New Reporter
17-04-23, 17:31
Good paperwork saved S’pore property investor from losing $1.6 million
Put everything down in writing and make sure the critical payment clauses are clearly stated so that nothing is left to chance.
Tan Ooi Boon
Invest Editor
17 April, 2023
Getting all the paperwork lined up and squared away on a business deal can be a tedious chore, no matter how big or small the stakes are, but it proved to be a financial lifesaver for a local property investor staring at a possible loss of $1.6 million.
The investor had sunk the money into a private real estate project. He took out insurance in the form of an iron-clad agreement that protected his investment.
This is a smart move, even if the deal is genuine, because you should never leave things to chance when it concerns your money. Always protect yourself by making sure that all important points are put down in a proper agreement that is signed by all parties.
If things go awry, this document may well be the only way to get back your money, as this investor discovered.
In 2018, he was invited to take part in the private development project to build two semi-detached houses on a plot of land in Jervois Road. The project was being developed by a businesswoman who had obtained approval for the construction after she bought the site that year.
The total cost of the project was not revealed because the investor did not buy a stake in the business, but instead chose to structure his $1.6 million investment as a loan that was guaranteed by the developer.
The loan would be provided interest-free, but in return, the investor would be entitled to 30 per cent of the project’s profits when the houses were eventually sold.
Contract to protect investor’s money
What sets this case apart from other loans or “IOU” cases is that the investor took care to ensure that his rights were enshrined in a written agreement that contained these important terms.
1. Record of the loan. The parties agreed that the loan would be recorded in the accounts of the company that was set up to build the houses. Not only that, the investor could inspect the accounts and financial documents of the company if he wished.
2. Clear rules. The parties stated that the loan would be used only for the property development and not for other purposes without the investor’s written permission.
3. Personal guarantee. If you lend money to a company, you may face problems in recovery if the firm goes bust. In this case, the investor took the extra step of getting the developer herself to personally guarantee the loan to her company.
The businesswoman stated in the signed document: “Unless and until $1,600,000 is fully repaid to you, I shall not be discharged from the obligation of the guarantee hereto. This guarantee shall be binding upon me and my estate, administrator and successor.”
The parties also agreed that the loan would be repaid upon the sale of the houses, which was estimated to be in May 2021. If the repayment was not made by then, the document stated: “In any event, full repayment shall be made on or before 30th September 2021.”
Contract saves the day
As it turned out, the wording of the contract became a bone of contention between the parties when the investor failed to get back his money by the deadline. The completion and sale of the two houses hit a snag, partly due to the Covid-19 outbreak.
The developer offered two additional options to the investor – he could buy one of the two houses, which were then valued at about $8 million each, or inject new capital of over $360,000 as the project required more money to complete.
The investor was in favour of the units being sold for the total price of $16 million, but he was not keen to buy one for himself and he was not interested in putting in more money. He added that he would like his loan to be repaid with reasonable interest imposed as the project had yet to turn in any profit.
When no payments materialised, he sued both the developer and her company in the High Court.
The developer did not dispute that a loan had to be repaid. But she argued that the “overarching condition” for the repayment was that the two houses must first be sold. As the units were not sold at the time of the court hearing in May 2022, the lawsuit was premature and ought to be struck out.
Justice Andre Maniam noted that the guarantee the developer signed stated that the loan was made to her company and that she agreed to guarantee repayment to the investor. Having done so, she could not then deny liability as guarantor by arguing that she was the borrower, and not the company.
This is because under normal debt arrangements, the borrower and guarantor have to be separate parties so that if the borrower defaults, the guarantor can step in to shoulder the debt. In this case, the court found that the developer cannot be both the borrower and the guarantor because she could not legally guarantee her own obligation to repay the loan.
Indeed, by agreeing to “guarantee the repayment” of that sum, the developer agreed that she would pay the investor $1.6 million if her company did not. “She remained obliged to do so, whether or not the guarantee was a true guarantee,” said the judge.
Justice Maniam also looked at the repayment term – “in any event, full repayment shall be made on or before 30th September 2021” – as this was a crucial part of the contract.
He noted that the term simply meant the investor had to be repaid on or before that date, and this had to be done whether sale proceeds had been received or whether a potential buyer had completed the option to purchase.
Justice Maniam agreed with the investor’s lawyer, Mr Eric Ng Yuen, that “in any event”, the terms of the contract meant that payment must be made, “regardless of what happens”.
Even if repayment of the loan was contingent on the sale of the units, it was never the agreement or understanding between the parties that the sale and the repayment could be deferred indefinitely.
Ultimately, the contract showed that this was never a project where either the company or its owner “could indefinitely defer selling the units, and thus indefinitely defer repaying” the loan, the judge found.
After all, when it comes to debt, the general rule of the law is this: Unless expressly or implied agreed upon, money lent, whether by way of a loan or overdraft, is repayable on demand.
As there was no fair or reasonable probability that the developer had a real defence for her case, Justice Maniam made an order for the loan to be repaid to the investor.
After this ruling, the parties came to an amicable settlement regarding interest on the loan.
Two important lessons
The outcome could have been different if the parties had only verbal agreements because both sides would then produce additional evidence to prove their version of the events.
If you are putting a substantial amount into an investment, make sure you take note of the two important lessons in this case – put everything down in writing and make sure the critical payment clauses are clearly stated so that nothing is left to chance.
This is the least that you should do if you want to protect yourself and your hard-earned money.
https://www.straitstimes.com/business/invest/good-paperwork-saved-property-investor-from-losing-16-million
Put everything down in writing and make sure the critical payment clauses are clearly stated so that nothing is left to chance.
Tan Ooi Boon
Invest Editor
17 April, 2023
Getting all the paperwork lined up and squared away on a business deal can be a tedious chore, no matter how big or small the stakes are, but it proved to be a financial lifesaver for a local property investor staring at a possible loss of $1.6 million.
The investor had sunk the money into a private real estate project. He took out insurance in the form of an iron-clad agreement that protected his investment.
This is a smart move, even if the deal is genuine, because you should never leave things to chance when it concerns your money. Always protect yourself by making sure that all important points are put down in a proper agreement that is signed by all parties.
If things go awry, this document may well be the only way to get back your money, as this investor discovered.
In 2018, he was invited to take part in the private development project to build two semi-detached houses on a plot of land in Jervois Road. The project was being developed by a businesswoman who had obtained approval for the construction after she bought the site that year.
The total cost of the project was not revealed because the investor did not buy a stake in the business, but instead chose to structure his $1.6 million investment as a loan that was guaranteed by the developer.
The loan would be provided interest-free, but in return, the investor would be entitled to 30 per cent of the project’s profits when the houses were eventually sold.
Contract to protect investor’s money
What sets this case apart from other loans or “IOU” cases is that the investor took care to ensure that his rights were enshrined in a written agreement that contained these important terms.
1. Record of the loan. The parties agreed that the loan would be recorded in the accounts of the company that was set up to build the houses. Not only that, the investor could inspect the accounts and financial documents of the company if he wished.
2. Clear rules. The parties stated that the loan would be used only for the property development and not for other purposes without the investor’s written permission.
3. Personal guarantee. If you lend money to a company, you may face problems in recovery if the firm goes bust. In this case, the investor took the extra step of getting the developer herself to personally guarantee the loan to her company.
The businesswoman stated in the signed document: “Unless and until $1,600,000 is fully repaid to you, I shall not be discharged from the obligation of the guarantee hereto. This guarantee shall be binding upon me and my estate, administrator and successor.”
The parties also agreed that the loan would be repaid upon the sale of the houses, which was estimated to be in May 2021. If the repayment was not made by then, the document stated: “In any event, full repayment shall be made on or before 30th September 2021.”
Contract saves the day
As it turned out, the wording of the contract became a bone of contention between the parties when the investor failed to get back his money by the deadline. The completion and sale of the two houses hit a snag, partly due to the Covid-19 outbreak.
The developer offered two additional options to the investor – he could buy one of the two houses, which were then valued at about $8 million each, or inject new capital of over $360,000 as the project required more money to complete.
The investor was in favour of the units being sold for the total price of $16 million, but he was not keen to buy one for himself and he was not interested in putting in more money. He added that he would like his loan to be repaid with reasonable interest imposed as the project had yet to turn in any profit.
When no payments materialised, he sued both the developer and her company in the High Court.
The developer did not dispute that a loan had to be repaid. But she argued that the “overarching condition” for the repayment was that the two houses must first be sold. As the units were not sold at the time of the court hearing in May 2022, the lawsuit was premature and ought to be struck out.
Justice Andre Maniam noted that the guarantee the developer signed stated that the loan was made to her company and that she agreed to guarantee repayment to the investor. Having done so, she could not then deny liability as guarantor by arguing that she was the borrower, and not the company.
This is because under normal debt arrangements, the borrower and guarantor have to be separate parties so that if the borrower defaults, the guarantor can step in to shoulder the debt. In this case, the court found that the developer cannot be both the borrower and the guarantor because she could not legally guarantee her own obligation to repay the loan.
Indeed, by agreeing to “guarantee the repayment” of that sum, the developer agreed that she would pay the investor $1.6 million if her company did not. “She remained obliged to do so, whether or not the guarantee was a true guarantee,” said the judge.
Justice Maniam also looked at the repayment term – “in any event, full repayment shall be made on or before 30th September 2021” – as this was a crucial part of the contract.
He noted that the term simply meant the investor had to be repaid on or before that date, and this had to be done whether sale proceeds had been received or whether a potential buyer had completed the option to purchase.
Justice Maniam agreed with the investor’s lawyer, Mr Eric Ng Yuen, that “in any event”, the terms of the contract meant that payment must be made, “regardless of what happens”.
Even if repayment of the loan was contingent on the sale of the units, it was never the agreement or understanding between the parties that the sale and the repayment could be deferred indefinitely.
Ultimately, the contract showed that this was never a project where either the company or its owner “could indefinitely defer selling the units, and thus indefinitely defer repaying” the loan, the judge found.
After all, when it comes to debt, the general rule of the law is this: Unless expressly or implied agreed upon, money lent, whether by way of a loan or overdraft, is repayable on demand.
As there was no fair or reasonable probability that the developer had a real defence for her case, Justice Maniam made an order for the loan to be repaid to the investor.
After this ruling, the parties came to an amicable settlement regarding interest on the loan.
Two important lessons
The outcome could have been different if the parties had only verbal agreements because both sides would then produce additional evidence to prove their version of the events.
If you are putting a substantial amount into an investment, make sure you take note of the two important lessons in this case – put everything down in writing and make sure the critical payment clauses are clearly stated so that nothing is left to chance.
This is the least that you should do if you want to protect yourself and your hard-earned money.
https://www.straitstimes.com/business/invest/good-paperwork-saved-property-investor-from-losing-16-million