Landmark ruling on figuring loss in
en bloc sales
(SINGAPORE) The prospect of CPF
losses cannot be used to stop an en-bloc sale, the Strata Titles
Board (STB) ruled yesterday. In a landmark decision, it said the
principal amount withdrawn from CPF accounts and the accrued
interest cannot be taken into account when determining whether a
financial loss has been suffered by owners involved in such a
sale.
The board made the point in a decision approving the $385 million
collective sale of Waterfront View in Bedok to a joint venture
between Far East Organization and Frasers Centrepoint.
Waterfront View is a privatised HUDC estate. The STB tribunal, with
the boards deputy president Alfonso Ang presiding, did not agree
with the view of Yeo Loo Keng and his wife Cheryl Lim Pui Yew - who
are objecting to the collective sale of Waterfront View - that
their net proceeds of the sale are insufficient to redeem our
mortgage and CPF charge and that this amounted to a financial
loss. The Yeos had an outstanding mortgage of $341,118.90 as of Oct
11 last year, which they could repay from their $660,377 share of
proceeds from the en-bloc sale, even after making allowed
deductions.
The CPF Board wrote to the couple in November last year, confirming
that if the sale proceeds after deducting the outstanding housing
loan owing to the mortgagee DBS Bank Ltd is insufficient to fully
refund the principal amount withdrawn and accrued interest to both
your CPF accounts, the CPF Board does not require both of you to
make good the shortfall to your CPF account in cash.
Instead only the net sale proceeds (i.e. the selling price less
outstanding home loan) is required to be refunded to your CPF
account, the CPF Board said in its letter.
The STB tribunal said in its ruling that the section of the Land
Titles (Strata) Act that should apply is Section 84 (A) (7) b,
which allows the board to throw out a collective sale application
if it is satisfied that the proceeds to be received by any
objecting party are insufficient to redeem any mortgage or charge
on the property.
In view of the CPF Boards statement that it will allow the
redemption, the Yeos could, with the proceeds of sale, redeem both
the bank mortgage and discharge the CPF charge on their property.
DBS Bank has the first charge on the property and CPF Board has
second charge.
The tribunal said it is therefore satisfied that the Yeos
objection does not come within the ambit of this clause in the
Act.
The Act also defines a financial loss - which could be grounds for
STB to throw out a collective sale application - as having been
incurred by an owner if the sale proceeds he receives, less any
deductions allowed by STB, are less than the price he paid for his
property.
The STB tribunal further ruled that the privatisation fee for
converting Waterfront View from a former HUDC estate to a private
estate - $19,535 per unit - be allowed as a deductible expense in
determining whether a financial loss has been suffered by owners in
a collective sale. This is because the process of converting the
title is a necessary expense, without which Waterfront View will
not be eligible for en-bloc sale.
Additionally, the tribunal upheld earlier decisions by STB on the
following deductibles - that interest and
renovation costs not be
allowed but that the cost of legal fees and stamp
duty at the time of purchase of the property be allowed.
It also ruled that a penalty the Yeos paid to DBS Bank for early
loan repayment should not be an allowable deduction because it is a
private contractual matter between the bank and the Yeos.
Under the grounds of decision read by Mr Ang, the Yeos do not
suffer a financial loss based on the net proceeds of sale less the
allowable deductions - legal costs and stamp duty at the time of
purchase and the costs of privatisation.
The couple bought their apartment at Waterfront View in 1994 for
$515,000 and will receive a gross sum of $660,377.35 in the
collective sale. They had not suffered any financial loss even if
deductions allowable are taken into account, the tribunal
said.
It turned down an application by the majority owners counsel,
Michael Kuah of Lee & Lee, to require the Yeos to fully bear
the costs of calling expert witnesses and law firm Lee & Lees
fees for the STB hearing. Among other things, the tribunal said the
objections raised by the Yeos were not frivolous and they were
acting within their rights in objecting to the collective
sale.
BT understands the costs of the entire application to STB -
including about $60,000 legal fees charged by Lee & Lee for the
proceedings, plus a further $20,000 for expert witnesses, and the
costs of placing notices in the newspapers - could work out to
about $300,000 to $400,000. The amount has already been set aside
through sums of about $1,000 per unit, collected separately from
the majority owners. Leong Yung Chang of Veritas Law Corporation,
representing the Yeos, said his clients are considering whether to
appeal against the STB ruling.
----------------------------------------------------------------------------------------------------
Now that I read about the case, I am now indeed somewhat
shocked.
The interest that was paid on the mortgage must have been
substantial enough to warrant the Yeos to claim that they have
suffered a loss.
But it seems that the tribunal doesnt allow interest as a
deductible.
What is the rationale behind this?
Furthermore, I am somewhat disturbed that the definition of
"financial loss" which doesnt include the interest. Isn't interest
a legitimate financial cost when a mortgage is taken up?
Can anyone comment?
