En Bloc Sales — A Review of Strata Titles Board Decisions

Following the amendments introduced by the Land Titles (Strata) (Amendment) Act 1999 in relation to en bloc sales, which came into effect in October last year, Justin Wee reviews some of the written decisions of the Strata Titles Board under the new provisions and proposes amendments to certain procedures.  

Introduction

Since my last article in June 1999 reviewing the en bloc provisions of the Land Titles (Strata) Act as amended by the Land Titles (Strata) (Amendment) Act 1999 (‘the Act’), such new provisions have come into operation on 11th October 1999 and to-date, about 16 applications have been made to the Strata Titles Board (‘the Board’) with a couple more pending the final decision of the Board.

Having followed closely the progress of the Act from its infancy to its current state, I reiterate my view that this is a fundamental change in the law and Parliament has taken a positive bold step to free up freehold and 999-year leasehold land for redevelopment by allowing a majority of owners in a development to proceed to sell, unless the minority owners come within the exceptions. This is most aptly summarised in the words of Associate Professor Ho Peng Kee, Minister of State for Law, when he opened the second reading of the Bill in Parliament on 31st July 1998:

I had informed this House on 19th November last year that Government would be amending the law to make it easier for en-bloc sales to take place. The current position is that a single owner, for whatever reason, can oppose and thwart the sale. Government has received many appeals and feedback from frustrated owners whose desires to sell their flats or condominiums en-bloc have been so thwarted.

On a similar note, I also quote Mr Tan Liang Ker’s words in the written decision in the case involving Devonshire Court (Toh Fong Pheng & Ors v Quek Bek Kim SLG April 2000 at page 37, paragraph 20):

In the Board’s opinion, the legislative intent of the 1999 amendments to the Land Titles (Strata) Act was to change the law to make it easier for collective sales to proceed. Parliament unanimously acknowledged the scarcity of land in Singapore during the debates and the need to ensure optimal use of land for the population through redevelopment. While Parliament was also concerned with the need to balance the rights and interests of majority and minority owners, it saw fit to do this by conferring powers on the Board to disapprove a collective sale where the objector establishes a financial loss. However, if no financial loss within the meaning of the Act is established and the requirements of section 84A(9) are met, section 84A(7) leaves the Board no discretion but to approve the sale.

The impetus and momentum which brought the Act into being cannot be stated more clearly and one will have to come to terms with the provisions of the Act and the decisions of the Board with this legislative intent in mind. With that, I humbly review some of the written decisions of the Board.

The Cases

First Mansion

For the record, the minority owners did not object to the application and Counsel for the applicants pleaded with the Board to award costs against the minority owners. The Board held that as the provisions of the Act

… do not literally say that as soon as the requisite majority is attained everyone else must join in to sell, it is significant that the provisions do not expressly provide that where the requisite majority is attained, the Board will ipso facto order a sale. The provisions lay a duty on the Board, when considering an application, to consider the factors set out in section 84A(9), and where applicable, (7) and (8) as well.

The Board further added:

With these considerations in mind, it cannot be said that a subsidiary proprietor commits a wrong against the other subsidiary proprietors if he has any misgiving or if he feels any disquiet about the matter and prefers to let a Strata Titles Board decide for him. Independently of the above reason, the Board here also thought that as the Collective Sale of Property provisions are still relatively new and the lay public are still feeling their way around this new piece of legislation, it would be inappropriate to order costs against the minority owners.

As far as the result of the case is concerned, it is the right one in that the Collective Sale has been approved. I note that the Board is sympathetic towards the minority owners (and assuming that the minority owners need the Board to decide for them) in this case, taking into account the new piece of legislation. However, I respectfully submit that it should be clearly stated that the objections raised must be relevant under section 84A(7), (8) and (9), failing which if there is no relevance under these sub-sections or where there is no objection, then it must be for the Board to award costs against the minority owners. I also respectfully submit that although there are minority owners who are genuinely complaining within the confines of the Act, there are probably as many minority owners, if not more, who abuse the process.

My submission above is based on the fact that the minority owners would usually have quite some time to deliberate over the terms of the sale since an ordinary Collective Sale is likely to take in excess of four months before it can be launched for tender or private treaty negotiations and the minority owners would know whether they have a case or not (they should seek legal advice on this). Even after this deliberation period, if they refuse to join in without relevant objections or much worse, without making an objection, they would be wasting the precious money, time, effort of the majority owners, the solicitors, the property consultants and even the members of the Board. The legislature must step in to arrest such wastage of time, money and effort, taking into account the legislative intent of the Act.

Mandalay Court

The objection raised is that the managing agent gave insufficient notice for the extraordinary general meeting. The Board held that as the non-compliance with the procedural requirements resulted in the Board being ‘Faced with an invalid application, the Board is legally compelled to dismiss it’. Read together, section 84A(3) and the Fourth Schedule of the Act state that the procedural requirements will have to be complied with before an application is made and the Board has no leeway but to dismiss an application in the event of non-compliance.

Notwithstanding that, I wish to highlight the majority owners’ Counsel’s arguments and then state my humble opinion as to why there should also be some fine-tuning in section 84A(3) and the Fourth Schedule in this respect.

Counsel for the majority owners cited the case of Bin Hee Heng v Management Corporation (ST 647/91) but the Board disregarded the same as it was of the view that that case could not be relied upon as it turned on a proviso clause (on accidental omission not invalidating a meeting) which was not in the current legislation.

Secondly, they relied on section 97 of the Act and tried to argue by analogy, claiming that the Board was empowered under the provisions to invalidate resolutions or elections or refuse to invalidate any such resolution or election if the Board considered that the provisions of the Act had not been complied with in relation to a meeting of the management corporation. Section 97(2) also provided that the Board shall not make an order refusing to invalidate unless it considered that failure to comply with the provisions of the Act did not prejudicially affect any person and that the compliance with the provisions of the Act would not have resulted in a failure to pass the resolution, or have affected the result of the election, as the case may be. I note that the Board disposed off this line of argument by stating that section 97 ‘has nothing to do with’ section 84A(3).

One has to understand the rather long and often tedious process and mechanism of the Collective Sale so as to understand whether it is fair and equitable to request the legislature to intervene. The Collective Sale normally starts with a small group of owners who form a Sale Committee to discuss the feasibility of the Collective Sale with the property consultants and on the assumption that there is potential to redevelop the land, such owners would canvass the support of the rest of the owners through surveys, meetings and house-to-house visits. The ultimate aim is to sell the idea to all the owners and to achieve unanimous consensus and there would be numerous meetings so as to persuade as many owners as possible to participate, so as to avoid the need for an application to the Strata Titles Board, which is time consuming and expensive. However, in almost all Collective Sales, there are owners who do not see eye to eye (for whatever reasons), which is why the Act provided an avenue for the majority to proceed notwithstanding the objections of the minority (whether justified or not). It is for the Board to decide.

After looking at the background to a Collective Sale, one has also to take account of the recommendations of the Select Committee which was presented to Parliament on 19th April 1999, which stated that:

The Committee, however, agrees that it is desirable that the provisions should spell out greater detail the factors which the Board can take into account and recommends the following approach for the Board:

the Board will have power to refuse an order for sale only [emphasis mine] on the grounds that the purchase price which a minority owner will receive is less than the price he paid for his unit, including all allowable deductions; the purchase price a minority owner receives is not sufficient for him to discharge the encumbrances (ie mortgages and charges) on his unit; the minority owner is forced to be part of a joint venture agreement with the developer; or the sale is not in good faith and at arm’s length considering the factors … that the Board will review a case (regardless of whether there is an objection) to see whether on the face [emphasis mine] of the application it is satisfied that the transaction is in good faith and at arm’s length, after taking into account the sale proceeds, method of distributing the sale proceeds and the relationship of the purchaser to any of the unit owners. It will also ensure that the sale and purchase agreement does not require a minority owner to be part of a joint venture agreement with the developer of the land …

This statement clarifies the substantive situations where an application will be dismissed. If indeed public policy warrants such a fundamental change in law, then it is abhorrent to the legislative intent if the application is to fail for some procedural technicality. As such, an application should only be allowed to fail where it is an objection acceptable within the substantive provisions of the Act and any mistakes or omissions in procedure which can be rectified should be allowed to be remedied and, therefore, section 84A(3) of the Act should be amended so as to provide for rectification by the majority owners if they are willing and able to do so or to insert provisos similar to those stated in section 97 of the Act. This is also in line with the position of the Board as an administrative body rather than a judicial body, with the purpose of mediation between parties where possible. Otherwise, the Board has no choice but to throw out any application which is procedurally in breach.

However, I also note that subsequently, the majority owners re-applied to the Board after holding another extraordinary general meeting and the Board approved the same and the Collective Sale has proceeded.

Viewpoint Condominium

The main issue in contention in this case is the method of apportionment of the sale proceeds. The minority owners objected to the method of apportionment stating that the distribution in proportion to the strata areas of the units was inequitable and that their preferred method was that based on the valuation of the property, as they have completed renovations to their units recently.

The Board disposed of this objection fairly easily by reference to the ‘Valuation Guidelines for Collective Sales’ by the Singapore Institute of Surveyors and Valuers, which states that even if the valuation method is to be adopted, the renovations, facing, floor level of the unit will be disregarded.

The Seedevi

This is the latest decision of the Board where the main theme of the minority owners’ objections was that there was a general lack of good faith in the entire sale process and they also raised some procedural objections claiming that there was insufficient notice for an extraordinary general meeting.

The Board disposed of the procedural objection on the basis that there had been another extraordinary general meeting convened thereafter, which was in compliance with the provisions of the Act and the latter extraordinary general meeting was the one relied upon in the majority owners’ application.

One interesting point was brought up by the Board in deciding whether the transaction was in good faith having regard to the sale price. It referred to the duty of the mortgagee to act in good faith in the exercise of its power of sale and in determining a breach, and said: ‘There are two broad areas of enquiry: the steps taken in relation to the sale and the comparison between the sale price and the true price of the property.’ Based on the facts of the case, which I will not further elaborate in view of its sheer volume, the Board decided the allegations in the case had no relevance to the sale price at all and so no question of good faith arose.

The Board further elaborated by stating:

A price obtained after proper steps have been taken is strong evidence of the true value of the property. On the other hand, if it were proved that the price is substantially below the true value, this would be some evidence that proper steps were not taken. For example, a rushed and inadequately marketed and advertised sale, which results in a price below a valuation price would not be one done in good faith. Any evidence of collusion between the marketing agent and the purchaser would taint the sale transaction beyond redemption.

Based on the facts of the case, the Board approved the Collective Sale.

As much as I can appreciate the Board’s desire to set down some principles by which they make decisions, I respectfully submit that the Board, being an administrative body, should as far as possible avoid putting down any legal test for ascertaining good faith or, for that matter, make reference to the mortgagee’s duty as section 84A(9)(a) has already set out clearly what the Board can only take into account. Otherwise, the Board may inadvertently graft onto the Act a string of case law concerning a mortgagee’s duty in the exercise of the power of sale.

Some Proposed Amendments to Procedures

The following are suggestions on how amendments to the requirements under the Fourth Schedule of the Act may be made.

Firstly, the content of advertisements in the four official languages’ newspapers may be reduced, especially the requirement to have the names of all subsidiary proprietors, the chargees, the mortgages and all persons with an estate or interest stated in the advertisements. I am of the view that this results in unnecessary duplication of work since there is already a requirement to serve the notice of the application by registered mail on the above parties. Moreover, it is a waste of money to place huge notices when the parties would have already been notified. Therefore, sub-clauses 3(b) & 3(c) of the Fourth Schedule ought to be deleted.

Secondly, in relation to the modes of service of notification, there is a need to serve by personal delivery by placing the same under the main door of every unit and, further, to serve the same by registered post, to affix the same on the main door of the minority owners and, lastly, to affix the notice to a conspicuous part of each building of the development. As much as the legislature is concerned about the minority owners, I am of the view that there is no need to overdo the same. As mentioned above, I reiterate that service by registered mail is sufficient, as there are also deeming provisions in the Act concerning the service of notices under section 119.

Another point to note is in respect of the clarification by the Inland Revenue Authority of Singapore stating that in so far as the owners who agreed to join in the Collective Sale are concerned, their contractual date is the date of contract, while those of the minority owners would be that of the date of approval by the Board. It is unclear why there is such differentiation in terms of the date, besides the fact that it  enables minority owners who do not wish to participate (because of the income tax payable on the profit) to drag the Strata Titles Board’s process as long as possible so as to reduce their tax liability. Contractually speaking, the date of a conditional contract is still the date of execution by the parties rather than the date of satisfaction of the condition.

Conclusion

As mentioned in my earlier article in the June 1999 issue, the Act is hampered by ambiguities and the Act will have to be fine-tuned upon problems being disclosed. Even as I write, such fine-tuning is being done by the Board in their deliberations but I am of the view that there has to be legislative intervention so as to clarify loopholes or uncertainties instead of leaving the task to the Board, which is not in the best position to do so. The problem may be further exacerbated by the unwillingness of majority of owners to test the law in the courts and thus creating inappropriate precedents.

If the minority owners are to be given a free hand to object on every breach of procedure, whether the same can be rectified by the majority owners or not, then I respectfully submit that the desires of the owners who wish to sell en bloc will be frustrated and thwarted once more by a technicality.  

Justin Wee  
Rodyk & Davidson