GESS Notes Part 1

**Lecture 1: Background and Introduction** ========================================== ▪ The parliament is the legislative branch in Singapore ▪ The functions of the parliament are making laws, controlling the states finances and checking on the actions of the executive ▪ It consists of the prime...

**Lecture 1: Background and Introduction** ========================================== ▪ The parliament is the legislative branch in Singapore ▪ The functions of the parliament are making laws, controlling the states finances and checking on the actions of the executive ▪ It consists of the prime minister, the president and the cabinet ▪ It operates independently from the legislature and the executive ▪ The law does not come into operation until it is published in a -- -- -- -- -- -- **Lecture 2: The legal basis of rights and obligations** ======================================================== An offer is an intimation by an offeror to enter a legally binding Offer: Offering to do something with a clear intention of being bound should the other party accept. Any display of goods is not an offer by the store, it is seen as invitation to treat, under which there is no clear intention of being bound. An invitation to treat is an offer to negotiate or to The following are invitations to treat: 1) display of goods, 2) advertisement, 3) calls for a tender. Tender is calling for bids. For an acceptance to be valid it must be unconditional and on The offeror cannot state that he will treat the offerees silence as amounting to acceptance, UNLESS parties agree. For the acceptance to be valid, it must be communicated to ▪ Consideration, or it must be a document under seal. Consideration refers to doing or agreeing to do something in return for the other party's promise. \> an exchange or bargain The contract cannot be one-sided. Both parties must agree to Parties must have the intention to create legal relations. It is presumed that in domestic situations the parties do not intend to create legal situations. In commercial situations, it is usually presumed that parties intend to create legal relations. However, these presumptions can be rebutted with sufficient ▪ This means that it is clearly stated like price or type of food or ▪ By the courts -- to "give business efficacy to the contract" ### **Law of Tort:** - **Tort**: A civil wrong that provides a remedy to those who suffer harm due to the wrongful acts of others. It is distinct from contract law and criminal law. - **Two broad categories of torts**: 1. **Intentional Torts**: Deliberate actions that cause harm, such as defamation, assault, or trespass. 2. **Negligent Torts**: Unintentional harm caused by carelessness. ### **Property-related Torts:** 1. **Trespass to Land**: Involves direct interference with someone's land without permission (physical). This includes: - **Entering upon land** without lawful justification. - **Remaining on land** after permission to be there has expired. - **Placing objects** on someone else\'s property without consent (e.g., throwing debris onto a neighbour's land). 2. **Private Nuisance**: Concerns \"unreasonable interference\" with a person's use or enjoyment of land (Intangible). Factors considered include: - **Nature of the interference**: What is the severity, duration, and frequency of the interference? - **Locality**: For instance, what might be unreasonable in a residential area could be acceptable in an industrial area (e.g., *Sturges v Bridgman*). - **Sensitivity of the plaintiff**: A defendant is generally not liable for nuisance if the plaintiff is unduly sensitive (e.g., *Robinson v Kilvert*). ### **Negligence:** Negligence is the failure to take proper care to avoid causing harm to others. The tort of negligence is highly relevant in real estate, where property owners and managers owe duties of care to those who enter their premises. #### **Three Elements of Negligence:** 1. **Duty of Care**: The defendant must owe the plaintiff a duty of care. A duty of care arises when the defendant\'s actions or inactions could foreseeably cause harm to the plaintiff. - **Case Example**: *Donoghue v Stevenson (1932)*, a landmark case that established the \"neighbour principle,\" where manufacturers were found to owe a duty of care to consumers. - The \"neighbour test\" states that you must take reasonable care to avoid acts or omissions that could likely injure your \"neighbour\" (i.e., someone closely and directly affected by your actions). 2. **Breach of Duty**: After establishing a duty of care, the plaintiff must demonstrate that the defendant breached this duty by failing to meet the standard of care expected in the circumstances. - The court assesses what a reasonable person would have done under similar conditions. 3. **Causation**: The plaintiff must prove that the breach of duty caused the harm or loss suffered. - This typically involves proving both **factual causation** (\"but for\" the defendant\'s breach, the harm would not have occurred) and **legal causation** (the harm was a foreseeable result of the breach). #### **Defences to Negligence:** - **Voluntary Assumption of Risk**: If the plaintiff willingly accepted the risks associated with the activity that caused harm, the defendant may not be held liable (e.g., participants in extreme sports). - **Contributory Negligence**: The plaintiff may have contributed to their own harm. In such cases, the court may reduce the amount of damages awarded based on the plaintiff\'s share of responsibility. ### **Vitiating Factors in a Contract** ### Vitiating factors are issues that can invalidate a contract or render it unenforceable, even though all the essential elements of a contract (offer, acceptance, consideration, and intention to create legal relations) may be present. These factors can lead to the contract being declared **void** (treated as if it never existed) or **voidable** (valid unless one party chooses to void it). ### The main vitiating factors include: 1. ### **Misrepresentation**: - ### **Definition**: Misrepresentation occurs when one party makes a false statement of fact that induces the other party to enter into the contract. - ### **Types of Misrepresentation**: 1. ### **Innocent Misrepresentation**: When the misrepresentation is made without intent to deceive (the party genuinely believes the statement is true). 2. ### **Negligent Misrepresentation**: When the party making the statement fails to take reasonable care to ensure its truth. 3. ### **Fraudulent Misrepresentation**: When the party knowingly makes a false statement with the intent to deceive. - ### **Remedies**: The remedies for misrepresentation can include rescission (cancelling the contract) and/or damages, depending on the type of misrepresentation. 2. ### **Mistake**: - ### **Definition**: A mistake is an incorrect belief held by one or both parties at the time of entering into the contract. - ### **Types of Mistake**: 4. ### **Common Mistake**: Both parties make the same mistake about a fundamental fact (e.g., both parties believe the subject matter of the contract exists, but it does not). 5. ### **Mutual Mistake**: The parties are at cross-purposes and misunderstand each other's intentions. 6. ### **Unilateral Mistake**: Only one party is mistaken, and the other party is aware of the mistake. - ### **Effect on Contract**: In cases of mistake, the contract may be declared void if the mistake is fundamental to the agreement. 3. ### **Illegality**: - ### **Definition**: A contract is illegal if its purpose, performance, or consideration is contrary to law or public policy. - ### **Examples of Illegal Contracts**: 7. ### Contracts involving criminal activities. 8. ### Contracts in restraint of trade that are overly restrictive and against public interest. - ### **Effect on Contract**: An illegal contract is generally void and unenforceable. Parties to such a contract cannot seek remedies through the courts. 4. ### **Duress**: - ### **Definition**: Duress involves one party being forced into a contract through threats, violence, or other forms of coercion. - ### **Types of Duress**: 9. ### **Physical Duress**: When one party uses physical threats or violence to compel the other party to agree to the contract. 10. ### **Economic Duress**: When one party exerts financial pressure on the other party, leaving them with no reasonable alternative but to agree to the contract. - ### **Effect on Contract**: Contracts entered into under duress are voidable. The affected party can choose to rescind the contract if duress is proven. 5. ### **Capacity**: - ### **Definition**: For a contract to be valid, the parties involved must have the legal capacity to enter into the agreement. This includes being of sound mind and of legal age. - ### **Exceptions**: Certain groups, such as minors or individuals with mental incapacities, may have limited capacity to contract. - ### **Effect on Contract**: If a party lacks capacity, the contract may be declared void or voidable, depending on the circumstances. ### **Discharge of a Contract** ### The discharge of a contract refers to the termination of contractual obligations. A contract may be discharged in various ways, meaning that the parties are no longer bound to fulfill their contractual duties. 1. ### **Performance**: - ### **Definition**: A contract is discharged by performance when both parties fulfill their contractual obligations as agreed. - ### **Complete Performance**: When all terms of the contract are met fully by both parties, the contract is considered discharged by performance. - ### **Substantial Performance**: Even if there are minor defects in performance, as long as the essential elements of the contract are completed, the contract can be discharged through substantial performance. However, the party not fully satisfied may be entitled to damages for the incomplete parts. 2. ### **Breach**: - ### **Definition**: A contract is discharged by breach when one party fails to perform their obligations under the contract without a valid legal excuse. - ### **Types of Breach**: - ### **Actual Breach**: Occurs when a party fails to perform their obligations at the time specified in the contract. - ### **Anticipatory Breach**: Occurs when one party indicates in advance that they will not be performing their contractual obligations. - ### **Effect of Breach**: The innocent party can choose to treat the contract as discharged and seek remedies such as damages or specific performance (forcing the breaching party to fulfill their obligations). 3. ### **Agreement**: - ### **Definition**: The parties to a contract may mutually agree to discharge their obligations, either by rescinding the contract or by creating a new agreement. - ### **Types of Agreement**: - ### **Novation**: The substitution of a new contract or party in place of the original contract or party. This discharges the original contract. - ### **Mutual Rescission**: The parties mutually agree to cancel the contract. - ### **Effect on Contract**: The original contract is discharged by the new agreement, and neither party is obligated to perform further under the old contract. 4. ### **Frustration**: - ### **Definition**: A contract may be discharged by frustration when unforeseen events occur that make performance of the contract impossible or fundamentally different from what was agreed upon, without fault of either party. - ### **Examples of Frustration**: - ### **Impossibility**: The subject matter of the contract is destroyed (e.g., a concert hall burns down before the event). - ### **Illegality**: New laws make the performance of the contract illegal. - ### **Radical Change in Circumstances**: Events occur that radically alter the nature of the contract (e.g., a war outbreak affecting delivery schedules). - ### **Effect of Frustration**: The contract is automatically discharged, and both parties are released from their obligations. No party is at fault, and neither can claim damages for non-performance. ### **Important Considerations:** - ### **Partial Performance**: In some cases, partial performance of the contract may be acceptable, and the court may enforce the remaining obligations under certain conditions. - ### **Time and Condition Precedent**: Some contracts include a specific time frame or certain conditions that must be fulfilled before the contract can be considered discharged. **Lecture 3: Basic Land Law concepts** ====================================== ### **Property Overview** - **Property**: An umbrella term that covers various categories of assets. Property can be broadly classified into two types: - **Real Property (Realty)**: Immovable properties such as land and buildings. Key characteristics: - **Immovable**: Land cannot be removed or relocated. - **Indestructible**: Generally speaking, land cannot be destroyed, and its quantity is finite---no more land can be created. - **Heterogeneous**: Each parcel of land is unique; no two are exactly alike. - **Personal Property (Personalty/Chattels)**: Movable assets, such as personal belongings (e.g., a PC). Key characteristics: - **Movable**: Personal property can be picked up and relocated. - **Destructible**: It can be created or destroyed, and it is often reproducible in an unlimited amount (given sufficient materials). - **Homogeneous**: Items of personal property generally function the same and are often indistinguishable from each other. ### **Bundle of Rights Theory** - **Bundle of Rights**: Property ownership is more than just owning the physical land. It includes a set of legal rights (the "bundle") that the owner can exercise: - **Right to possess**: Control who can be on the land. - **Right to use**: Decide how the land is used (e.g., farming, residential, commercial). - **Right to transfer**: Sell or lease the land to others. - **Right to exclude**: Prevent others from entering or using the land. - **Different Stakeholders**: Different people may have varying rights to a single piece of land (e.g., a tenant's right to live there vs. an owner's right to sell it). - Rights are **intangible**: They cannot be physically seen or touched but can be exercised. ### **Ownership and Possession** - **Historical Context**: The **Norman Conquest of 1066** brought the feudal system of land ownership to England, where **\"all land belongs to the king\"**. This concept evolved into **\"all land belongs to the State\"** in modern Singapore, as stated in the Constitution. - **State Lands Act**: Governs the **alienation** (transfer of titles) and occupation of state land. Individuals receive a **bundle of rights** when land is alienated to them. - **Foreshores Act**: Governs the alienation and use of land forming part of the foreshore (reclaimed land). This land belongs to the state, and leases can be granted for up to 100 years. Reclamation efforts are limited by high costs and territorial boundaries. ### **Legal Definition of Land** - **Old Definition**: "He who owns the surface owns everything up to heaven and down to the depths of the earth." (13th-century England). - **Modern Definition**: - **Airspace**: Ownership of airspace is limited to what is reasonably necessary for the use and enjoyment of the land. For example, a **helicopter flying overhead** does not constitute trespass, but a **signage intruding** into another's property does. - **Subterranean Space**: Land ownership includes the subterranean space up to **30 meters below** the surface. Beyond this depth, the land is considered state-owned. ### **Fixtures and Chattels** - **Fixtures**: Items attached to the land that become part of the property (e.g., built-in cabinets or fences). The degree and purpose of annexation are key tests for determining whether an item is a fixture. - **Degree of Annexation**: How extensively is the item attached to the land? - **Purpose of Annexation (Objective criteria - third party opinion)**: Does the item enhance the land's value or function? For example, classroom tables fixed to the floor are considered fixtures because they enhance the use of the space. - **Chattels**: Movable items that remain personal property and do not become part of the land (e.g., furniture). Disputes often arise during transactions, where sellers argue that certain items are chattels, while buyers claim they are fixtures. - Resting on its on weight: Means that need crane to move it (remains a chattel) - "Inventory List" - Over the years, court has indicated that purpose is more important, but no correct answer - For Case Study questions: ILAC - Issue: What is the issue? - Law: What is the law involved in the issue? - Application: How can the law be applied here? - Conclusion: ### **Types of Estates in Land** - **Fee Simple** (Freehold Estate): A perpetual estate with no time limit or significant conditions attached. The holder has the largest bundle of rights, but this is rare in Singapore. - **Estate in Perpetuity**: An estate that lasts forever, but with conditions imposed by the **State Lands Act** (e.g., rental payments, restrictions on use). The owner\'s bundle of rights is more limited compared to fee simple. - **Leasehold Estates**: Typically granted for fixed terms of up to 99 years. The **lessee** (tenant) holds the land for the lease period but must comply with conditions set by the **lessor** (landowner, typically the state or a developer). After the lease expires, ownership reverts to the lessor. - **Temporary Occupation License (TOL)**: A short-term, revocable license issued for temporary use of **[state land]** (e.g., construction sites). Narrow and specific T&C. This comes with the smallest bundle of rights. For example, the person with the license has no right to transfer it. ### **Co-Ownership of Land** - **Sole Ownership**: One person holds full ownership of the land. - **Co-Ownership**: Multiple parties hold ownership concurrently. - **Joint Tenancy**: - Ownership is shared equally without specifying shares. (without any words of severance) - Includes the **right of survivorship**, meaning when one owner dies, their interest automatically transfers to the remaining owners, regardless of any provisions in their will. - Can be converted into **tenancy in common** by **severance** (e.g., through a unilateral deed). - **Tenancy in Common**: - Ownership is divided into specific shares, often designated by percentages (e.g., one party owns 50%, another owns 25%). - No right of survivorship; each party's share can be passed on through their will. - Can be converted to Joint tenancy ### **Easements** - **Definition**: A legal right for one landowner (dominant tenement) to use another's land (servient tenement) for a specific purpose (e.g., a **right of way**). - **Example**: If the previous owner retains a right to use a shortcut across the land after selling it, this easement binds the new owner of the land. - **Privity of Contract**: Ensures that the rights established in the original contract remain enforceable even when the land changes hands. - Easements can be **positive** (allowing an action, such as crossing land) or **negative** (restricting an action, such as blocking a view or light). ### **Mortgages** - **Definition**: A mortgage is a security interest in land where the **mortgagor** (borrower) conveys title to the **mortgagee** (lender) as security for a loan. Once the loan is repaid, the title is returned to the borrower. - **Key Aspects**: - **Loan Amount**: How much the borrower receives. - **Repayment Terms**: How long the borrower has to repay the loan. - **Consequences of Default**: If the borrower defaults, the lender has the right to **foreclose** (take ownership of the property) and sell it to recover the outstanding debt, usually through a **fire sale** or **distress sale**. **Lecture 4: Investing in Real Estate Sale Considerations and Legalities** ========================================================================== ### **Eligibility and Considerations for Property Purchase in Singapore** #### **Eligibility:** - **Singaporeans and PRs**: - Eligible to purchase both **public housing (HDB flats)** and **private housing**: - **Public Housing**: Governed by the Housing and Development Act (HDB). - **Private Housing**: - **Landed Properties**: Includes bungalows and terrace houses; requires government approval for PRs and foreigners. - **Non-Landed Properties**: Includes strata-titled properties like condominiums and apartments. - **Executive Condominiums (ECs)**: Public housing developed by private developers. Foreigners can only purchase ECs after they are 10 years old and fully privatized. - **Foreigners**: - Can purchase **non-landed private properties** (e.g., condominiums and apartments) without restrictions. - **Government Approval** is required for **landed properties**, except in designated areas like **Sentosa Cove**. - Foreigners may only purchase **Executive Condominiums** that are at least 10 years old and fully privatized. - **Minimum Age**: - **Public Housing**: Must be **21 years old** if purchasing as part of a family nucleus (spouse, children, etc.). Single buyers must be at least **35 years old**, unless widowed or orphaned (minimum age of **21 years**). - **Private Housing**: The minimum legal age to purchase private property is **21 years old**. - **Other Restrictions**: - **Ethnic Integration Policy (EIP)**: Applies to HDB flats to prevent racial enclaves. The EIP ensures that each block reflects Singapore's ethnic diversity. - **Minimum Occupation Period (MOP)**: Owners of public housing must occupy the flat for at least **5 years** before they are allowed to sell or rent it out. ### **Costs Involved in Purchasing Residential Real Estate:** 1. **Property Price**: Varies based on several factors: - **Maturity of the estate**: More mature estates (those with established infrastructure and amenities) generally command higher prices. - **Proximity to amenities**: Properties near public transport, schools, healthcare facilities, and shopping centers tend to be more expensive. - **Type and Age of Property**: Landed properties, newer developments, and well-maintained properties are typically more expensive than older or less desirable units. - **Condition of the unit** 2. **Additional Expenses**: Can add up to 10% or more of the property\'s cost, and include: - **Legal Fees**: Necessary for drafting contracts, conducting due diligence, and facilitating the transfer of title. - **Stamp Duties**: Tax on legal documents during the purchase of real estate. - **Mortgage Interest**: Payments made on loans taken to finance the property. - **Maintenance Fees**: Regular charges for the upkeep of common areas in strata-titled properties. - **Home Insurance**: Often required by banks when financing a property. 3. **Income Ceiling for Public Housing**: Certain HDB flats have income caps to ensure they remain affordable to the "heartlander" segment of society. The government aims to minimize class divides by maintaining accessibility to public housing. ### **Stages in the Sale and Purchase of Land** The sale and purchase of land follow two primary stages: #### **Stage 1: Contract Stage** - **Contract Formation**: Essential for creating enforceable legal obligations. The contract must meet the following criteria: - **Offer**: A clear proposal to sell or buy the property. - **Acceptance**: The agreement of the other party to the terms. - **Consideration**: Something of value exchanged (e.g., money). - **Intention to Create Legal Relations**: Both parties must intend for the agreement to be legally binding. - **Formality**: Real estate contracts must be in writing to be enforceable in court. - **Option to Purchase (OTP)**: - A legal agreement that grants the buyer the exclusive right to purchase the property at an agreed price within a fixed period, typically **14 days**. - The buyer pays an **option fee** (usually **1% of the purchase price**) to secure the OTP. This fee is forfeited if the buyer decides not to proceed. (SUB STAGE 1) - **Exercise of OTP**: The buyer exercises the OTP by paying an additional **4%** of the purchase price, solidifying the sale and leading to a **Sale and Purchase Agreement (SPA)**. (SUB STAGE 2) - **Stamp Duty**: Payable by the buyer and imposed on documents related to property transactions. It can be: - **Fixed or Ad Valorem**: Calculated based on the value of the property, with rates varying depending on the purchase price. - **Buyer's Stamp Duty (BSD)**: Tax on documents and is payable on documents relating to immovable property - **Seller's Stamp Duty (SSD)**: Imposed on sellers who dispose of residential property within **3 years** of purchase. The rates decrease the longer the property is held (e.g., 16% if sold within 1 year, 12% if sold within 2 years). - **Additional Buyer's Stamp Duty (ABSD)**: Imposed on buyers purchasing additional properties (e.g., 12% for second property). The buyer typically carries out checks with the **Land Registration System** during **Stage 1: Contract Stage**, before signing the **Option to Purchase (OTP)** or **Sale and Purchase Agreement (SPA)**. This process is part of the buyer's **due diligence** to ensure the property can be legally transferred and that there are no encumbrances or issues with the title. ### **Key Checks the Buyer Conducts at Stage 1:** 1. **Ownership Verification**: - The buyer verifies that the seller has the legal right to sell the property, ensuring it is within the seller\'s **bundle of rights**. If the seller is a co-owner or if the property is held under joint tenancy, this would be revealed through the land registry. 2. **Encumbrances Check**: - The buyer checks for any **mortgages, liens, or encumbrances** on the property, which could affect the sale. A property under mortgage, for example, means the lender has a legal interest, and the buyer would need to ensure the mortgage is settled before the title can be transferred. 3. **Co-Ownership or Bankruptcy**: - If the seller co-owns the property with another person (e.g., family member) or is bankrupt, these details will be revealed during the check. This ensures that all necessary parties are involved in the sale and that there are no legal restrictions that prevent the seller from transferring ownership. 4. **Property Boundaries and Rights**: - The buyer checks for any easements or rights of way that may affect the property or limit its use. This is important for understanding the **bundle of rights** the buyer will acquire. These checks help the buyer avoid issues related to the **caveat emptor** (buyer beware) principle. By verifying the title and legal status of the property early, the buyer safeguards themselves from purchasing a property they might not legally own or one that comes with unforeseen legal obligations. ### **Why This Happens in Stage 1:** If the buyer doesn\'t conduct these checks during the **Contract Stage**, they risk entering into a contract for a property that may have legal complications, like a co-ownership dispute or an outstanding mortgage. Conducting these checks at this stage allows the buyer to renegotiate or withdraw from the deal before being legally obligated to proceed with the purchase. #### **Stage 2: Transfer of Title / Completion Stage** - **Completion**: In this stage, the buyer pays the balance of the purchase price, and the title to the property is transferred. - **Registration of Title**: The buyer\'s name is registered as the legal owner of the property at the **Singapore Land Authority (SLA)**. - **Need for Legal Documentation**: Title registration ensures that the transfer of ownership is legally recognized and that the buyer's rights are protected. Proves that seller has the prerogative to sell the property (caveat emptor principle) ### **Land Registration System** #### **Cadastral System:** - Singapore is divided into **64 districts**, with **30 Town Subdivisions (TS)** and **34 Mukims (MK)**. Each parcel of land is clearly defined with precise boundaries, ensuring accurate property identification. #### **Land Titles Act (LTA):** - Singapore operates under the **Torrens system**, governed by the Land Titles Act. This system provides **indefeasible title**, meaning the state guarantees the validity of the title, barring fraud or prior claims. - **Certificate of Title (CT)**: Issued by the Singapore Land Authority (SLA) and serves as conclusive proof of ownership. The CT includes key details: - Whether the land is **freehold or leasehold**. - The **land area** and exact location. - The **names of the registered owners** and their addresses. - The **form of co-ownership**, if applicable (e.g., joint tenancy or tenancy in common). - Any **encumbrances** on the property (e.g., mortgages, easements). - **Mirror Principle**: The land register accurately reflects the current state of title and ownership. - **Curtain Principle**: The register hides prior claims or interests that no longer affect the current titleholder. ### **Role of Real Estate Agents** #### **Estate Agents Act (2010):** - Regulates the real estate industry through the **Council for Estate Agencies (CEA)**, ensuring that real estate agents uphold professional and ethical standards. - **Key Regulations**: - Agents must be **licensed** and pass industry-standard examinations. - **Ethical Standards**: Agents cannot receive commissions from both the buyer and seller in the same transaction. - **Standard Agency Agreements**: Contracts between clients and agents must follow a standard format to protect the interests of both parties. #### **Duties of Real Estate Agents:** - **Fiduciary Duty**: Agents must act in their clients' best interests, ensuring transparency and honesty in all dealings. - **Disclosure**: Agents must fully disclose any conflicts of interest and provide accurate market information. - **Professionalism**: Agents are required to remain updated on market trends and regulations and maintain their knowledge through continuing education. **Lecture 5: Housing Development, Taxation for Developments and Strata Law** ============================================================================ ### **1. Housing Development: Unconstructed vs. Constructed Properties** #### **New Sale (unconstructed/completed):** - **Definition**: Uncompleted properties refer to residential units sold before construction is completed or even started. These units are typically sold directly by developers. - **Legal Title**: Buyers do not receive the legal title at the point of sale because the construction of the property may not have commenced, or it is still in progress. The title is transferred only when the project is completed, and the **Certificate of Statutory Completion (CSC)** or **Certificate of Title (COT)** is issued for all units. - **Example**: A property advertised as **"Ready by 2025"** indicates that it is under construction or will be constructed in the near future. - **Government Land Sales (GLS)**: Developers may acquire land from the government through a **Government Land Sale (GLS)**, which is an auction process for state-owned land. The sale of properties on this land follows the same uncompleted property guidelines. #### **Sale Process for Unconstructed Properties:** - **Statutory Regulation of Developers**: - **Pre-1965 Issues**: Before regulation, developers engaged in unethical practices, such as demanding high option fees, poor financial management, and taking excessive advance payments without ensuring project completion. This led to the government stepping in with tighter regulations. - **Cowboy Developers**: Without regulation, some developers operated without transparency, failing to complete projects or delivering substandard housing. This highlighted the need for laws governing developers. - **Housing Developers (Control and Licensing) Act**: - Developers must be licensed under this Act if they are involved in financing and developing more than **four units** of housing accommodation. - The Act covers a range of entities, including individuals, companies, and limited liability partnerships. - **Licensing Types**: - **Sale License**: Developers with a sale license can sell units before construction is completed. These developers must meet stringent requirements, including a paid-up capital of between **S\$1 million to S\$4 million**. - Common in mass market launches where developers sell based on projected timelines and features. - **No-Sale License**: This license restricts developers from selling any units until construction is complete. Typically issued to smaller boutique developers. The required paid-up capital for these developers is **S\$100,000**. - Criteria for both licenses: - Applicants must own the land on which the development is to be built - Letter from a bank or financial institution - Track record of the developer - List of licensed projects - **Developer Obligations**: - Developers with sale licenses face stricter criteria, as buyers are purchasing based on plans and promises rather than completed products. - Developers must use **prescribed forms** for the **Option to Purchase (OTP)** and **Sale and Purchase Agreement (SPA)**, reducing the possibility of inserting harsh terms. These forms ensure fairness and transparency, protecting the buyer. - The **Temporary Occupation Permit (TOP)** is issued when the unit is safe and fit for habitation, even if some work is still outstanding. This is distinct from the final CSC. - **Progressive Payments**: - Buyers pay for the property in **instalments** as construction progresses and according to the stages of construction, preventing developers from collecting large sums upfront. This reduces the risk to buyers, as funds are released only when specific construction milestones are met. - All progress payments up to the issue of TOP are required to be paid into the Project Account. - **Project Account Rules**: - Developers are required to deposit buyer payments into a **Project Account**, which ensures that funds are used solely for project-related expenses (e.g., building costs, consultants' fees). This protects buyers and ensures financial discipline in the development process. - Developers may not withdraw any money from the Project Account except for the purposes provided under the Project Account Rules. - If the developer goes into liquidation, the money in the Project Account is not part of the assets of the developer for liquidation #### **Resale (Constructed/Completed):** - **Definition**: Completed properties are ready for sale after the building has been constructed. These units may be purchased directly from developers or through the secondary market from previous owners. - **Doctrine of Caveat Emptor (Buyer Beware)**: In the case of completed properties, buyers must conduct due diligence. Sellers are not obligated to disclose hidden defects unless asked by the buyer. However, sellers may still be liable for **misrepresentation** if they intentionally provide false or incomplete information. ### **2. Taxation for Real Estate Development** #### **Betterment and Unearned Increment:** 1. **Betterment**: - Refers to the increase in land value due to external improvements, such as **re-zoning** or **granting development rights**. For example, land originally zoned for agricultural use may be rezoned for residential or commercial use, significantly increasing its value. - **Land Betterment Charge (LBC)**: Developers are taxed on the betterment value when land use is intensified or rezoned. This charge is meant to capture the windfall gain that results from public planning and infrastructure improvements. 2. **Unearned Increment**: - Refers to the **windfall gains** that landowners receive from external factors, such as nearby infrastructure developments (e.g., a new MRT station). These increases in property value are unearned, as the landowner didn't contribute to the improvement. The government often taxes this gain through **betterment taxes**. - **Revenue Use**: The proceeds from betterment taxes are typically used to fund public infrastructure projects, ensuring that the benefits of increased land use are shared with society. #### **Creaming Off Profits:** - The government imposes a **Land Betterment Charge** (distinct from property tax or buyer's stamp duty) on developers when they gain **development rights**. This tax helps capture the profits developers make from converting land into higher-value developments. - Legislated by: Planning Act, Planning (Development Charges) Rules ### **3. Strata Law and Strata-Titled Properties** #### **Strata-Titled Properties:** - **Definition**: Strata-titled properties refer to developments with multiple layers (or \"strata\") of ownership. This typically includes **apartments, condominiums, and mixed-use complexes**, where individual units are owned separately, but common areas are shared. - **Strata** literally means \"layers,\" and strata-titled properties allow for **communal living** while maintaining individual ownership rights. - **Shared Amenities and Maintenance**: - **Management Corporation (MC)**: The common property, such as swimming pools, gyms, elevators, and corridors, is managed by the MC. Every owner (also called a **subsidiary proprietor (SP)**) must contribute to the maintenance of these areas, regardless of whether they use them. - **Share Value**: Each SP's contribution to maintenance fees and voting rights is proportional to their unit\'s **share value** (based on size or entitlement in the development). - **Strata Titles and Legal Responsibilities**: - **Land Titles Strata Act (LTSA)**: The LTSA governs strata developments, outlining how common property is managed and maintained. The law mandates that all unit owners contribute to the upkeep of common facilities, whether or not they use them. - **Management Council (MCo)**: Elected by unit owners, the Management Council oversees the MC\'s day-to-day operations, such as managing funds, enforcing by-laws, and dealing with maintenance issues. Council's decisions to be decisions of MC, generally speaking. - **Litigation**: If there are disputes or issues, such as defects in common property or breaches of by-laws, the **Management Corporation** will act as the legal entity representing the entire development. Individual owners do not deal with these matters on their own. Since MCs are a separate legal entity, they can sue and be sued on any contract made by it and in respect of any matter affecting the common property. - **Recent Case**: In **Mandalay Mansion**, the Management Corporation was held responsible for failing to maintain the roof, which resulted in water damage to a penthouse unit. The roof was part of common property, hence the MC's failure to uphold its maintenance obligations led to litigation. #### **By-Laws and Communal Living:** - **Statutory By-laws**: Regulate the use of common property, including rules on noise levels, parking, obstruction of shared facilities and damage to flora on the common property. - **Non-Statutory By-laws**: The MC can implement additional rules, such as those governing pet ownership, use of gym facilities, or restrictions on smoking in common areas. #### **Termination of Strata Schemes:** 1. **Destruction or Damage**: - If the building is severely damaged or destroyed, the strata scheme may be terminated. In such cases, unit owners must decide collectively on the next steps, which could involve repairing the property or selling the land. 2. **En Bloc Sales**: - **En bloc** (or collective) sales occur when all unit owners agree to sell the entire development for redevelopment. This usually requires a majority vote (e.g., 80% or 90%, depending on the age of the property). - The proceeds from the sale are divided among unit owners based on the share value of their respective units. 3. **Termination by order of court** **Lecture 6: Investing in Real Estate and Tax Implications** ============================================================ ### **1. Modes of Investing in Real Estate** #### **1.1 Purchase of Property for Owner-Occupation** - **Definition**: Purchasing a property with the intention to reside in it as a primary residence. (Residential Property) - **Leverage and Financing**: - Typically involves taking out a **mortgage** with a **Loan-to-Value (LTV) ratio** of up to 75% for first-time buyers. (LTV is loan amount as a percentage of property value) - Buyers can use **Central Provident Fund (CPF)** savings for down payments and mortgage payments, making ownership more accessible. - **Total Debt Servicing Ratio (TDSR)**: Ensures that the borrower's monthly debt payments do not exceed 55% of their gross monthly income. (TDSR is the portion of borrower's income goes toward paying off the debt) - **Benefits**: - **Equity Building**: Homeowners gradually build equity as they pay down the mortgage. - **Capital Appreciation**: Over time, property values typically increase, allowing homeowners to benefit from capital gains when selling. - **Property Tax**: Lower tax rates apply for owner-occupied properties compared to investment properties. - **HDB Flats**: Two main methods of purchasing public housing in Singapore are through **Build-to-Order (BTO)** flats or the **resale market**. - **BTO** flats are new units sold directly by the Housing and Development Board (HDB), while resale flats are pre-owned and purchased from existing owners. #### **1.2 Purchase of Property to Sell Quickly (Flipping)** - **Definition**: A short-term strategy of buying real estate at a lower price, making improvements, and selling it quickly for profit. - **Challenges**: - **Stamp Duties and Cooling Measures**: Flipping has become less profitable due to government-imposed measures like: - **Buyer's Stamp Duty (BSD)**: A tax based on the purchase price or market value of the property. - **Additional Buyer's Stamp Duty (ABSD)**: A higher tax for buyers of second and subsequent properties. - **Seller's Stamp Duty (SSD)**: Imposed on properties sold within a certain period, with rates as high as 16% for properties sold within the first year. - **Loan To Value -** LTV ratio - **Total Debt Servicing Ratio -** TDSR - **Capital Gains Tax**: There is no **Capital Gains Tax** in Singapore, which benefits investors engaging in property flipping, but frequent property transactions may be taxed as income. #### **1.3 Purchase of Property to Lease or License** - **Definition**: Buying property to lease it out for rental income or grant a license for temporary use of the property. - Generates **passive income**, as the property generates rental returns over time. - Investors can use **leverage** (mortgages) to reduce upfront capital requirements and benefit from rental income exceeding mortgage payments. ##### **Lease:** - A **lease** grants the tenant **exclusive possession** of the property for a specific period, and the tenant gains a legal interest in the property. The landlord retains **reversionary interest**, meaning the ownership reverts to the landlord at the end of the lease term. - **Fixed Term Lease**: Usually for a defined period (e.g., 1-3 years). It should not be less than 6 months to avoid being classified as short-term leasing, which is restricted in Singapore (like Airbnb). - **Tenant at Will**: When the lease ends, both parties agree to continue the arrangement without a new contract. - **Tenant at Sufferance**: When the tenant stays after the lease expires without the landlord\'s permission. The landlord may need to seek a court order for eviction. ##### **License:** - A **license** is a temporary and revocable agreement that allows someone to use property but does not grant exclusive possession or an interest in the land. Examples include renting a room in an apartment. - **No Exclusive Possession**: The licensee does not have control over the property. - **Revocability**: The license can usually be terminated at any time by the licensor. - **No Legal Interest**: A license is a personal agreement and does not transfer any legal rights over the property to the licensee. ##### **Prerequisites of a Lease:** 1. **Exclusive Possession**: The tenant must have the right to exclude others, including the landlord, from the property during the lease term. 2. **Definite Term**: The lease must specify a start and end date. 3. **Intention to Create Legal Relations**: Both parties must have a clear intention to enter into a legally binding lease. 4. **Formalities**: The lease must be in writing to be enforceable. ##### **Key Covenants in Leases:** 1. **Landlord's Covenants**: - **Quiet Enjoyment**: The tenant has the right to enjoy the property without interference from the landlord. - **Repair Obligations**: The landlord is responsible for major structural repairs and ensuring the property is habitable. 2. **Tenant's Covenants**: - **Paying Rent**: The tenant must pay rent on time and as agreed. - **Usage Restrictions**: The tenant must use the property only for the agreed-upon purpose (e.g., residential or commercial). - **Repair Obligations**: The tenant may be responsible for minor repairs, such as fixing appliances, under a **Minor Repairs Clause**. ##### **Termination of Leases:** 1. **Effluxion of Time**: The lease ends automatically when the agreed term expires. 2. **Surrender**: The tenant gives up the lease before the end of the term, typically with the landlord\'s agreement. 3. **Forfeiture**: The landlord may terminate the lease if the tenant breaches major lease terms (e.g., failure to pay rent). ##### **Tax Implications for Leasing and Licensing:** - **Stamp Duty**: Leases exceeding three years are subject to stamp duty, while licenses are generally not. - **Property Tax**: Higher tax rates apply to non-owner-occupied properties leased out for rental income. - **Income Tax**: Rental income earned by the property owner is taxable, and deductions are allowed for expenses such as repairs, property agent fees, and mortgage interest. #### **1.4 Real Estate Investment Trusts (REITs)** - **Definition**: REITs are investment vehicles that pool funds from multiple investors to purchase and manage income-generating properties, such as shopping malls, office buildings, or industrial complexes. - **Characteristics**: - **Passive Income**: REIT investors earn income through dividends, which are derived from the rental income of the properties. - **Diversification**: REITs own a portfolio of properties, reducing the risk associated with investing in a single property. - **Liquidity**: As publicly traded entities, REITs offer liquidity, allowing investors to buy and sell shares on stock exchanges. - **Professional Management**: REITs are managed by professional property managers, reducing the burden on individual investors to manage properties themselves. ##### **Tax Implications of REITs:** - **No Capital Gains Tax**: Gains from selling REIT shares are not taxed, and dividends from REITs are often tax-exempt for individual investors. - **Dividend Payments**: REITs are required to distribute at least **90%** of their taxable income as dividends, providing a steady stream of passive income for investors. ### **2. Issues/Costs/Risks Associated with Real Estate Investment via Mortgage** - **Stamp Duties**: Buyers must pay **Buyer's Stamp Duty (BSD)** based on the property's market value or purchase price, whichever is higher. - **Additional Buyer's Stamp Duty (ABSD)**: Higher ABSD rates apply to second and subsequent property purchases to cool the market and discourage speculative buying. - **Loan-to-Value (LTV) Ratio**: The maximum loan amount as a percentage of the property's value, with stricter limits imposed for second or subsequent loans. - **Total Debt Servicing Ratio (TDSR)**: Limits the proportion of a borrower's income that can go toward mortgage payments and other debt, currently capped at 55%. - **Fluctuating Interest Rates**: Mortgage interest rates can rise or fall, affecting monthly payments and overall borrowing costs. - **Capital Depreciation**: Properties, particularly **leasehold** ones, can depreciate as the lease term runs out, making it harder to secure financing or sell at a profit. ##### **Freehold vs. Leasehold:** - **Freehold**: The owner holds the property indefinitely, often resulting in higher property values. - **Leasehold**: The property is held for a specific period (usually 99 years), and as the lease nears its end (e.g., after 60 years), banks are less willing to lend, and the property's value decreases. ### **3. Taxation of Real Estate Investments** #### **3.1 Property Tax** - **Owner-Occupied Properties**: Lower tax rates apply to homes used as primary residences. - **Non-Owner Occupied Properties**: Higher tax rates apply to properties rented out for income. #### **3.2 Income Tax on Rental Income** - Rental income is subject to income tax. The **net rental income** (after deducting allowable expenses such as property maintenance, mortgage interest, and agent fees) is taxable. #### **3.3 Stamp Duty** - **Buyer's Stamp Duty (BSD)**: Payable when purchasing property, calculated as a percentage of the purchase price or market value. - **Additional Buyer's Stamp Duty (ABSD)**: Imposed on second and subsequent property purchases. - **Seller's Stamp Duty (SSD)**: Imposed on properties sold within a certain period after purchase, discouraging short-term speculation.