Introduction

Not long ago, most developers of buildings approved wholly or partially for  commercial use, be it in a mixed use development or otherwise, would lease,  and not sell, the commercial strata lots (especially the retail strata lots) so as to  be able to control the tenant mix and image of the  development. In recent  times, however, many such developers are selling the commercial strata lots  while the development is still under construction. As these developments are  often marketed as “prestigious” and  “premier” buildings, a practical difficulty  then arises - how can the developer help to ensure that the development will  indeed remain “prestigious” and “premier”, even after all the strata lots in the  development are sold and the developer steps out of the picture?

The position of a developer versus that of a landlord

A landlord who retains and leases out the commercial strata lots in its building  may endeavour to safeguard the image and reputation of the building by  retaining strict control over the tenant mix and shop fronts. Such control is  effectively achieved by inserting provisions into each tenant’s lease agreement  to regulate such issues.

A developer may similarly exercise strict control over to whom the commercial  strata lots in the development may be sold. However, once a commercial  strata lot is sold, the developer, in theory, relinquishes control over how the  purchaser uses the lot: subject to obtaining the relevant authorities’ approvals,  the purchaser may freely carry on any type of trade or business at the lot.

A developer who faces this practical difficulty should consider safeguarding the  image and reputation of the development by way of (1) a restrictive covenant  and/or (2) by-laws.

Use of a restrictive covenant

The developer may insert a clause into all the sale and purchase agreements  for the commercial strata lots providing that, on completion, the purchaser  undertakes to execute a restrictive covenant, in favour of every other strata lot  in the development, governing the permitted type of trade or business which  may be carried out at each commercial strata lot in the development  (Restriction).

The original purchaser himself is hence proscribed from carrying on any trade  or business at his lot which is not permitted by the Restriction; the Restriction,  once notified on the land register, likewise binds his subsequent purchasers,  assignees or lessees (section 46 of the Land Titles Act (LTA)). The subsidiary  proprietors of the other strata lots may sue on any breach of the provisions of  the Restriction, although the courts have the discretion to award damages only  (in lieu of injunctive relief) (see, for example, Jaggard v Sawyer [1995] 1 WLR  269).

Limitations of this method

The lifespan of the Restriction may not last till the end of the tenure of the  development. While the Restriction continues to bind all purchasers of the  commercial strata lots who have entered into it, as against other subsequent  purchasers, section 141 of the LTA stipulates that the Restriction is only good  for 20 years from the date of the entry of the notification on the land register;  although the Restriction may (with the consent of the subsidiary proprietor for  the time being) be extended, each extension is only good for a further 10 years  each time the extension is filed. Moreover, section 140 of the LTA provides  that the Restriction may be varied or extinguished by the court if, for instance,  it can be shown that such variation or extinguishment would not materially  injure the person entitled to the benefit of the Restriction.

Furthermore, where enforcement of the Restriction is concerned, the individual  subsidiary proprietors of the other strata lots may be reluctant to sue on any  breach of the provisions of the Restriction due to the costs involved.

Use of by-laws

To complement the Restriction, a developer may facilitate tabling a motion at  the first annual general meeting of the management corporation for by-laws to  be passed by the management corporation to restrict the type of trade or  business which may be carried out at each commercial strata lot in the  development (Restrictive Use By-laws). The Restrictive Use By-laws should be  consistent with the terms of any Restriction.

The Restrictive Use By-laws will bind all subsidiary proprietors, lessees and  occupiers for the time being of the strata lots in the development (section 32(6)  of the Building Maintenance and Strata Management Act (BMSMA)).

Section 32(10) of the BMSMA provides that the management corporation or  any subsidiary proprietor, lessee or occupier for the time being of any of the  strata lots may apply to court for an order to enforce the performance of or  restrain the breach of the Restrictive Use By-laws, thus giving the  management corporation enforcement rights (as opposed to the case of the  Restriction, where only individual subsidiary proprietors have enforcement  rights).

Would the Restrictive Use By-laws be valid?

The management corporation clearly has the general power to make by-laws  regulating  the use of individual strata lots. Section 32(3) of the BMSMA  provides that the management corporation may make by-laws “for the purpose  of controlling and managing the use or enjoyment of the parcel comprised in  the strata title plan” and this purpose extends to “such other matters as are  appropriate to the type of strata scheme concerned”. Section 2(1) of the  BMSMA in turn defines “parcel” as “the whole of any land, building and  common property comprised or to be comprised in a strata title plan”, which  includes any strata lot in the strata title plan.

However, it appears that the specific question of whether the management  corporation’s general power extends to making by-laws that restrict the type of  trade or business which may be carried out at a particular strata lot has yet to be addressed locally. There does not appear to be any provision in the  BMSMA or any reported local case law dealing with this specific point. For  example, prescribed by-law 16 of the Second Schedule to the Building  Maintenance (Strata Management) Regulations 2005 (BMSMA Regulations),  which prohibits a subsidiary proprietor or occupier of a strata lot from using his  lot for any purpose “which may be injurious to the reputation of the subdivided  building”, likely applies only to trades or businesses which are clearly immoral,  such as prostitution. Further, although the by-law in question in Lark Lounge  and Nite Club Pte Ltd v MCST Plan No 1420 [1997] 3 SLR(R) 945 allowed the  management corporation to prevent the change of use of a particular strata lot,  the Singapore High Court was never asked to consider if that by-law was ultra  vires the powers of the management corporation under the corresponding  provisions to section 32 of the BMSMA (section 41 of the then Land Titles  (Strata) Act) (at [27]).

In contrast, this specific question has been affirmatively answered in New  South Wales in the context of the then NSW Strata Titles Act 1973, which is  similar to the BMSMA. In Sydney Diagnostic Services Pty Ltd v Hamlena Pty  Ltd (1991) NSW Titles Cases 80-009 (Sydney Diagnostic Services), the New  South Wales Court of Appeal upheld a by-law prohibiting (1) the conduct of  any enterprise or undertaking, other than the practice of medicine, at all strata  lots of the medical centre and (2) the conduct of certain medical practices,  such as radiology and pathology, at all strata lots of the medical centre except  for certain designated lots. The New South Wales Court of Appeal, agreeing  with Young J’s decision in the New South Wales Supreme Court below,  reasoned that the power conferred on the body corporate under section 58(2)  of the then NSW Strata Titles Act 1973 (which corresponds to section 32(3) of  the BMSMA) extended to making by-laws regulating what trades, avocations  and activities could and could not be conducted at  each lot in a subdivided  building (at 60,101).

The local courts may be persuaded to adopt similar  reasoning because bylaws which restrict the type of trade or business which may be carried out at a  particular strata lot are arguably consistent with the legislative scheme of the  BMSMA.

A number of prescribed by-laws in the Second Schedule of the BMSMA  Regulations already regulate the type of activities that may or may not be  carried out at all strata lots generally (e.g. by-laws 11 (Cleaning windows), 14  (Keeping of animals), 15 (Duty to maintain lot) and 18 (Prevention of fire and  other hazards)). Young J at first instance in Sydney Diagnostic Services observed that the existence of such prescribed by-laws indicates that certain  types of conduct which occur at individual strata lots may nonetheless impact  the subsidiary proprietors as a whole; he further observed that it was not  unexpected that the types of trades or businesses occurring in buildings such  as medical centres and shopping malls would affect the subsidiary proprietors’  use and enjoyment of the lots as a whole as those taking strata space in such  buildings commonly do so on the basis that only certain types of trades or  businesses will be permitted (at 60,063 to 60,064).

It may also be argued that a by-law that only permits a type of trade or  business to be carried out at certain strata lots (to the exclusion of others) may  still operate for the benefit of the subsidiary proprietors as a whole. As  recognised by Young J at first instance in Sydney Diagnostic Services, in the case of a medical centre, it may well be for the commercial benefit of the  subsidiary proprietors as a whole that only one of each specialty be carried on  in the medical centre (at 60,064).

Other limitations of this method

The Restrictive Use By-laws can only be made pursuant to a special resolution  passed by the management corporation in general meeting (i.e. passed by  subsidiary proprietors present at the meeting holding at least 75% of the  aggregate share value). If the developer has sold a large number of strata lots  in the development by the time of the first annual  general meeting of the  management corporation, it is unlikely that the developer will be able to pass  the requisite special resolution on the weight of its own votes. The developer  will hence have to rely on the subsidiary proprietors of the other strata lots for  this purpose.

In addition, as with the Restriction, the lifespan of the Restrictive Use By-laws  may not last till the end of the tenure of the development because section  32(3) of the BMSMA allows for the Restrictive Use By-laws to be amended or  repealed pursuant to a special resolution passed by the management  corporation in general meeting (i.e. passed by subsidiary proprietors present at  the meeting holding at least 75% of the aggregate share value).

Conclusion

Developers who are preparing to sell commercial strata lots may wish to  consider the feasibility of both methods. Despite the individual limitations  outlined above, employing both methods in tandem may at least permit a  developer to give potential purchasers of the strata lots, especially in mixed  use developments, some assurance as to the sustainability of the image and  reputation of the development in question.