If you’re interested to join the webinar, kindly contact our office at 088-258733.

Living in high-rise or a gated and guarded community is becoming more common in Sabah. Today’s generation enjoys the plethora of amenities, recreational facilities and the security afforded in these developments.  

In West Malaysia, developments like these are known as strata properties. They are legally defined as subsidiary titled developments in Sabah.  

There are some things you should know before buying into a subsidiary development: 

The Law 

Land (Subsidiary Title) Enactment 1972 

No free lunch

A popular phrase “there’s no such thing as a free lunch” precisely reflect the kind of mind-set required of the purchasers living in a subsidiary development. As a unit owner, you will be required to pay monthly charges (maintenance and sinking fund contributions) to cover the cost of maintenance and operation of the common property, facilities and services provided in a subsidiary development. The more elaborate and extensive the amenities and facilities, the higher the cost of maintenance. As the building ages, the cost of maintenance will also increase (replacement of old equipment, repainting of external walls, etc). 

Liken to a marriage, the obligation to pay these contributions are life-long commitment (so long you own the unit). The management has extensive power provided under the law to compel your payment, including the imposition of interest of not less than 24% per year on the outstanding sum and to register a charge on the subsidiary title of your unit. The obligation to pay these monthly contributions continues even if you did not occupy the unit or did not use the facilities. Similarly, the payment obligations also apply to the Developer who owns unsold units in the building. 

Community Rules 

The spirit and essence of a subsidiary development is a group of people living in a community, whilst maintaining a private space, share joint ownership, usage and responsibilities of the common area. When buying into a subsidiary development, all the purchasers are deemed to have accepted and be bound by rules and regulations for the benefit of the community at large. These rules are documented in the form of Deed of Mutual Covenant and/or House Rules (or Community Rules). 

These rules may include renovation guidelines, requirement to notify on change of ownership or address, opening hours of facilities etc.  

Developer vs Management Corporation 

Upon completion of the building with the issuance of the occupation certificate, the Developer will assume the responsibility to manage the building until such time when the management corporation is established. During this period, the Developer’s role is to act as a trustee for the common benefit of all the purchasers of the building. Tension and disputes on the management of the building often arise between the Developer and the purchasers during this period. It is therefore in the best interest of all parties that the accounting records of the collection of contribution payments and expenditure incurred to maintain the building are transparent and offer a clear and concise view. Under the current legislation governing housing matters, the purchaser of a residential subsidiary development may request for a copy of the annual audited accounts from the Developer showing the expenses incurred for the provision of maintenance services in the building.1 

With the establishment of the Management Corporation (“MC”) of a subsidiary development, the purchasers can participate and be directly involved in making decisions for the operation and maintenance of the building.  Decisions can be made collectively in an annual general meeting and the burden of the Developer to maintain the common property is thereafter lifted.   

The million dollar question: When is the management corporation (“the MC”) established?

The timeline above summarises the establishment of a Management Corporation. When a MC is established, the Lands and Surveys Department will issue a formal certificate evidencing the “birth” of the MC.  This process is kickstarted with the Developer’s application to the Lands and Surveys Department for subdivision of the building. The Developer is required under the law to make such application before the occupation certificate is issued (for building intended to be sold before its completion), or before the execution of any sale and purchase agreement (for building intended to be sold after its completion). Upon issuance of the subsidiary titles for the parcels in the building, the Developer is required to convene an annual general meeting within 3 months from the day 1/3 share units of the building is transferred and successfully registered in the name of the purchasers. Thereafter, the Developer will hand over the baton (including bank accounts) and the responsibility to maintain and manage the building to the elected council of the MC which is comprised of parcel owners of the building. 

So check if the MC has been formed. If it is an old condo and the MC has not yet been formed, it would be prudent for you to find out why. Generally, the sooner the MC is formed, the better it is for the condo-munity. 

Do your research by asking these questions before you buy into a subsidiary titled development: 

• Is the subsidiary title issued for this project? 
• Has the management corporation been formed? 
• Who is managing the building? 
• Is there any management fee and sinking fund contribution remain outstanding of the unit?
• How much are the management fee and sinking fund charges per month? 
• Is the common property well maintained? 
• Are there many unit owners defaulting in their payment of management fee and sinking fund contribution? 
• Does the developer own many units in the project? 

Buying property is potentially one of the most important decisions you’d make. So do your research before handing over that fat wad of cash! 

_______________________

1.clause 18, First Schedule, Schedule H of the Housing Development (Control and Licensing) Rules 2008

This webinar is organised by the Malaysian Institute of Estate Agents (MIEA) – Sabah branch.

For registration, please contact Josephine from MIEA Sabah at 011-5112 3482.

To learn more about the webinar, please click on this link – https://www.propertyhunter.com.my/news/2021/02/7904/sabah/how-the-new-lad-calculation-impacts-sabah-developers

It is therefore a rejoice and massive relief for the housing developers in Sabah when the Temporary Measures for Reducing the Impact of Coronavirus Disease 2019 (COVID-19) Enactment 2020 (No. 5 of 2020) was finally gazetted and came into effect on 14th January 2021 (“Sabah COVID Enactment”).

Part III of the Sabah COVID Enactment sets out the temporary relieves and measures for housing development in Sabah, which are similar to those in the COVID Act (applicable in Peninsular Malaysia) and summarised as follow:

1. Applicable to housing developments whereby Schedules G & H were entered into before 18th March 2020;
2. The Developer shall not impose any late payment charges on  purchasers who fail to pay instalment for the period from 18th March 2020 to 31st December 2020. This period may be extended up to 31st March 2021 by the Minister of Local Government and Housing (“the Minister”) upon application by the purchasers;
3. The period of 18th March to 31st December 2020 is excluded from the calculation of: (a) defects liability period, and (b) time for the developer to carry out repair works to rectify the defects.
4. The period of 18th March to 31st December 2020 is excluded from the calculation of : (a) the time for delivery of vacant possession, and (b) the liquidated damages for failure to deliver vacant possession. The Minister may upon his satisfaction that additional time is required, to extend this period up to 31st March 2021 upon application by the Developer.

If you think this Sabah COVID Enactment may have an impact on your business, please contact your usual contacts in CSY. We are happy to assist you.

In handing down its judgement, the Federal Court held that where there is a delay in the delivery of vacant possession by a developer to the purchaser in respect of a residential property scheduled form of contracts prescribed under the Housing Development (Control and Licensing) Regulations 1989 (“HDR 1989“), the date for calculation of LAD begins from the date of payment of deposit/booking fee/initial fee/expression or any payment by whatever name called which payment gives the purchaser an option or right to purchase the housing accommodation including the land, and NOT from the date of the sale and purchase agreement.

The decision shook the industry as it is common practice in Sabah that a purchaser reserves a unit he/she is interested in with the developer at a nominal booking fee whilst the purchaser scouts for banks to finance the acquisition of the property.

The Federal Court relied on the decisions of the Supreme Court in Ho See Sen & Anor v Public Bank Berhad [1988] 2 MLJ 170 and Faber Union Sdn Bhd v Chew Nyat Shong & Anor [1995] 2 MLJ 597 which decided that the date of calculation of the LAD commences from the date of payment of the booking fee and not from the date of signing of the sale and purchase agreement are good law.

GROUNDS OF THE DECISION

The grounds of the Federal Court’s decision are as follows:-

• The HDR 1989 is a social legislation and as such, it ought to be interpreted to give effect to the intention of Parliament where it provides safeguards and serves the purpose of regulating the sale of houses and protecting the interest of house buyers.
• Regulation 11(2) of the HDR 1989 expressly prohibits the collection of booking fees howsoever they are called.
• A valid and binding contract was formed when the purchaser paid the booking fee to the developer, and bargain was made at the time of the payment of the booking fee.

IMPACT OF THE DECISION IN SABAH

Is worth noting that HDR 1989 is only applicable in Peninsular Malaysia. Sabah has its own housing laws. The statutory form of contract for housing development in Sabah is prescribed and regulated by the Housing Development (Control and Licensing) Rules 2008 (“HDR 2008”) enacted pursuant to section 26 of the Housing Development (Control and Licensing) Enactment 1978. In light of the Federal Court’s decision, the HDR 2008 in Sabah is likely to also be perceived as a social legislation where it is enacted to protect the interest of house buyers.

Although both HDR 1989 applicable in Peninsular Malaysia and HDR 2008 in Sabah are largely similar, the differences are apparent which include among others:-

(A) Collection of booking fee
Rule 19 of the HDR 2008 in Sabah specifically provides and allows housing developers the right to collect booking fees while the same rule was removed in the Peninsular Malaysia’s HDR 1989.

Payment of booking fee
19. (1) A purchaser of housing accommodation including the land shall not be required to pay a booking fee of a sum exceeding two point five per centum (2.5%) of the purchase price of such housing accommodation including the land.

(2) Notwithstanding subrule (1), no purchaser of a housing accommodation including the land shall be required to pay a booking fee of a sum exceeding one thousand ringgit.

(3) For the purpose of this rule, the term “booking fee” shall include any payment by whatever name called which payment gives the purchaser an option or right to purchase the housing accommodation including the land.

(B) Payment schedule in statutory form of contract
Item 1 of the Payment Schedule of the statutory form of contract – Schedule G and H of the HDR 2008 takes into consideration any booking fee paid prior to the execution of the statutory form of contract :-

• Upon execution of this Agreement including booking fees, if any                10%

(C) No collection of any payment
Oddly and in contrary to Rule 19 of the HDR 2008 and the first item of the Payment Schedule in the Schedule G and H of the HDR 2008 stated above, this particular Rule 12(3) of the HDR 2008 prohibits the collection of any payment by whatever name called, except as prescribed by the contract of sale.

SUMMARY

Following the Federal Court’s decision, the developers in Sabah are caught in a Catch-22 situation given the express provision for collection of booking fees based on Rule 19 of the HDR 2008.

As the Federal Court decision still stands, the apex court took the approach of the date of payment of the booking fee as the commencement date for the purpose of calculation of the LAD in late delivery of vacant possession.

It would largely be a commercial decision for the developers in Sabah to collect the booking fees as expressly provided under Rule 19 of the HDR 2008. However, the Developers have to bear in mind of the risks and consequences on their part that the LAD might be calculated from the date of payment of the booking fee (or whatever form of initial payment) in the late delivery of vacant possession if the same is being challenged by the purchasers in court.

Should you have any enquiries as to how this Federal Court decision may impact your business, please do not hesitate to get in touch with your usual contacts in CSY, Advocates & Solicitors.

The following exemption orders were made pursuant to the announcement of PENJANA initiative by the Federal Government to tackle the recovery of the country’s economy as a result of the COVID-19 pandemic. We have prepared a table below for your easy reference:

Our team of lawyers will be happy to assist you if you require further clarification.

On 23^rd October 2020, the Temporary Measures for Reducing the Impact of Coronavirus Disease 2019 (COVID-19) Act 2020 (“COVID Act“) was finally gazetted and came into operation on the same day.

The COVID Act was introduced by the government as an effort to provide temporary measures to individuals and companies to reduce the impact of COVID-19 pandemic.  The COVID Act is split into 19 parts and generally in force for two years from 23^rd October 2020, unless otherwise provided for in each part.

In this article, we focus on Part 11 of the COVID Act on modifications to the Housing Development (Control and Licensing) Act 1966. One must be reminded that the Housing Development (Control & Licensing) Act 1966 cited in the COVID Act is only applicable in West Malaysia. Sabah has its own Housing Development (Control & Licensing) Enactment 1978 and the corresponding Housing Development (Control & Licensing) Rules 2008. Unless and until a separate law is passed in the Dewan Undangan Negeri in Sabah, Part 11 of the COVID Act is not legally applicable in Sabah. 

In Malaysia, only residential developments are regulated under the housing development laws. Commercial developments do not fall within the ambit of these housing laws and are largely reliant on the terms of the contractual agreement signed between the developer and the individual purchaser.

We have nonetheless compiled in this article a summary of the modifications made under Part 11 of the COVID Act:

• Only applicable to agreement in the forms prescribed in Schedules G,H,I & J of the Housing Development (Control & Licensing) Regulations 1989 entered into before 18^th March 2020;[1]
• Developer shall not impose late payment charges if purchaser fails to pay instalment for the period from 18^th March 2020 to 31^st August 2020. Purchaser may apply to the Minister for extension of time, and if satisfied, extend the period up to 31^st December 2020;[2]
• The period from 18^th March 2020 to 31^st August 2020 shall be excluded from computation of the time for delivery of vacant possession and the liquidated damages for developer’s failure to delivery of vacant possession. Developer may apply to the Minister for extension of time, and if satisfied, extend the period up to 31^st December 2020;[3]
• Purchaser shall not be deemed to have taken vacant possession of the residential property if delivered between 18^th March 2020 to 31^st August 2020 if purchaser unable to take possession during that period;[4]
• The period from 18^th March 2020 to 31^st August 2020 shall be excluded from the calculation of defects liability period. Purchaser may apply to the Minister for extension of time, and if satisfied, extend the period up to 31^st December 2020. [5]

Nonetheless, Part 11 shall not have any effect on any legal proceedings which were commenced, or any judgement or award were obtained to recover late payment charges or liquidated damages prior to 23^rd October 2020.[6] Similarly, any late payment charges (by purchaser) or liquidated damages (by developer) which have been validly paid before 23^rd October 2020 shall not be refunded to the other party. [7]

If you have any questions or require any additional information, please contact us.

(Updated as at 19th April 2021 – The Temporary Measures for Reducing the Impact of Coronavirus Disease 2019 (COVID-19) Enactment 2020 (No. 5 of 2020) applicable in Sabah was finally gazetted and came into effect on 14th January 2021. Please click on this article for the details – https://csylegal.com/sabahs-housing-developers-rejoice-the-sabah-covid-enactment/)

[1] Section 33 of the COVID Act 2020
[2] Section 34 of the COVID Act 2020
[3] Section 35 (1), (2) & (3) of the COVID Act 2020
[4] Section 35 (4) of the COVID Act 2020
[5] Section 36 of the COVID Act 2020
[6] Section 37 (1) of the COVID Act 2020
[7] Section 27 (2) of the COVID Act 2020