Update on 30 May 2007, 23 July 2007 and post-Oct 2007:
This page should be read in conjunction with MY OTHER COMMENTS UNDER "SALES PROCEEDS FORMULA; DISTRIBUTION".
THE CURRENT "EN BLOC SCAM": How hundreds of thousands of dollars are being "short-changed" in the distribution of collective sales proceeds?
(i) As explained in paras 1-7 below of my original posting on 26 March 2007, the self-appointed unregulated Sales Committee and the Majority Small-Unit Owners are able to fully exploit the laxity of the present law by deciding on a distribution formula such that the big-unit owners are getting either the same amount of sales proceeds or a mere 15-30% more even though the unit sizes vary significantly.
(ii) Real-life example of what's typically happening:
Enbloc offer for a duplex of 1,600 sq ft - $2.6mn *
Enbloc offer for a studio in same estate of 800 sq ft - $1.9mn
[* This $2.6mn offer was an increased offer from the original offeror to match another unsolicited competitive offer. Within a fortnight of this increase, the marketing agent upped it by another million bucks - $3.6mn! This was just before the surprise announcement on 18 July 2007 by the Ministry of National Development about the effective 40% Development Charge/ Differential Premium hike which is traditionally expected around September.]
The duplex is almost 100% bigger than the studio. Due to the legacy created by the Commissioner of Buildings where an apartment of 101 sq m has the SAME SHARE VALUE as another unit of 199 sq m (ie, nearly double the size) because they are within the "100 sq m interval" bandwidth, all varying-size units have same share value except for the studio units which are one share value lower.
If the duplex is hypothetically split into two equal studio units - the 1st unit of 800 sq ft is worth $1.9mn as per enbloc offer, but the 2nd unit of the same size is worth only a shocking $0.7mn (about one-third the value of the 1st unit)!
If based purely on floor area, the duplex owner is short-changed by $1.2mn - not quite loose change, is it? If the distribution formula is based on my proposed mathematical formula (SEE MY OTHER COMMENTS UNDER "SALES PROCEEDS FORMULA; DISTRIBUTION"), the short-change would probably range from $600k-$800k, depending on the ratio of common property to aggregate strata title area - not exactly pocket money to be sneezed at, eh?
(iii) The above example is for an estate where the Sales Committee adopted a seemingly "fairer" distribution formula which is based on "50% weighted share value and 50% weighted strata title area". It's 50-50 simply because that presents the least line of argument in precedent cases (not because of technical appraisal standards). There are other estates where the Sales Committee brazenly adopted a distribution formula which is entirely based on share values despite the huge disparity in strata title floor area. In these cases, the "short-change" is even more exaggerated!
(iv) Typically in most condo estates, the number of studio/small units far outnumber the penthouses/big units. Therefore, the en bloc votes cast by the owners of penthouses/big units based on share values at present (even if additionally based on unit numbers in future for purely residential estates) are INHERENTLY SKEWED AGAINST THESE OWNERS even before voting begins! In fact, there's a DOUBLE WHAMMY for estates in prime/central districts because the number of Investor-Owners also far outnumber Owner-Occupiers whose votes are also rendered meaningless despite having a higher vested interest in preserving their "home" in the condo estate.
Ahh ... now you know part of the reason for the rah-rah Majority Consent! Can you blame Greed? Can you lambast Dishonesty? It's all legal, man! "No law" is also "law" - in line with Daoism philosophy, eh?
Under the law as it stood prior to 4 Oct 2007, the 80% (or 90%) or more majority consensus required to force through an en bloc / collective sale is based purely on "share values" [MinLaw's initial proposal to ADD one more criterion: 80% (or 90%) of "number of units" was changed to 80% (or 90%) of "total area of all lots (excluding the area of any accessory lot)" with effect from 4 Oct 2007 but this change addresses the predicament of ONLY A SMALL NUMBER of mixed developments of commercial/residential units].
Example of "share value" application: Say, an estate has 100 units and is 10 years or more from the date of issuance of Temporary Occupation Permit (TOP - the date you can move into the premises). 80 units (being smaller) have three share values each (80 x 3 = 240) and 20 units (being larger or penthouse types) have 5 share values each (20 x 5 = 100). Aggregate share values for entire estate = 240 + 100 = 340. If the owners who hold 272 share values (80% of 340 = 272) vote for/sign the collective sale agreement, then this estate would have achieved 80% majority consensus to force through an en bloc / collective sale subject to issuance of a collective sale order by the Strata Titles Board (STB). No example of "total area" application is given because that is simple mathematics.
Under the amended Land Titles (Strata) Act that came into effect on 4 Oct 2007 - Once the 80% (or 90%) mark is hit for BOTH criteria (ie, share values and total area), there is requisite "Majority Consent" to apply to the Strata Titles Boards for a collective sale order which would then compel ALL owners (including Minority Dissenters) to sell upon issuance of such order unless overturned by High Court or Court of Appeal. In this legislative amendment, there was also a clarification about the 10-year age peg to Temporary Occupation Permit (TOP) or Certificate of Statutory Completion (CSC), as the case may be (this 10-year age peg in turn determines whether the requisite "Majority Consent" is 80% (or 90%)). The TOP or CSC issuance is now clarified to correlate to "any building (not being any common property)" to overcome the stickler if an estate upgrades by building, say, a clubhouse on its grounds in Year 15 of the estate's life but such clubhouse would be under a new TOP certificate.
THE POSITION OF THE DISSENTER: Even if you REFUSE TO SIGN the collective sale agreement, you will be forced to sell AND you will still be entitled to receive the collective sales proceeds on the basis of the apportionment method decided by the Sales Committee (pls scroll down to paras 4-8 below) [MinLaw is proposing to switch it to Majority Owners but this does NOT address the inherent vote-skewering whether by ownership profile or unit size composition]. If you are not willing to sell, DO NOT SIGN the collective sale agreement because once you sign, you lose your right to object and appeal to the Strata Title Board. If you think that the collective sale is a foregone conclusion and you might as well sign in order to get the pay-out faster so that you can buy a replacement unit sooner, that's a fallacy - because so long as there is one owner who didn't sign, that one owner could appeal to the Strata Titles Board and the due process would still apply (as it should) except that now you are GAGGED because you signed. Make your en bloc vote count - you know that this PAP Gahmen "manages" by studying statistics (nothing wrong with that so long as it is not done in a void, eh?). IF YOU SUCCUMB AND SIGN the collective sales agreement, it means a resounding "yes" in statistical terms REGARDLESS of what you said at the EGM or Sales Committee meetings and what you lamented to your friends and relatives about really not wanting to sell. Say what you mean and don't be mean when you say it! IF YOU DISSENT, DO NOT SIGN - it's that simple. Stand up and be counted as a "No"!
Once the requisite 80% (90%) have signed the collective sale agreement, there are only 2 parties who can stop or amend the deal:
(a) STB if they refuse to issue the collective sale order (there are specific laws setting out the grounds for such STB refusal and STB's powers are therefore limited - SEE MY OTHER COMMENTS UNDER "CONSTITUTION; GAHMEN POLICIES" IN THIS BLOG-SITE); and
(b) The High Court/Court of Appeal if STB's collective sale order is challenged and/or other issues are contested and the High Court/Court of Appeal ruling is ultimately in favour of the plaintiff (the party who sued).
1. What are share values - Share values are approved by the Commissioner of Buildings (COB). Share values are important because they determine not only your voting power on whether to go-ahead with the en bloc / collective sale, or the method of distribution of the collective sales proceeds, etc but also the amount of monthly management fees you pay because they represent your share of ownership in the common property. In collective / en bloc sales, share values are quite commonly used (partly or wholly) as the basis of apportionment or distribution of the sales proceeds.
2. How share values are calculated - The number of share values for your residential property is based on your unit's strata title area. In turn, the varying strata-title areas are categorized into different band-widths.
3. Legacy problem for en bloc sales - Historically, these band-widths were very wide at intervals of 100 sq m. It was only in Apr 2005 that COB narrowed them to 50 sq m. However, this means that we have a legacy problem created by COB in the first place. An example of the adverse impact of the older broad band-widths is the case of Madam Chow Ai Wah of Eng Lok Mansions (near The Botanicals) where apartments are of varying sizes but the apportionment method was based solely on share values. Say, if Unit A is 60 sq m and Unit B is 99 sq m (ie, 65% larger in size and probably 50% more expensive at the point of purchase even if we assume that both units are bought at the same time), both units would bear the same share values based on the old band-widths. The composition mix of unit sizes in most estates is such that the smaller units outnumber the larger units or penthouses.
4. Sales Committee's basis of distribution of collective sales proceeds - As there is no legislative provision governing the Sales Committee, a SELF-APPOINTED UNREGULATED Sales Committee (still largely self-appointed in effect although somewhat better regulated after the legislative amendments with effect from 4 Oct 2007 - SEE MY OTHER COMMENTS UNDER "AFTER THE 2007 LAW ... WHAT'S NEXT" ON THIS BLOG-SITE - para C-4.1 at picture of little red flower ("little red dot"), para C-4.4 past picture of soaring seagull and para D-4 at picture of hands gripping prison bars) of a collective sale could apportion sales proceeds based on such Committee's totally arbitrary formulae/weightages pegged to share values (in some cases, the valuer will pop some 50-50 weightage because that is the easiest idea to sell and it offers the least argument). Although the Minister for Law indicated in the 2 Mar 2007 parliamentary speech that apportionment method would likely be determined by the Majority Owners after the forthcoming legislative review, it remains a subjective basis. It is a no-brainer resolution where the composition mix of an estate (be it ownership profile OR unit size composition) may skewer the vote even before voting begins. As Singaporeans can bash each other up over a Hello Kitty toy or a few cents of petrol discount, what will they NOT do for a dollar difference running into 4- or 5-figures???
5. Contrast between (a) purchase and (b) collective sale - At the point of purchase, the share-values are determined on an OBJECTIVE BASIS. Hence, it is unconscionable that at the point of a collective sale forced upon you, the apportionment method (where share values may form part or all of the formula) of the sales proceeds is determined on a SUBJECTIVE BASIS, dependent on the whims and/or scruples of the Sales Committee or the majority owners.
SEE MY OTHER COMMENTS UNDER "SALES PROCEEDS FORMULA" ON THIS BLOG-SITE for my proposed mathematical apportionment method for collective sales proceeds.
6. Sales Committee framework - At present, the Sales Committee framework is unregulated. Anyone can form a Sales Committee. The composition, constitution, member qualification, quorum, voting power, meeting procedures, representation, dissolution of the Sales Committee are totally unregulated (somewhat better regulated after the legislative amendments with effect from 4 Oct 2007). This is also in stark contrast to the Management Corporation and Management Council which are both heavily regulated by the Building Maintenance and Strata Management Act, right down to the minute details. SEE MY OTHER COMMENTS UNDER "IMPACT VERSUS REGULATION" IN THIS BLOG-SITE.
The Sales Committee might as well be a "Committee of One" because - naturally - only like-minded owners will be invited to join (or nominate each other for election/appointment under the legislative amendments that came into effect on 4 Oct 2007). Hence, the present legislative requirement for a Sales Committee in a collective sale is facetious because the very rationale of requiring a committee structure is defeated.
7. Pre-loaded dice in Sales Committee voting power - The composition mix of unit sizes may already skewer the vote in favour of the small unit owners. Also, the occupancy / ownership profile of some condos is such that tenants (and hence investor-occupiers) outnumber owner-occupiers because they are in popular rental districts, bearing in mind that the vested interests of investor-owners versus owner-occupiers are inherently widely divergent. Adding to this pre-load is the legacy problem of the old broad band-widths for share values. SEE MY OTHER COMMENTS UNDER "SALES PROCEEDS FORMULA" IN THIS BLOG-SITE.
Even if the Sales Committee and the Majority Owners are fair-minded people and they ensure that the composition of the Sales Committee is representative of the estate's ownership profile, the voting power remains nonetheless skewered.
Example: If an estate has, say, 100 units, out of which 70 are tenanted. If such an estate has varying apartment sizes, typically the small units may number 80 and larger units or penthouses may make up the remaining 20 units. If the Sales Committee comprises, say 7 persons, even if 2 members are owner-occupiers (ie, 28% of Sales Com are owner-occupiers) owning a large unit and 1 more member is a penthouse owner, the 3 of them (ie, 43% of Sales Com, thus over-representing the big units numerically) would still be out-voted even before voting begins! Even with a weighted vote, they would remain out-voted.
Hence, it may be too simplistic to just look at upfront 90% / 80% majority consensus as the voting may have been skewered if you probe further down the layers.
8. Other influences of Sales Committee - The appointment of marketing agent, quantity surveyor, valuation appraisor, lawyer or other specialists involved in the intricacies of a collective sale is decided by the all-powerful Sales Committee. At the bottomline, business is still business, yes?
9. Dissolution of Sales Committee - Once the results of the Expression of Interest is out and the consensus is less than the 90% / 80%, shouldn't the Sales Committee be auto-dissolved? As it stands at the moment, the Sales Committee continues even after the failure to garner the requisite majority. And to what purpose, one wonders, because surely we do not need the disturbing uncertainty of an en bloc to be prolonged - like a Damocles Sword hanging over our heads?
The Damocles Sword continues to dangle even after the legislative amendments that came into effect on 4 Oct 2007 ... Although the Sales Committee could now be dissolved:
(A) by ordinary resolution at a general meeting of the Management Corporation subject to meeting all the necessary hurdles of requisitioning such a meeting (made more difficult in residential estates where there is already a loose terrorist-like consortium of en bloc flippers who usually swoop in with a minimal voting clout), or
(B) upon termination or expiry of the Collective Sale Agreement (which usually runs for 12 long months),
the same Sales Committee could re-morph the next day after dissolution, especially if some Owners are driven to desperation in a dire need for cash (eg, flippers who do not have deep pockets for real estate investment, or due to business failure/cashflow problems, or retirees running low on savings or wanting a big fling before they go, or movers wanting to get out of the location/country, etc).
So back to the "not-so-merry-go-round" we spin as more en bloc yarns are spun! Yeh, as the Yankees would call it ... It's all a spin!