Saturday, April 4, 2009

Court Quashes En Bloc Sale Of Horizon Towers

Source : The Business Times, April 3, 2009

Landmark ruling also redefines roles of sales committees, Strata Titles Board

The minority owners of Horizon Towers have finally won the fight to block the $500 million collective sale of the development, ending a battle that lasted more than two years.

The Court of Appeal yesterday dismissed the en bloc sale after several owners appealed to it to throw out last July's High Court decision, which backed the sale of the property to Singapore-listed Hotel Properties Ltd (HPL) and its partners Morgan Stanley Real Estate and Qatar Investment Authority.

Yesterday's judgment is final - and means that the sale of Horizon Towers will not go through.

In the judgement, Justice V K Rajah also redefined the duties of a sales committee and the Strata Titles Board (STB) when dealing with collective sales. But some market watchers say that sales committees may find the new scope of duties difficult to carry out.

The judgment marks the first time that the Supreme Court has decided in favour of minority owners in a disputed en bloc sale, said the minority owners' lawyer Philip Fong, a partner with Harry Elias Partnership.

The Horizon Towers saga began in January 2007 when the majority owners accepted a price of just under $850 per square foot (psf) of gross floor area for the 99-year leasehold property in Leonie Hill.

But when the property market continued to boom after the deal was signed, many owners believed that the $500 million reserve price was too low. Residents who were against the sale argued that it was done in bad faith and said that a higher $510 million offer from Hong Kong firm Vineyard Holdings was not taken seriously.

STB and the High Court dismissed the minority owners' objections. The High Court decided that as long as STB finds that a purchase price is fair, it has fulfilled its duty and is entitled to approve an en bloc sale.

But yesterday, overturning the High Court and STB rulings, the Court of Appeal ruled that there were problems with the sale of Horizon Towers from the start. Justice Rajah said that the sales committee did not fulfil its duty because it did not secure the best price obtainable for the property.

In his judgment, he also spelled out the court's view of a sales committee's duties. Among other things, a sales committee is expected to follow up all expressions of interest and offers, and carry out sufficient investigations and due diligence to determine their genuineness. A sales committee is also tasked with creating competition between interested purchasers and 'waiting for the most propitious timing for the sale in order to obtain the best price'.

Likewise, Justice Rajah said that STB must play a pro-active role when it comes to disputed cases, rather than simply listening to the evidence and arguments of both sides and then ruling on their differences.

'Despite the reference to its 'mediation-arbitration' function, STB has a significant inquisitorial role to play,' he said. 'It is not confined to what is presented to it by the contending parties, but must seek out the facts whenever there is evidence that the SC (sales committee) has not disclosed everything about the transaction to STB.'

Market players welcomed the greater clarity on the duties of sales committees and STB, but said that the new guidelines could dampen the collective sale market. 'The imposition of the more defined duties and standard of conduct for a sales committee may deter owners from volunteering to serve on the committee,' said Karamjit Singh, managing director of Credo Real Estate.

Justice Rajah also pointed out that a primary objective of the collective sale scheme was to promote the rejuvenation of older estates and the optimal use of prime land to build more quality housing in land-scarce Singapore. But now, 'the lure of 'windfall profits' has been a siren song for many (especially absent landlords and speculators), to the detriment of those who do not want to lose their homes at any price', he said.

The Court of Appeal's ruling means that HPL and its partners will not be able to go ahead with their plan to build a 253-unit condo and eight detached houses on the site.

At $850 psf of gross floor area, the developers would have had to sell new units at about $1,500 psf to make a small profit - which might be possible for them to attain even in today's depressed property market.

The would-be buyers are not better off for having had the sale fall through, said one industry veteran. And likewise, the owners will get to keep their homes but will not get a much better price now than what HPL and its partners offered in 2007.

'At this stage, it does not appear that there is a clear winner or a major loser,' said the industry veteran.

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