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So You Want to Buy a Condo? Know the Law

Chua Chinn Harn explains the basic elements you should know before buying into a subsidiary development

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