... guaranteed returns? think again …

an email from my classmate..

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I believe everyone has read about the property market situation in Singapore.

Here's something to share from my property developer friend (from the North).

From the lessons learnt from the financial meltdown, we now know that the word "guarantee" is not what we understand legally...I am writing this from the perspective of a developer.....

A guaranteed is in law an assurance by a third party that if the principal party fails to fulfill its obligations made by the other.

The word guarantee is used by the developer to say that it will make arrangements for the property to be rented at a specified amount for a specified period.

In most situations, an agreement is not entered with the developer but with a management company that is linked to the developer.

In such situation, the following question arises. Is the agreement signed to let the premises to the entity? If so, this agreement would be a landlord-tenant relationship and if the entity is only an undertaking to secure tenants for the buyer, it is only his agent. Therefore the terms of such agreement govern the relationship. At this stage, it emerged that though a guaranteed was initially talked about, in reality it does not exist.

On the other hand, the buyer may be dealing with a party that is not adequately funded. Thus the buyer may successfully bring a claim and obtain judgment for any rent not paid but could be left holding a paper judgment.

A buyer also needs to be aware whether the “guaranteed returns” are on the basis of the unit purchased in its bare form or fully furnished as there can be hidden costs in the arrangement.

The buyer also needs to know in what condition the unit will be handed back at the end of the rental period.

It is always important for the buyer to be aware of the actual obligations as the words such as “guarantee” stated in the promotional material will not create any rights that can be enforced.