BFC Development LLP v Comptroller of Property Tax

Tay Yong Kwang J :

[1] This case turns on the interpretation of s 8 of the Property Tax Act (Cap 254, 2005 Rev Ed) (“the Act”). The applicant, BFC Development LLP (“the Applicant”), is seeking property tax refunds under s 8 of the Act from the respondent, the Comptroller of Property Tax (“the Comptroller”), in respect of various units (“the units”) that the Applicant owns at the Marina Bay Financial Centre Towers 1 and 2 situated at Nos. 8 and 10 Marina Boulevard (respectively, “Tower 1” and “Tower 2”).

[2] On 17 July 2012, I granted leave to the Applicant to apply for a mandatory order that the Comptroller refund the property tax in issue and for a declaration that the Applicant is entitled to such refund. I heard the parties on the substance of the application on 25 October 2012 and reserved judgment. Having considered the arguments, I have come to the view that the Applicant is not entitled to the property tax refunds under s 8 of the Act for the reasons that follow.

[3] The Temporary Occupation Permits (“TOPs”) for Towers 1 and 2 were issued on 18 March 2010 and 27 August 2010 respectively. However, prior to those dates, the Applicant had already found parties committed to leasing various units therein. These tenants had signed Letters of Offer (“Offer Letters”) enclosing the Form of Lease agreement with the Applicant and were granted legal possession of the units upon issuance of the TOPs. The Offer Letters provided the tenants with a rent-free period for the units to be fitted out for occupation (“fitting-out period”) before the commencement of the lease on the term start date. Save for the fact that the duration of the fitting-out periods differed among the various tenants, the Offer Letters were fairly standard, providing that:

[4] The various units were individually assessed by the Chief Assessor for property tax purposes and tax was duly paid for each unit, including tax assessed in respect of the fitting-out periods. Following that, the Applicant filed claims for property tax refunds for the various units for the period starting from the TOP date and ending at the commencement of the respective leases (“claim periods”). These claims were made pursuant to s 8(1) of the Act which provides for a refund of property tax where the property is “unoccupied” for an unbroken period of at least 30 days or a calendar month.

[5] Although the Comptroller initially allowed the claims for refunds in respect of the entire claim periods, it later withdrew the refunds, explaining in a letter dated 10 April 2012 that no refunds were due to the Applicant as the units in question were “occupied”. In a subsequent letter dated 7 June 2012, the Comptroller further explained that the rent-free fitting-out periods given to the tenants did not qualify for refunds as the tenants were already in “possession” of the properties.

[6] The Applicant then took out the present Originating Summons pursuant to Order 53 of the Rules of Court (Cap. 322, R 5, 2006 Rev Ed) for leave to apply for a mandatory order and a declaration that it is entitled to such refunds for the claim periods during which the Applicant did not receive any rent.

[7] Property tax in Singapore is levied on the ownership of property, independent of its occupation or beneficial use (Malaysia Investments Ltd v Chief Assessor [1969] 1 MLJ xlix at li). However, s 8 of the Act provides for a full tax refund where tax has been paid for unoccupied premises, provided certain specified conditions are fulfilled:

[8] The meaning of “unoccupied” in s 8(1) of the Act is at the crux of the present dispute. The specific issue to be resolved is this: can a property be said to be “unoccupied” for the purposes of s 8 of the Act where a tenant has commenced work to fit out the property prior to actually moving in?

[9] Counsel for the Applicant, Mr Tan Kay Kheng (“Mr Tan”), submitted that a property is “unoccupied” where there has been no enjoyment of it, eg, when it is “merely being prepared for future occupation”. It follows, he argued, that the units were “unoccupied” for purposes of s 8 during the fitting-out period. In reply, Counsel for the Comptroller, Mr Lau Kai Lee (“Mr Lau”), argued that the relief provided under s 8 was only intended for property owners who are genuinely unable to let out their properties. He stressed that the Applicant was not in such a position because it had already found tenants who were in possession of the various units and were already carrying out fitting-out works therein.

[10] In considering the issue of whether the units were “unoccupied” during the fitting-out periods for purposes of property tax refund, the starting point must be the Act itself. This is crucial because “occupation” is capable of taking on various shades of meaning dependent upon the specific context under consideration. As Lord Nicholls observed in Graysim Holdings Ltd v P & O Property Holdings Ltd [1996] 1 AC 329 at 334-335:

[11] The key word in contention here - “unoccupied” - is not defined in the Act. The only oblique assistance from the Act is in s 2(1), which defines “occupier” as follows:

Greater insight may however be derived from the legislative history of the refund provisions which were briefly removed from our statute books from 1961 to 1963 before being reinstated in modified form on 1 January 1964.

[12] Section 8 of the Act may be traced back to s 60 of the Municipal Ordinance (Cap 133, 1936 Ed), which provided as follows:

[13] The same language was adopted in s 110 of the Local Government Ordinance (No. 24 of 1957) which also provided for refunds where the building in question was “unoccupied and no rent is payable in respect thereof”. These refund provisions were however omitted when the Property Tax Ordinance (No. 72 of 1960) came into force on 1 January 1961.

[14] There appeared ostensibly to be two reasons for the omission of the refund provisions in the Property Tax Ordinance. First, property tax became a tax on ownership of immovable properties instead of rates levied on the beneficial use of the properties. Refunds on property tax in respect of unoccupied properties were thus seen as being inconsistent with the levying of property tax based on ownership. In the words of the then-Minister for Finance, Dr Goh Keng Swee, during the Second Reading of the Property Tax Bill 1960 (Sing. Parliamentary Debates, vol. 14, col. 896 (29 December 1960)):

[15] Second, it appeared that Parliament wanted to discourage vacancies at a time when there was an acute shortage of housing in Singapore. As Dr Goh Keng Swee explained (Sing. Parliamentary Debates, vol. 14, col. 904 (29 December 1960)):

(see also Leung & Usilappan, Property Tax in Singapore and Malaysia (Butterworths, 2 Ed, 1997) (“Property Tax in Singapore and Malaysia”) at 89-90).

[16] Subsequently, the housing situation improved and the refund provisions were reintroduced by the Property Tax (Amendment) Ordinance 1963 (No. 25 of 1963) which came into force on 1 January 1964. The relevant refund provision stated as follows:

[17] The reintroduction of the refund provisions was justified during the Second Reading of the Property Tax (Amendment) Bill in the following way (Sing. Parliamentary Debates, vol. 22, cols 1019-1020 (19 December 1963) (Minister for Finance, Dr Goh Keng Swee)):

I note here that the words “unoccupied” and “vacant” have been used interchangeably in the Minister’s speech.

[18] In the light of the foregoing, can the units be considered “unoccupied” for the purposes of s 8 of the Act during the fitting-out periods? I do not think so. Parliament’s intention was clearly to alleviate the financial burden on property owners who have failed to obtain tenants for their properties despite having expended reasonable efforts to let out their properties at a fair rental. This policy is expressed through the four conditions set out in s 8(4) of the Act and “unoccupied” in s 8(1) must be construed with this in mind. I add here that “unoccupied” in s 8(1) is synonymous with “vacant” in s 8(4)(d). This accords with the words’ ordinary meaning and with the Minister’s speech at [17] above. The sort of vacancy contemplated in s 8(5) is where the property in question is “undergoing repairs for the purposes of rendering it fit for occupation”. Such “repairs” are not the sort of works done during the fitting-out periods. If it were otherwise, then s 8(4)(a) (“that the building is in good repair and fit for occupation”) could not be satisfied in any event. The parties are agreed that s 8(5) is not relevant here as the issuance of the TOPs in this case is prima facie evidence that the units are suitable for occupation (s 12(4) of the Building Control Act (Cap 29, 1999 Rev Ed)).

[19] There is also a fundamental problem with the Applicant’s case arising from the requirement in s 8(4)(b) of the Act that the property owner must establish that he has made “every reasonable effort to obtain a tenant”. Such a requirement must rest on the premise that no tenant has yet been found by the property owner claiming a refund under s 8, a state of affairs which is clearly absent in the present case where a tenant has already been found and who has been given the permission to take possession of the units and commence his preferred fitting-out works before moving in. Such a premise was clearly also inferred by the authors of Property Tax in Singapore and Malaysia who observed at 92-93 as follows:

[20] To get around this difficulty, the Applicant pointed to the fact that s 8(4) does not explicitly state that a property owner is precluded from claiming a refund once he finds a tenant. However, the fact that tax refunds under s 8 are given where a building is vacant because the owner is unable to get a tenant must be implicit, if not obvious, for s 8(4)(b) of the Act to make sense. I also reject the Applicant’s argument that, unlike the requirement of vacancy in s 8(4)(d), the requirements in ss 8(4)(a) to (c) are not tied to the claim periods. This would lead to the perverse result that an owner may claim a refund over a twelve-month period although the building was not fit for occupation during eleven of those twelve months. Similarly, an owner who expends no effort to obtain a tenant during eleven out of twelve months would be able to recover property tax refunds for the full year as long as the property was kept vacant throughout the year. Such a construction of s 8 would defeat the express policy of compensating an owner who has failed to obtain a tenant despite genuine efforts to let out his property at fair rental. In my opinion, the words “during the whole of the period in respect of which a refund is claimed” in s 8(4)(d) ought to apply to ss 8(4)(a) to (c) as well.

“Possession” as occupation

[21] Mr Lau attempted to justify the same outcome by equating “occupation” with “possession”. Relying on Lee Wah Bank Ltd v The Commissioner of Federal Capital of Kuala Lumpur (1962) 28 MLJ 23 (“Lee Wah Bank”), he argued that there must be sufficient control over a property for the property to be occupied. In that case, a holding of a bank contained over its entire area a nine-storey building in the course of construction. The relevant statutory provision (s 2 of the Town Board Enactment) provided the Commissioner with the option to assess any holding which is vacant or unoccupied or only partially built upon at 10% of its improved value. The Commissioner exercised this option and the bank appealed. The court allowed the bank’s appeal and made the following observations on the meaning of “occupation” (Lee Wah Bank at 24-25):

[22] This raises the question: what amounts to “sufficient control”? Mr Lau submitted that “possession” should be the touchstone, such that the Applicant’s tenants must for all intents and purposes be taken to be occupying the units from the time they take possession at the start of the fitting-out periods. That appears to me to be a sensible and workable solution. In this sense, the right to occupy is equated with occupation even if the tenant has not factually shifted into the units. Similarly, the units would not be unoccupied or vacant even if the tenant decides to move in later than he is entitled to for whatever reasons. The fact that certain restrictions were imposed during the fitting-out periods, for instance, disallowing the use of common property such as the toilets (the management charge was waived too, possibly to compensate for such restrictions), does not detract from the reality that the tenants were in possession of their units and had the right to occupy (ie, move into the units) even though they chose not to do so for the time being, whether it was because they wished to furnish or improve the units first or due to other reasons specific to each tenant. Under the Offer Letters, an earlier factual moving in during the fitting-out period merely triggered the early payment of rent (termed a Business Commencement Charge). This can be seen from clauses 8.4 and 8.5 of the Offer Letters::

[23] Although occupation presupposes a sufficient measure of control to prevent strangers from interfering, such control is not capable of being defined conclusively and comprehensively. It is a factual matter to be decided in accordance with the legislative intent underlying s 8, as set out in [18]-[20] above, and in a way consonant with commonsense.

[24] For instance, an owner may authorize an estate agent to conduct an “open house” every weekend for the purpose of allowing prospective tenants to view the premises. The estate agent could conceivably be within the definition of “occupier” in s 2(1) of the Act as someone “having the charge, management or control ... as agent of another person”, yet the premises in question could not be said to have ceased to be vacant on those weekends. Similarly, where an owner hires a caretaker to clean an unoccupied apartment once every month, it would be hard to assert that the apartment has ceased to be unoccupied. I think the same can be said of an unoccupied bungalow being guarded 24 hours a day by security personnel.

[25] The Applicant’s attempt to root the notion of “occupation” in the requirement of “enjoyment of the property” is also problematic at several levels. First, it begs the question: what does “enjoyment” mean? The Applicant’s response is that enjoyment entails the usage of the property according to its intended purposes, ie, there is no enjoyment of the units in question during the fitting-out periods because those units were then “unfurnished and not ready for habitation for the particular would-be tenant’s purposes”. Mr Tan agreed during oral submissions that this effectively means that there can only be “occupation” when the tenant has officially moved into the premises and has commenced business.

[26] Such a construction can however lead to absurd results. Taken to its logical conclusion, it would mean that if a tenant fails to complete his fitting-out works within the stipulated fitting-out period, such that the fitting-out works overrun into the lease term, the owner would be able to claim property tax refunds in respect of the period of overrun because there is no enjoyment of the property according to its intended purposes until the fitting-out works are completed. This is inconsistent with the legislative intent of providing relief where no tenancy is secured and Mr Tan rightly stopped short of arguing that property tax refunds would be claimable during the period of overrun. He agreed during oral submissions that in such a situation, refunds may only be claimed up to the lease start date. This however undermines the argument that “occupation” in s 8 is tied to the enjoyment of the property.

[27] Second, the English authorities from which the Applicant drew inspiration for its argument based on the “enjoyment of the property” are not directly applicable. Indeed, one must proceed with caution when referring to English cases in this field. Rating in England is based not on ownership but on occupation which is actual, exclusive, beneficial and sufficiently permanent (Ryde on Rating: The Law and Practice (Butterworth & Co, 13 Ed, 1976) at 20, 26-27). Judicial interpretation of “occupation” in England is therefore often coloured by this context. For instance, the Applicant relied on the following passage in Arbuckle Smith & Co Ltd v Greenock Corporation [1960] AC 813 (“Arbuckle Smith”) at 823-824 per Lord Reid:

[28] It is however important to note that Arbuckle Smith was concerned with rateable occupation in England. The appellants there had acquired certain premises with a view to using them as a bonded warehouse but before the premises could be used for that purpose, certain security requirements needed to be fulfilled. The appellants thus made alterations with a view to improving the premises’ security. The specific question before the Privy Council was whether the premises were “unlet, unoccupied and unfurnished” such that the appellants were not liable for rates on the premises. Although Lord Reid had set out to consider “unoccupied” as an ordinary word of the English language, it did not appear that the discussion could be so neatly divorced from the context. It appears instead that the analysis was closely tied to the question of rateability and therefore the type of use to which the property was put. This is apparent when Lord Reid proceeded to hold as follows (Arbuckle Smith at 824-825):

[29] The notion that some form of “enjoyment” of the property must exist for it to be occupied was also expressed by Lord Radcliffe, whose analysis was deeply coloured by the particular context in question (Arbuckle Smith at 826-829):

[30] Mr Tan also argued that refunds ought to be made in respect of the fitting-out periods because rent was not collected by the Applicant during those periods. In this connection, he argued that s 8 was put in place to protect property owners from being unduly penalised by the charge of property tax where the said owners were unable to collect any rent despite making a genuine effort to let out the property at a fair rental. The non-collection of rent is however a separate matter from the inability to secure a tenant (and therefore having no rental income) and it is clearly the latter which Parliament was concerned with (see [17] above). On the facts, the Applicant had already obtained tenants for its units and had willingly extended rent-free fitting-out periods to the tenants prior to the official lease start dates. These concessions must, as Mr Lau correctly argued, be viewed in tandem and holistically with the lease terms such that the fitting-out period, although rent-free, essentially formed part of the lease arrangement between the Applicant and the respective tenants. The property tax regime cannot be defeated by simply stipulating that part of the lease term is to be rent-free.

[31] There are two further difficulties with the Applicant’s contention. First, when the refund provisions were reintroduced in 1964, the words “and no rent is payable in respect thereof”, which formed part of s 60 of the Municipal Ordinance (Cap 133, 1936 Ed) and s 110 of the Local Government Ordinance (No. 24 of 1957), were conspicuously omitted. This probably had to do with the change in basis on which property tax was levied, viz, post-1961, the levy of property tax no longer depended on beneficial use of the property and therefore whether rental income was received in respect of the property was no longer determinative (see Property Tax in Singapore and Malaysia at 85). Accordingly, Mr Lau argued, quite correctly, that the removal of that phrase signified that payment of rent is not a factor to consider for the purposes of s 8 of the Act.

[32] Although it is implicit that with a tenant comes rent, where a landlord agrees to forego rent for any period, that is a commercial decision taken willingly by him. The refund provisions lighten his tax burden where he is genuinely unable to secure a tenant for his property, not where he decides to forego rent in order to make the rental of his property more attractive to the tenant.

[33] Second, according determinative weight to whether rent has started to accrue may encourage property owners to provide tenants with longer rent-free fitting-out periods in order to claim tax refunds while recouping the rent lost during those periods by back-loading the rent after the term start date. This can be easily done if the lost rent is spread out over a 24-month or 36-month tenancy. This would certainly fly in the face of the policy underlying s 8 of the Act. I acknowledge, however, the counter-argument that such back-loading of rent may also have the effect of raising the annual value of the property, resulting in higher taxes being paid by the owner.

[34] In the circumstances, on a purposive reading of the statutory provisions, the units cannot be said to be unoccupied or vacant within the meaning of s 8 of the Act during the fitting-out periods. Even if the units were deemed unoccupied or vacant, the Applicants could not have fulfilled the requirement for refund contained in s 8(4)(b), which only becomes relevant where no tenant has been obtained. It must be remembered that the refund in s 8(1) is “subject to this section” and s 8(4) states clearly that no refund shall be allowed unless the owner satisfies the Comptroller in respect of all four conditions listed in ss 8(4)(a) to (d) since they are linked conjunctively by the word “and”. The only exception is in s 8(5) and that has no application on the facts here.

[36] I thank counsel for both parties for their able and balanced written and oral submissions and for the light-hearted moments during the arguments in court despite the very weighty legal issues here. I was informed that a sum of about $6.9m is at stake in the applications for refund of property tax in this case.