*This article was updated on 18 September 2020.
Many new home buyers are not aware that their interests are protected under the Housing Development (Control and Licensing) Act 1966 (HDA). Protections include defect liability period, management of strata title issues and safeguard against unscrupulous developers.
In this article, we answer frequently asked questions about the HDA and the protection it offers to new home buyers against unforeseen circumstances throughout their homeownership.
Note that not all new properties are protected by the HDA (more on this later). Also, the ongoing Covid-19 pandemic has brought about several updates to the HDA which we also lay out in this article.
1. What is the Housing Development Act (HDA)?
The HDA safeguards the interests of buyers of primary market residential properties against developers for a specific period. As long as you are buying a property from a licensed developer, you would come under the protection of the HDA. Additionally, buyers of strata property would also be protected under the Strata Title Act 1985 as well as the Strata Management Act 2013.
2. What are the home buyer protections under the HDA?
Mandatory Advertising Permit and Developer’s License (APDL)
The HDA ensures that only licensed developers can advertise their property. The Advertising Permit and Developer’s License (APDL) is an advertising license given by the local housing authority to developers. With the ADPL, developers are closely monitored by the authorities to ensure compliance with rules. For example, they are not to mislead buyers through false advertising. Also, as the APDL contains information about the developer, buyers would be able to seek legal action against the developer if something goes wrong during the sale of a property.
Defect Liability Period
Another protection is a warranty period a.k.a. the defect liability period of newly built properties. The HDA states that the defect liability period would run for 24 months from the moment you receive the keys to your property. Should you discover major cracks, leaks or defects in your new property, you have up to two years to report them to the developer and have them repaired at no cost to you.
Housing Development Account (HDA Account)
Developers must open and maintain an HDA account for each of their residential developments. Why is this significant to buyers? The HDA makes sure that developers channel payments received from buyers into their HDA account. Those monies would then be used to pay for items such as quit rent, assessment rates, levy charges, stamp duty, insurance premiums, consultant fees and costs of construction.
This means developers cannot turn around and charge you for any of those items separately if you are already making the scheduled payments (under the Sale and Purchase Agreement) to them.
3. What should home buyers check for during the defect liability period?
After receiving the keys to your property, go around and inspect every nook and cranny for cracks, defects in the fixtures and fittings, and misaligned floor tiles, doors and window edges, and report them to your developer as soon as possible. Those defects must not be merely surface cracks but must be one that could affect the foundation of the property.
Buyers should not carry out renovation during the defect liability period as it may worsen defects and developers may not be willing to cover the costs of repair. In the case of a property sale during a defect liability period, the seller must transfer the right to claim under the defect liability period to the new owner to enable the new owner to utilise the defect liability claim.
4. What can homeowners do if developers refuse to repair defects during the liability period?
Under the HDA, developers are legally required to provide a retention sum equivalent to 5% of the SPA price. This money will be held by a law firm. If the developer fails to repair the defects within a time frame, the money can be used for this purpose.
Buyers who are having difficulty getting a developer to repair their homes should submit a claim through the Tribunal for Homebuyer Claims. This tribunal was set up by the government to enable home buyers to get quicker, easier and cheaper solutions to disputes with developers. This tribunal commonly deals with claims relating to defective workmanship, late delivery of vacant possession of the property, refund of deposit, and payment of liquidated and ascertained damages (LAD).
However, the tribunal’s jurisdiction is limited to giving an award of not more than RM50,000. In many cases, this amount is insufficient given the rising costs of material and labour. Where necessary, the tribunal will send its team of technical personnel to visit a subject property and assess the defects and the repair costs.
Homebuyers who wish to start a claim against the developer can find the relevant forms and procedures on the Ministry of Housing and Local Government’s (KPKT) website.
For strata property, in addition to submitting claims with the Tribunal for Homebuyer Claims, homeowners can also submit claims with the Strata Management Tribunal through the Ministry of Housing and Local Government for problems such as defects to common properties or failure of the developer to investigate defects. The cost of repairs of common properties is claimable from the retention sum under the HDA as well as an additional retention sum through the Commissioner of Buildings.
5. What happens if a property is not protected under the HDA?
Commercial properties such as small office/flexible office (SoFos) and small office/versatile office (SoVos), office spaces, retail and industrial units, and secondary market properties do not come under the protection of the had (a quick way to tell if a property is protected under the HDA is if it uses the standard Sale and Purchase Agreement – Schedule G for landed properties or Schedule H for high-rise properties).
There are some exceptions, however. Although serviced apartments and small office/home office (SoHos) are built on commercial land and bear commercial titles, these properties are residential-purposed and are therefore considered housing accommodation. While they do come under the protection of the HDA, certain expenses such as quit rent, assessment rates and utilities may be charged commercial rates and as such, would be more expensive compared to units built on residential lands.
Purchasers of properties not protected by the HDA may find remedies and protection from the terms and conditions in the non-standard Sale and Purchase Agreement which governs the sale of non-HDA properties.
Buyers of non-HDA properties are recommended to consult a lawyer regarding the Sale and Purchase Agreement. In the event of defects or late delivery, buyers would need to take the developer or seller to court to receive compensation.
6. New Covid-19 Act will see modifications made to the HDA
The Movement Control Order (MCO) implemented on 18 March 2020 brought the construction sector to a grinding halt, affecting the completion and delivery of many new housing developments.
Recognising the impact this would have on both developers and home buyers, a new bill called Temporary Measures for Reducing the Impact of Coronavirus Disease 2019 (Covid-19) Act 2020 was passed by the Dewan Rakyat in August 2020 and officially implemented on 23 October 2020. Under the Act, 16 areas of legislation were modified retrospectively to provide temporary relief during the Covid-19 pandemic.
Of specific interest to home buyers is the fact that the Act prohibits developers from imposing late payment charges on buyers for unpaid property instalments from 18 March to 31 August 2020. The government also said that developers may extend this duration to 31 December 2020 if there is indication buyers require additional time to fork out the monies.
The Act will also exclude the period of 18 March-31 August from the calculation of the defect liability period. This means property purchasers cannot claim for LAD for properties scheduled to be completed during that period. For defect liability claims made before 18 March, developers may carry out repair works after 31 August. However, this provision might not make sense now seeing that August 2020 has come and gone.
Since 15 April 2020, property developers who have obtained the necessary approvals have been allowed to resume construction work although many have been applying to the Ministry of Housing and Local Government for an extension of time (EOT) due to the MCO. Generally, housing developments that were supposed to have been delivered during the MCO and those expected to receive Certificates of Completion and Compliance before 30 September may expect to be granted an EOT up to 31 December 2020. Once granted, purchasers would be restricted from seeking LAD against the developer up to 31 December.
Approval for the extension will be determined by the Ministry of Housing on a case-by-case basis and buyers would be notified by registered mail on the late delivery of their vacant possessions.
It is recommended for homebuyers who are aggrieved by the limited protection afforded under the Act to seek legal advice on how their housing issue may be resolved. We will be updating this section accordingly as new measures or initiatives are announced by the government.
If you enjoyed this guide, read this next: What is a Strata Title and Why is it important for homeowners?