En Blocked: How Horizon Towers Made History

Source : The Sunday Times, Sep 23, 2007

The Leonie Hill condo was just one of scores of estates snapped up by developers in a collective sales frenzy over the past two years. Now its owners are being sued by a developer in a landmark case that will go before the High Court on Thursday. How did it all come to this? Joyce Teo reports

THE first hint that the $500 million sale faced trouble can be traced to an anonymous letter dated April 25 that was sent to owners of the condo's 210 units.
It started: 'Dear fellow owners, Some of us begin to wonder if our en bloc exercise now makes sense.'

The letter writers urged decisive action, suggesting that the owners of the 25-year-old property were being short-changed and that a far higher price was possible.

'If enough like-minded owners decide to rescind the (agreement) and the majority falls below 80 per cent, the application to the Strata Titles Board (STB) can be repealed.'

The buyers were local developer Hotel Properties Ltd (HPL) and its two partners Morgan Stanley Real Estate-managed funds and Qatar Investment Authority.

They agreed in a private treaty deal in February to buy the 99-year leasehold condo for $500 million, which was the reserve price set last year. Until early February, it was a record price in absolute terms for an en bloc sale.

At that price, each owner of the condo's 199 units would get about $2.3 million, with the 11 penthouse units reaping $4 million to $6.28 million.

But the letter writers were unhappy. Prices of neighbouring properties had skyrocketed since the deal was struck.

'We are now believing that our en bloc price no longer reflects the true value of Horizon Towers and we strongly feel that if we sell our unit individually, we would achieve prices far better than what this en bloc has fetched us.'

One case the letter cited was neighbouring condo development The Grangeford.

Grangeford owners were asking for $660 million, or $2,016 per sq ft (psf) of potential gross floor area.

That was more than double the $850 psf of total floor area achieved by Horizon Towers. 'Deep down...many owners may now be regretting this en bloc. They may be willing to join this...movement,' the letter said.

It engendered enough discontent over the sale price to lead some owners to attempt a deal reversal. Also, 10 groups filed objections to the sale.

Mediation sessions before the STB to settle the dispute started in late May. But those attempts at mediation between the warring camps of owners failed.

A group of 42 disgruntled owners, who had hired a law firm for advice, called for an extraordinary general meeting at Horizon Towers.

They wanted to remove the sale committee, which was blamed for not consulting the owners when it granted the option to purchase nine months after the reserve price was set. This failed.

But most members of the first sale committee later resigned and were replaced by new ones - and a second committee took their place.

At this point, it is worth noting that when the original Horizon Towers sale tender closed in August last year, there were no offers at its reserve price.

But the property market picked up significantly after that. In late June this year, a developer said it wanted to buy The Grangeford for $592 million, or about $1,810 psf per plot ratio - the highest price achieved for a 99-year leasehold site.

According to an affidavit filed by HPL for the High Court case on Thursday, an anonymous letter was circulated around this time to Horizon Towers residents, asking them to 'act quickly and decisively' to salvage something for themselves as Horizon Towers was, the letter said, being given away at a relatively paltry sum.


The STB hearing

THE bitter dispute that had focused on the condo's sale price took an unexpected turn on Aug 3.

That was when the STB threw out the application for sale approval because of procedural errors - the sale paperwork was not in order.

There was another problem: The contract between the HPL-led consortium and the sellers included an atypical condition, according to market players.

The sellers were given the option to extend the sale deadline by another four months if the sale was not completed within six months of the original deal in February - that is, by Aug 11.

A senior property consultant said: 'The discretion to extend the time frame usually lies with the buyer in the first instance, and thereafter upon mutual agreement.'

With the deal now apparently dead, the HPL-led consortium, represented by lawyers K. Shanmugam and William Ong from Allen & Gledhill, immediately swung into action. They wrote to the sellers alleging they were in breach of the February contract and wanted them to extend the Aug 11 deadline so that the procedural errors could be corrected and the application to the STB refiled.

But the Aug 11 deadline came and went. By now, neighbour had turned against neighbour as the stakes grew higher.

The HPL-led consortium has now proceeded to sue the members of the first and second sale committees and is seeking an order to bind all the other sellers. If that order is granted by the court on Thursday, it will mean that all Horizon Towers sellers will be liable to pay damages to HPL.

HPL is seeking about $800 million to $1 billion in lost profits as a result of the alleged breach of contract. So the owners of each unit could be looking at a bill of more than $5 million.

Since then, some majority owners have reached out to HPL, and last Wednesday, a group of them met HPL chief Ong Beng Seng, where HPL made it clear that it will drop the suit only if a collective sale order is obtained.

A ray of hope emerged the following day, last Thursday, when a large group of owners met to appoint yet another - the third - sale committee. More significantly, they agreed to extend the sale deadline until Dec 11.

HPL and its partners are waiting for an official confirmation of the extension before they seek an adjournment of this Thursday's hearing.

Even if the High Court case is adjourned, the sale would have a long way to go, given the disputes so far.


Lessons learnt

THE case - which has involved more than 10 lawyers - has underscored the point that a collective sale agreement is a legal document and sellers may be liable to legal action.

This is a sobering thought for property investors or owners who believe that the only serious question they have to consider in a collective sale is the price they will receive for their units.

Lawyer Henry Heng from Tan Peng Chin LLC said: 'The case highlights and reinforces the potential consequences and liabilities of owners pushing for an en bloc sale when the en bloc process or application goes wrong.''

The Horizon Towers case has also changed the way collective sales are conducted. Owners, their property agents or lawyers involved would now pay more attention to procedural requirements, said Mr Heng.

The High Court hearing is fixed for this Thursday while a separate appeal by the sellers to the High Court to quash the STB order invalidating the original sale will be heard a day later.

If that appeal succeeds, the case could return to the STB. What would happen then is anyone's guess - though many owners are no doubt longing for signs of a resolution on the horizon.