What a difference six months make. The Horizon Towers collective sale grabbed headlines with its benchmark-setting pricing, but later soured when the neighbouring Grangeford was marketed (and eventually sold) at more than double the price on a per square foot of potential gross floor area basis.
In the past week, the elation greeting the dismissal — the first in seven years — by the Strata Titles Board (STB) of the application for a collective sale order has turned to worry and fear in the face of threatened lawsuits.
The STB has yet to issue the grounds of its decision or to provide any details other than that the application was dismissed “on technical grounds”.
Still, solicitors for the purchasers — Hotel Properties Limited, Morgan Stanley Real Estate and Qatar Investment Authority — have wasted no time in issuing a letter of demand to the majority sellers for allegedly breaching the sale and purchase agreement (SPA), in failing to make a proper application for the collective sale. Clearly, this move was all about money — and there’s a lot of it.
Since the deal was struck in February, the property market has skyrocketed. The buyers’ paper gain is estimated at between $800 million and $1 billion, representing returns of 160 per cent to 200 per cent after just six months.
As Senior Counsel K Shanmugam, representing the buyers, told Channel NewsAsia: “It’s a substantial loss.”
The STB dismissal and the subsequent legal maneuvering will have sent reverberations throughout the entire en bloc market in Singapore.
Fundamentally, it drives home the point to prospective en bloc sellers that, just like any other commercial transaction, there are very real commercial and legal risks in collective sales.It is a truism that risk and rewards go hand in hand, and collective sales are no different.
And the risks are heightened when such huge sums are at stake.
The 173 majority sellers in Horizon Towers are finding this out the hard way — while each seller stood to pocket $2.3 to $4 million from the sale, they now face up to $5.78 million each in potential liability. To be fair to the buyers, they also undertook risks in the blockbuster deal.
The figure $500 million might look like a bargain now, but it set a record back in February. If the market had crashed in March, few would have sympathised with the buyers for their paper loss. What is sauce for the goose must also be sauce for the gander.
After all, it was an arms-length transaction with all parties having their own professional advisers. When so many millions are at stake, it is only fair to treat all parties involved as big boys able to protect their own interests. It seems disingenuous to me, for en bloc sellers to claim they were not aware of their legal obligations.
With so much at stake, inexperienced sellers could and should have engaged lawyers to advise them personally. It is the sellers’ own responsibility to ensure they understand all their liabilities and comply with all legal obligations.They also could and should have negotiated for terms they are comfortable with.
If a seller is uncomfortable with the collective sale agreement (CSA) which binds the sellers collectively, he or she could always not sign it. If the concern is over the SPA with the purchaser, then a seller can seek to impose greater controls and oversight over the actions of the sale committee before signing the CSA. It is difficult to sympathise with a seller who sees only the promised dollar signs and signs without fully understanding its implications.
These include a seller’s potential liability to purchasers for another seller’s default under the SPA, or the typical obligation under the CSA to indemnify the other sellers for losses arising from his or her own breach.
The next developments in Horizon Towers will be very keenly-watched.
While I would not underestimate the buyers’ resolve to pursue legal action, actual litigation would not be in anyone’s best interest and is hence unlikely. The two prior dismissals by STB in 2000 are instructive — in both cases, the majority sellers succeeded on the second try.
What is indisputable, however, is that there is an urgent need for perceived deficiencies and controversies in the existing law to be resolved. The Law Ministry had conducted a public consultation exercise on this earlier in the year. Even though the en bloc market may be slowing down, legislative reform in this area — such as clarifying how sales committees are appointed — would still be none too soon.
The writer is a Nominated Member of Parliament and corporate counsel, commenting in his personal capacity. - Siew Kum Hong
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