EN-BLOC STEP BY STEP- LEGAL ASPECTS
This article focuses on the legal aspects of an en-bloc sale exercise.
STEP 1: DETERMINE IF YOUR DEVELOPMENT IS ELIGIBLE FOR EN-BLOC SALE BY A CAN BE SOLD EN-BLOC BY MAJORITY
If you own a property in the following situations, your unit is eligible for an application to the Board for en-bloc sale by majority agreement (even if there are objections to the sale by a minority group):
- Strata developments registered under the Land Titles (Strata) Act;
- Strata or flat developments where the owners of the flats also own a share in the land and the leases for their flats are registered under the Registration of Deeds Act or the Land Titles Act; and
- Strata or flat developments where the owners of the flats own a registered leasehold estate of 999 years or more (or such other leasehold period as the Minister may specify) but they do not own the land in the development. The leases for the flats may be registered under the Registration of Deeds Act or the Land Titles Act.
As there are no share values or shares in land assigned to flats in such developments, the owners of at least 25% of the total number of flats in the development must apply to the Registrar of Titles for notional shares in land to be assigned to their individual flats to facilitate calculation of the majority agreement.
STEP 2: SET UP A PRO-TEMP COMMITTEE (TIME REQUIRED: 2-4 WEEKS)
Get a group of interested owners to form the pro-temp sale committee. Ideally, this committee should comprise of representatives from all the different sized units. In a mixed development, there should be a proportionate number of representatives from both the commercial and residential units.
From our experience, a fair representation will ensure that all sides have a say in how the sale will take place. Disputes often arise when parties feel that their interests have been excluded.
Please note that the pro temp committee is different from the committee required under the s84 of the Land Titles (Strata) Act (“statutory committee”) in that:
- A pro temp committee is set up to generate as much interest in the en bloc sale as possible, in order to generate the 80% or 90% majority required at an extra-ordinary meeting (EGM) depending on the age of the development (see comments under Step 5 for requisite majority). Therefore, you may normally expect a larger number of members to represent the different interest group in a pro temp committee.
- By contrast, the statutory committee must not be more than 3 persons and is formed to represent the owners in the Strata Title Board application (see comments under Step 7.)
STEP 3: ENGAGE THE PROFESSIONALS (TIME REQUIRED: 2-4 WEEKS)
The pro temp committee will then be tasked with appointing the property consultant and the lawyers.
You should select agents who can:
- give you sufficient advice as to how developers interested in your development will value your property; and
- present a credible strategy to realize the best possible price
STEP 4: WORK OUT THE PRE-SALE CONSIDERATIONS (TIME REQUIRED: 1-2 MONTHS)
The property consultant will advise on the development potential of the property, the current market sentiment and how they intend to market the property. The lawyers must advise the pro temp committee on the applicable legislation and how to apply to the Strata Titles Board for approval of the collective sale.
The following issues must be considered:
- the development potential of the and therefore the land value of the property;
- the minimum price or reserved price for the sale and the distribution method (see comments under Step 5*);
- the time for holding an extraordinary general meeting with the rest of the owners for the appointment of the sales committee and the signing of the collective sale agreement; and
- a time line for the marketing of the property.
The following documents must be prepared:
- a feasibility study (optional)
- collective sale agreement
- valuation report by the property consultant together with their recommended distribution methods
The following are the main areas which the collective sale agreement will cover:
- Reserve price- the minimum price that owners agree to sell
- Method of distributing sale proceeds
- The validity period of the Collective Sale Agreement
- Date to deliver vacant possession, and how much can be retained by the developer till vacant possession is delivered
- Whether the sale will be subject to tenancies – where owners cannot agree to sell within a fixed period for vacant possession delivery
- Indemnities for the Sale Committee and between owners
- The Sale Committee’s authority to sign plans submitted by the authority
- Provisions for 80% or 90% majority’s agreement and undertaking to pay all costs relating to the application
STEP 5: GETTING THE REQUISITE MAJORITY TO SAY “YES” OR BETTER YET, THE UNANIMOUS “YES”
Time required: as long as it takes but should not be more than 4 months. This is often the most difficult stage of en-bloc exercises.
- If a development is less than 10 years old (calculated from the date of the issue of the latest Temporary Occupation Permit (TOP) or Certificate of Statutory Completion (CSC) if no TOP), the requisite majority will be the owners of 90% of the share values, share in land, or notional share in the land must agree in writing to sell all the units and common property or land to a purchaser under a sale and purchase agreement (subject to an order of the Strata Titles Board); and
- If a development is 10 years old or more (calculated as above), the owners of 80% of the share values, share in land, or notional share in the land must agree in writing to sell all the units and common property or land to a purchaser under a sale and purchase agreement (subject to an order of the Strata Titles Board).
The government is now considering changing the legislation to getting consent from owners of at least 80 per cent of units in a development, in addition to the existing requirement of at least 80 per cent of share values. For more information on the proposed changes to the en bloc sale legislation, click here.
*Although the issues of minimum price and distribution method are considerations to be made under Step 4, these are almost always the 2 issues that hinder the getting of the requisite majority. On a practical level, you will need to sound out most of the owners on their views on these 2 issues before the professionals make their recommendations.
On the issue of distribution, the Singapore Institute of Surveyors and Valuers (SISV) recommends five methods of apportionment:
- Share value
- Strata area
- Average of share value and strata area
- Valuation and share value excess
- Any other method
The most commonly applied is often a hybrid method of apportioning according to share value and strata area.
At this stage, you should have held the EGM and select your representatives for the sale committee and the statutory committee.
STEP 6: SALE BY WAY OF TENDER (TIME REQUIRED: 1-6 MONTHS DEPENDING ON MARKET CONDITIONS)
The property consultants will put up the property for public tender and interested developers will submit their bids.
The lawyers will draft the tender documents and work out the terms of the tender with the committee. Invariably the sale will have to be subject to the successful application for the en-bloc sale with the Strata Title Board.
The successful developer and usually the highest bidder, will be awarded the bid. Although rare and generally not favoured by developers, owners have sometimes preferred to award to the developers who are able to offer to them a one for one deal. For the owners, this means that they will be assured of a home in the same location and therefore make the decision to sell their property less painful.
STEP 7: PREPARATIONS FOR THE APPLICATION TO THE STRATA TITLE BOARD IF THERE IS NO UNANIMOUS DECISION TO SELL (REQUIRED TIME: 6-8 MONTHS).
Before the application can be submitted , there must have been:
- At least one EGM held to consider the en bloc sale. (Step 5)
- Collective Sale agreement signed (Step 5)
- Appointment of not more than 3 owners to represent the majority owners (the statutory committee) in connection with the application. (Step 5)
- An updated valuation report for the whole development that must not be more than 3 months old when the application is made. (update the reports obtained in Step 4 )
- A report by a valuer on the proposed method of distributing the sale proceeds. (update the reports obtained in Step 4 )
- A signed conditional sale and purchase agreement with the purchaser (Step 6)
- Advertisement of the particulars of the proposed application in the local newspapers, as approved by the Board, in the 4 official languages
- Within 14 days from the advertisement, make the application to the Strata Title Board
A unit owner who has not agreed to the sale in writing, his mortgagee, chargee or other person with an estate or interest in the unit can object to the sale at the Board.
Where no objection is filed against the application, the Board will approve the application unless, after going through the application, it is satisfied that the transaction is not entered into in good faith, after taking into account:
- the sale price for the whole development;
- the method of distributing the sale proceeds; and
- the relationship of the purchaser to any of the flat owners.
The Board will also not approve an application if the sale agreement requires any unit owner who has not agreed in writing to the sale to be a party to any arrangement for the redevelopment of the property.
Where objections are filed against the application, the Board may after the considerations stated above, and the objection, call for mediation. If the Board is satisfied that the unit owner who objects to the sale will suffer a financial loss; or the sale proceeds to be received by a unit owner, his mortgagee or chargee, are insufficient to redeem any mortgage or charge against the flat, the Board will not approve the application.
A unit owner will be considered to suffer financial loss if the sale proceeds for his unit, after any deduction allowed by the Board, are less than what he paid for the unit. A unit owner will not be considered to suffer financial loss because his net gain from the sale will be less than the other unit owners. Please see our faq for further details.
FINAL STEP 8: (IF THE APPLICATION IS SUCCESSFUL) PREPARING FOR COMPLETION AND THE HANDOVER OF THE PROPERTY. (3-6 MONTHS)
The owners are generally given a grace period of 3-6 months to move out or to make arrangements with their respective tenants to vacate the property.
Where there is an order from the Strata Title Board for sale, the tenancy agreement shall end no later then the date vacant possession is required to be given to the purchaser.
The order does not prejudice the tenant’s right to any compensation from the unit owner. However, only unit owners who have not agreed to the sale in writing or their lessees can apply to the Board to determine the amount of compensation payable.
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