What if my condo’s en bloc sale fails?

What if my condo’s en bloc sale fails?

 

Defaulting parties stand to lose their deposits and can be sued for non-completion of the sale; it’s also risky to buy a new home before a collective deal is closed

 

By Joyce Teo

 

Some owners of condominium units may still be keen on selling en bloc, but developers’ interest in collective sale sites has more or less dried up.

 

No residential sites have been sold en bloc in recent months. And given the market uncertainty these days, completion may not be a given for sites that have been sold.

 

Several collective sales have fallen through, with a few – Tulip Garden, Makeway View, Finland Gardens and Pender Court – already axed, regardless of whether approval from the Strata Titles Board (STB) was obtained.

 

A collective sale requires an 80 per cent minimum consent from owners before it can be sold. Unless there is unanimous consent, owners will have to get an order from the STB for the sale after they find a buyer.

 

After getting the order, they will have to wait for the buyer to complete the sale, which is when they will get their sale proceeds.

 

They have six months after the sale completion date to move out of the property.

 

The Sunday Times takes a look at what happens if your collective sale deal falls through.

 

If the STB throws out your sale

 

The onus is on the majority owners – those who have signed off on the sale – to obtain the STB order.

 

‘If they do their part and get the STB order, they are not in breach of contract,’ said Credo Real Estate’s managing director, Mr Karamjit Singh.

 

If they cannot get the STB order, they have failed to fulfil their part of the sale agreement with the buyer. The buyer can thus take back his 5 per cent deposit, a sum he had to pay when he inked the deal.

 

Most sale and purchase agreements have a standard provision that stipulates that if the purchase fails to be completed, the deposit or option money will be forfeited.

 

The buyer can also ask the majority owners to appeal against the STB decision in the High Court, said Mr Singh.

 

If they are not satisfied with the High Court decision, they can proceed to the next and last level, the Court of Appeal.

 

This is where the Airview Towers case went. The Court of Appeal overturned the High Court’s decision to reject the sale, putting the case back in the STB’s court.

 

In another collective sale, that of Finland Gardens, the buyer and sellers decided to withdraw their case in the High Court and terminate their agreement.

 

But as the sale had been thrown out by the STB, the developer remained entitled to keep its deposit.

 

It was a unique situation, and both sides negotiated on the terms, with the developer agreeing to bear most of the costs such as the litigator’s fees and advertisement costs.

 

If the buyer defaults on the deal

 

Whether owners can or cannot get back some money depends on which party is the one which has not fulfilled the contract.

 

Last year, developers were frantically buying sites and pushing to complete them.

 

But as the market slowed this year, it has so far seen a buyer, Bravo Building Construction, let go of three collective sale deals – Tulip Garden, Makeway View and Pender Court.

 

As it was the buyer that did not fulfil its part of the agreement to buy Tulip Garden for $516 million, it had to forfeit its 5 per cent deposit of $25.8 million.

 

The same developer also did not go ahead with the purchase of Makeway View and had to forfeit its option deposit of 1 per cent.

 

Owners from the 48-unit Pender Court got to keep the buyer’s 10 per cent deposit of $8 million, as well as a $4 million payment for granting a deadline extension. They had negotiated for an additional payment of $4 million to extend the deadline as the buyer had missed the completion deadline.

 

‘If the buyers default, sellers can sue them if the sale and purchase agreement does not contain a clause that limits the buyer’s liability to forfeiture of the deposit,’ said Mr Henry Heng, a director from law firm Tan Peng Chin LLC.

 

Or they could sell to another buyer and then go after the original buyer for the losses incurred, if any, again provided the agreement does not have the above clause.

 

While going after the buyer may sound logical to some, it depends on whether the company has enough funds to pay up, property consultants said.

 

Few would consider it as developers usually create shell companies for their property purchases, said DTZ executive director, consulting & research, Mrs Ong Choon Fah.

 

If you have committed to a property purchase

 

Last year, many owners bought replacement properties way before their collective sales were completed, in an attempt to beat the rising market.

 

This can get tricky. If the collective sale fails, the owners are basically left to their own devices. The risk is certainly much greater if the owners are dependent on the sale proceeds to finance their new property.

 

‘It’s a commercial risk, which is why property consultants and lawyers always advise owners not to take the risk,’ said Mr Singh.

 

All collective sellers have a six-month rent-free period after the completion of their collective sales, during which they can safely source for a property.

 

While it is uncommon, an owner could try to negotiate a deal with the seller of the new property where it becomes a done deal only if his estate’s collective sale is completed, said Mr Singh. The other party may agree if he is offered a higher price, he said.

 

 

——————————————————————————–

 

DEALS EASING OFF

 

The market slowdown has resulted in one buyer, Bravo, giving up three collective sale deals – Tulip Garden, Makeway View and Pender Court.

 

·  In the case of Tulip Garden, Bravo had to forfeit its 5 per cent deposit of $25.8 million.

 

·  It also did not go ahead with the purchase of Makeway View and had to forfeit its option deposit of 1 per cent.

 

·  Owners from the 48-unit Pender Court got to keep the buyer’s 10 per cent deposit of $8 million, as well as a $4 million payment for granting a deadline extension.

 

Source: Straits Times

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