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The Late Damages Trick
 
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The Late Damages Trick
Robert Tan, a supporter of house buyers’ rights and the author of “Buying Property From Developers: What You Need To Know And Do” reveals a common developers’ tactic in avoiding payment to house buyers for late delivery of houses
Posted Date: Mar 08, 2011
By: HBA

Robert Tan, a supporter of house buyers’ rights and the author of “Buying Property From Developers: What You Need To Know And Do” reveals a common developers’ tactic in avoiding payment to house buyers for late delivery of houses

The Sell-Then Build (“STB”) system of building and selling houses is unique and has for many years controlled the housing development industry in Malaysia.

In summary, this system allows houses to be built in stages and paid for progressively after each stage of work is done.

The system sounds simple. But it is ridden with a host of problems.

Stories are told about house buyers being played out under the system, not once or twice but many times over and in many ways.

Simply, the system is based on the business concept of using house buyers’ money to fund the housing development.

In business jargon, it is about using other people’s money (OPM) to make profits.

In other words, developers under the system leverage on OPM to make business plan and profit goals.

The obvious pitfall of the system is the potential risk of a housing project being stalled or abandoned.

Project abandonment is a serious problem to the country such that the Government has had to intervene and pour in big funds to revive abandoned projects for the rakyat’s sake.

Apart from such problems, the STB system exposes house buyers to manipulation and tricks of greedy developers.

This article seeks to highlight one trick greedy developers use to hoodwink buyers into giving up their rights under the law. It’s called “The Late Damages Trick”.

Late Damages

Late damages are about giving the house buyer damages when the developer delays delivering vacant possession of the house to the buyer.

The damages are calculated at the rate of 10% per annum of the purchase price on a daily basis from the day of expected delivery to the day of actual delivery.

The damages are claimable when they accrue i.e. when actual delivery of vacant possession happens.

The problem with late damages is that the developer would often seek to avoid paying it.
The following story illustrates the point.
 
The Story

Mr & Mrs Nice bought an apartment from a housing developer.

Under the STB system, the housing developer was to deliver vacant possession of the apartment within 36 months.

The developer failed to do so. When the house was finally delivered to them, Mr & Mrs Nice claimed for the late damages. They set-off the damages against the outstanding progressive payment.

Furious, the developer rejected the set-off and asked the couple to pay the full progressive payment.

Further, it charged them interest on the progressive payment and threatened to terminate the agreement, forfeit the deposit and take back the house if they didn’t make the payments.

Now the couple were retirees. Fighting the developer in their golden years was far from their minds.

After all, they had earlier spoken to the developer’s managing director who was on his way out of the office, possibly to play golf, and had assured them that things would be all right.

Sadly, things went all wrong. The sale manager harassed them and wrote a letter filled with legal gibberish.  The message in the letter was that Mr & Mrs Nice are to make the payments and was asked to forgo 50% of the late damages.

These were the developer’s terms for the couple to get the keys and move into the apartment.
To make peace, Mr & Mrs Nice relented.

They withdrew the set-off, paid the full progressive installment and waived their entitlement to the full amount of the late damages.

Quietly, the old couple moved into their new apartment to enjoy the rest of their golden years.

Reflection

Why have things gone so wrong? Are the authorities blind?

Some greedy developers get bolder and possibly trickier when they realise that it is fairly simple to play the Late Damages Trick.

For the education of house buyers, here is one way the trick is played.

The Trick

The basis of the trick is in a mantra.

To be effective, the mantra would be repeated by the developer’s employees. When said in unison, it would materialise into reality.

The mantra is: Delay paying damages. Get a discount for them.

How does the mantra materialise? Here is the process.

The Process

The developer delivers vacant possession of the property to the buyer and demands the buyer to pay the full progressive installment.

Because of delay in the delivery of vacant possession, the developer knows that late damages are to be paid. But it keeps silent.

If the buyer exercises the right to the set-off, the developer would reject it. It would demand that the buyer pay the full progressive payment first.

The buyer fully pays the amount.

The buyer then asks the developer to pay the late damages.

Shrewdly, the developer offers to pay the buyer a lesser amount on the late damages sometimes up to 70% lesser of the total damages.

The developer may remind the buyer about the long delay, inconvenience and expense of going to court for legal redress.

Occasionally, the developer may mock the buyer for going to the homebuyers' tribunal although the tribunal has commendably and generally offered fast, cheap and efficient legal redress to house buyers.

The developer may seem arrogant possibly because the tribunal’s award may be a mere show.

For example, some tribunal awards for late damages have been set aside for unprecedented reasons when the developer applies for judicial review of the awards.

So, the buyer is hard-pressed. He or she relents.

The mantra materialises with a homerun in malpractice for the greedy developer.

Enforcement

Many years ago, a now retired engineer who worked in Singapore told me that while Singapore was growing her city, her ex-Prime Minister, Mr Lee Kuan Yew, was asked what ought to be done to developers who flout the law. The honourable Minister said, “Whip them!”

In Malaysia, the laws allow for strict enforcement against errant developers. Even directors of errant developers can be personally charged and sent to jail for misconduct.

But whether there has been any successful prosecution and deterrent sentence given to errant developers and their directors seems to be a moot point.

While this seems to be the state of things now, house buyers at the grass-root level ought to be aware of the Late Damages Trick.

When it happens, hopefully they would recognise it as they have been educated about it here.

 

The National House Buyers Association (HBA) is a voluntary, non-governmental organization manned by unpaid volunteers. For more information, check out their website at http://www.hba.org.my E-Mail: info@hba.org.my

NATIONAL HOUSE BUYERS ASSOCIATION [HBA]

 No. 31, Level 3, Jalan Barat, Off Jalan Imbi, 55100, Kuala Lumpur
Tel: 03-2142 2225 | 012- 334 5676 | Fax: 03-22601803
Email: info@hba.org.my | Web Site: www.hba.org.my

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