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En Bloc Sales: Stages of the Process
Table of Contents
Stage 1: Initiation of an Extraordinary General Meeting (EOGM)
Stage 3: Call for a 3rd EOGM (not always necessary)
Stage 4: Obtain Minimum Consent
Stage 5: Launch for En Bloc Tender and Find a Buyer
Stage 6: Obtain Sales Order from the Strata Title Board (STB)
What is En Bloc?
En Bloc is essentially a term that means 'collectively' or 'altogether'. In the context of properties, an En Bloc sale, also known as a collective sale, refers to the sale of property units collectively to a common potential buyer. Often, property units can be fetched at a higher price as compared to in the real estate market.
The 8 stages of an En Bloc process will be further elaborated in the following article.
Stage 1: Initiation of an Extraordinary General Meeting (EOGM)
Owners of housing units must find neighbours who are likely to agree with them to sell their units collectively. Once the number of willing sellers reaches a certain threshold that is determined by voting, a date is then set to meet with a view to set up a collective sales committee (CSC).
The number of properties that housing owners are willing to sell collectively must constitute 20% of the shares held by the total number of owners together. Otherwise, the group may choose to go by subsidiary proprietorship, whereby the consenting owners must make up 25% of the total proprietorship.
Should there have been an earlier failed attempt to sell en bloc, the minimum threshold of unit owners is higher at 50% — whether by the number of shares held or by subsidiary proprietorship.
Additionally, should the tender of the collective sale fail, owners, are obliged to stay for another minimum of 2 years before they can initiate another collective sales bid.
Stage 2: Call for a 2nd EOGM
Appointment of Relevant Professionals
In this EOGM, the relevant professionals such as the marketing consultant, valuers, and even lawyers are appointed. If appointments are not accomplished during the 2nd EOGM, the work will be delegated to the CSC.
Discussion and Agreement on how to Apportion Sales Proceeds
Property owners will also discuss the best way deemed to distribute the yields from their housing units, once a buyer has been found. The CSC usually guides the majority on such important issues and inputs from the appointed valuer and other experts come in useful. Should they have not been appointed during the 2nd EOGM, the issue of apportionment is usually postponed to the 3rd EOGM. This ensures a fair and acceptable method to all the property owners.
3 Common Methods of Yield Distribution:
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Apportion proceeds based on share value
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Apportion based on strata area
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Valuation
Approve the Reserve Price
Through the CSC, the appointed property marketing agent and valuer usually help in setting a realistic reserve price.
Some factors affecting a property's reserve price:
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Price level for similar properties recently sold in the neighbourhood
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Prevailing overall cost of redevelopment
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Site plot
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Existing built plot ratio
Owners of freehold properties in a residential zoned site can set a higher reserve price in comparison to owners of similar property that is on leasehold. With many considerations involved, the majority of property owners would usually ratify the CSC's decision when the resolution is passed to sell the property at a stated price.
Approve the Collective Sales Agreement (CSA) Terms and Conditions
Consenting owners can start signing the CSA once the terms and conditions of the CSA have been approved in the EOGM.
Stage 3: Call for a 3rd EOGM
This step is only necessary if the Apportionment Method and the CSA has not been approved yet in the earlier EOGM.
Stage 4: Obtain Minimum Consent
Owners interested in selling their property en bloc must adhere to the Strata Titles Act, Section 84A.
Nothing formal can be done until unit owners with 80% shareholding or strata area ownership have consented to the sale. This 80% threshold is for buildings that are more than 10 years old. However, for buildings that are less than 10 years old, the threshold is higher at 90%.
Often, this is the most challenging stage due to differing opinions on sales.
The official age of the development is taken to be from the date when its temporary occupation permit (TOP) was issued. If no TOP was issued, the age of the building starts counting from the date the Certificate of Statutory Completion (CSC) was issued.
It is mandatory for consent to be achieved within no more than 12 months from the date the first signature was recorded on the consent form. In cases where there is 100% consent, the entire sales process takes a very short time.
Stage 5: Launch for En Bloc Tender and Find a Buyer
Upon acquiring minimum consent for the sale, the property will be put up for sale via a public tender. This would be done by marketing agents or property consultants. At the same time, the legal team will draft all the required tender documents too, to ensure that all the terms and conditions are as per the expectations of the owners.
The highest bidder is usually awarded the bid. However, should there be no bids at the tender stage, the owners reserve the right to enter into a private treaty with the developers.
This process can take an additional estimated duration of 10 weeks. Following the law, an interested buyer must be found within 12 months of obtaining minimum consent from the owners wherein an application has been filed with the Strata Title Board.
Stage 6: Obtain Sales Order from the STB
If there aren't 100% signatures, the Strata Title Board (STB) is the vetting authority when it comes to en bloc sales. However, should there be 100% signatures, it is not necessary to get the STB's approval.
When a buyer has been found, the sales committee has to apply for a sales order with the STB.
In Cases Whereby There Are Objections Against the Sale
The following is a list of preparation that must be done by the CSC while applying for a sales order with the STB:
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Agreement that has met the minimum consent clause
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A statutory committee to represent the owners at the STB
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Valuation report of the development which should not be more than 3 months old
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The valuation report should state the formula for the distribution from sales proceeds
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Conditional sale and purchase agreement signed with the developer
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Advertisements containing all details regarding the sale published in local newspapers
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The advertisements must be approved by STB and are available in 4 official languages
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The application must be submitted no more than 14 days from the publication of the advertisement
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Owners who object to the sale can approach the Board against the sale.
In Cases Whereby There Are No Objections Filed With the Board
The application would be approved unless the Board finds ambiguity in:
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The sales price of the development
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The formula for the distribution of sales proceeds
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The developer's relationship with the owners
Applications can also be rejected when a disinterested party in the sale is made to be a part of the arrangement with the property's redevelopment. For instance, the application shall be rejected if the Board is convinced that the disinterested party shall suffer financial losses from the en bloc sale or receive a sum that is insufficient to meet mortgage payments.
In cases facing objection, mediation is usually called for.
What Happens if an En Bloc Fails?
If the en bloc tender fails to attract any bids, the CSC has the option to enter a private treaty with the developers.
The property can be launched for sale again within the 12-month period. After the 12-month period expires, if the owners are eager to go for collective sale again, the entire en bloc process of gathering consent must be repeated.
Stage 7: Legal Completion of the Sale
After receiving the relevant approvals, the owners can legally complete the sale and receive proceeds. A small retention fee would be deducted from the developers.
In most cases, owners will receive around 95% of the sales proceeds if they agreed to a rent-free stay at the property for a grace period of 3 to 6 months. However, if they agree to move out from the property immediately, they will receive 100% of the sales proceeds.
This process usually takes around 3 months.
Stage 8: Handover of the Property
Finally, the last stage of an en bloc process occurs when owners vacate the property and hand it over to the developers.
A time period of 3 to 6 months is usually given to owners and tenants to vacate the property or make necessary arrangements. In applicable cases, developers would release remaining sales proceeds within a time period of 10 to 15 days after the property has been vacated.
A tenancy agreement would legally end on the date no later than the date of possession signed with the developer. The law does not state any guidelines with respect to the tenant's right to any compensation from the owners. However, if property owners or leaseholders did not give their consent to the sale agreement, compensation can be claimed with the Board.