Efficient use of existing urban land is a pressing concern for cities with limited space to expand. In particular, two cities in Asia, Singapore and Hong Kong, face the twin issues of being extremely densely populated and having most residential land in the form of high-rise buildings which are either co-owned or held in a strata system by private owners. In both jurisdictions, it is generally accepted that property rights are not sacrosanct and may have to give way to more efficient land use in certain circumstances. One use in particular is land assembly, namely the process of marshalling all the diverse rights of a single plot of land that are separately held, so that the land may be more efficiently utilised. Where this process involves taking property rights from private individuals without their consent, it is an example of a private taking. The law on what American literature describes as takings (compulsory acquisition in English law) focuses primarily on public takings (acquisition by public bodies). The legislative endorsement of private takings, or compulsory acquisition by private bodies, is highly controversial.

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In our forthcoming paper in the American Journal of Comparative Law, we compare the novel regimes for private takings of land in Singapore and Hong Kong, both introduced just before the turn of the millennium. We find that while the two jurisdictions face similar challenges in having to undertake land assembly to facilitate urban renewal, the details of how and when such assembly occurs differ not only in respect of the threshold for compulsory sale and the pre-conditions of such sale, but also, more fundamentally, in the role of property developers. In Singapore, the process is usually initiated by the private owners who then negotiate with the proposed developer, while in Hong Kong the sale is typically initiated by developers through piecemeal acquisitions before invoking the process of compulsory sale. This difference in the manner in which the sale takes place can be attributed to the differences in the legislative framework and practice, and has also led to differences in the process and outcomes to the land owners. Private owners are more likely to be able to share in the profits arising out of the collective sale route followed in Singapore than under the piecemeal sale approach in Hong Kong. However, there are also drawbacks. In Singapore, holdouts face peer pressure to sell. In Hong Kong, in contrast, additional profits are shared by the holdouts and the developers, rather than by all of the private owners.

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We argue that the law relating to land assembly can draw from the far richer and more established rules relating to private takings of shares, more commonly known as the law of mergers and acquisitions. Both Singapore and Hong Kong have well-established mergers and acquisitions rules to safeguard minority shareholders who are forced to sell when an acquirer obtains a sufficient supermajority of shares.  The mergers and acquisitions rules should be relevant since similar concerns arise regardless of the nature of the property (land or shares) being compulsorily acquired. If anything, the case for minority protection is stronger in the case of land since in many cases that which is compulsorily acquired is a person’s home.

In this respect, the law on private takings of land faces a glaring deficiency. Neither Hong Kong nor Singapore protects existing landowners by excluding the acquiring developer’s existing shares in a development in computing the requisite supermajority threshold. In the company law context, suppose an acquirer already owns 50% of the shares of a target company and the statutory supermajority threshold for a compulsory sale is 90%. The established rule in mergers and acquisition requires the acquirer to obtain 90% of the outstanding 50% of shares it does not own (i.e. a further 45% of the total shares) in order to invoke the private takings rule. By comparison, the present rule in both jurisdictions relating to private takings of land would allow the acquirer to count its existing shares towards the required supermajority, so that it only needs to acquire a further 40% of all shares (i.e. 80% of the outstanding shares it does not own).  The exclusion of an acquirer’s existing shares in the target company is well established in the company legislation in both jurisdictions as it ensures that only the voices of the independent shareholders count in determining whether the threshold is reached. Otherwise, an acquirer who already holds a large block of shares would be able to ride roughshod over holdouts.

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Our conclusion is also supported by our observations on empirical studies concerning private takings of shares. An empirical study by one of us shows that minority shareholders in Hong Kong receive fewer offers but have much better outcomes (as compared to Singapore). Specifically, greater protection to minority shareholders is provided because the relevant legislation in Hong Kong excludes not only the acquirer’s shares in the target but also shares held by a much wider group of related and affiliated parties.

Additionally, the lack of such safeguards has led to variances between the regimes in relation to land and shares in Singapore for ex gratia incentive payments. The courts in Singapore have permitted ex gratia payments in the private takings of land which would have been disallowed in takings of shares, and have disallowed such payments in situations where they would have been permitted in takings of shares. We argue that such differences arise from the lack of legislative safeguards, resulting in the courts having to apply common law doctrines which are unsuitable to the required task.

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There are two such variances in Singapore. The first is the rule established in Chua Choon Cheng v Allgreen [2009] SGCA 21; [2009] 3 SLR(R) 724, which effectively allowed ex gratia payments to be paid to minority holdouts to achieve a unanimous collective sale. If the situation had been one of the sale of shares, it is well established that, had the company been listed, compulsory acquisition could only have taken place if there was parity of treatment on terms of the offer among all of the shareholders. This is clear under company law and securities regulation. Otherwise, perverse incentives would be created for individual owners, as they would be incentivised to hold out unnecessarily in order to benefit from additional payments.

The second is the rule in NK Rajarh v Tan Eng Chuan [2013] SGCA 62; [2014] 1 SLR 684, which prohibits certain subsidiary proprietors from giving incentive payments. The rule applies to proprietors who are also members in the collective sales committee, which is set up to facilitate the negotiation and conclusion of the sale. It prevents the collective sales committee or their agents from giving incentive payments to other subsidiary proprietors to induce them to agree to the collective sale. The courts have utilised concepts in fiduciary law to impose duties on the members of the sale committee and have held that such payments, despite being made by the individual proprietors out of their own sale proceeds, were inconsistent with their fiduciary duties. Unfortunately, fiduciary law is not an appropriate tool given the fact that such sales committee members are both fiduciaries qua sales committee members but also personally interested in the outcome qua owner. It is not clear that, in offering to forego part of their own personal profits, they are acting in their fiduciary capacity. Nor, assuming they were, is it clear what fiduciary duty is being breached since no loss is being caused to the owners as a whole. Nor is the fiduciary making any profit. No such fiduciary duties are imposed upon directors in a similar situation under the law of mergers and acquisitions, and we argue that there is a larger public interest in encouraging such collective sales compared to that of private takings of shares.

In conclusion, our paper demonstrates that while urban renewal through land assembly is important, the lack of clear safeguards can lead to minority land owners being prejudiced in respect of both process and outcome. The law on mergers and acquisitions can provide some tried and tested ideas for such protection, and while the subject matters are different, it provides a useful starting point for policy makers and other jurisdictions looking at land assembly, such as Australia, Canada, and China.

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How to cite this blog post (Harvard style) 

Low, K, Wan, WY & Chan, A. (2020). Private Takings of Land for Urban Re-development: A Tale of Two Cities. Available at: https://www.law.ox.ac.uk/research-and-subject-groups/property-law/blog/2020/02/private-takings-land-urban-re-development-tale (Accessed [date]).