For properties to be sold en bloc, the consent of at least 80 per cent of the owners must be obtained before a sale tender can be called.
To call for a tender first would be a breach of the process implied in the law, the Court of Appeal has ruled.
It made this clear in grounds issued yesterday on its refusal in August to approve the en bloc sale of the $33 million Harbour View Gardens in Pasir Panjang Road.
In interpreting the issue for the first time, the court said although the relevant section of the Land Titles (Strata) Act "does not explicitly state that the 80 per cent must be reached before a public tender is launched, it is, in our view, implicit in the opening words of the (same section) that the requisite threshold should be met".
It is understood that the ruling will preclude sales committees from putting their properties on the market in anticipation of getting a majority after a potential price has been secured.
Jones Lang Lasalle real estate consultant Karamjit Singh noted that it was "commonplace" before amendments to the Act for prospective sales committees to call for tenders or "expressions of interest" even if they were short of a consenting majority.
"The assumption was that the price offered and the views of the undecided owners would dovetail by then to achieve the desired 80 per cent minimum."
Real estate lawyer Lee Liat Yeang said the court's decision clarified the legal position, which is that any tender sale and calls for offers to buy the development should be done after the 80 per cent threshold has been achieved.
"Otherwise it would be to put the cart before the horse," he said.
Harbour View Gardens, consisting of 14 three-storey walk-up apartments, was to have been sold to RH West Coast last year for $33 million. But the High Court dismissed its application in April, prompting an appeal by the majority owners to the apex court of Chief Justice Sundaresh Menon and Judges of Appeal Chao Hick Tin and V.K. Rajah.
Justice Rajah said the public tender was launched even before the 80 per cent threshold was achieved and "this irregularity is consistent with our finding that the (sales committee) acted with undue haste and inadequate regard for the propriety of the process leading to the collective sale application".
The court stressed it was "undeniably important" to follow the procedural requirements as laid down by Parliament, and a breach would lead to a rejection of a collective sale bid.
In the failed sale, a $200,000 inducement had been offered by the collective sales committee and marketing agent to a dissenting owner, Mr Han Min Juan, and his wife as an incentive to sell. He was also on the sales committee.
The couple's consent enabled the property to reach the requisite 80 per cent threshold. But the other two minority owners objected, charging the committee with not acting "even-handedly" by offering an inducement to only one opposing owner and not to others.
The court agreed and held this "amounted to an unacceptable inequality of treatment of the dissenting proprietors".
It said: "In the circumstances, the process by which the 80 per cent threshold was achieved had been seriously tainted, and the respondents suffered prejudice as a result."
The court pointed out that majority owners pressing for a collective sale are not precluded from selling their units "but are merely denied the possible financial upside that come with a collective sale".