The Housing Developers (Amendment) Rules 2012 (HDR 2012) came into operation on 18 May 2012. Developers had one month from the date the Urban Redevelopment Authority introduced the HDR 2012 on 18 April 2012, until the time the HDR 2012 came into operation, to digest, understand, prepare and ready themselves for the changes brought about by the HDR 2012.
This article explores some of the issues which arise in respect of developments which have units sold under both the former prescribed form of sale and purchase agreement (the Former SPA) and the sale and purchase agreement prescribed by the HDR 2012 (the New SPA).
This article examines three important areas:-
- the new requirement to obtain the purchasers’ agreement to substantial changes to common property;
- a possible extension of the defects liability period in sub-sales; and
- the effect of a sub-sale on the deadline to deliver vacant possession.
Clause 14 of the New SPA – substantial changes to common property
In Clause 14 of the Former SPA, the developer was allowed to make changes to plans or specifications of the common property so long as such changes were approved or required by the Commissioner of Building Control or other relevant authority. Therefore under the Former SPA, it would appear that so long as the developer has the requisite approvals to changes to the common property, the developer may proceed with such changes.
Clause 14.1(a) of the New SPA now requires the developer to first obtain the purchasers’ agreement for any substantial changes to common property which are initiated by the developer but are not required by the Commissioner of Building Control. Clause 14.1(b) considers substantial changes to be any changes relating to the approved plans for or relating to main or key facilities, structures, buildings or areas comprised in the common property of the housing project (e.g. guard house, bin centre, electrical sub-station, car park, car parking lots, swimming pool, etc) and limited common property (if applicable).
Subclauses 14.1(b)(i)(A) and (B) clearly spell out the procedure required to make substantial changes to the common property. Except for changes which are required by the Commissioner of Building Control or other relevant authorities, before the developer initiates any substantial changes, the developer must:-
- give notice of the changes to all the purchasers of the sold units in the housing project, or in the case of limited common property, give all the purchasers of the sold units exclusive benefit to the limited common property as at the date of the notice;
- allow the purchasers of the sold units 21 days from the date of the notice to lodge any objection in writing; and
- obtain, where required, approval by the Commissioner of Building Control and other relevant authorities for these changes.
It is important to note the way the New SPA requirement is drafted: the developer has to ensure that notice of such changes is given to “all the purchasers” of sold units, and that no objection in writing should be received from “any purchaser of these sold units”. This appears to also cover purchasers who bought units under the Former SPA. Although the requirement to obtain their agreement does not form part of the Former SPA, Clause 14.1 of the New SPA appears to nonetheless impose on the developer this obligation to similarly notify the purchasers who bought units under the Former SPA of the changes, and to also ensure that no objections to the changes are received from these purchasers. This seems to expand the obligation of the developer vis-à-vis the purchasers who purchased units under the Former SPA, without an explicit amendment of the terms of the Former SPA.
Despite this expansion, however, the full impact of Clause 14.1 of the New HDR may turn on whether there is a significant difference between a “substantial change” and what the law views as a “fundamental change” to the plans and the specifications. The impact may be less than it appears since developers should not in any case make fundamental changes to the plans and specifications relating to the common property without first obtaining the purchasers’ consent, regardless of whether the sale and purchase agreement is in the format of the Former SPA or the New SPA.
Possibility of defects liability period extended in sub-sales
The Controller of Housing has directed that, where the unit is sub-sold on or after 18 May 2012, the fresh sale and purchase agreements must be issued using the format prescribed under HDR 2012, i.e. the New SPA. This directive, as noted above, affects the developer as the change from the Former SPA to the New SPA may affect the expiry date of the defects liability period.
Where the original purchaser, purchasing the unit under the Former SPA, received notice to take possession of the unit on 1 June 2012 and took possession on 20 June 2012, the defects liability period in this case would expire on 31 May 2013.
Should the original purchaser enter into a contract to sub-sell his unit, for example on 1 September 2012, the developer, entering into a fresh sale and purchase agreement with the sub-purchaser in the format of the New SPA, will have to re-calculate the expiry date of the defects liability period for the unit.
Under the New SPA, the defects liability period would end 12 months from (whichever is the earlier) either:-
- the date the developer actually delivers vacant possession of the unit to the “purchaser” i.e. 20 June 2013; or
- the 15th day after the “purchaser” receives the documents specified under the item 3 of the Payment Schedule i.e. 16 June 2013.
If “purchaser”, as used by the New SPA, means the original purchaser and it is believed that this is the case, then this would mean that expiry of the defects liability period is now extended to 16 June 2013. On the face of it, this extension appears unfair to the developer, who due to a subsale, has to be liable for defects for an extra 16 days. Perhaps developers can take some comfort in the fact that the defects liability period will not be extended for more than 16 days.
The effect of a sub-sale on the delivery of vacant possession deadline
Clause 12.1 of the Former SPA specifies the deadline by which the developer has to serve the notice to take vacant possession of the unit (Transfer Date), which is usually combined with the notice calling for payment under Item 3(b) of the Payment Schedule in Clause 5 (TOP Progress Payment Notice).
Under the New SPA (to be entered into after a sub-sale), Clause 12.1(a) specifies the deadline for the delivery of vacant possession of the unit (Vacant Possession Date), which delivery can naturally only take place after the developer has received the sum owing to it under the TOP Progress Payment Notice.
Under the New SPA, the deadline for service of the TOP Progress Payment Notice may be derived from Clause 12.5(a), which in other words, should not be later than 36 days before the Vacant Possession Date.
Therefore, in the event of a sub-sale, where the original purchaser’s sale and purchase agreement was in the format of the Former SPA and the sub-sale is in the format of the New SPA, in order to put the developer in the same position before and after the sub-sale, the Vacant Possession Date to be specified in Clause 12.1(a) of the New SPA ought not be the same as the Transfer Date specified in Clause 12.1 of the Former SPA.
In the situation where the developer and original purchaser entered into the Former SPA with the Transfer Date being 31 December 2012, the Vacant Possession Date should be fixed at a date 36 days later than the Transfer Date, i.e. 5 February 2013. Otherwise, in order to avoid paying liquidated damages to the sub-purchaser, the developer would have to obtain temporary occupation permit and to serve the TOP Progress Payment Notice at least 36 days prior to the 31 December 2012, i.e. by 23 November 2012. This is more than a month earlier than what was agreed with the original purchaser.
The difference of 36 days may be viewed as inconsequential to most developers, who would have probably incorporated a buffer into the said deadlines. However, where the deadlines are drawing near, developers may wish to consider giving themselves a bit more time by amending the Vacant Possession Date as suggested above, subject of course to the approval of the Controller of Housing.
The situations described above have arisen in respect of developments in which some units were sold prior the implementation of HDR 2012. Whether or not new and different issues will crop up with the continued implementation of HDR 2012, we believe these, as with the issues discussed above, may be solved by a better understanding of the new rules and the technical requirements of the New SPA.