Good Practice Guidelines

5 May 2008


Re: Feedback on En Bloc legislation and practices
Good Practices Guidelines (GPG No 1)

We are a group of Subsidiary Proprietors from various condominiums across Singapore who love our homes and have no desire to move from the estates we live in. While land optimisation may be the economic objective of en bloc, we feel that trying to achieve this has been at a great price to social stability. What has been reported in the press so far on this is only the tip of the iceberg. Many other stories are not publicised but they add to the conclusion that it is becoming increasingly clear that the problem is deep-seated and requires serious attention. En blocs are emotionally draining, stressful and disruptive. Tensions and hostility have arisen within estate communities as neighbours are pitted against one another over en bloc issues. For the elderly, the dislocation is traumatic and mentally debilitating. And our children lose their sense of community and nesting instincts when roots can be torn up so easily.

En blocs are also sending the message to the public at large (and our children) that home is a commodity for profit and that values of hard work and ethics fall by the wayside in the era of the en bloc sale.

While the new en bloc legislation makes the process more regulated and transparent, there is much that is not right in the current rules. The following is our feedback and views on what needs to be rectified in the current legislation. We have titled it Good Practices Guidelines Number One, as we will be giving more feedback on this subject in the future.

(1) INITIAL INTEREST

Subsidiary Proprietors (SPs) interested to kick-start an en bloc process should, at their own cost, seek to get at least 51% endorsement from other owners, and show proper proof of interest (list of interested parties must show name/s of owner, valid signature/s, IC number on a prescribed form) to the MA (Managing Agent) and Management Corporation (MC) before the MC shall allow an EOGM to convene. This is to safeguard against the inappropriate use of the maintenance/sinking funds of the condo.

Rationale: Current practice allows the mere collection of 20% of SP interest before an EOGM for collective sale can be convened. Typically, around 50% of SPs show up for the EOGM, and the current law allows a simple majority at the EOGM to allow any motion to be carried. This means that the en bloc process caters to an interested group comprising a mere 20-26% of the estate, which then consumes the financial resources of ALL residents and initiates a process which can last for two years. This is an unfair and lop-sided use of MCST funds, where the minority can end up spending money belonging to the majority.

(2) INTEGRITY OF BUILDINGS

In any development and especially one with more than a thousand residents, due consideration should be given to the dismantling of the community which has taken decades to bond. Unless the structural integrity of the buildings is in question, the rules should be revised to provide for a judicious approach in deciding if an estate should be put on en bloc sale.

Rationale: Currently, condos that are structurally sound and in perfectly good repair are, more often than not, under threat of being torn down because of pro-en blocers who are interested in making a quick buck. Many estates are actually able to enjoy a much longer life if well maintained and kept. But, pro-en blocers scare the residents with their mantra that the buildings are old and will require hefty expenditure to continue upkeeping them. Moreover, instead of being committed to carrying out their duties to maintain the estate, many MCs add to this fear by letting the estate run down because they are usually pro en bloc themselves and sit on the sale committees too.

(3) FREQUENCY OF EOGMs

There should be a moratorium before another EOGM for the same agenda can be re-convened. Thus, if an en bloc EOGM fails (for whatever reason), there must be a moratorium of 12 months before the next one can be held for en blocs that obtained a mandate of more than 50% of the total number of units in the condo, and a 24-month moratorium for en blocs that failed to achieve even 50% of the condo’s votes.

Rationale: Current numerous experiences have shown the pro en bloc camp treating en bloc EOGM’s like a free lottery. If one fails, go back to the same 20% of SP’s and requisite again and again till you get the EOGM which gives you the Sale Committee that you want. This is at great cost to all SPs (as it is money from the sinking/maintenance fund) and no cost to the requisitioners. The repeated process is also extremely disruptive to daily life.

An average en bloc attempt takes up to 2 years from the formation of a collective sale committee (CSC) to the point of tender. Current legislation allows any estate to go through as many attempts as there are interests in setting up a sale committee and pushing the en bloc agenda forward. There are estates in Singapore that are going through their 5th attempt in the last 10 years. Owners are frustrated that any small group of like-minded subsidiary proprietors can initiate the en bloc process. The ease with which this can be done also causes a lot of uncertainty over the future of the estate. Limiting the number of en bloc attempts can help provide some certainty and peace of mind for owners to carry out upgrades to the estate or their units, or to renovate their homes. It allows owners to do what they want to improve their individual homes without worrying that all the money poured in, no matter the possible compensation, will not be wasted when the estate gets demolished. With stricter criteria for the calling of EOGMs, any sale committee will need to be very strategic on when and how often they would wish to subject all owners to the collective sale attempt.

Furthermore, the frequency of tries for an en bloc exercise should also be limited to no less than seven (7) years after an estate has spent more than $1m or more on an upgrading exercise. The rationale for this being that SPs have to vote to upgrade an estate and in such cases, the attempt to en bloc would be in direct contradiction to the mandate for upgrading, and a waste of condo funds if the benefits of such an upgrading was not enjoyed by the SPs.

(4) SEPARATION OF FUNCTIONS

The en bloc rules should be amended to specifically preclude council members from enlisting in the CSC. This is because the whole purpose of having a council of the Management Corporation consisting of members elected by SPs is to fulfil the requirements of Section 29 of the Building Maintenance & Strata Management Act 2004 (BMSM Act 2004). Any council member who wishes to be a part of the CSC must resign from the Council.

We believe that council members, having committed themselves to assume the duties and powers of the MC under the said Section 29, must honour their commitment to unreservedly serve the MCST. We also consider it a breach of contractual understanding when a council member alters his relationship with the SPs who voted him in office for the specific purpose of discharging his duties under Section 29 of the BMSM Act 2004. This has happened in many estates going through en bloc, when council members perform dual roles that are conflicting in nature.

The consequences resulting from this conflict of interest situation are widespread. Maintenance of the estate suffers considerably. The common property is allowed to run down for lack of whole-hearted attention by council members over the period during an en bloc sale attempt. The Sinking Fund and Management Fund are not spent on preventive maintenance but used only when a breakdown or failure occurs. SPs pay a monthly contribution to maintain the common property of the development in good and serviceable repair. What is the point of being rich in funds when the condition of the common property is in an acutely deplorable state? No doubt much of the problem lies in the dual role of council members and the lack of cohesiveness within the council.

We would propose that in any development undergoing an en bloc sale attempt, the Commissioner of Buildings be required to make regular inspections to satisfy himself that council members do not slacken in performing their duties with reasonable diligence set out in Section 61 of the Act.

In the normal course of events, an SP aggrieved by any matter attributed to the CSC should logically be able to take his/her grievance to the council members of the MCST for resolution. This would not be possible when members of the council are also members of the CSC. It therefore leaves the SP with no avenue to seek redress.

(5) PERIODIC MAINTENANCE OF THE ESTATE

Despite any impending decision to en bloc, the key periodic upgrade maintenance and services of the estate must continue. This action should be made mandatory. This includes the maintenance and servicing of such (external) facilities as rusty and leaky roofs, watertanks, repainting, minor roadworks (potholes, etc).

The minimum period should be set at 5 years (minimum) to 7 years (maximum), dependent on the overall condition of these facilities, subject to the findings of the estate maintenance engineer or an independent professional body hired from outside the estate.

Such periodic maintenance and services should NOT be a matter for any resolution in the AGM.

Rationale:

a. Pro-en blocers can easily outvote the stayers in the AGM against further such maintenances and services, so as to allow the estate to degenerate/deteriorate, and using this as an unfair excuse to press owners towards en blocing the estate.

b. This rule will safeguard the stayers from such unfair/underhanded practice, and to keep the operational and aesthetic standards of the estate at an acceptable level, especially considering the length of time (2 years) it takes for the entire en bloc process to run its course, sometimes without any success.

c. The costs of this upkeep have already been factored in the monthly conservancy fees, and channelled into the sinking fund, so owners are NOT being called upon to put up additional money. In any case the total costs for all these maintenance and services will constitute only a tiny portion of an individual owner's contribution in the sinking fund.

(6) MEMBERSHIP OF COLLECTIVE SALE COMMITTEE

The legal minimum number of members required to form a CSC should be raised from 3 to 7, and individuals should be allowed to sit on only one collective sale committee at any one time.

Rationale: As there are millions of dollars involved in en bloc sales, and the whole process can be quite complex, it is felt that the work and responsibilities involved are too onerous to be left to just three individuals.

For the same reason, there should be a restriction on the number of sale committees that a would-be seller can sit on. For example, if an individual owns units in three different estates, and all have CSCs, it seems that he can currently stand for membership of all three if he should so choose. It is proposed that an individual be allowed to sit on only one sale committee at any one time. This is also indirectly based on the recent legislation which restricts the number of collective sale committees at any one time to one per estate, a much-welcome move which has greatly helped to streamline matters.

(7) DISCLOSURE OF INTERESTS

A person standing for election as a member of a CSC should disclose not just any conflict of interest as addressed in the Third Schedule ("direct or indirect interest in any property developer, property consultant, marketing agent or legal firm") but also if he or any of his relations (e.g., spouse, child, cousin) is a member of the estate's Management Corporation (and in what capacity), or any other interests that could conflict with the proper maintenance of the estate. Subsidiary proprietors should realise that if there are such conflicts of interest, they have the right to vote for the member to be removed from office at an EOGM (i.e., a motion must be submitted prior to the EOGM).

Rationale: There are massive conflicts of interest if a member of the CSC is a council member as well. Not all owners may know their SC or council members well enough and without any full disclosure of their council involvement, owners may never know that the maintenance and management of their estate may be at risk under a member whose sole purpose in the CSC is to ensure any and all means to get the sale through, including potentially letting the estate run down or not encouraging further upgrades or upkeep while he is in the council. Hence it is important for full disclosure to be performed as soon as possible, and voters have the right to vote the member out.

(8) CSC SHOULD INCLUDE MEMBERS WITH DIFFERENT VIEWS

In his 2007 speech on the amendments, Prof Jayakumar suggested that a CSC should comprise not only those who are pro-sale, but also those “who have a different view on the en bloc sale proposal”. The problem arises when conditions are set out in the CSA whereby all members of the SC must sign the CSA. Therefore, the provision for the formation of a CSC should be amended to allow for owners who do not wish to sign the Collective Sale Agreement (CSA).

Rationale: Having an owner who may not be keen on selling the estate, or who may have a different view on the sale, is important and necessary to act as check and balance against SC members who may act against the interests of all owners. While this may make decision-making within the SC more complex, it would greatly improve the transparency and accountability of the process.

(9) SPs ALLOWED TO OBSERVE CSC MEETINGS

In the interest of transparency, SPs should be allowed to observe CSC meetings and CSC sub-committee meetings and all correspondence on en bloc issues. They should be allowed to observe the appointment of agent and lawyer and be given full information on how the reserve price was reached and which parties declined to take up offers to serve as agents and lawyer with full disclosure of reasons given including written communications to and from third parties and all written communications to other SPs.

Rationale: Too often the CSC does not divulge reports to SPs such as the lack of feasibility of the Sale Price, which results in the CSC choosing only those agents willing to take a gamble on the market.

(10) CORRESPONDENCES ON THE EN BLOC SALE SHOULD BE SENT TO ALL SUBSIDIARY PROPRIETORS

The Sale Committee should send all correspondences pertaining to the en bloc sale to all SPs regardless of whether they are for, against, undecided or neutral about the sale.

Rationale: Currently, lots of Sale Committees have taken to “selective correspondences” whereby they systematically and routinely exclude some SPs from their emails, or other forms of correspondences that relate to the en bloc sale. These SPs, typically those who outright refuse to sign, or are seen to be a nuisance during meetings, are nevertheless legitimate owners and should be entitled to the same set of information as other owners, to be fair to everyone. However, CSCs just find that the more information their “opposition” has, the more troublesome they become, so to keep these SPs in the dark, they have resorted to not sending them anything but the minimal requirements stipulated in the LT(S)A, such as the Notice for EOGMs. (And even then, not all information is provided within such notices.) Not to provide sale-relevant information to minority owners or those perceived by the SC to be against the sale, shows a total disregard and disrespect for such owners (who nevertheless own units and pay their maintenance funds).

To be fair and transparent, the CSC needs to include all members of the estate, regardless of their inclination towards the sale. This is a simple but important Good Practice that should be implemented by all CSCs, and preferably reinforced by law.

(11) PRICE EVALUATION BEFORE CSC APPOINTS AGENT AND BEFORE CSA IS SIGNED

Too often SPs have tried to back out of collective sales because they believe that they sold too cheaply. A due diligence review of the market should be done in three stages to ensure SPs get what they deserve for their properties.

STAGE ONE In normal cases, the CSC appoints the Marketing Agent and the Agent then announces the reserve price for the sale. As the Agent has a vested interest to ensure that the sale goes through, they could manipulate the asking price for the buyer or the seller. Once the Agent is appointed, a two-year process is set in motion disrupting many lives.

To ensure transparency in the process, and to ensure that the sale price is fair and achieveable, we propose that an evaluation of price be done before the Agent is appointed, with a presentation done by three agents, and an evaluation presented to all SPs during a meeting. This mandatory presentation among competing agents will enable SPs to make informed decisions based on valuable information before deciding to embark on an enbloc.

If three agents decline to do the presentation, the en bloc process should be aborted.

STAGE TWO When the Agent has been appointed, usually many months have passed from the time of the original EOGM to decide to go en bloc. By the time the CSA stage arrives, the market may have shifted substantially. Before signing the CSA, SPs should have full knowledge of another market valuation of the potential en bloc price of their development from three separate valuers, and a reserve price should be set on this basis.

STAGE THREE The evaluation should be updated a third time before the tender process. If the valuation at the tender process stage exceeds the Reserve Price because the market has risen, a new price should be set.

Rationale: Sometimes the practice of the CSC is to cloud this process in secrecy and then raise the reserve price a few times in order to create a contrived aura of excitement surrounding the sale. This is a manipulation of the process and will not be possible with comparative valuations from different valuers. These valuation reports should be made available to all SPs before the appointment of Marketing Agent, commencement of the CSA and tender process.

(12) CSC SHOULD NOT BE ALLOWED TO LOWER RESERVE PRICE WITHOUT 100% CONSENT FROM SPS WHO HAVE VOTED TO EN BLOC

As SPs who have voted for the en bloc have voted for it based on price, the CSC should not be allowed to lower the reserve price without 100% consent from SPs.

Rationale: There are two situations whereby the Reserve Price (RP) can be lowered: (1) In the form of a revision of the RP in the CSA document itself, (2) when a developer offers a bid that is lower than the RP. For situation (1), a lot depends on the conditions stated in the CSA which gives the CSC power to lower the RP (or not). If such power is provided, e.g., a revision of the CSA via an EOGM, the law must ensure that fair representation is provided to all SPs who signed the CSA by requiring, rather than a simple majority to lower the RP, that the CSA’s RP can only be revised by a unanimous vote. For situation (2), given that a tender is triggered (on average) by 80% of the SPs in an estate, when a lower RP is provided by the developer, some CSAs allow for the CSC to conduct an EOGM to decide on accepting a lower RP. Again, a simple majority in an EOGM means that only a fraction of 80% (assuming all turned up) will decide the fate of the estate. If less than 80% attends this EOGM, it becomes a fraction of a fraction (e.g., 51% of 40%) which decides the estate’s selling price. It is strongly urged that the law be revised to require a unanimous vote for such critical decisions.

(13) TOTAL OFFER PRICE TO SP SHOULD BE TABULATED

Very often, SPs are told the price that their units will sell for before taking into account the following costs:

a) development charge (in some cases);
b) agent’s fee;
c) lawyer’s fee;
d) length of process (to calculate interest they have to pay to banks in the meantime)
e) stamp duty, etc.

It is proposed that the sale price per unit be calculated taking into account the approximate nett amount which will be received by the SP when the en bloc goes through.

(14) CSC SHOULD ENSURE MINIMAL DISRUPTION TO ESTATE AFTER COMPLETION

Typically, any responsibility and duty by the MC dissolves on the date of Legal Completion. The developer takes over the maintenance of the property until the Date of Vacant Possession. However, as is often stated in a standard Sale & Purchase Agreement, developers are allowed to enter the estate, even when there are owners and tenants staying in the property, to conduct various construction tests and even set up showflats.

It is suggested that the MC is not allowed to disband until after legal completion, but continue to be active and responsible for the estate. They should have access to the sinking funds for the maintenance of the property. In addition, the developers are not to be permitted to enter the property until the Date of Vacant Possession. Neither are they allowed to conduct any testing or construction work until the Date of Vacant Possession. An alternative solution is to ensure that the MA is in full employment during this period of time, and all residents and tenants have access to the MA for any complaints.

Rationale: The few months after legal completion and before vacant possession, when there are still owners and tenants living in the estate, should still be considered a valid period when the estate needs to be maintained as stipulated by the BMSMA. So long as there is an owner staying there, the property needs to be upkept, maintained and secure. This requires the MC (or MA) to continue to be responsible, and they must have access to the sinking funds to carry out maintenance and repairs, continue to keep any facilities open for use, as well as a continued security presence. The popular practice whereby developers can choose to ignore any owners or tenants still legally staying there, generate noise levels and construction pollution, and leave the estate to deteriorate, is completely untenable.

(15) CSC SHOULD BE OVERSEEN BY INDEPENDENT AUDITOR

Under the current rules, vast powers are given to CSC to choose and decide on many matters pertaining to the sale of their estate, such as sale price, collective sale agreements, terms for developers, appointment and commission structures for lawyers and agents. Although the system ostensibly provides for subsidiary proprietors to vote on these matters at EOGMs, the dialogue and due diligence process which is actually allowed by the CSC is tainted because some CSCs are willing to do anything to facilitate the sale.

A system of auditing should be put in place for all en blocs so that sale committee activities can be scrupulously viewed by a neutral (non-owning) knowledgeable third party who reports all matters openly to pro sellers and stayers alike.

(16) COMMISSION RATES FOR SALES AGENTS AND LAWYERS SHOULD BE FIXED BY LAW

In some cases, a sales agent negotiates a sliding percentage with the SC from two to 7 percent (2% for achieving the reserve price, 7% for exceeding the reserve price). As there is no way of knowing whether the parties have found a buyer before even negotiating the commission, the commission rates should be fixed by law in order to prevent abuses.

(17) STRATA TITLE BOARD (STB) SHOULD BE REPLACED BY JUDGES

In many cases, when a minority dissenter objects to the process in which the en bloc sale has been allowed, the STB members have declared that this is outside of their jurisdiction. This has resulted in many cases going to the Supreme Court at considerable cost to the plantiffs. As the litigation on en blocs has become rampant, it is suggested that the STB is not the correct body to arbitrate the matter as many of them have limited knowledge of the law.

Rationale: The recent Airview Towers episode shows how subjective the interpretation of the en bloc law is, even over what was assumed to be a simple, clear cut case of 80% consent not being reached. When professionals in the STB (including lawyers) and a High Court Judge can agree on the matter, yet have their decisions questioned and overturned by the Court of Appeal, it highlights the fact that if enbloc sales are decided upon by judges, the legal process might be considerably shortened, and even streamlined.

(18) 100% AGREEMENT FOR SPS TO ENBLOC

The old practice under the LTSA was that 100% of SPs had to agree to en bloc before a collective sale could take place. As Singaporeans should have a right to property even though it is not enshrined in our constitution, we respectfully request that the law revert to the old practice, in order to ensure a happy and harmonious society where one has a right to keep one’s home without having to rely on neighbours to retain something which is really and rightfully one’s property.

Many of us bought our properties before this law was enacted in 1989 and at the time of purchase bought with the understanding that keeping or disposing of our properties would be solely our choice and not that of 80% of our neighbours.