Considerations for foreign ownership of non-residential real estate
Apart from any head lease covenants or specifically regulated industries, there are generally no restrictions imposed on entities and individuals seeking to own or lease non-residential real estate (including shares in companies holding non-residential properties) in Singapore, and foreigners are allowed to directly purchase non-residential real estate assets.
Sale and purchase process
Typical process
The following is a summary of the legal due diligence process that is undertaken when acquiring commercial real estate in Singapore:
- The purchaser’s solicitors will carry out a title search at the land-register. Search fees at the land-register are nominal and results can be obtained almost instantly;
- The purchaser’s solicitors will also usually send legal requisitions to the following Government agencies as follows:
- National Environment Agency – Environmental Health Department;
- National Environment Agency – Central Building Plan Department;
- Public Utilities Board – Water Reclamation (Network);
- Inland Revenue Authority of Singapore;
- Land Transport Authority (S&L Department) – Rapid Transit System;
- Land Transport Authority (S&L Department) – Street Works;
- Building and Construction Authority; and
- Urban Redevelopment Authority.
If any of the replies from the relevant Government agencies to the legal requisitions on the property is unsatisfactory, and the vendor is unable to regularise the unsatisfactory matters disclosed in the replies, the purchaser will usually have the right to annul the transaction under the sale contract terms;
- (The purchaser’s solicitors may conduct further due diligence by requesting additional information from the vendor’s solicitors (e.g. whether there are any unregistered documents affecting the property such as tenancy agreements or trust arrangements);
- If there are defects in title, such as missing documents or suspected unauthorised building works or other encumbrances, the vendor will need to respond to, or rectify those deficiencies in order to prove good title;
- As part of technical due diligence, the purchaser may also engage a surveyor to inspect the physical condition of the property, identify whether there is any encroachments affecting the property and ascertain if the fixtures and equipment expressed to be sold are in fact existing and functional as these matters may also affect the valuation of the property;
- In respect of strata sub-divided properties, the purchaser’s solicitors will also seek confirmation from the relevant management corporation that there are no outstanding management fees or breach of the existing by-laws by the vendor;
- Completed properties are typically sold on an “as-is where-is” basis with very limited warranties given on the property; and
- If the property transaction is to be effected via a share sale, then corporate due diligence may be necessary as the company may have other existing liabilities not contemplated by the purchaser.
Other notes
- Legal due diligence may not reveal any unauthorised building works, which may expose the purchaser to further liability.
- It is also important to pay attention to unregistered interests such as tenancies, uncrystallised floating charges and other interests arising from resulting or constructive trusts that may not be found from the land search records obtained from the land-register and which might not have been disclosed by the vendor.
- The Master Plan sets out the designated uses of land. Some uses need permission of the Urban Redevelopment Authority and/or the Building and Construction Authority before building works can commence. Certain approvals are given on a temporary basis and may not be renewed.
- Development works must not commence without first submitting the outline applications and obtaining the planning approval from the Urban Redevelopment Authority.
- A new building cannot be occupied unless a temporary occupation permit has been issued by the Building and Construction Authority.
Sale and purchase contract
General components of a sale contract
Property contracts can be made voidable for lack of certainty if parties’ intentions are not set out in clear and express terms.
The sale contract must contain the following:
- Details of the parties;
- Property address;
- Price of the property; and
- Date of completion.
It is also common to include the following terms:
- Deposit. Timing for payment of the initial deposit (e.g. 1%) and the balance deposit (e.g. 4%);
- Balance purchase price. Timing for payment of the balance purchase price;
- Other payments. Payment of the vendor’s agent’s commission;
- The Law Society of Singapore’s Conditions of Sale. Unless the property transaction is complex, the form of the sale contract is fairly simple and brief, and it is common to supplement the same through the import of standard terms and conditions set out by the Law Society of Singapore by reference in the contract;
- Condition of property. Whether the property is sold “as-is, where-is” or otherwise;
- Possession. Whether the property is sold with vacant possession or subject to any existing tenancies;
- Apportionment of rents and outgoings. Rents and other outgoings are apportioned between the purchaser and vendor up to and including the date of completion;
- Escape clauses. Clauses which entitle either party to withdraw from the transaction under certain circumstances;
- Good title. The title deeds must be delivered to the purchaser on completion free of any encumbrance;
- Default. If the purchaser defaults, the deposit will be forfeited, and the vendor can rescind the agreement and resell the property. Any shortfall arising from such resale and expenses relating to it will be paid by the purchaser. If the vendor defaults, the purchaser can enforce specific performance of the agreement or claim for damages. The purchaser may be able to recover any loss suffered from buying another property and expenses relating to it from the vendor* .
- Proper assurance. On completion, the vendor must execute a Transfer to the purchaser to be registered with the land-register.
As for a typical share sale agreement, many of the above provisions (such as terms (g), (j) and (k)) do not apply as the transaction relates to a transfer of title in the shares and there is no separate transfer of title in the property (which the company already owns). Instead, additional clauses dealing with the corporate aspects of the transaction are required.
Transfer of occupational leases and income
If the property transaction is effected by a share transfer, there is no change in the registered proprietor and the benefit of any occupational leases and income remains the same.
If the property is sold as an asset transfer subject to a lease, a novation agreement should (where possible) also be entered into to replace the vendor with the purchaser as the new landlord, and to assume all the rights, obligations and liabilities under the subsisting lease.
Common rights, interests and encumbrances
Property interests include:
- Legal interest in the form of either an estate in fee simple (i.e. freehold) or a leasehold estate;
- Legal charge over land (e.g. mortgages or statutory charges);
- Equitable interest derived from being the beneficiary of a trust, whether such a trust is intentionally created by a settlor, or arises by operation of the law in the form of a resulting or constructive trust;
- Restrictions; and
- Easements.
These rights are created by registering the relevant instruments at the land registry. Such registration operates as deemed notice to any third party. Unregistrable interests, such as trusts arising by operation of the law or leases for a term of less than seven years, are protected by common law rules.
Typical representations and warranties
There are no legal requirements for a vendor to give a purchaser any warranties. However, a purchaser will often require a vendor to provide warranties on the following matters:
- That the vendor has not received any notices adverse to the vendor’s interest in the property;
- No third party has any right or interest whatsoever, whether legal or equitable, in the property;
- The property is not adversely affected by any encumbrances of which the vendor is aware or could have ascertained on reasonable inquiry; other than those disclosed in the agreement, or which the purchaser is aware of or could have ascertained on reasonable inspection of the property;
- Tenancies;
- That the property is not subject to any litigation;
- Corporate matters;
- Vendor’s capacity; and
- Other matters arising out of the due diligence enquiries.
Whether or not the vendor gives the warranties will depend on the bargaining power of the parties and the commercial imperatives behind the deal. Warranties can be limited by disclosure of specific matters and imposing time limits.
Remedies against misrepresentations
The vendor is liable to the purchaser when he makes an untrue statement of fact which is relied on by the purchaser, and as a result of which loss is suffered.
Costs relating to sale and purchase of real estate
Tax
Under the Stamp Duties Act (Cap. 312), the purchaser may be liable for the payment of ABSD in addition to the buyer’s stamp duty (BSD) for the acquisition of property, while the vendor may be liable for seller’s stamp duty (SSD) for disposition of property. However, commercial properties are currently exempted from the ABSD and SSD regime.
If a purchaser acquires a commercial property via a share transfer of a company, the current stamp duty payable will be 0.2% of the higher of the purchase price or the net asset value of the shares. However, if the company’s tangible assets are primarily residential properties, additional conveyance duty (ACD) may be payable on such transfers, in addition to the existing stamp duty of 0.2%. Exemptions may apply to transfers between associated companies.
Estate agent’s fees
The estate agent arranges for listing and viewing of property. He/she may assist the vendor and purchaser to negotiate key commercial terms of the sale and purchase. The estate agent may also at times provide a standard form sale contract (which may be reviewed and commented by lawyers). He/she also assists parties in matters like preparing an inventory list and arranging for inspection of the property if so agreed between the contracting parties. Estate agents’ fees are charged at a usual rate of 1% of the purchase price but this is open to negotiation. Typically, the fees are payable by the vendor from the sale proceeds.
