Collective sale of Goodluck Garden gets High Court nod, but Judge points out ‘missteps’ in sale process

By
/ EdgeProp Singapore
|
November 27, 2018 12:50 AM SGT
The collective sale of Goodluck Garden received the go-ahead at the High Court on Monday, Nov 26. The 210-unit freehold Goodluck Garden on Toh Tuck Road was sold en bloc to Qingjian Realty, which submitted the highest bid of $610 million at the close of the tender in March this year. In April, Perennial Real Estate Holdings became a co-developer with a 40% stake in the joint venture with Qingjian.
The court was informed to obtain an order by Nov 26, failing which the purchaser who has entered into a sale and purchase agreement to buy the property “may treat it as rescinded”. Hence, the oral judgement was rendered first.
The collective sale of Goodluck Garden hit a rough patch when 13 minority owners filed their objections to the High Court after two rounds of mediation at the Strata Titles Board (STB) in June had failed. STB then issued a stop order on June 27. The case was heard in High Court in September, with the verdict delivered by Justice Woo Bih Li on the morning of Nov 26.
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Goodluck Garden was sold en bloc to Qingjian Realty as it had submitted the highest bid at the close of the tender in March (Photo Credit: Knight Frank)
One of the issues raised by the minority owners was the potential conflicts of interest as the collective sale committee (CSC) chairman and another CSC member did not disclose that they had relatives (“associates”) who own units in Goodluck Garden. Hence, the collective sale transaction was deemed “not in good faith”. The minority owners were represented by the lawyers at TSMP Law Corporation led by partner, Adrian Tan.
However, Justice Woo said that the mere fact that an associate owns another unit does not necessarily mean that there is an actual or a potential conflict. On the other hand, he agreed that the matter should have been better handled by the CSC and their lawyers, Rajah & Tann Singapore. “Even though the lawyers had advised that there was no conflict, the lawyers should also have advised them to disclose the ownership of their associates to avoid unnecessary suspicion,” he added.
Another issue raised by the minority owners was that approvals of apportionment of sale proceeds and of terms and conditions of the collective sale agreement were not given at a general meeting of the management corporation. According to Justice Woo, the omission was the result of advice from the lawyers for the CSC who had advised that it was sufficient for the assenting subsidiary proprietors to sign the collective sale agreement after the meeting. “Clearly such advice was wrong,” he added.
He admonished the CSC for not considering the matter more carefully themselves. “While they are entitled to rely on lawyers’ advice, the CSC members should have questioned the validity of the advice in light of questions being raised.”
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The CSC had also failed to inform and consult the subsidiary proprietors that there was no development charge (DC) payable, which was considered “a material change”. The marketing agent, Knight Frank, had given three estimates of the DC which ranged from $48.4 million to $63.19 million. Knight Frank had also alerted the subsidiary proprietors about the likelihood of an increase in the DC rates from March 1, 2018.
Knight Frank had earlier appointed an architectural firm to make the relevant searches to obtain the DC verification. But Knight Frank and the CSC did not wait for the outcome. Instead, soon after the consent threshold of 80% based on share value and total area was reached, the property was launched for sale by public tender on Jan 26, with the outcome of the DC verification pending.
As it turned out, URA sent a reply on Feb 26 to the architectural firm that there was no DC payable. Knight Frank immediately updated potential bidders, but after “urgent discussions” with the CSC, it was decided that the tender closing date of March 7 would not be extended.
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Colliers International Consultancy & Valuation was engaged to provide an independent valuation. On the date the tender box was opened, there was one expression of interest at $480 million; one bid at $580 million; and a second bid at $610 million. Colliers’ report, dated March 7, was also opened, and the property consultant had valued Goodluck Garden at $542 million.
As the higher of the two bids was above the valuation provided by Colliers and the reserve price of $550 million, the CSC awarded the tender on March 8 to Qingjian Realty and its joint venture partner, Perennial Real Estate.
The minority owners’ objection was that the DC verification was material, and had a bearing on the reserve price and on bids from potential bidders. They also said that the CSC should have obtained the DC verification from URA before the launch of the property for sale.
Ultimately, no DC was payable instead of the $63.19 million given in the last estimate by Knight Frank, pointed out Justice Woo. “It was absurd for the plaintiffs and Knight Frank to try and downplay its importance for the hearing of the plaintiffs’ application to the court.” He ruled that such important information as DC payable “should logically be obtained first before a sales launch” so that subsidiary proprietors could make an informed decision as to what reserve price to set, and also eventually what price to accept.
Justice Woo observed: “The truth of the matter is that Knight Frank and the CSC as well as the lawyers for the CSC, were all complacent about the DC.” He added that the CSC should have extended the closing date of the tender “by at least one week” in light of the information concerning the DC barely over a week before the close of the tender.
He added that the CSC "acted wrongly when it failed to consider whether to inform and consult the subsidiary proprietors or not. “They had been too focused on the potential bidders that they lost sight of the subsidiary proprietors,” he said.
“Fortunately, for the CSC, Colliers’ valuation was just below the reserve price and the higher bid was higher than the valuation and the reserve price,” he added.
As it turns out, the subsequent cooling measures introduced by the government on July 6, “make the sale price seem even more favourable for all subsidiary proprietors, although this has no direct bearing on the question of good faith, which is to be determined at the time the sale process was undertaken”, he pointed out.
He concluded that "although the conduct of the CSC, Knight Frank and the lawyers for the CSC was wanting in various aspects, there was no bad faith after taking into account the sale price, which was $68 million or 12.55% higher than Colliers’ valuation.”
He added: “Although the CSC and their professional advisors may view this court’s decision as a victory for the majority owners, I hope that they reflect long and hard on their missteps.”