|
 10 |
05 | 2010
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Date
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10th
May 2010
To
Director ( En Bloc )
Ministry Of Law
Singapore
cc—The
Prime Minister |
Minister Of law
En bloc--Good Practice
Guidelines |
Fair Play And
Transparency
I am a Stayer in Neptune Court ( NC ) who treasures my home, and who
had hitherto suffered undue pressure and unnecessary stress during the
en bloc processes when rules were stacked heavily against people like
us.
Together
with a group of like-minded Stayers both within NC and other estates in
Singapore, we had previously forward a list of proposals ( known as Good
Practice Guidelines ) to MinLaw on 5 May 2008, but regrettably had no
feedback from any party.
While land optimization 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 publicized but add to
the conclusion that it is becoming increasingly clear that en blocs
cause problems which are deep-seated and require serious attention.
En blocs
are emotionally draining, stressful and disruptive. Tensions and
hostility have arisen within estate communities as neighbors 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 when it comes to en bloc sales.
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) INTEGRITY OF BUILDINGS
In any development and especially those with more than a thousand
residents, due consideration should be given to the dismantling of the
community which has taken decades to bond. Unless there is cause to
doubt 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 blockers
who are interested in making a quick buck. Many estates are actually
able to enjoy a much longer life if well maintained and kept.
Millions have been spent to upgrade many of these condos, rendering en
blocs a wasteful phenomenon in the face of such spending.
But
pro-en blockers
scare the residents with their mantra that the buildings are old and
will require hefty expenditure to continue up
keeping 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.
(2)
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 fulfill 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 honor
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.
(3)
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, water
tanks,
repainting, minor road
works (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 blockers
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 blocking
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 channeled 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.
(4) 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.
(5) 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.
(6) 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.
In fact some CSCs make decisions at
subcommittee levels thereby bypassing the need to report on how their
decisions are reached. Such a practice should be prevented by all.
(7) 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 achievable, 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.
ALTERNATIVE:
If the above process is to be simplified, MinLaw should ask themselves
the following question in drafting the en bloc law: On what basis
is Apportionment Method ("AM") established in all collective sale
attempts? Are Agent and CSC qualified to recommend and decide,
respectively? Shouldn't an independent Valuer or Quantity Surveyor be
engaged to establish FACTS and recommend the proper basis of AM with
justification for their professional recommendation?
Since
AM is mandated by LTSA to be stated in CSA, that basis of distribution
locks all Majority Consenters for up to 2 years under the Act. However,
LTSA mandates that Valuation Report be obtained only "upon close of
tender". By then, it is too little, too late.
Upon
"close of tender", which Valuer would dare to say AM in the CSA is on
wrong basis and thus jeopardize the en bloc sale for all the following
parties, viz:
(i) SPs
of 80% or more who signed CSA with AM cast in stone in a legal document,
(ii)
Agent who may have spent 12-18 months marketing the estate on
no-sale-no-fee basis,
(iii) En
bloc lawyer who may have similarly spent 12-18 months drafting CSA and
witnessing 80% signatures also on no-sale-no-fee basis, and
(iv)
Developers who would have spent lots of effort evaluating the site
before submitting tenders or getting ready for private treaty
negotiations if they decided not to bid but are keen to buy?
Against this background, please also bear in mind that the Valuer only
has one-time business dealing with CSC but ongoing business referrals
and appointments by Agents, Lawyers and Developers. These are practical
business realities on the ground level and policy makers need to get out
of their ivory tower to realize
such realities exist.
(8) CSC SHOULD NOT BE ALLOWED TO
LOWER RESERVE PRICE WITHOUT 100% CONSENT FROM SPS WHO HAVE VOTED TO EN
BLOCK
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.
( 9 ) AGENTS AND CSC SHOULD NOT NOT BE
ALLOWED TO CALL ON SPS AND QUOTE AN ENBLOC PRICE FOR THE UNITS WHICH IS
NOT PUBLISHED FOR ALL TO SEE
Very often in order to get support for an
en bloc, agents call upon individual SPs and have been known to quote a
speculative sale price in order to induce the SP in question to sign the
CSC. In addition, the agents have been known to allude to other SPs and
say that they have signed, in order to get the SP in question to jump on
the bandwagon. Such misrepresentations can be avoided if the sale price
for each unit (and who has signed) must be mandatorily put in writing
even when such representations are made by agents.
( 10
) 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.
(11)
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 show
flats.
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
kept up,
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.
(12) 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.
(13) 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 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.
(
14 ) LAST BUT NOT LEAST, A SUITABLE
ENTITY WITHIN MINLAW TO BE APPOINTED TO POLICE THE PROPER OBSERVATION
AND IMPLEMENTATION OF THE EN BLOC PROCESS BY CSC ACCORDING TO THE LTSA
SCHEDULES
It is very important and necessary to establish
an entity in MinLaw to which aggrieved party during an en bloc process
would be able to address their complaints to. To be effective, it should
be empowered to decide on the merit of the complain, and take swift
decision on such matters. No proper policing system exists at present,
leaving the plaintiff no choice but to either resort to expensive
litigation, or wait till the end of the en bloc process before they
could put forth their complaints for arbitration. This is both time
wasting and unfair.
Submitted for your kind considerations please.
Terh
Chiew Kim (Leslie)
Neptune Court, Singapore
IC and full address
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