A MAN’S HOME IS [NOT] HIS CASTLE —EN BLOC COLLECTIVE SALES IN SINGAPORE

• Author: TER Kah Leng LLM (Bristol); Barrister-at-Law, Advocate & Solicitor; Associate Professor, NUS Business School, National University of Singapore.
• Date: 01 December 2008
• Published date: 01 December 2008
• Citation: (2008) 20 SAcLJ 49

This article will discuss the legislative scheme for the collective sale process of strata developments and the implications of the cases decided by the Strata Titles Board and the High Court. It will consider the 2007 Amendments to the Land Titles (Strata) Act and the extent to which the amendments will bring about greater clarity, transparency and safeguards to affected subsidiary proprietors, which were the major concerns expressed at the Consultation stage of the Bill.1

I. Introduction

1 A subsidiary proprietor’s (“SP’s”) home is not his castle. Particularly so, if his castle is built in the air. A strata development is vulnerable to being collectively sold by the majority of owners to a purchaser for redevelopment. This is akin to compulsory purchase except that the State is not involved in the forced sale or acquisition. The en bloc frenzy stretching over the past two years is unprecedented and unparalleled anywhere else in the world. In 2006, collective sales hit S$8bn. In the first two quarters of 2007, 60 en bloc sale applications were filed at the Strata Titles Board (“STB”), of which 32 were disposed of in six months. The main incentive for sellers is the exceptional premium to be made, as a unit that is sold en bloc is expected to fetch a far higher price than if it were to be sold individually on the open market. Moreover, capital gains are not taxable under Singapore law. The current high demand for housing2 is also an incentive to buyers-developers to acquire

old properties and redevelop them more intensively for sale at exorbitant prices.

2 The policy supporting collective sales is linked to the city-state’s severe land constraints. A land area of less than 700 sq km (about 680 sq km) has to be shared among housing, recreation, industry, infrastructure, water catchment and military needs. The allocation of land uses in Singapore in 2005 showed 12% living space (housing). As at 2005, only 12,000ha of land was available for future development. With a projected population of 5.5 million in the future, about 8,000ha of land will be needed for housing.3 This requires an optimal use of Singapore’s scarcest resource, and collective sales are apparently a creative way of freeing up land and utilising increased plot ratios to realise the full developmental potential. The redevelopment of older estates has apparently been achieved as statistics show that between January 2005 and August 2007, the average age of developments applying for collective sale was 25.9 years. Since 1999, almost 70% of developments sold en bloc exceeded 20 years in age.4

3 Collective sales have made millionaires, but environmental and social costs must not be forgotten. The physical destruction of buildings may lead to a loss of historical and architectural heritage. Collective sales can be a painful process leaving SPs feeling traumatised, saddened, angered and embittered. They are the “people who may not want to sell for sentimental reasons, some who have sworn to their ancestors they will live there forever, some like the fengshui, etc”.5 However, it is not possible for legislation to cater to all these views, short of requiring unanimous consent to go en bloc which will in turn make it harder to either maximise land usage or to rejuvenate developments. The extent to which people go to keep their homes is demonstrated by the seven minority owners who spent S$2m on legal fees trying to keep their homes in Horizon Towers, where the en bloc sale process became extremely acrimonious, protracted and costly.6

4 In a collective sale, an SP and his7 family are losing their home, and often their only home, in a familiar neighbourhood. They are uprooted and have to relocate. Family disputes may arise over the choice of new home or location. It is disruptive to children who have to move to a new neighbourhood and leave their schools and friends behind. Some displaced SPs may find the sale proceeds insufficient to buy an equivalent replacement unit and may have to downgrade to a smaller flat or to a less choice location. Other SPs may have to wait for the sale proceeds before they are financially able to commit themselves to buying alternative homes. In the meantime, neighbourhood squabbles may erupt, law suits threatened and recalcitrant SPs misled or coerced into agreeing to the collective sale.

II. The legislative scheme for collective sales

5 The Land Titles (Strata) Act (“the Act”)8 authorises and facilitates the compulsory sale by the majority SPs of private residential, commercial and mixed developments in strata developments.9 Strata developments involve community living, shared ownership of common property in designated values and individual ownership of strata title which is essentially airspace. At the same time, en bloc legislation seeks to strike a delicate balance between the socio-economic policy of urban renewal and the rights and interests of affected parties. It provides procedural safeguards and substantial powers to the STB to protect minority owners who have made valid objections to the sale.

6 The types of strata developments which can be sold collectively are specified in Pt VA of the Act. As the vast majority of en bloc sales are carried out under s 84A of the Act, this article will focus on collective sales of strata or flat developments registered under the Act where SPs own their units and share in the common property.

7 The significant aspects of the Land Titles (Strata) (Amendment) Act 200710 (“the 2007 Amendments”) are summarised as follows:

(a) Additional requirement for majority consent.

(b) New rules on formation and proceedings of the collective sale committee.

(c) Empowering the STB to increase sale proceeds for certain minority objectors.

(d) Empowering the STB to disregard any technical or procedural irregularity that will not prejudice any SP’s interest and to make an order to amend the non-compliance.

(e) Allowing a signatory to the collective sale agreement a cooling-off period to rescind his agreement.

(f) Requiring an independent valuation report reflecting the value of the development as at the date of the close of the public tender or auction.

(g) Various procedural changes to enhance transparency and certainty of the collective sale process.

8 The changes will not have retrospective effect and will not apply to developments that had obtained the majority consent of 80%/90% (based on share value) at the time the 2007 Amendments came into force on 4 October 2007. The new procedural rules are more stringent than before, and there were sale committees hastening to obtain the majority consent before the 4 October deadline.

A. Collective sale process

(1) Collective sale committee

9 Private developments are not officially earmarked for collective sale and redevelopment. Market forces determine if it is economically viable to go en bloc. The process is usually initiated by interested SPs or at the instigation of property developers or by so-called “condo raiders” or speculators who buy up units in condominiums considered “ripe” for redevelopment and agitate for a collective sale.

10 Prior to the 2007 Amendments, there were no rules regulating the formation and proceedings of the sale committee. Interested owners would gather to form a pro-tem sale committee to explore the possibility of a collective sale. The committee would liaise with a property consultant or marketing agent and the solicitors to start the en bloc process. The marketing agent will advise on the development potential of the estate and the land value, the minimum or reserved price for the sale, the method of distributing the proceeds of sale and the timeline for marketing the property. The committee will then canvass the proposal to fellow residents in the hope of obtaining the requisite majority support for the en bloc sale.

(2) New rules on formation and proceedings of the sale committee

11 In Ling Ah Tie v Tham Kai Shui,11 the minority owners objected to the lack of information pertaining to the appointment of the sale committee, the marketing agent, the contents of the tender documents and the tender process. However, the STB found no evidence that the majority SPs and the sale committee had ridden roughshod over the minoritys’ rights to participate in the decision-making process.

12 Nevertheless, there have been complaints that SPs were not consulted before the start of a collective sale in their estate nor when the sale committee was formed. The 2007 Amendments bring about greater clarity and transparency by requiring members of the sale committee to be formally elected by ordinary resolution at a general meeting convened by the management corporation (“MC”) of the development. Instead of hearing rumours of the impending sale, SPs will be officially informed at the general meeting. Formal election will ensure only one sale committee at any one time, whereas in the past, there were condominiums having more than one sale committee which created confusion. The provision stating that the sale committee may be resolved when the CSA (collective sale agreement) expires ensures that the committee does not pursue the matter when the owners are no longer interested. The sale committee can also be dissolved by ordinary resolution at a general meeting of the MC. This may prevent all the members of the sale committee from resigning at the same time, which happened in the case of Horizon Towers.

13 Under the 2007 Amendments, there must be at least three but not more than 14 members in the sale committee. A candidate standing for election must declare any conflicts of interest with the property developer, property consultant, marketing agent or law firm involved in the en bloc sale as soon as practicable, presumably at the latest at the general meeting convened to elect the sale committee. Disclosure of any direct or indirect interest that could conflict with the proper performance of a...