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Shophouse saga leads property agent to sue for her commission share

By 99.co

The shophouses at Sophia Road

Around 2008, a row of nine shophouses along Sophia Road was put up for collective sale. There were around 10 different owners, but for simplicity's sake we refer to them as just “the owners”.

That year a representative of the owners met with Aurum Land - a developer known for high end projects like 21 Richards. They agreed to $31.5 million for the property, and got as far as preparing a draft of the Option-To-Purchase (OTP).

An OTP reserves the right of a buyer to purchase the relevant property. Once the OTP is signed, a buyer has three weeks to exercise the OTP (i.e. buy the property and make the rest of the required payment,) after which it lapses. A deposit is paid to secure the OTP. This is between five to 10 per cent of the purchase price. If the buyer allows the OTP to lapse without buying, a quarter of the deposit is forfeited to the seller.

In 2008 Aurum Land did not sign an OTP, because they discovered there were state restrictions on how the property could be redeveloped. The Urban Redevelopment Authority (URA) places conditions on how shophouses can be redeveloped. For example, special permission is required to convert these to restaurants or student hostels.

We do not know what the restrictions were at the time; regardless, Aurum backed out of the deal. The next year, the owners engaged Isabel Redrup as a marketing agent for the properties, for a period of six months. This included an agreement to a two per cent commission for a succesful deal and so Isabel Redrup began marketing the properties to various investors and developers. One of these advertisements came to the attention of Aurum Land. Upon a second look, Aurum realised that the previous restrictions by the URA had been lifted. Aurum contacted the relevant agent from Isabel Redrup, and entered into negotiations with the owners via the agent.

When things start to go wrong

On January 2010, Aurum sent a Letter of Offer for the nine shophouses. The letter also agreed to a two per cent commission of the sale price, plus GST, to the agent from Isabel Redrup upon closing the sale.

However, the marketing of the property had attracted attention from other buyers as well. A pair of potential buyers were also interested in the property, and entered into discussions with the owners' representative. This resulted in two parallel negotiations going on: the owners' representative was negotiating with a pair of interested buyers, while the property agent was negotiating with Aurum Land. The owners' representative got to the stage of drafting - but not signing - an OTP for the pair of interested buyers. This was for the sum of $32.5 million.

In the meantime, the property agent was still negotiating with Aurum, and had hit a few other legal tangles. The L-shaped lot on which the shophouses sat belonged to an estate, to which the administrator was deceased. This meant that the Singapore Land Authority (SLA) would eventually take ownership and convert it to state land. However, this had yet to occur. It was the property agent who discovered this, and advised the owners' representative. Aurum was willing to purchase the properties for $33.8 million, but this was subject to the SLA turning it to state land, and making it available to sell to Aurum.

In addition, Aurum did not agree to the terms for the OTP. The owners wanted a four per cent deposit for the OTP, in addition to one per cent of the sale price being released to them once the OTP was granted. Aurum did not agree to the one per cent. They agreed to release it only when they had reassurance SLA would alienate the lots to them (this would come in the form of in-principle approval from SLA.) Aurum also noted that the one per cent was "unusual" in collective land sales, and that they were unwilling to commit so much money to a property that they could not start work on and complete for some time yet (they still had to wait for the lots to be alienated to them, even if SLA gave in-principle approval).

With negotiations bogged down, the property agent sent an email to Aurum on August 2010. The email revealed that the owners' representative was close to a deal with the other pair of interested buyers. Via email, Aurum's representative responded to both the property agent, and the owners' representative. The owners were offered the one percent they wanted, with the four per cent deposit to be paid upon exercising the OTP. Aurum's representative stressed that the owners should sign on the deal as soon as possible, and that even then there was no guarantee the board of Aurum would agree to it. The owners' representative informed the property agent that he would recommend Aurum's deal be accepted.

On 8th September 2010, the property agent informed Aurum of this via email, along with a final draft of the Option.

How things fell apart

Aurum responded on 9th September, the day before a public holiday (Hari Raya was on the 10thh of September, which fell on a Friday.) Aurum wrote that their substantive response would be sent on the following Wednesday, the 15th of September. This appeared to irritate the owners' representative, who felt Aurum was complicating the issue. He then informed the property agent that the deal with Aurum was off, and that he intended to continue the transaction with the other buyer. At any rate, Aurum's board was still not agreeable to the one per cent release, and the deal would not have gone through anyway.

On 15th September, Aurum informed the property agent that they were no longer interested in the deal. Nonetheless, the property agent persisted with negotiations. On 22nd September, the property agent emailed the owners' representative. The agent stated that Aurum's board was "walking away" from the deal. The same day, the owners' representative contacted Aurum, and asked for the reason. When the one per cent release was brought up, the owners' representative was surprised. He claimed that it had never been a major issue with the owners, and could be negotiated. The owners' representative then sent an email to Aurum, accusing the property agent of questionable behavior, and suggesting that they conclude the deal without the agent's involvement. There was no further contact between the property agent and Aurum for the rest of the year, as the agent assumed that Aurum was no longer an interested buyer. The property agent continued to market the property.

On January 2011 the agent found potential buyers, and forwarded a draft OTP that would sell the shophouses for $34 million. The owners' representative turned down the offer, and told the agent to stop trying to sell the property for the time being. The agent pointed out that $34 million was the highest offer they had received for the property thus far. The owners' representative again replied that they were not interested. This time, the owners' representative also told the agent not to approach Aurum again, as they had already backed out of the deal. He reiterated that the owners were no longer looking to sell at the time.

The property agent was persistent, and asked the owners' representative if there had been a written valuation of the properties. Again, the agent was rebuffed, and told that the owners had no intention to sell at the time. While this was happening, the owners' representative concluded a deal with Aurum without the property agent's knowledge. On February 2011, Aurum was granted the OTP for the property, at a price of $33.8 million. Aurum exercised the Option on 5th September 2011. On March 2011, the property agent discovered the sale to Aurum. She then sent emails and letters to the owners, asking for the relevant documents for the sale, and her intent to claim the two per cent commission.

The owners' representative sent the following reply: "Good try. Asking for a commission for a sale that you botched up totally??? In your dreams!!! Let's meet in court and see what the judge and the real estate agents' controlling body has to say about this." 

The owners' representative also sent a letter to The Straits Times complaining about the agent (without naming her), a complaint to the CEA, and filed a police report claiming that the agent had forged a draft of the Option sent to Aurum. This expanded the case into one of defamation (which we will not cover here as it outside our remit as a property site.)

The court rules in favour of the property agent

In the resulting legal battle, the property agent managed to win on the following basis:

  • During cross examination, the owners' representative did not deny the intention to pay a two per cent commission to the agent, in the event of a successful property sale
  • Out of 20 draft options that were exchanged between Aurum and the owners, 19 of them included an agreement to pay the two per cent commission. The owners' representative did not object to this or remove this.
  • The property agent was effective in the sale of the property. It was the agent who recaptured Aurum's attention after they turned down the deal in 2008, through advertising and marketing. She was also the one who discovered that the lot was not yet state land, and advised the owners' representative on dealing with the situation. The agent had also done most of the work in negotiating with Aurum, on behalf of the owners, throughout 2010.
  • Many of the agreements of the sale, such as the sale price, the Option fee, the conditions for the exercise of the Option, were worked out between buyer and seller through the efforts of the agent. Even if the actual sale was concluded after the agent's dismissal, the work was done by the agent.

WAS IT FAIR JUDGEMENT?

99.co founder Darius Cheung says “We feel this was a fair judgement, given that the agent had done most of the work. While it’s true that the owners had contact with Aurum before, they failed to make the sale. It was only the second time around, when the property agent had mediated extensively between them, that the transaction was made possible. It was the property agent who re-initiated contact through marketing materials, and negotiated the price for the sale."

"Whilst it is possible to sell your property without an agent, over 90% of transactions in Singapore are made through an agent- narrowing a direct seller’s market significantly. It is key to remember that if you engage an agent at all to sell your property, you are legally bound to pay them a commission”

99.co is a Singapore-founded startup and property portal which offers cutting-edge technology that enables consumers to seek pertinent knowledge found nowhere else, and data in real time.