RHTLaw Taylor Wessing Managing Partner Tan Chong Huat was featured in The Business Times article titled “New hope for Reit unitholders with SFA Amendment?”. The article was first published in The Business Times on 6 April 2017. New hope for Reit unitholders with SFA Amendment? Source: The Business Times © Singapore Press Holdings Ltd. Date: 6 April 2017 Author: Tan Chong Huat, Joseph Lau, Gerald Tham IN the first of this two-part article, we explored some options available to unitholders of a Real Estate Investment Trust (Reit) to hold a Reit manager accountable for its actions. In this second part, we discuss the impact of the Securities and Futures (Amendment) Act 2017, and consider whether recent events in the Reits industry will impact and shape discourse on future development of the Reits regime. Putting unitholder interests first When the 2017 SFA Amendment Act becomes effective, a Reit manager will have a statutory duty to act in the best interests of the unitholders and to give priority to the interests of unitholders over its own interests, or the interests of its shareholders, should there be a conflict of interest. Breach of this duty renders the manager liable to all unitholders for any profit, directly or indirectly made by it or any of its related companies, or for any damage suffered by the unitholders as a whole. This is also a criminal offence, where the Reit manager may be liable to a fine not exceeding S$100,000. The 2017 SFA Amendment Act also imposes duties on the directors of the manager to take all reasonable steps to ensure that the Reit manager discharges its duties and to give priority to the interests of unitholders over the manager's own interests, or the interests of the manager's shareholders, should there be a conflict of interest. Directors who contravene these duties will be liable to all unitholders for any profit, directly or indirectly made by them or the manager or any of the Reit manager's related companies, or for any damage suffered by the unitholders as a whole. This is also a criminal offence, where the directors may be liable to a fine not exceeding S$100,000 or up to two years imprisonment. There are three important qualifiers to these statutory duties. First, the 2017 SFA Amendment Act has not yet taken effect, and thus these provisions are still outside the range of options available to unitholders. Second, proceedings against a director of a Reit manager would only be allowed where the Reit manager has conducted the affairs of the Reit or exercised its powers in a manner that is oppressive or disregards unitholders' interests, or where an act of the Reit manager has been done or is threatened which unfairly discriminates or is prejudicial to unitholders. As examined in the previous article, it is not presently clear how the Singapore courts will interpret or apply these requirements. Finally, the 2017 SFA Amendment Act is not likely to have retrospective effect, which means that it is not clear whether the actions taken by a Reit manager or its directors before the date when the 2017 SFA Amendment Act becomes effective, can be used to support a claim for breach of these new statutory duties. It remains to be seen whether a Reit manager who had placed itself into a position of conflict before the effective date of the 2017 SFA Amendment Act, and continues to be in such a position of conflict thereafter, would be liable for a breach of any statutory duties. What's next for the Reits regime? In light of the above challenges, would further changes need to be implemented in the Reits regulatory regime in the foreseeable future? Here we would point out that the revised Code on Collective Investment Schemes (CIS), which was issued on Jan 1, 2016, and the 2017 SFA Amendment Act, resulted from a wide-ranging consultation on enhancements to the regulatory regime governing Reits and Reit managers, initiated by the Monetary Authority of Singapore (MAS) as recently as 2014. The revised CIS incorporated changes to, among others, align the performance fee structure with the long-term interests of a Reit's unitholders, and enhance disclosures relating to income support payments. In the consultation, MAS requested feedback on whether the current approach of relying on unitholders to initiate a review of the Reit manager's appointment is effective, and if not, the additional possible measures that could be considered. MAS noted that "respondents were of the view that it is currently not difficult for unitholders to convene an extraordinary general meeting to obtain a simple majority that is needed to remove a Reit manager". MAS also noted that there was a general consensus that the current approach is broadly effective, and that no regulatory intervention was needed at that time. However, as examined in the previous article, such recourse may not be feasible for unitholders of a Reit whose units are still substantially held by the Reit's sponsor and related parties. At this juncture, it is not clear what further regulatory change in the Reits regime could be implemented. One possible avenue is to explore targeted requirements to prevent the "clever financial engineering" that a Reit manager may undertake "to disguise inherent blemishes", such as an acquisition by the Reit manager of assets at inflated prices and the leaseback of these assets to the vendor at inflated rents, which Ho Ching cautioned against in her speech marking the listing of MapleTree Logistics Trust on July 28, 2005. Aligning interests Another possible way forward would be for stakeholders to revisit the measures to ensure the interests of all unitholders are aligned with those of the Reit manager, and consider whether the existing suite of measures to promote financial transparency and improve corporate governance are sufficient. These could include examining the compensation structures adopted in the industry and subject the same to tighter parameters including independent approval by unitholders at annual general meetings such that the Reit manager's fee structure is more closely aligned with the long-term interest of the Reit and its unitholders, and adopting best practices with respect to the charging of acquisition and divestment fees by a Reit manager by subjecting the same to a mandatory review and approval process by the audit and/or risk committee(s). These measures were not implemented in the last review of the Reits regime, in light of the varying business models of Reits and practical difficulties in implementation, respectively. In addition to strengthening investor confidence in Reits, these proposed changes would need to be balanced against attracting more Reit listings to Singapore and possibly stymieing the development of S-Reits as an asset class. Mr Tan is managing partner of RHTLaw Taylor Wessing LLP; Mr Lau and Mr Tham are associates of the firm.

RHTLaw Taylor Wessing Managing Partner Tan Chong Huat was featured in The Business Times article titled “Pushing for greater accountability of Reit managers in Singapore”. The article was first published in The Business Times on 5 April 2017. Pushing for greater accountability of Reit managers in Singapore Source: The Business Times © Singapore Press Holdings Ltd. Date: 5 April 2017 Author: Tan Chong Huat, Joseph Lau, Gerald Tham WHILE Singapore is now the second largest Reit market in Asia, recent headlines have highlighted possible deficiencies of the Reit industry, including the accountability of Reit managers. This issue has not gone unnoticed by the authorities. While the conduct of Reit managers is currently regulated by the Code on Collective Investment Schemes (CIS) and the common law, Parliament in January 2017 passed the Securities and Futures (Amendment) Act 2017, which introduces statutory protections for unitholders against the failure of Reit managers and their directors to act in the best interests of unitholders. In this first of a two-part article, we explore some options available to the unitholders of a Reit under the current regime to hold a Reit manager accountable for its actions. The Singapore courts have yet to determine whether the manager of a Reit owes fiduciary duties to unitholders. Nevertheless, Lee Chiwi, who authored a book on the legal nature of a unit trust, suggests that such duties are owed for two reasons. First, Reit managers exist not solely for their own benefit, but also for the benefit of unitholders, which is a characteristic common to fiduciaries. Second, a Reit manager's position should be supervised under equitable principles as unitholders are not able to unilaterally amend or determine what powers and duties a manager possesses under the trust deed of a Reit. Unitholders are also vulnerable with limited or no rights to interfere with the management of the Reit, as the manager typically has autonomy to determine how the interests of unitholders are served. The trust deed of a Reit is required to contain provisions which allow the manager to be removed by a simple majority of unitholders present and voting at a general meeting (with no unitholders being disenfranchised), and to allow a general meeting to be convened at the request of at least 50 unitholders or unitholders representing at least 10 per cent of the issued units of the Reit. While convening a general meeting to pass a resolution to remove the manager is theoretically possible, this may prove difficult in practice. In a 2007 article in the Singapore Academy of Law Journal, Adjunct Associate Professor Joseph Chun noted that Reit managers are usually owned by the sponsor of the Reit, which in turn would typically hold the lion's share of units in the Reit and thus a greater proportion of the voting power. Therefore, even if unitholders are able to requisition a general meeting, they may find it difficult to gather the required simple majority to pass the resolution for removal of the manager. The CIS requires a Reit manager to "have arrangements in place to take all reasonable steps to obtain the best possible result for the scheme, taking into account the following execution factors: price, costs, speed, likelihood of execution and settlement, size, nature or any other consideration relevant to the execution of a trade or transaction". That said, the requirements of the CIS are not statutory obligations, and a breach of the CIS does not itself generate criminal liability. If, however, a breach of the CIS is established, it may support the unitholders' case in civil or criminal proceedings that the manager is liable. Also, the Monetary Authority of Singapore (MAS) may take into account a breach of the CIS in determining whether to revoke or suspend the authorisation of the Reit, or to refuse to authorise new schemes by parties responsible for the breach in question. Nevertheless, it may not be easy or rewarding for unitholders to show that a manager has breached the CIS. For instance, it is unclear whether paying a higher price for a property acquisition from a related party would in itself demonstrate that a Reit manager did not use "all reasonable steps" to obtain the best possible result for the Reit. Moreover, given the possibility of the authorisation of the Reit being revoked or suspended by MAS, unitholders may wish to consider whether establishing such a breach achieves their objectives, as such revocation or suspension of authorisation may negatively impact the value of their investment in the Reit. For instance, if it is clear that, but for the manager's under-performance, the Reit would be performing well, it is more sensible for unitholders to explore other options to preserve the Reit as an investment vehicle whilst addressing the quality of management. The most advantageous option for unitholders will depend on the unique circumstances of each case. Unitholders may apply to the Singapore courts for an order under the Securities and Futures Act where the Reit manager has conducted the affairs of the Reit or exercised its powers in a manner that is oppressive or disregards unitholders' interests. Another ground for such application to the Singapore courts is where an act of the Reit manager has been done or is threatened which unfairly discriminates or is prejudicial to unitholders. The court is empowered to make a wide range of orders, including an order which cancels or varies any transaction or regulates the conduct of the affairs of the Reit manager in the future. However, there are no instances where the Singapore courts have interpreted or applied this provision in the Securities and Futures Act, and it remains to be seen how these grounds would be satisfied. The writers are from RHTLaw Taylor Wessing LLP. Tan Chong Huat is managing partner of the firm; Joseph Lau and Gerald Tham are associates. The second part of this article will discuss the impact which the recent amendments to the Securities and Futures Act are expected to have on the regulatory regime for Reits, and consider whether recent events in the Reits industry will impact and shape discourse on the Reits regime.

RHTLaw Taylor Wessing Head of Litigation and Dispute Resolution Practice Roderick Martin, SC was featured in The Edge Singapore article titled “Singapore responds as financial crime evolve”. The article discussed how financial crimes have evolved over the years,  including a new generation of white-collar criminals and greater sums of money involved. It questioned whether Singapore built herself into an international financial centre for a cess pool for financial crime. Mr Martin noted the scope of what constitutes as wrongdoing has expanded over the years. “Now, we have the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act, the Securities and Futures Act, the Companies Act, et cetera, that have outlawed many forms of financial malpractice,” he said. Furthermore, as the business landscape evolved, so have the laws been constantly updated. Mr Martin added, “What all this shows is that the authorities are alive to the many and varied challenges posed by developments in the marketplace if and when they take place. It is therefore unfair to say that more can be done to combat financial malpractice. In fact, much has been done.” As financial crimes evolve, it becomes increasingly difficult for authorities to predict where abuses of the law may happen. “Nobody has a crystal ball. It is therefore inevitable that the authorities will by and large be a step behind,” he said. The full article, “Singapore responds as financial crime evolve,” can be found in The Edge Singapore, 13 March 2017.

RHTLaw Taylor Wessing Deputy Head of Real Estate Sandra Han was featured in The Business Times article titled “Targeted approach likely to have muted market impact”. The article was first published in The Business Times on 11 March 2017. Targeted approach likely to have muted market impact Source: The Business Times © Singapore Press Holdings Ltd. Date: 11 March 2017 Author: Lynette Khoo WITH the government seen taking a targeted approach to adjusting the seller's stamp duty (SSD) and the total debt servicing ratio (TDSR) framework, market players believe the impact on the property prices and transactions will be muted. But it is highly debatable as to whether the move signals the start to a gradual unwinding of property cooling measures, with most observers perceiving the government's stance as largely unchanged. As things stand, it is not only retaining the current additional buyer's stamp duty rates (ABSD) and loan-to-value limits, but also imposing new taxes on transfer of shares in residential-property-holding entities to mimic the ABSD on direct residential transactions. "Rather than signal an outright relaxation on property cooling measures, the government's latest announcement reflects how the government is responsive to market feedback and can take small steps to "test the waters"," said Sandra Han, deputy head of real estate at RHTLaw Taylor Wessing LLP. Concurring, Cushman & Wakefield research director Christine Li said: "We expect the overall impact to the residential market to be rather muted, as the easing is just a minor tweak to help certain groups who are adversely affected by the cooling measures." Under the revised SSD scheme, the holding period for residential properties - after which the SSD will not apply - is reduced to three years from the date of purchase instead of four years. The SSD rates for each tier are also cut by four percentage points. But since the reduced SSD rates apply only to properties purchased from March 11, this is unlikely to have a major impact on transaction volumes in the near term nor would speculative activities set in, property consultants say. "Over the years, SSD has perhaps deviated from its original intent and lost its relevance given that other measures such as ABSD and TDSR have been put in place to deter speculation," Ms Li said. "On the flipside, SSD can potentially hit one group of home owners really hard - those whose circumstances change due to unforeseen events such as deaths, divorces and job losses." Property consultants note that the move to waive the TDSR framework on mortgage equity withdrawal loans not exceeding half of the value of the mortgaged property is also expected to affect only a small group of owners. Such equity loans can typically be obtained by borrowers against their existing property, for which they have been paying down the mortgage. Such changes will help homeowners to monetise their properties in their retirement years, said PropNex CEO Ismail Gafoor. The TDSR framework - which caps all borrowings of an individual at 60 per cent of gross monthly income - still largely applies in most situations. Nonetheless, the latest moves may be perceived as the start of unwinding of cooling measures, said JLL national director for research and consultancy Ong Teck Hui. This could lead to more buyers coming back to the market as they perceive the market is bottoming and hopeful of a recovery, he said. Many market players are more worried about the amendments to the Stamp Duty Act, particularly for unforeseen consequences on business transactions. The government is imposing new taxes, known as Additional Conveyance Duties (ACD), on transfer of shares on property holding entities (PHEs) that primarily own residential properties in Singapore. The ACD on the buyer that becomes a significant owner mimics the buyer's stamp duty of up to 3 per cent plus a 15 per cent ABSD; the ACD at a flat 12 per cent on the seller with significant ownership during the three-year holding period is higher than the reduced SSD on direct sale of residential unit. Still, a prevailing 0.2 per cent stamp duty for transfer of shares will continue to apply. This is seen as one of the ways to expand tax revenue sources, quipped SLP International executive director Nicholas Mak. Apparent outcomes from this could be higher transaction costs to property funds and developers. It could also push developers who are hard-pressed by looming deadlines to sell out their projects under the conditions of qualifying certificates or ABSD remission clawback to offer units directly at steeper discounts. Of greater concern is some unintended consequences that have not been envisaged. This move is "yet another wound for the real estate funds management industry" but fund managers are hardly speculators of residential properties, said International Property Advisor key executive officer Ku Swee Yong. The ACD on share transfers may also affect estate planning, he said. Another tricky situation may be when companies undertake joint venture (JV) agreements for property development, according to Dentons Rodyk & Davidson senior partner Lee Liat Yeang. When a company acquires the land first via a property holding entity before bringing in a JV partner, it is unclear if the sale of a 50 per cent stake in that entity to the JV partner will incur ACD. PwC real estate and hospitality tax leader Teo Wee Hwee felt that government should provide clarity on these issues. In principle though, a new JV partner should be able to obtain the same ABSD remission that applies to a property developer, he said. "The new rules should not be seen stifling economic activities in real estate."