20 July 2018
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Strata Titles Board issues stop order for Cairnhill Mansions en bloc sale

Business Times
03 Jul 2018
Yunita Ong

Penthouse unit owner refuses to withdraw objection to how sales proceeds apportioned; case could be headed to court

A second collective sale attempt in a week has come up against a speed hump: the Strata Titles Board (STB) on Monday issued a stop order on the en bloc sale bid by Cairnhill Mansions, which could send this case to court.

The Business Times has learned that the owner of the penthouse unit, the only owner who filed an objection to the collective sale bid by the 61-unit Cairnhill Road development, has refused to withdraw her objection to the method of apportionment of the sales proceeds - and this, after two rounds of mediation on May 28 and June 18.

The issuance of the stop order puts an end to mediation, and gives the collective sales committee (CSC) 14 days to apply to the High Court to approve the sale.

This comes on the heels of the stop order issued last Wednesday for the en bloc sale attempt at Goodluck Garden in Toh Tuck Road over the reserve price and development charge.

Construction and property development company Low Keng Huat had bought the 43,103 sq ft Cairnhill Mansions for S$362 million in February via private treaty after the tender closed in December 2017. This was Cairnhill Mansions' fifth attempt at a collective sale.

The owner-occupier of the sole 792 sq m penthouse was supposed to pocket S$15.17 million from the sale; the owners of the other units, which are 188 sq m in size, were to have received S$5.77 million apiece.

But BT understands the penthouse owner disagrees with how the sum of money each owner will get was arrived at. BT found out that each unit's share of the proceeds was determined by the average of three valuations produced by different consultancies, as a proportion of the average valuation of all the units.

The penthouse owner objects to the assessments of the value of her unit because they were made in 2010, without valuers having entered her unit to inspect it; she contends that they may thus not have properly accounted for the amount of enclosed space her unit has.

Marketing agent CBRE declined comment.

The lawyers representing the CSC are Lee Liat Yeang and Ling Tien Wah of Dentons Rodyk & Davidson; those representing the objector are Adrian Tan and Ong Pei Ching of TSMP Law Corporation.

Sing Tien Foo, director of the National University of Singapore's Institute of Real Estate Studies, said the method of apportionment is a critical part of a collective sale.

Kenneth Szeto, a partner at law firm Withers KhattarWong, said the law says the method of apportionment must be fair and equitable, but largely does not provide specific guidelines.

The Singapore Institute of Surveyors and Valuers (SISV) recommends that one or a combination of methods be used for apportionment. These are valuation, strata area (floor area of the unit) and share value (which determines the share an owner has in the common property, his or her voting rights, and amount payable for maintenance of the property).

Owners typically approve by vote the method of apportionment in an extra-ordinary general meeting.

Mr Szeto said most residential en bloc sales consider share value and strata area. The weightage is determined by the property consultants, since in some cases, the difference in strata area may not be proportionately reflected in the share value allocated to the different-sized units.

Nicholas Mak, executive director of ZACD Group, said residential developments tend to opt for a combination of strata area and share value, as these concepts are easily understood by owners. However, valuations can be contentious because of their more subjective nature, he said.

An independent valuer's report confirming that the method of apportionment is fair and equitable must be submitted as part of the application to the STB for a sale order.

BT understands that Cairnhill Mansions' CSC will have five months to obtain a sale order from the High Court under the sale-and-purchase agreement with Low Keng Huat. The long stop date is 14 months from the date of the contract, or if the purchasers are unable to obtain outline planning permission within eight months from the date of the contract.

In the cases of Cairnhill Mansions and Goodluck Garden, the High Court will consider the merits of their respective CSCs' application for a sale order, and decide whether there are grounds against the granting of the this order, said Tan Ching Chern, another Withers KhattarWong partner.

In the en bloc boom in the last decade, the Holland Hill Mansions collective sale bid also went to court. The High Court held that the objector to that sale would have been paid more if the method of apportionment had been done only on the basis of strata area. However, the court ruled that the 50-50 strata-area and share-value methods used in calculating apportionment had not been made in bad faith. The Court of Appeal upheld this decision and the collective sale was successfully completed.

In the case of Gilstead Court, the Court of Appeal held that asking the minority to pay double the amount that the majority had paid initially to contribute to the costs of the collective sale was an act that lacked good faith.

A Low Keng Huat representative told BT it could not take action until it had heard of STB's move from its lawyers.

Source: Business Times © Singapore Press Holdings Ltd. Permission required for reproduction.