Critical points for all parties when navigating collective sales.
AS 2018 GEARS up to be another bumper year for collective sales, stakeholders in the collective sale process should take some time to understand their respective rights and obligations. The Land Titles (Strata) Act (LTSA), which governs collective sales in Singapore, has been substantially revised since 2007 to introduce more transparency in the collective sale process, and to make it fairer for both objecting and majority subsidiary proprietors (SP). Some key changes include:
- Taking into account the total area of the lots in the property, and not just the share value, held by the consenting SPs when determining whether the requisite number of SPs have consented to the sale;
- Allowing SPs to rescind their agreement within five days of signing the Collective Sale Agreement;
- Imposing restrictions on SPs attempting a new collective sale after a failed attempt. For example, if the motion for the constitution of the collective sale committee (CSC) was defeated at a prior general meeting convened for that purpose, SPs may not form a new CSC for two years;
- Greater guidance on the formation and proceedings of a CSC. For example, certain duties of the CSC are now expressly prescribed, such as convening a general meeting to obtain the SPs' approval for the apportionment of the sale proceeds and the terms of the CSA.
When a collective sale may be refused
The courts will refuse approval of a collective sale which causes an SP "financial loss" or where the transaction is not in "good faith".
Under the LTSA, an SP incurs financial loss if the net proceeds from the sale of his lot are less than the original price that he paid for the lot, after taking into account "such deduction as the High Court may allow".
The underlying rationale is to ensure that none of the SPs lose out financially.
There is no exhaustive list of allowable deductions, but the court will deduct stamp duty paid or payable, legal fees paid by the SP when purchasing the lot, as well as CPF funds used for both the initial purchase price and monthly repayment of the principal amount of the mortgage loan.
Renovation costs and early repayment penalty fees on a housing loan are, however, not allowable deductions.
It is also useful to note that the "proceeds of sale" are not limited to the purchase price, and may include incentive payments which the SP shall receive from the purchaser.
Whether the transaction is in good faith depends on the unique circumstances of each sale.
For instance, the courts have found that the transaction was in good faith even where the CSC had committed to exclusive negotiations with a prospective purchaser to prevent the purchaser from withdrawing interest; or where the CSC had performed its duties hurriedly in order to meet statutorily prescribed timelines.
Conversely, the transaction was not in good faith where the CSC had failed to disclose that certain CSC members had purchased additional units with bank financing while spearheading the sale; or where the CSC had failed to disclose to all SPs that the CSC and the marketing agent were involved in a scheme to make incentive payments to one of the objecting SPs.
As a matter of prudence, CSCs and their individual members should therefore make every effort to act even-handedly, avoid conflicts of interest, fully disclose relevant information, and act conscientiously.
Stakeholders should pay attention to their respective rights and duties, and seek legal advice early when confronting potential disputes, in order to better protect their interests.
Adapted from The Business Times, Apr 21, 2018.