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Thread: En bloc property sales: govt proposes extra voting rule

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    Default En bloc property sales: govt proposes extra voting rule

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    Published March 3, 2007

    En bloc property sales: govt proposes extra voting rule

    Power to award higher payout to valid dissenters, stricter rule on sale committees among other suggestions


    By KALPANA RASHIWALA



    (SINGAPORE) The government is proposing an additional requirement on the definition of majority consent for en bloc property sales.

    Such sales must be agreed to by those who own at least 80 or 90 per cent of units in a development, on top of the current requirement of consent from owners controlling a minimum 80 or 90 per cent of share values, depending on the age of the development.

    The proposed change - revealed by Deputy Prime Minister and Law Minister S Jayakumar in Parliament yesterday - is in response to feedback, and is aimed at addressing unhappiness among residential unit owners in mixed developments.

    These owners, despite owning a substantial floor area and number of units, have significantly less share value and little in the way of voting rights on en bloc sales.

    Mixed developments are unique in the way share values are allocated. For the same floor area, the share values of residential, office and retail units in a development are generally allocated in the ratios of 1:4:5. So a shop unit will have five times the share value of a residential unit with the same floor area.

    Residential units may make up 30 or 40 per cent of the number of units or total floor area in a mixed development, but their share value can be as low as 10 to 15 per cent. As a result, when it comes to deciding on an en bloc sale, voting rights tend to be skewed in favour of the owners of shop and office units.

    The additional requirement that consent for an en bloc sale be obtained from owners with 80 or 90 per cent of units - depending on whether a development is more or less than 10 years old - will also apply to pure residential developments. But this is not expected to be an issue for them because share values in pure residential developments are more closely tied to the number of units.

    Mixed development en bloc sales so far include Kim Tian Plaza, Eng Cheong Tower and Kim Seng Plaza. But more are expected.

    'I don't see much impact on collective sales from the proposed change, which is fairer to those deemed to be unreasonably denied rights in voting on en bloc sales,' said Knight Frank managing director Tan Tiong Cheng.

    The Ministry of Law also proposes to empower the Strata Titles Board (STB) to issue guidelines on allowable expenditure when evaluating claims of financial loss. Market watchers welcome this, saying it will provide greater clarity.

    The Land Titles (Strata) Act says an owner is deemed to have incurred a financial loss from an en bloc sale if his sale proceeds, after deductions allowed by STB, are less than the price he paid for his property. But the Act does not specify what deductions are allowed.

    So far, based on precedents set by STB decisions, stamp duty and legal fees are allowed as deductions but interest and renovation costs are not.

    This is an important issue because financial loss provides grounds for STB to throw out an en bloc sale. STB hears all collective sale cases in which unanimous consent from owners has not been obtained.

    Another proposed change, aimed at boosting transparency in the en bloc sale process, is that an en bloc sale committee can be formed only at an extraordinary general meeting convened by a management corporation.

    At present, if a few owners are interested in selling a development, they can band together to form a pro tem en bloc sale committee. The change is aimed at achieving accountability to all owners - not just those who are keen on an en bloc sale.

    The ministry also proposes that STB be given the power to increase sale proceeds to dissenting owners who have filed valid objections and who may not have been treated fairly or equitably in the distribution of sale proceeds, even if there is no bad faith on the part of the majority owners.

    However, this will only be in exceptional cases. Prof Jayakumar gave an example. 'Say, a minority owner does $200,000 worth of renovation when there was no en bloc proposal in the air. Then six months later, there's an en bloc proposal which becomes successful. In fact, it means that he has 'enjoyed' his renovated unit for only about two years before having to move out. So really, he does not suffer a financial loss in the terms of the Act. But the Strata Titles Board may, if they have this discretion, increase his sale proceeds by an amount which it considers fair, if they consider it fair and equitable to do so in the circumstances.'

    The additional award that STB can make will be capped at 0.25 per cent of the sale proceeds, to be deducted from every unit and subject to a minimum of $2,000 per unit.

    Hence, if every owner in a 100-unit development is to receive $1 million, amounting to $100 million in total, STB can make additional awards totalling up to $250,000, which works out to $2,500 per owner in such a case.

    However, the majority owners will continue to decide on the method of distribution of sale proceeds most suitable for their development.

    The public will be consulted on the proposed changes, and feedback will be taken into account in finalising the proposed amendments to the en bloc legislation. The changes are expected to take effect by year-end.




    --------------------------------------------------------------------------------



    The proposed changes



    Majority consent to be defined based on ownership of units, in addition to share values.


    Strata Titles Board to be given power to increase sale proceeds for minority owners with valid objections in exceptional cases, subject to a cap of 0.25% of sale proceeds to be deducted from every unit, or $2,000 per unit, whichever is higher.


    STB will issue guidelines on the allowable expenditures to be taken into account in evaluating claims of financial loss.


    En bloc sale committees to be formed only at extraordinary general meetings convened by management corporations.

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    Default Plans to change en bloc rules get mixed views

    Top Print Edition Stories
    Published March 3, 2007

    Plans to change en bloc rules get mixed views

    By KALPANA RASHIWALA


    (SINGAPORE) Market watchers yesterday gave mixed views on how much the proposed changes to the rules for en bloc sales are likely to affect collective sales.

    Some, like CB Richard Ellis executive director Jeremy Lake, reckon that by having two criteria for defining the 80 per cent majority consent required from owners - based on number of units, as well as share value - it may make the process of en bloc sales more difficult.

    Agreeing, SK Phang of Phang & Co said: 'Imposing an additional threshold will make the requirement for en bloc sales more stringent and difficult to achieve. There may be fewer en bloc sales.'

    However, Knight Frank managing director Tan Tiong Cheng and Credo Real Estate managing director Karamjit Singh do not see much impact on en bloc sales as a result of having the additional definition. 'It's one more additional step to be adhered to, but will not have any significant impact on the overall rate of collective sales,' Mr Singh suggests. 'The change seems to be targeted at mixed development en bloc sales, which are already more difficult to do because of the issue of apportionment of sale proceeds among different classes of owners - apartments and commercial units.'

    But the property sector generally welcomed the thrust of the change in defining majority consent. As Dr Phang puts it: 'It reduces the inequality, the imbalance in voting power, in the case of a pure residential development, between the owners of large apartments with higher share value and of smaller apartments with lower share value, and in the case of mixed developments, between apartment owners who have lower share values, and commercial owners who have more more share values.'

    Another change welcomed by industry players is that the Strata Titles Board (STB) will issue guidelines on allowable expenditure to be taken into account in evaluating claims for financial loss. 'That's what the industry has wanted all along. The clarity will reduce unnecessary aggravation,' said Mr Tan of Knight Frank.

    He welcomed the move to require any en bloc sales committee to be formed only at an extraordinary general meeting convened by the management corporation as this procedure 'engages all owners in the whole en bloc process from day one'.

    'In the rush to get en bloc sales out in the past, some owners and agents may have organised themselves in a way that may not be acceptable to some parties. This will be a refinement of the rules,' he added.

    One area of concern among some en bloc players is the proposal to give the STB power to increase sale proceeds for minority owners with valid objections, as this might bring unforeseen results. 'It will have the effect of increasing the number of people who object, hoping to get their hands on the 0.25 per cent of sale proceeds MinLaw is proposing to set aside for this purpose,' Dr Phang predicts.

    Agreeing, Mr Singh says: 'I hope MinLaw will detail what they consider to be valid objections, to minimise frivolous attempts by some minority owners who try their luck getting their hands on the extra money arising from the proposed change, and delaying the process for no good reason.'

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