The Sabah Perspective: A commentary on the Federal Court decision on the computation of LAD from the date of booking fee
The recent Federal Court decision on the computation of liquidated agreed damages (“LAD”) combining 7 appeals involving PJD Regency Sdn. Bhd., GJH Avenue Sdn. Bhd. and Sri Damansara Sdn. Bhd. has caused a stir in the industry.
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.