SINGAPORE’S EN BLOC MESS

In the 1970’s and early 1980’s, Singapore’s building construction fever resulted in many heritage buildings including almost the entire China town, being bulldozed away to make room for modern, tall skyscrapers. Today’s en bloc fever has the setting for a remake.

We however should not just refer to solidly constructed buildings, giving way to taller skyscrapers, changing our accustomed landscape. Far worse is the legal mess popping out in en bloc sales, hogging the front pages of many newspapers. This in turn stems from the Building Maintenance and Strata Management Act that governs en bloc sales, which new changes coming into effect on 1 October 2007 are unlikely to solve. The fundamental problem is that a law originally aimed at ensuring the proper maintenance of apartment buildings has become the Code for takeover purchases of buildings for enforcing the sale upon reluctant minority owners.

In the case of equities, the law protects minority shareholders from forced selling, up to the point where a takeover offer receives 90% acceptance. For our homes, which are of far greater importance, a mere 80% acceptance if the property is older than 20 years would suffice for a forced takeover.

For equities, the offeror has to purchase all of the shares tendered in acceptance. In en bloc sales, the purchaser can walk away if the majority of owners fail to deliver an order from the Strata Title Board (“STB”) to enforce the sale upon the minority owners.

For en bloc sales, the minority owners are only allowed to rely on their historical purchase cost or valuations done at the time of the sales and purchase contract. No consideration is given for his convictions of future market appreciation.

Horizon Towers, now the subject of a bitter legal suit launched by Horizon Properties Pte Ltd against the majority owners. The Sale and Purchase contract terms set a 6 months period for obtaining the STB order, expiring on 11 August 2007, with an option to extend thereafter vesting in the Sellers, which is not a usual case. Due to many different factors, not least of which a heavily occupied STB, setting at one point a September 2007 date for hearing, the process was not as smooth as could be. Eventually, the application was dismissed on technical grounds.

The messy outcome of this is that HPPL had, even prior to 11 August 2007, threatened to sue, based on changes in market prices, which have gone up substantially in just a short period. Here is the most crucial anomaly of using the Building Maintenance and Strata Management Act to govern en bloc sales. The minority owners cannot rely on changes in market prices during the entire STB application process, but the Purchaser has this right!

As far as the statutes are concerned, which Parliament ostensibly passed in order to protect the minority shareholders, case law shows that in many cases where the STB had ruled in protection of minority owners, reliance was mostly upon administrative errors and not on the substantial current property values.

The above fundamental anomalies show that a separate Code on en bloc sales has to be drawn up, if this mess is ever to be prevented.