Issues Of Cost, Procedures Bubble Up In New En Bloc Rules

Source : The Business Times, April 12, 2008

Fine-tuning and improving the rules revised in October is an ongoing process, says Law Ministry

The Ministry of Law is understood to be planning a review soon of the revised en bloc legislation, which took effect on Oct 4 last year.

When queried, a MinLaw spokeswoman said: 'Fine-tuning and improving the legislation is an ongoing process. We will continue to monitor the effect of the changes in practice, and will make further changes, if necessary.'





















She added: 'Since the amended Land Titles (Strata) Act came into effect on Oct 4 last year, we have received feedback in letters from the public and through our service enquiry line. We have also noted the feedback from letters to the press and media articles.

'The types of feedback received, mainly from affected owners, include welcoming the changes; requests to make the collective sale process even more rigorous by introducing more safeguards; suggestions on how the legislative provisions can be further amended to make the collective sale processes more efficient; and requests for clarification on the amended legislation.'

Property agents and lawyers have told BT that the new rules, while introducing more safeguards and transparency for owners, have made the en bloc process longer, more tedious and increased costs for owners. The total cost (including legal fees) of a collective sale to an owner may have doubled or increased even beyond that.

And with weaker sentiment today and a slimmer chance of success of an en bloc deal materialising, the increasing tendency among property consultants is to pass costs such as development baseline searches upfront to owners, instead of bearing them first and then seeking reimbursement later from sales proceeds as in the past, said Savills Singapore director Steven Ming.

'Some owners baulk at having to make upfront payments and that may prove to be a stumbling block to en bloc sales,' he added.

Calling for extraordinary general meetings (EGMs) has also become more troublesome under the new rules. And some agents questioned the need for giving owners a five-day cooling-off period after they have signed the collective sale agreement (CSA) on top of requiring a lawyer to witness signatures. 'We should have just one or the other,' said Credo Real Estate managing director Karamjit Singh.

But on a more positive note, Mr Singh added: 'The requirement for extraordinary general meetings gives owners a clear-cut time schedule of events in any upcoming exercise so they can know what to expect. The new rules also streamline requirements for submitting an application to Strata Titles Board (STB), thereby cutting the advertisement costs payable by the owners. And STB can disregard technical irregularities in the applications if they do not prejudice owners' interests.'

A chunk of the higher costs of an en bloc sale stems from legal fees.

The fees have at least doubled in some cases to reflect the greater scope of work for lawyers under the new rules, said Lee & Lee partner Ow Yong Thian Soo.

Even before they are appointed, lawyers may have to help owners requisition the first EGM where the sales committee is appointed. After being appointed, lawyers' additional duties, under the revised rules, include witnessing signatures and updating consent levels every four weeks instead of every eight weeks - with no guarantee that they will secure the 80 per cent minimum consent, or that there will be an eventual sale.

Rodyk & Davidson partner Norman Ho said that as a result, his firm has become more circumspect in accepting new en bloc sale appointments, preferring to choose cases where owners' expectations are realistic and hence chances of a sale are higher.

'Generally in the industry, lawyers may have charged about $70-150 per unit for upfront disbursements for doing searches to verify ownership of the units, etc, previously. Today, this may cost anywhere from $250-300. And the professional legal fee, collected upon completion of an en bloc sale, has also increased from about 0.15 to 0.2 per cent of the sale price previously to around 0.3 to 0.4 per cent today.'

Mr Ho added: 'I know of some firms that are proposing to charge an upfront professional fee of $1,000 to $2,000 per unit, which will be offset from the final fee of say 0.4 per cent, if there is a successful sale.'

Property consultants' fees is also understood to have also increased by about 50 to 60 per cent because of more work, longer gestation period and more meetings.

Also, owners will now have to cough up the cost of a mandatory land valuation, typically about $5,000 to $25,000 (shared among owners) which has to be submitted at the close of tender. They may also have to be prepared to pay for a development baseline search - which could cost $7,000 to $20,000 - in cases where it may be necessary to ascertain the development baseline to provide certainty in calculating the development charge (DC) payable.

In the past, management corporation funds were sometimes used for such searches, while in other instances, majority owners paid first. In some cases, even property consultants footed the bill initially (but were later reimbursed from sales proceeds) - but that was when the market was buoyant. These days, agents are reluctant to pay upfront for development baseline searches.

Mr Singh suggested that the authorities should make it clear whether the management corporation's funds may be used for development baseline searches to allow owners to price the asset accurately.

Previously, the sales committee could independently call for EGMs but under new rules, these must be requisitioned by at least 25 per cent of owners, or by owners controlling at least 20 per cent of share values in the development, Rodyk's Mr Ho said.

However, some property consultants and lawyers said that it is not clear whether the sales committee can still call for general meetings without such requisitions under the new rules - and sought for greater clarity on this issue.

Savills' Mr Ming said that it is not realistic to expect a lawyer to witness signatures as owners may have questions and 'it should be very much the agent's role to persuade them on the merits of the en bloc sale'.