A collective sale of a strata-titled development is legislated by the Land Titles (Strata) Act. This guide aims to summarize the basic steps, whilst recommending some best practices that owners of collective sale projects should consider when embarking on an en bloc sale.
1. Convening an Extra-ordinary General Meeting (“EOGM”)
The first formal step in getting the process started is for owners to convene an EOGM to elect a Collective Sale Committee. Supportive owners need to submit a requisition to the management council (or MCST).
For developments attempting their first en bloc exercise, or where more than 2 years have lapsed since the expiry of the last collective sale attempt, the requisition is to be signed by at least 20% share value or 25% of the units in the development. If, however, you are seeking to initiate an en bloc attempt within two years from the expiry of a previous Collective Sale Agreement, the minimum requisition level is 50%.
A quorum of at least 30% of the owners (by share value) is required to be present at the EOGM, either in person or by proxy, before the meeting may proceed.
2. Formation of the Collective Sale Committee (“CSC”)
The CSC has a fiduciary duty to act as trustees of all owners in the development and should act in good faith at all times, irrespective of their inclination towards the collective sale.
It would be wise to ensure that a strong, active and committed team is elected. Bearing in mind that a collective sale can be a long-drawn exercise, CSC members should be prepared to actively engage with fellow owners.
The committee should comprise between 3 and 14 members, who ideally, are representative of the diverse unit-types to ensure that the interests of all factions are considered and protected.
CSC members, when standing for election, should disclose any potential interest in property developers or consultants, as well as the number of units he or she owns in the development.
3. Appointing Consultants
The CSC would need to appoint a property consultant and law firm to help facilitate the collective sale. The recommended set of criteria should be around three key factors in equal weightage – experience and knowledge, communication skills, and fees.
More often than not, CSCs regard the property consultant’s recommended reserve price as the key determining factor, which leads to unrealistic and seductive pitches. Do not fall for that.
4. Terms & Conditions of the Collective Sale
The appointed property consultant and law firm will guide the CSC in setting the reserve price, method of apportionment and the terms and conditions of the collective sale.
i. Reserve Price
Setting the right reserve price is an important decision to be made by the CSC, on the back of advice from the appointed property consultant.
Careful assessment is needed of the property’s redevelopment potentials, marketability and the level of interest from the owners.
Factors affecting the value of the property, such as the development baseline, should be determined early.
It is important to strike a right balance – the reserve price should be high enough to garner the support of majority of the owners, whilst maintaining a reasonable enough level to attract prospective developers.
ii. Apportionment of Sales Proceeds
The method of apportionment tends to be the most contentious issue in any collective sale exercise, in particular for projects with diverse unit types or sizes. Three key factors are typically used to arrive at the best methods – strata floor area, share value and market valuation.
There are commonly adopted methods, but there is no singular best method that suits all projects, neither do the laws stipulate any specific methods. Each development is different and should be assessed independently.
The golden rule is to ensure that all owners enjoy as equal a percentage premium as possible when measured against their respective typical values. There are precedent case laws that discuss the concept of benchmarking against collective sale premiums.
The apportionment method should be fair and equitable to all, irrespective of unit types. It should also be supportable by an independent valuer, whose report would be required when eventually seeking approval from the Strata Titles Board for the sale.
iii. Collective Sale Agreement (“CSA”)
The appointed lawyer shall advise the CSC on the required terms to be included in the CSA. Aside from the reserve price and method of apportionment, the CSA shall also set out the CSC’s mandates and the sellers’ collective and respective responsibilities under the sale, amongst other items.
Once the above recommended terms have been determined, an EOGM shall be convened to appoint the property consultant and law firm (if the CSC was not authorized at the first EOGM to make such appointments) and to approve the method of apportionment and terms of the CSA (including the reserve price).
5. Obtain Requisite Majority Consent
After the apportionment method and the terms of the CSA have been approved at the EOGM, consenting owners may proceed to sign the CSA.
Developments which are less than 10 years old require a minimum of 90% owners’ consent (measured by share value and strata floor area), while those aged 10 years and above will require at least 80% owners’ consent. The requisite consent level must be obtained within one year from the date of the first signature to the CSA.
All signatures to the CSA are to be witnessed by the appointed solicitors. Under prevailing laws, only wet-ink signatures are accepted, i.e. digital signatures are not permitted.
Signatories are given a 5-day cooling-off period after signing the CSA, in the event they wish to change their minds.
The solicitors shall certify the CSA signing status. The updated signing percentages are to be posted on the development’s noticeboards every 4 weeks and displayed in the 4 official languages.
6. Securing a Purchaser
The appointed property consultants may proceed with the marketing campaign for the property after the requisite consent level to the CSA is obtained. The property will need to be offered for sale by way of a public tender or auction in the first instance. The CSC needs to procure a valuation report by an independent valuer, advising of the market value of the development as at the date of the close of tender.
In the event the tender does not yield a definitive outcome, the sale can then be concluded through private treaty negotiations, provided it takes place within 10 weeks from the close of tender.
7. Application to the Strata Titles Board
Having secured a purchaser, owners of collective sale projects that do not have unanimous consent are required to submit an application to the Strata Titles Board (“STB”) for an approval to sell, also known as an Order for Sale. The STB’s role is to hear the applications and to mediate.
Non-consenting owners are given an opportunity to raise their objections before the STB.
Any objections that are not successfully mediated are directed to progress with an application to the High Court.
8. Completion of Sale
Legal completion is typically three months from either the date of the sale contract, the date unanimous owners’ consent is obtained, or the date the STB or the higher courts grant approval for the collective sale to proceed.
Upon completion of the sale, collective sale sellers may receive at least 90% of their sale proceeds (after any necessary deductions, e.g. professional fees, loan redemptions, arrears to MCST contributions, etc).
A sum of money may be retained until the sellers deliver vacant possession of their respective units. Any outstanding monies in the management and sinking funds shall be returned to the owners after a final audit of the MCST’s accounts.
9. Delivery of Vacant Possession
Collective sale sellers are given some time after legal completion to deliver vacant possession, usually ranging from 3 to 6 months. This allows sellers additional time to move out and seek replacement properties, if they have not already done so.
The collective sale process is often a complex and lengthy exercise. Heavily legislated, there are numerous procedural requirements that owners need to comply with.
During the last 2017 to 2018 en bloc cycle, it is estimated that only one in three projects were successful in their collective sale attempts. The main reasons for the failed attempts were unrealistic reserve prices or the collective sale was fundamentally not viable in the first place. It is therefore advisable to seek professional advice and guidance from experienced property consultants before initiating an en bloc exercise.
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Copyright @ 2020 Showsuite Consultancy; The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.