10 July 2007

The Holey Trinity ... The show must go on!

Nope, you didn't read it wrong nor did I type it wrong ...
'tis The Holey Trinity and The Show Must Go On ... come what may!

[The Show Must Go On - Do you know who said this? No, my friend, Shakespeare didn't say this. Queen sang it. Not dear old Queen Lizzie, but Queen the rock band - they are both of English pedigree no less! For those of you who have been following this blog, you will have noticed that by now I have moved from classical Shakespeare to rock Queen ... that's Progress, eh?]

The Law says 80% (90%) majority consent. The Law also says No En Bloc if there is "financial loss" or if the "proceeds of sale are insufficient to redeem any mortgage or charge" or if there is lack of "good faith" based on specified factors. Let's call these Statutory Requirements.

Let's also ask some BURNING QUESTIONS:

- So is it ok to contract-out of such Statutory Requirements?

- If the Law says "XXX", but if we can contract-out of the law to say "YYY", does that make a mockery out of this law and good governance?

- If the Law says No En Bloc if there is "financial loss": Piece of cake, man ... if we can get contributions or top-ups to make good such "financial loss" ... WHOOSH - Abracadabra, issue became non-issue! Magical!

- If the Law says No En Bloc if you can't muster 80% (90%) share-value consent: Hmmm ... that's just a matter of "sesame seeds and green beans" as the Chinese would say (I'd have you know that these grains are itsy-bitsy teeny dots) ... if we are just short by a few votes, let's tip the balance from 75% to 80% by sussing-out what these Maybe'ers (and possibly Borderline Consenters or Borderline Dissenters) want. If it's just more $$$ and the like (so long as it is not the moon plus the stars with a dwarf planet thrown in as bonus), then we too can get contributions or top-ups or make special arrangements to meet the demands of these Maybe'ers and Borderliners ... To spice-up the game, let's play them off against one another and have some back-ups - if we need 5 more owners to vote yes, then we dangle the carrot to 7 owners and tell them that only the first 5 will qualify and watch them chase their own tails! And before you know it, TING - Jackpot, we've hit the lucky number of 80! So lucky! Ahh, but Lady Luck is known to be fickle and maybe vote-buying will be banned in future?

- So what's the difference between those cases of "Financial Loss" versus "Maybe'ers and Borderliners"? Once we bring it down to the baseline (indeed, en blocs can get very base) - Both categories involve a "SHORTFALL" - be it in dollar amount or numerical count! And both categories are essentially SWING VOTERS!

- Sure, the "Financial Loss" cases have a legal basis to scuttle the en bloc deal. But that doesn't necessarily mean the demands of the Maybe'ers and Borderliners are without validity or justification. Maybe they bought high at $1mn using hard cash and they are getting $1mn + $1 from the en bloc? Or maybe they have just completed their renovation overhaul with Swavaroski crystal-encrusted toilet bowls; surely you don't expect them to carry their toilet bowls when they relocate - but the proposed law to compensate for recent renovation is so measly that it's even more embarrassing than to lug your toilet bowl along! Or maybe they are just special people with extra-special monetary needs. "Greed is Good" - haven't you heard? Man, you do need to make a trip to Hollywood!

- Where there's a "SHORTFALL" in dollars - who should contribute towards this "SHORTFALL"? The Developer-Buyer (why not, if they die-die must buy this plot of land)? The marketing agent (after all, as mentioned below, they have the most at stake if the deal falls through)? The Sales Committee (since they are the most keen; otherwise, who in their right mind would undertake this thankless task)? The Consenters? Everybody (ie, even the Dissenters - just to rub salt into their wound)?

- This business of "contributions" to make good the
"SHORTFALL" in dollar amount which can also magically cure the "SHORTFALL" in number count is a grey area
but maybe it's ok if we put down these contributions in black-and-white ... spell it out very clearly, get the good lawyer to craft an air-tight gag condition (cannot "kiss-and-tell") and the parties concerned sign it as a Private Treaty separate from the Collective Sale Agreement. We all know the meaning of "private" of course. But other than the direct beneficiaries of such Private Treaty, what is not too clear is who are "the parties concerned" - the self-appointed unregulated Sales Committee (all members or just the members with > 50% vote), the marketing agent, the Developer-Buyer, the Majority Owners, the Consenting Owners, all Owners ... any one else? Maybe "private" Private Treaty is like a bad dream?

- Ahhh, black-and-white mixed together is too grey for comfort ... maybe it's not so right because it is a Collective Sale after all and we also know the meaning of "collective" of course ... spell it out very clearly, but this time - it's "show-and-tell" and the parties concerned still sign it as a Private Treaty on top of the Collective Sale Agreement. You may know about it (but perhaps not all the fine details because they are still kind of "private") but whether you agree to it or not (explicitly or impliedly) is another matter. If you happen to be in the Minority Dissent group, your agreement is irrelevant although you are probably caught in this web - too bad!

- Hey, now we are less grey and we are more "transparent"! That's the buzz-word ... "Transparency"! Maybe that's why these new apartments at soft launches have all-glass facades everywhere - wonder if it's the spillover "transparency" effects from en bloc sales that infected the Developer-Buyers during redevelopment? But did you know that these days all you need to do is to flip a switch to fog-up the entire curtain of clear glass? Nothing steamy, of course, this is Singapore! Indeed, it's transparent but you can see only when we want to let you see. I'm talking about the glass of course - what were you thinking??? Even "public" Private Treaty is questionable unless we can get another round of 80% (90%) endorsement and merge it all into the CSA itself so that all of us can see it at all times perhaps?

- Have you studied the en bloc equation closely? Sorry, please go back one step - How many equations are there to start with? As it now stands, the Sales Committee (in future, likely the Majority Owners) get to pick and choose which equation (Apportionment Method) to use - depending on nothing more than their morals and scruples as long as it is "Fair and Equitable"! Great - "Fair and Equitable"! But to whom, may I ask? One man's meat is another man's poison, eh? It could based on share values only, strata title area only, market valuation, a hybrid combination of 50:50 or 60:40, etc. And what else is variable? The Reserve Price, of course, which in turn determines the number of "Financial Loss" cases and the quantum of each such case. What are fixed? Number of units, plot size, strata title areas, share values.

- Now, you can see why all Hell can break loose? Firstly, shouldn't there be only one equation based on mathematics and facts (not on anybody's discretion and scruples)? Secondly, wouldn't it be prudent to allow only one variable - ie, the Reserve Price? Thirdly, since it is a sale on a "collective" basis, shouldn't the pay-out be on identical basis (ie, the amounts can vary but the rate must be the same)? Except possibly where the "Financial Loss" cases are necessarily made good by the Developer-Buyer and subject to all of the additional safeguards suggested above because it is still contracting-out of the Statutory Requirements?

- Also, have you played this game where you are asked to spot the differences between two pictures:

Picture A - A Collective Sale based on 80% (90%) majority consent to one Developer-Buyer (or a consortium of Developer-Buyers) at/above the Reserve Price on one Completion Date, with each Owner sharing in the collective sale proceeds at an identical rate (ie, the rate must be identical but the amounts would vary, depending on strata title area, share value, market value, etc);
Picture B - A series of Individual Sales of 100% of the units to one Developer-Buyer (or a consortium of Developer-Buyers) for a Cumulative Sum at about the same time or over a short time-span, with each Owner receiving their own sale proceeds at varying rates and amounts?

So, Collective Sale Agreement + private/public Private Treaty = Picture A or Picture B??? Rough, eh? When the going gets rough, the tough gets going! Yeh, keep scratching your head! You won't find the answer in this blog.

- What other unholy alliances could Developer-Buyers form? Proxies, married deals, upfront fees, call/put options ... only Imagination limits you, nothing else! Least of all, the Law even though the relationship of the Developer-Buyer to any of the Owners is one of the specific factors taken into account in establishing "good faith" in an en bloc sale. To draw an analogy - you can prove bigamy only if the subsequent marriage is registered and you also know that it is much harder to prove adultery and cohabitation if the parties involved are careful and smart and don't want you to ever find out, correct? How do you prove "kelong" and that the footballers could have played better than they did but didn't because they were paid NOT to score at that crucial match? Real estate in Singapore has become a trading commodity with speculative profiteering potential because our en bloc laws in fact facilitate it.

- You can buy a unit today for $1.5mn because it has the much-prized X Factor (ie, "en bloc potential"). Before the ink even dries on your sale and purchase agreement, you can initiate a fresh round of en bloc and vote yes-yes-yes. Never mind, the technicalities that the last en bloc round has just failed but the CSA is legally subsisting since the law accords 12 months to gather enough signatures and another 12 months to find a buyer and apply for Strata Title Boards' collective sales order. If you could force through another en bloc deal within, say, two months after your new purchase and pocket a $300k profit, you'd have made a return of 120% per annum - you've beaten Warren Buffett! Why you so clever, huh? But I thought I Not Stupid 2, leh? So what happened? Maybe unit owners of less than five year legal ownership status should be disqualified from en bloc vote (but they are still free to sell their units individually of course - unlike the HDB public flats with a Minimum Occupation Period ranging from 2.5 to 5 years before you can resell, depending on whether you enjoyed any subsidy/grant)?

- Who does the marketing agent work for in a collective sale? Is it just the Sales Committee or all the Owners (including Dissenters)? Commercially, marketing agents also need to assiduously cultivate and foster the goodwill and trust of the Developer-Buyers. Usually, Sellers (ie, Owners) want to get more $$$. Invariably, Buyers (ie, Developers) want to pay less $$$. Naturally divergent needs! Hence, the lot of the marketing agent is not enviable. If the en bloc deal fails because of "Financial Loss" cases or less than 80% (90%) consent, the marketing agent gets one zero - Nothing! In fact, in the case of failure, it's worse than zero because the marketing agent would have incurred costs and labour. If the marketing agent can structure a deal such that the parties contract-out of the Statutory Requirements, they get a minimum of 5 zeroes after the first digit - Wow! By now, you can tell which way the wind is blowing the poor-rich marketing agent towards, right? Maybe the marketing agent should be paid regardless of the en bloc end-result? Who should pay - the Sales Committee members and the Consenters of course! Doesn't it blow your mind that at present the Dissenters have to pay the marketing agent when the Dissenters resent being forced to sell from the word "go"?

- Who does the lawyer work for in a collective sale? Is it just the Sales Committee or all the Owners (including Dissenters)? Realistically, lawyers also need the goodwill and trust of the marketing agents because quite often they are brought into the en bloc picture by no other than the marketing agent. The lot of the lawyer is not much better than the marketing agent if the en bloc deal fails. If the en bloc deal is plain sailing, the lawyer typically gets one zero less than the marketing agent. Doesn't it raise already-arched eyebrows if the marketing agent and the law firm tie-up with each other to offer a bundled package? Does it then translate into the marketing agent effectively appointing the law firm to act for the Owners who are paying the legal fees (whether as a package price or as a separate bill)? As the legal documentation is so crucial in setting out the rights and obligations of the Owners (Consenters and Dissenters), isn't it odd that - most times - even the Sales Committee members (much less the Owners) are not given a choice of law firms? Maybe in future when the Sales Committee is to be appointed at an EOGM, the marketing agent should invite more than one law firm to present their credentials and to hear first-hand the key concerns and issues raised by the attendees at the meeting?

- Who is structuring and who is drafting these Private Treaties to contract-out of Statutory Requirements - be it private "no-kissing-and-no-telling" or public "showing-and-telling"? Who would know if there are any remote unholy alliances? Perhaps, blasphemy needs black-and-white documentation even more! In this day and age, when even the holy can sometimes fail you, can you trust the unholy or, for that matter, the holey? Maybe we can get signed declarations from the marketing agent (signed by a representative of that company who is an accredited member of The Singapore Institute of Surveyors and Valuers) and the two lawyers representing the Developer-Buyer and the Owners that - to the best of their knowledge - there are no Private Treaties (private or public) or brokered deals that supplement, complement or facilitate the CSA.

En bloc deals are certainly not made in Heaven when it involves The Holey Trinity of Black, White and Essential Grey!
[PS: I was tickled to read in Today newspaper (18 July 2007 edition) that when our local indie film-maker, Ms Tan Pin Pin, was asked what were some of the new perspectives she gained after her studies in England, she said: "... the idea that public debate doesn’t cause a country to just collapse!"