The Rights and Obligations of Strata Property Buyers in Malaysia

This article is written by a group of student advisors from the Legal Aid Clinic, University of Malaya, namely Chin Zi Yuan, Nur Amira binti Mashor, Khirtigha a/p Raja Ratanam and Yap Jia Cheng.

1. When should the developer deliver “vacant possession”?

Problems often arise as to when developer should deliver vacant possession (hereinafter referred to as “VP”) to the house buyers.

Clause 25(1) of Schedule H of Housing Development (Regulations) 1989 (hereinafter referred to as “HDR 1989”) states that VP has to be delivered to the house buyers within thirty-six (36) months from the date of signing the Sale and Purchase Agreement (hereinafter referred to as “SPA”).

If the developer fails to deliver VP within 36 months from the date of signing the SPA, according to clause 25(2) of Schedule H, the developer has to pay the buyers compensation. The amount of compensation is calculated from day to day at the rate of 10% per annum of the purchase price, starting from the expiry of the 36 months from the date of signing the SPA until the date the buyer takes VP.

2. What amounts to “vacant possession”?

There are a few things that have to be fulfilled by the developer before the developer can deliver VP to the buyers.

Clause 27 of Schedule H of HDR 1989 provides for the manner in which the developer shall deliver VP. It is only if all the things listed in clause 27(1) are fulfilled, then valid VP can be delivered to the house buyers.

The conditions are:

1. the issuance of certificate of completion and compliance;
2. the separate strata title relating to the property has been issued by the appropriate authority;
3. water and electricity supply are ready for connection to the property;
4. the buyer has paid all monies due under the SPA and has performed and observed all the terms and covenants on his part under the SPA; and
5. the completion of any alteration or additional work that the developer has agreed to carry out for the buyer.

Additionally, under clause 27(2), not only delivery of VP has to be supported by the certificate of completion and compliance, the developer has to also hand over the keys of the property to the buyers.

3. What happens if the house buyer does not take delivery of VP after the developer has given notice requesting the buyer to take possession of the property?

If the house buyer does not take delivery of VP after the developer has given notice requesting the buyer to take possession of the property, the buyer will be deemed to have taken delivery of VP after 30 days from the date the developer gives notice to the buyer. It does not matter if the buyer has actually entered into possession or occupation of the property. This is provided under clause 27(3) of Schedule H.

4. If water and electricity are not made available in the property, does that amount to valid delivery of “vacant possession” by developer?

One of the common problems faced by house buyers is that water and electricity are not made available in the property when VP or notice of VP is given by the developer. The issue that arises is whether this amounts to valid delivery of VP by the developer.

Clause 27(1)(c) of the SPA states that the developer shall let the purchaser into possession of the property when water and electricity supply are ready for connection to the property.

Clause 1(k) of the SPA gives the definition of “ready for connection” and it means “electrical points and water fittings and fixtures in the said Parcel have been installed by the Developer and are fully functional and supply is available for tapping into individual parcels”.

Hence, reading these two clauses together, water and electricity supply only need to be in a condition that is “ready for connection”. This means that the developer does not need to make water and electricity available in the property for the buyers to use in order to give VP. This would also mean that there is no need for water and electricity meter to be installed in the property for VP to be given to the buyers.

5. What happens when the developer does not complete the common facilities?

In the event that the developer has not completed the common facilities according to the sale and purchase agreement, the purchasers can complain by writing a letter of complaint to the developer company and the architect’s office directly. The complaint also needs to be directed to the architect due to the architect needing to give a letter of approval  to confirm that the common facilities is completed according to the plan.

If the developer fails to take action, the purchasers can choose to write to the stakeholder firm to hold the 5% retention sum from being deposited to the developer. At the signing of the SPA, the two parties have agreed which firm which will be elected to be the stakeholder to hold the retention sum which is a sum part of the full payment price that is held in case there is any rectification needed to be done. Only after the purchasers are satisfied that the common facilities have been completed, then only will the retention sum will be released.

6. What happens when the developer does not want to rectify the defects in the common facilities?

There may come a situation that after numerous complaints that the developer does not rectify the defects.  Under section 90 of the SMA 2013, it states that it’s the responsibility of the developer to rectify any defect with regards to the common property. Usually the purchasers are given a defect liability period of 24 month to complain of any defects that they require the developer to rectify. Upon the complaint, the developers are given 30 days upon receiving written notice to correct it.

If the defects are not rectified even after writing a written complaint, the purchasers can file an action under the Strata Management Tribunal (SMT). This tribunal is established to settle legal complaints or redress without having to bring their case to court. The tribunal will handle cases that the awards sought is not exceeding rm250,000.

Furthermore, another option is to complain to the commissioner of buildings (CoB). Under s92 of the SMA, it is required by the CoB that the developer deposits a certain amount with the CoB in the event that the common property is needed to be corrected such as the lifts and common area. This deposit is needed to be hand over upon the notice of vacant possession. Upon complaint, the commissioner may deem it necessary to use the deposit to rectify the defects.

7. Who manages the property upon vacant possession?

There is often a question in the house buyer’s head as to who actually manages the property after VP has been given to the buyers. Some would have the perception that upon delivery of VP, management of the property has to be passed to the buyers immediately. However, this is incorrect.

The governing statute for strata management is the Strata Management Act 2013 (hereinafter referred to as the “SMA 2013”). SMA 2013 is an Act to provide for the proper maintenance and management of buildings and common property and also the related matters.

Under the SMA 2013, immediately upon delivery of VP, the property will be under the developer’s management before the “developer’s management period” expires. Under s.7(2) of the SMA 2013, “developer’s management period” means the period from the date of delivery of VP to the buyer by the developer until one month after the establishment of the joint management body (hereinafter referred to as the “JMB”) or any time that is extended by the Commissioner.

8. What is a joint management body (JMB)? When should the joint management body be set up?

The next question that has to be answered is what a JMB is and when exactly a joint management body should be set up.

S.2 of the SMA 2013 states that a “joint management body” is a body established under s.17 of the SMA 2013. Furthermore, under s.17(4) of the SMA 2013, a JMB shall comprise of the developer and the buyers.

S.17 of the SMA 2013 provides for the establishment of a JMB. Under s.17(1) of the SMA 2013, there are two circumstances in which a JMB should be set up. First, if VP was delivered before the commencement of the SMA 2013, i.e. before 1 June 2015, then a JMB has to be set up no later than 12 months from the commencement of SMA 2013. Second, if VP is delivered after the commencement of the SMA 2013, i.e. after 1 June 2015, then a JMB has to be set up no later than 12 months from the date of delivery of VP of the property.

For instance, if VP is delivered before 1 June 2015, a JMB has to be set up before 1 June 2016. If, however, VP is delivered after 1 June 2015, say 12 July 2015, then a JMB has to be set up before 12 July 2016.

9. Can the house buyers change the management?

The governing statute is the SMA 2013. SMA 2013 is an Act to provide for the proper maintenance and management of buildings and common property and also the related matters. Under s.9 of the SMA 2013, it lays down the duties and powers of developer before joint management body (hereinafter referred to as the “JMB”) is established, i.e. during the developer’s management period. The duties and powers of the developer during developer’s management period are provided in s.9(2) and s.9(3) of the SMA 2013. In the cases where the developer fails to act according to s.9(2) or s.9(3), the developer can be held liable to a fine not exceeding two hundred and fifty thousand ringgit or to imprisonment of less than three years or both.

However, there is no particular provision under SMA 2013 stating that the management by the developer can be changed if the buyers are not satisfied with the management by the developer before establishment of a JMB. Hence, buyers cannot change the management but they can only request the developer to hand over the management to the JMB by convening the first annual general meeting as soon as possible in the cases where the property bought is still under the developer’s management period. Through this a JMB containing not only the developer but also the purchasers will be formed.

Hence, if there is any complaint by the buyers, the complaints can be resolved more effectively with purchasers having a say in the general meeting of the JMB. Therefore, as the act is silent about changing the management, a JMB should, in the two normal circumstances mentioned above, can be set up upon the requesting the developer.

10. When should the house buyers pay for management fees?

S.53(1)(b) of the SMA 2013 states that the no one can collect any charges or contribution to the sinking fund from any purchaser for the maintenance and management of the property before vacant possession is given to the purchasers. S.53(3) further provides that any person who fails to comply with s.53(1) commits an offence and will be liable to a fine not exceeding two hundred and fifty thousand ringgits.

11. What happens when the Sale and Purchase Agreement (SPA) signed is not the latest version as provided under the Housing Development (Control and Licensing) (Amendment) Regulations 2015?

Due to the recent amendment of the HDR 1989, the issues that arise are whether there are any new amendments to the Schedule H and whether the house buyers and/or the developers should comply with the new amendments.

The HDR 1989 was amended and came into force in 1 July 2015. In the amended HDR 1989, it provides substituted versions of the prescribed SPAs (or more commonly known as Schedule G and Schedule H). Therefore, housing developers who obtain their licences and advertising permits on/after 1 July 2015, must duly adopt the amended Schedule G and Schedule H.

For instance, if the developer’s license started on 28 July 2015, then the SPA prepared by the developer’s lawyer should be the substituted Schedule H instead of the old version of Schedule H before the amendment. Hence, if the SPA signed is not the latest version as provided under the Housing Development (Control and Licensing) (Amendment) Regulations 2015, then the SPA signed is considered invalid on this ground.

However, However, the High Court in the case of Syarikat Lean Hup (Liew Brothers) Sdn Bhd v Cheow Chong Thai [1988] 3 MLJ 221 held that such an agreement, if was due to mutual mistakes of law, was not void but had to be rectified so as to comply with the prevailing Rules and Regulations.

In this case, the appellants who were housing developers had entered into a sale and purchase agreement with the respondent on 30 July 1982 in respect of a housing unit in their project. The agreement was expressed to be subject to the 1966 Act and the Rules made thereunder. The agreement provided for delivery of vacant possession of the house within 18 months of the date of the agreement, and in the event of late delivery the appellants were to pay damages at the rate of 8% per annum on the purchase price. The parties were unaware that the 1982 Regulations had come into force, under which it is provided that delivery of vacant possession is within 24 months and that damages for late delivery is at the rate of 10% per annum.

Due to late delivery of vacant possession, the respondent commenced action for damages at the Magistrate Court which found in favour of the respondent. The appellants then appealed to the High Court.

The High Court held that it was clear intention of the parties to comply with the provisions of the law, i.e. the 1966 Act and the Rules made thereunder. The parties were under a mutual mistake of law, and that being so, the contract had to be rectified so as to comply with the prevailing Rules and Regulations. Damages were awarded at a rate of 10% per annum following the 1982 Regulations.

Hence, house buyers will have to consult a lawyer and rectify the SPA in order to protect his interests if the SPA signed is not the latest version.

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