Amendments could see sales surge in near future, but sites may take longer to launch later
Proposed changes to the law will make the en bloc sale process more transparent and include safeguards to ensure that the various stakeholders get a fair deal.
Sales committees will have to be properly formed and elected. Collective sales agreements (CSAs) will be witnessed by lawyers who can clarify doubts and explain terms and liabilities. Even after they sign, potential sellers will have a five-day ‘cooling-off period’ during which they can change their minds. Even the definition of majority consent has been tweaked.
In the immediate future the changes, which are expected to become law in early October, could serve as a catalyst to speed up the signing of CSAs, says CB Richard Ellis executive director Jeremy Lake. ‘Otherwise it appears that everything may have to be unwound and the process restarted under the new law,’ he added.
But in the longer term, the pace at which en bloc sites have been galloping into the market may slow. This is largely because new rules and procedures - including how sales committees conduct their business - mean it could take a longer time to launch a site for sale. However, the pace of collective sale deals sealed will still depend largely on market conditions, reckons Credo Real Estate managing director Karamjit Singh, who welcomed the spirit of the changes that promote greater transparency.
Law firm Rodyk & Davidson’s partner Norman Ho said lawyers’ fees for collective sales, usually $3,000 to $4,000 per unit, could double or triple because of the extra work involved - primarily because lawyers will now be required to witness signatures and certify the monthly updates on the consent level. ‘This will also aggravate the current shortage of en bloc sale lawyers,’ Mr Ho reckons.
Agreeing, Credo’s Mr Singh said requiring lawyers to witness signatures will ‘create a bottleneck in the process’.
Like many in the industry, Mr Ho questioned the need to get lawyers to witness signatures, especially since a cooling-off period is also being introduced.
A key amendment is an additional requirement for the definition of majority consent for en bloc sale, to be based on the area of the units in the development.
The existing condition, that requires consent from owners controlling at least 80 or 90 per cent of a development’s share value - depending on whether it is more than 10 years old or less, respectively - will still apply. But a second condition will now require consent from owners of units that form 80 or 90 per cent of area in the development - again depending on its age.
This is different from the Ministry of Law’s earlier proposal in March, which had sought to peg the second condition of consent on 80 or 90 per cent of the number of units owned in the development. Feedback showed that basing the second requirement on area will mitigate bias against residential owners in a mixed development - who typically have lower share values. At the same time, the requirement would not work against commercial unit owners, especially those whose units have much larger floor areas.
Another big section in the Land Titles (Strata) (Amendment) Bill tabled for first reading in Parliament yesterday by Deputy Prime Minister and Law Minister Prof S Jayakumar governs the formation, composition, constitution and proceedings of en bloc sales committees.
A sales committee will have to be elected by more than 50 per cent of owners present at a general meeting of the management corporation before signing of the CSA may begin. Eligibility criteria of committee members are listed and the sales committee will have to convene general meetings to consider key issues such as the appointment of the property consultant and lawyer, apportionment of sales proceeds and the terms and conditions of the CSA.
The sales committee will also have to provide monthly updates - instead of every eight-weekly currently - of the consent level, to keep owners better informed.
Every launch for sale must be through a public exercise like a tender or auction. However, the sales committee can engage in follow-up negotiations with any bidder, especially if the tender/auction fails to achieve the desired price. But a sale by private treaty must be concluded within 10 weeks of the close of the tender/auction. Otherwise, the tender will have to be relaunched for sales efforts to resume.
Credo’s Mr Singh welcomed the 10-week deadline, saying it ‘instils discipline as the market has shown itself to be very dynamic’.
‘In fast-moving markets, private treaty negotiations do not give you comfort that you are dealing with the best buyer. But a tender does, because you are inviting more participants to the negotiating process rather than limiting yourself to one or two,’ he added.
A MinLaw spokesperson said: ‘The proposed amendments to the Land Titles (Strata) Act are to provide additional safeguards and to ensure more transparency for all owners, that is, the minority and majority owners, but in a way that does not make it unduly onerous to bring about an en bloc sale.’
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