POSSIBLE FALLACIES OF THE ”FREE WILL OF MAJORITY” IN EN BLOC SALES

The Land Titles (Strata) Act (LTSA), Cap 158, invokes majoritianism for non-landed private property. However, the hype of majoritianism does NOT stand up to scrutiny and is not even valid because:

1.

Majority Consenters are pre-empted by law under LTSA from filing their Objections at Strata Titles Boards (STB) and High Court levels. Case history: The definitive Horizon Towers en bloc saga where HPL Ltd publicly threatened to sue all Majority Consenters for > 2x contract price if they seek legal recourse against the sale.

2.

Objections that can be filed by Minority Dissenters at High Court level is constrained and limited to what was stated at STB level when Minority Dissenters are only given 21 days to file such objections. Consequently, our courts will likely be reduced to Rocket Dockets under LTSA 2010 amendments. When an owner suffers a “financial loss” based on the kindergarten definition under LTSA (viz, buy $1mn but get back less than $1mn from the en bloc sale net of deductions sanctioned by the Court or specified under LTSA), such statutory hurdle could be overcome by contract (eg, the Majority Consenters agree to allocate more to the owner with such “financial loss” to undermine LTSA). Firstly, the statutory definition of “financial loss” defies all economic and accounting principles of the timevalue of money. Secondly, the owner with “financial loss” is now preempted from raising “financial loss” as a basis of objection. Thirdly, and most importantly, it undermines at core the communitarian interests that purportedly justify majoritianism over private property rights. By contract, a Majority Consenter willingly accepts, and by law, a Minority Dissenter without “financial loss” is forced to accept, a smaller pay-out compared to the owner with “financial loss” even though all three of them own exactly the same unit-type. So where is the “collectivism” of LTSA to justify forcing the Minority Dissenter to sell??? Is it “a collective sale of all the lots and common property in a strata title plan” (ie, sale on identical basis for all owners) OR “a sale of a collection of the lots and common property in a strata title plan” (ie, sale on varying basis for different owners)? Conversely, even if the Court orders that a Minority Dissenter be paid more because the Court “is satisfied that it would be just and equitable to do so”, LTSA empowers the Sale Committee to reject the Court’s decision which would then result in abortion of the collective sale.

3.

Sale Committee members are volunteers who may not be trained/skilled in law, finance, economics and/or real estate and yet they are empowered to sign multi-million or billion dollar contracts on behalf of all owners. In digesting this significance, you should bear in mind that in typical cosmopolitan city lifestyle nobody knows their neighbours any more (most are investor-owners anyway and some are flippers who just bought into the estate). Even when Sale Committee members breach, eg, the conflict of law provisions under the Third Schedule of LTSA, there are no penalties specified under LTSA. Instead, LTSA pointedly provides that even if there is non-compliance with the First, Second or Third Schedules, STB will proceed with the en bloc sale if STB is satisfied that such non-compliance does not prejudice the interest of any person.

4.

Sale Committee volunteers are advised and guided by experts (viz, marketing agent and lawyer) but both of them are appointed on no-sale-no-fee basis and their respective industry umbrella organizations have not uttered a word about the inherent yet brazen moral hazards. There is also no correlation between the amount of professional indemnity insurance of the marketing agent/lawyer relative to the magnitude of the en bloc transactions at stake, nor any grading system (in sharp contrast to contractors who are graded and pre-qualified by quantum of tender awards).

5.

The basis on which the estate is being marketed to potential interested bidders is HIDDEN from owners BEFORE signing the Collective Sale Agreement. This is despite the fact that the marketing agent will be paid by the owners upon successful sale. The marketing agent prepares two sets of books - so to speak.

2 Agent tells owners the Individual Unit Comparative Replacement basis to cajole them into signing on the basis of an "en bloc windfall" despite the fact that (i) property is all about location and timing and (ii) owners are selling the entire land plot, NOT individual units. Agent then tells potential developers the Residual Land Value (RLV) basis which reflects the true market value of that land plot.

6.

Upon failure of public tender, LTSA even sanctions (i) back rooms for private treaty negotiations,(ii) side doors for private sale and (iii) amateur volunteers empowered as Sale Committee to sell-first-and-tell-later - basically, a legalized scam! In sharp contrast to Govt Land Sales, NO private treaty talks in back-rooms are allowed post-public tender even when the Government as seller is represented by well-paid big guns who are industry experts in URA, SLA, JTC or HDB.

7.

En bloc Reserve Price is necessarily known by hundreds of owners for up to 12+12=24 months and so there is no effective check-and-balance about the marketing agent broadcasting the Reserve Price to potential interested bidders. In sharp contrast to Govt Land Sales, Estimated Market Value under GLS is zealously guarded by only IRAS Chief Valuer up to 12 noon on public tender close date.

8.

Sale Committee volunteers are accorded all-encompassing agency powers under contract, usually quietly and cleverly worked into the Collective Sale Agreement by the no-sale-no-fee lawyer. Hence, these volunteers could sell based on a Reserve Price that could potentially be established up to 12+12=24 months ago under LTSA, bearing in mind that for en bloc interest to pique interest amongst the developer community, the property market is likely to be on uptrend (or already on an uptick). In sharp contrast to Govt Land Sales, the Confirmed and Reserve Lists are reviewed every six months and the land plots may be removed/added. Even when the Reserve List is triggered under the new provisions, or a committed Minimum Price bid is proffered under the Confirmed List, the trigger price or the committed Minimum Price is valid only for 16 weeks (not up to 24 months)!

9.

The Apportionment Method (how the en bloc sales proceeds are divided amongst owners of different unit sizes) is cast in stone upfront WITHOUT any professional assessment by a licensed appraisor. Given the likelihood of smaller units outnumbering large units in most estates, this only facilitates brazen ´Tyranny by Majority´. Valuation report which would cover Apportionment Method is required by LTSA only upon close of public tender - ie, (i) AFTER 80% have been locked-in under the Collective Sale Agreement, (ii) AFTER agent/lawyer have spent potentially nearly two years' effort on no-sale-no-fee basis leading up to public tender, (iiii) AFTER developer bidders have spent time/effort doing their homework before submitting bids, (iv) WHEN valuers are highly dependent on agents/developers/lawyers for appointment and biz referrals, and (v) WHEN valuation is more an art than a science. Get real, eh?

10.

There is also a fallacy about the legal sanctity of contract and that's why the Majority Consenters have to stand by their signature after a five-day cooling period after signing their individual documents. The Collective Sale Agreement (CSA) is in effect an Agreement-in-Principle to sell (NOT an Agreement to sell). Reason: The most vital element (the final sale price) is NOT stated in the CSA because the Reserve Price is merely the base price at which to sell (although some no-sale-no-fee lawyers have even included wriggle room to sell at lower price by specified margin). Well, there you have the 10.

3 In an effort to counter-balance all of the above 10 without killing the possibility for en bloc sales but more to improve transparency, accountability and time-currency, PAP MP Ellen Lee made 3 suggestions at 3 critical milestone points of the long en bloc process in Parliament on 18 May 2010:

- At beginning: To keep costs low, get a limited professional assessment of proper Apportionment Method
appropriate to that estate's profile.

- At middle: Mandate marketing agent to disclose to owners the RLV used in their investment business
proposals given/updated to potential developers.

- At end: Operationalise a simple Re-affirmation by Majority Consenters within 14 days of a developer
signing an Option to Purchase (need not be same consenters so long as the 80% (90%) tipping point is hit and non-action by Majority Consenters would be deemed Re-affirmation). The press did NOT bother to report it. In the interest of brevity, let’s focus on just the following points made by Minister for Law, Mr K Shanmugam, in his ministerial reply in Parliament: http://www.scribd.com/doc/32509450/LTSA2010-ParlDebate-18May QUOTE: Second, the Government is guided by the principle that we should not micro-manage the process and prescribe too many
requirements as they may not be applicable to every development. Some of the measures suggested by Members are not without merit. They may well be very useful for specific developments, and owners may wish to adopt them. But it does not follow that these requirements should be or can be prescribed for every en bloc sale. Doing so may introduce unnecessary rigidity and pose considerable difficulties for owners if the requirement does not make sense for their particular development. Hence our stance is not to be overly prescriptive. The real point is that owners are free to adopt these measures if they think they are suitable for their particular circumstances. Thus, the ultimate choice is with the owners themselves on how the sale should be conducted. END QUOTE.

(a) MinLaw said that the Government should not prescribe too many requirements “as they may not be applicable to every development”. That would mean that unless the issue applies to “every development”, it would not justify making a legislative provision. Then why did Parliament pass an amendment to the HUDC Housing Estates (Amendment) Bill on 9 Jul 2012 that applied to only ONE estate (viz, Braddell View)? This legislative amendment was to facilitate the privatisation of the estate which must first take place before an en bloc sale could be attempted. The stumbling block was a mere 3-year difference in the Braddell View land lease expiration dates of Phase I (completed in 1977) and Phase II (completed in 1980). http://www.channelnewsasia.com/stories/singaporelocalnews/view/1201167/1/.html (b) The good minister also said that their “stance is not to be overly prescriptive”. For crying out loud, after inscribing that your neighbours could sell your family condo and your share of the common property despite your violent objections, they now say that they should not overly prescribe? Never mind that the LTSA was inscribed on a retrospective basis for those who bought the strata-title units prior to Oct 1999 on the understanding that any collective sale would be based on 100% consent whereas these owners will now be forced to sell based on 80% or 90% majority consent. http://www.scribd.com/doc/45870666/Singapore-Land-Titles-Strata-Act-Law-passed-with-retrospective-effect (c) In the above ministerial reply, MinLaw said some MP suggestions were NOT WITHOUT MERIT and estates should adopt them if appropriate. MinLaw was totally oblivious to the ground reality that – other than serial en bloc flippers – most owners typically face en bloc situations for the first time in their lives. Like we ´babes in the woods´ all know what to do and what to a sk! Not to mention the stress of neighbourhood acrimony (if not outright crime as had happened in Laguna Park) and other strong-arm hustling techniques where en bloc fatigue sets in (eg, letting estate maintenance run down and letters to the Managing Agent/MCST and BCA are either ignored or side-lined, jacking up maintenance fees astronomically, knocking on doors to persuade owners to sign, paying extra to resistant owners in individual sales with 3-month legal completions to garner the last few signatures to hit tipping point, forming loose consortia to target estates for en bloc flipping ensuring entry with enough minimal share value to requisition EOGMs and then drive the Sale Committee stewardship, shouting at or ostracizing Minority Dissenters, and other ways of undermining the underpinning collectivism that birthed majoritianism, etc). www.singaporeenbloc.blogspot.com [Updated: 5 Nov 2012]

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