Supplementary CSA to Lower the Reserve Price

The first question we should ask ourselves is do we even want a supplementary agreement to lower the RP in the CSA in the first place.  Do we want the Reserve Price to be  fixed and inviolable or impermanent and unpredictable as is the case now. 

In round 1, we were told the Reserve Price was the absolute minimum Owners would receive from the collective sale. It was based on a 66% premium Owners would have gotten over the then present market value of an individual unit. There was no talk of it being lowered and 80% of Owners signed; confident that that was the minimum figure they would get. We were naive and uninformed and did not know it was already at a bargain basement price and had  a buyer happy to snap it up. 

In this round, the carrot is bigger, but not stable,  neither is it  66% of  the last sale price of an individual unit, which was done in August at $1.08m. If it were, then the RP would  have been $1.79million !!! Even by round 1 standards the present Reserve Price is at an undersell!

Since developers would prefer a rock bottom  price, the supplemental agreement to lower it is a route to bringing it closer to the bottom. Now who proposed this alternative route? The Solicitor, the  MA or the sale committee? Whoever it was, it certainly wasn't the Owners.

"Oh, but you need 80% to agree to the new price, so it is safe, right? If 80% don't agree then cannot sell, okay? If the sale price is lower the Sellers must agree, simple la."

To fully agree with the above, we must first look into every possible nook and cranny to make sure we are not having the wool pulled over our eyes. We were told that the terms outlining the  SCSA are 'very clear',  - clear as mud, if you ask me. Here is what the CSA tells us about the supplemental agreement to lower the RP:

• it shall be done  by signing a supplemental agreement of some sort.

At the back of the CSA (pg 30 after the Terms of Appointments and schedules) ) we have the all-important execution page for the CSA. This page is spectacular in it's simplicity and the vital information that is missing... but that is fodder for another post. We are not similarly graced with a sample of what an execution page of a supplemental agreement would look like, and that is cause for concern.  We know that the Amendments to the LTSA  were partly in response to massive problems with property agents and their unscrupulous tactics for obtaining signatures to the CSA. It was deemed safer that the Solicitor, who has a higher professional code to follow, should be witness to this momentous signing. Now, looking at the Solicitors Terms of Appointment I notice that he is to witness the signatures on the CSA but there is no mention of witnessing signatures on any other owner document, whether it be a supplemental agreement to lower the RP or other supplemental agreements. I feel this omission is important. Note also how the fee charged in advance is for the CSA - again no mention of a SCSA or other supplemental agreements that will definitely pop up.  Knowing how the legal profession likes to charge for every single piece of paper, the Solicitor surely would have listed it as an extra to be charged separately. If it were under his purview would he not have included it in a separate Schedule at the back? Now turning to the Property Consultant's Terms of Appointment;  page 24 item (d)  seems to cover this SCSA signing very nicely. Note the 'at any time and from time to time'.

Now things  are beginning to look scary, are they not? Is the marketing agent regaining control of the signing via a back door? Isn't this a grave cause for concern?

We are further told that:

• the minimum sale price (the new RP) will be at or below whatever the proposed sale price might be.

When you read clause 8.1.3 (a) on page 9 of the CSA, what assumption do you make? How do you read that clause, what scenario pops into your head?  

Do you think that after a tender bid or after an offer has been made, Sellers will be asked to rethink the RP and either agree or disagree to lower the RP to match the bid or offer by signing a supplemental agreement? Do you think there might even be a time frame for this new consensus to sell at a lower price? Well, welcome to the club, because that is what most owners will assume and they will be wrong - on both counts. That is also what I assumed, but I was puzzled by the inclusion of "or below" because, if there is an offer on the table, why ask Sellers to sign for something below that?  It did not make sense and so up shot a red flag.

The answer to this conundrum is that a supplemental agreement to lower the minimum sale price is not restricted to this period in time - it can it be done 'at any time and from time to time'. That is my conclusion. If an owner is happy to sign the CSA at the RP stated, but is also willing to sell for a lower price if need be, what is stopping him from signing a supplemental agreement to this lower sale price at any time?
Reserve price: $100m
Minimum selling price; $80m

So, perhaps some Sellers might sign a CSA with the solicitor and a SCSA with the marketing agent. An official and a fall back selling price, as it were.

Worse, knowing how gullible some owners are, in this estate  there may be instances where owners are encouraged to sign the MA's slip of paper stating their minimum selling price without them even realising that this is their tacit agreement to the eventual lower RP!!! They might come back and say "but I didn't know it was that, when I signed off on it! I was just asked to state my absolute minimum  and was assured that I had already signed the CSA for the higher RP".
I am so scared for these people, they are putty in a smooth-talking property agent's hand

The 80% requisite is the first milestone that much be reached in order to go for a tender and beyond. But this is just a provisional 80% and the higher RP can be used for this purpose. Some Sellers, who sign for the higher RP only might baulk at signing for a lower minimum selling price and drop out afterward, bringing the percentage to below 80%.  Will this prevent the sale committee from signing a conditional sale contract? NO. The 80% requirement is at the point of application for sale at the STB and not at point of conditional sale. The conditions of the sale contract would be dependent on securing the 80% before application and the sale being granted by the STB/HC. So, the time frame for securing the second 80% can extend for many months.

THIS IS WHAT I THINK:

.

So, 'very clear', they said?

I also find 8.1.3(d) very, very odd. I ask myself, why would anyone sign for the lower sum and not the higher sum, presumably after the initial 80%.  In other words these new signers are from the 'minority' group. As an ex-minority owner, I know there are only 3 reasons why an owner could be persuaded to sign after holding out for so long a) he was fooled b) he was pressured or c) he was offered an incentive sum. If you juxtapose 8.1.3(d) with 2.11 what do you get? In 2.11,  owners are signing some kind of 'supplemental agreement' voluntarily ("or otherwise where they enter"), but what is it? How much more will they be getting?  Seeing how 'conditional signers' is now a dirty word, have they just found a more neutral term that can cover a multitude? Methinks there can be many kinds of supplemental agreements whereby conditional signing can continue incognito. If Sellers agree to these  supplemental agreements without knowing what they contain, then they are signing blindly.

Owners will have to draw their own conclusions.

Owners ought to reject any supplemental agreement other that those  ordered by the STB or HC.  I believe it is conditional signing by another name.

Owners ought to reject the supplemental agreement to lower the RP outright and remove it from the CSA.  Stick to a good, solid Reserve Price and run with that ball. Don't inject uncertainty, unpredictability and confusion. When things are not transparently clear, then you have to ask yourself, what else am I missing?

Remember also how incredibly long it is all going to take. You may be happy now to accept  the lower minimum sale price, but will you still be still happy in 2 years time?

If there must be a clause to lower the reserve price in the CSA - then let's guard ourselves against the shenanigans that will inevitably occur . Let us demand that owners are to decide only AFTER the  bids or offers are in and all agreements to the lower reserve price must be after this date and witnessed by the en bloc lawyer.

This was first partially posted on 5 Oct 2011