be present (or his/her proxy). So if an SC organises an EOGM (not an owner's meeting) which they need to ratify themselves, but the MC is not there, this is illegal.
• The EOGM must be held 6 weeks after the requisition is received by the secretary. (Schedule 14(1)).
• The EOGM needs a quorum or any business discussed there (including agreeing to begin the en-bloc sale, ratifying the SC etc) are not legal. The quorum is at least SPs who hold 30% of the aggregate share values of the development (Schedule 3(2)(a)). Again, this translates roughly to 30% of all owners must be at the EOGM. We're not talking cousins, friends, curious bystanders, girlfriends etc, but 30% of the share holders of the development.
  

In effect, any EOGM that does not conform to the above would be illegal. Which means any SCs that are ratified at EOGMs, any voting to agree to sell the development, all these are illegal if the procedures above are not only adhered to, but carefully logged down. How many EOGMs have you been to, where attendance is taken, names/ICs/share values noted, to gather the 30% requirement?

I've heard of cases where SCs formed by themselves, created by self-interested owners, who then invite marketing agents to come to present to owners, without the say so of the development's MC. Unfortunately, under the current laws, this is allowed. This completely excludes the need of any pro-tem SC to discuss matters with the other owners; they can choose whichever agents and lawyers they like AND THEN conduct an owners' meeting or EOGM to let owners know this is what they've done, now thank them for their hard work. In fact, most agents will tell pro-tem SCs to do that - the less interaction with owners, the more effective the sale process can be, since less information to owners = less chance of issues or contention arising from the sale. That's why most owners complain of a lack of transparency.

But that doesn't mean that if any SC decides to hold an EOGM, they can bend the rules. There are rules to adhere to, and now you know something that can be used at the first EOGM, to make sure the SC cowboys don't come charging guns ablazing. This is Singapore - there's a long red tape to stick to, and by golly, if they are so eager to sell and sell, they need to do it properly! In triplicates! Like obedient citizens!

Singapore Statutes, EOGM, Quorum, Management Council, sales committee, en-bloc committee, collective sale, collective sales, condo, en-bloc, en-bloc sale, enbloc, enbloc sale, property, real estate, singapore

Myth #2 - Conflicts of Interest and Neutrality

Most people assume that the key player in any en-bloc sale is the Sales Committee. The Sales Committee (SC) is formed to act on the behalf of the owners of the development, to engage marketing agents, to hire the solicitors needed for the collective sale, to keep all owners abreast of the ongoing sale, and to act as representatives to the Strata Title Board.

Typically, there should be no less than 3 members in the SC, and the committee is formed through election during an extraordinary meeting (EOGM) with all owners. The motivation to be in the SC is without a doubt to effect the sale of the development as quickly as possible.

However, one must ask who comprises the SC and whether there are issues of conflicts of interest between them and all the owners of the development (not just those keen to sell).

Most of the time, the starting point of any en-bloc sale is when marketing agents contact the development to express interest in representing them, or when the development contacts marketing agents to see if there is an interest in the property. But in both cases, it is largely the property's Management Committee (MC) that does the initial probe. The MC consists of owners, both residents (ie people staying there) and investors (ie people renting the property out). The responsibility of the MC is to monitor the funds collected by the managing agent of the property, to engage the agent to make repairs, upgrades, maintenance of the property, on behalf of all owners.

But here lies the conflict: The mandate of the MC is to maintain or update/upgrade the development whereas the mandate of the SC is to sell off the development in whatever condition it is in, as quickly as possible.

Why is this a problem? Because most of the time, the MC becomes the SC. Because they are the initiators of any potential en-bloc sale, the MC holds the EOGM in their capacity as a pro-tem SC. Most of them have, at this stage, audited a number of marketing agents to see what value the property is worth and which of them are the best for the en-bloc sale. By the time the EOGM is held, the MC/pro-tem SC has already chosen a strategy to pitch to the owners, the marketing agent, the method of apportionment, the reserve price of the property. Of course all these are subject to change and more importantly, subject to election into the official SC.

But most owners would view the pro-tem SC members as proactive and best able to represent the sales of the property. Plus the larger the property, the less likely people will know one another, and a person in the MC is as good as a person in the SC; election becomes arbitrary.

Why should this be a problem? Because of the conflict of interest. The members of the SC, while they are in it, are still members of the MC. Unlike politicians who assume office and are required to resign from any career positions that might be a conflict of interest, there is no such regulation for SC members.

The consequence?

1. Because the MC (who is in most cases effectively the SC) is in charge of the maintenance fund of the condominium, they have a say in whether to use it to maintain the property or even to upgrade/update it. But because they are the SC, there is no incentive to maintain, to paint the exteriors, to make repairs, when their primary purpose is to sell the place off. Why waste that money if the buildings are going to be torn down? Effect - the place gets run down.
2. Because the place gets run down, the SC will tell owners of the downsides if the sale does not go through - increasing maintenance funds required to upkeep the place (which if they had maintained in the first place, would not have been a major issue), place getting more decrepit driving rental and property value down.
   
3. Because the MC is typically the first group to become aware of en-bloc potential for the development, they typically freeze any repairs, maintenance etc to push owners into selling. So they know that once the 10 year age mark is reached for the property, they need only 80% agreement for the sale to go through. In effect, they stop the upkeep of the property except for the bare minimum (eg security, electricity, sports facilities). Forget painting the exterior or interior, forget updating or upgrading the place, even if the MC has the sinking fund to do so.

Why do I know this? Because I was the only member of my property's SC that is not a member of the MC and became privy to the unethical behaviour that SC members will do to force, compel, push owners to agree to the collective sale. This was confirmed by colleagues who had been or are involved in enblocs, and they said the same thing - most of the time, the members of the MC becomes members of the SC, with consequences like those numbered above.

Letting the place run down, because of a potential sale, is ethically and legally wrong. Of course it's hard to prove legal evidence of the MC mismanaging the property, and unless there is a strong consensus against the sale, most owners would not care what happens to the property beyond the potential windfall they'll get.

I believe that any member of the Sales Committee cannot be a member of the Management Committee, to prevent conflicts of interest and to ensure fairplay in the collective sale.

The Land Titles (Strata) (Amendment) Act 1999 has a clause - Section 84A(9) - that defines the issue of 'good faith' which is supposed to capture the neutrality of the sale process. It states that the Strata Title Board (which mediates the enbloc sale) cannot approve an application for the collective sale if it "is satisfied that (a) the transaction is not in good faith after taking into account the following factors: (i) the sale price for the lots and common property in the strata title plan, (ii) the method of distributing the proceeds of the sale, (iii) the relationship of the purchaser to any of the subsidiary proprietors or (b) the sale and purchase agreement would require any subsidiary proprietor who has not agreed in writing to the sale to be a party to any arrangement for the development of the lots and the common property in the strata title plan".

The reason for this clause is to ensure the sale process has been executed fairly and objectively, "in good faith". But when the SC knowingly engages in tactics that impels owners to sell the property, by telling them "the place is running down", "costs of maintenance will go up", or by simply refusing to continue to maintain the property, then the sale process no longer becomes fair or neutral, that is, it is "not in good faith" especially to ALL owners including the minority.

Anybody who has been through an enbloc and is in the minority camp of not wishing to sell their property will know of these tactics I refer to. Unfortunately, the law does not provide for the condition that members of the Sales Committee cannot be the managers of the property funds.

Moral of the Story: If you are suddenly thrown into the madness of enbloc but do not wish to sell your property for whatever reason, ensure that during the EOGM you point out that you think the SC members should not be in charge of your condo's funds, so that irregardless of the sale process or however long it takes for any sale to succeed, your property will still be well-maintained and even updated/upgraded given sufficient funds. Point out that the MC is obliged to look after the interests of ALL owners, and to ensure your home reflects its best residential potential.

[Examples of great MCs are those that upgraded their property, eg Botanic Gardens View/Mansions went through an aggressive renovation to improve their exterior, interior & lifts, some condos have implemented ERP technology for their carparks or improved their security systems, or upgraded their sports facilities etc.]

I can only hope someday this will change.

Tags: sales committee, management committee, condominium, enbloc, enbloc sale, en-bloc sale, en-bloc, collective sales, collective sale, singapore