When a developer fails to deliver a property in accordance with the promised timeline, you have the right to seek legal recourse based on a clause in your Sale and Purchase Agreement. Read on below for some frequently asked questions on the Liquidated Ascertained Damages (LAD) for late delivery of property.
As a homebuyer, you must have heard the advice “you should know your rights” quite frequently. This is a sound advice as anything can happen and you should know what need to be done when you are in unforeseen circumstances.
One of the “rights”, probably the utmost important for homebuyers, is the Liquidated Ascertained Damages (LAD), a clause in the Sale and Purchase Agreement (SPA) that warrants compensation when a developer fails to deliver a property in accordance with the promised timeline.
Why is Liquidated Ascertained Damages (LAD) important post COVID-19?
Almost every aspect of our lives has been implicated by COVID-19 pandemic and with the government-enforced Movement Control Order (MCO), the construction sector was definitely not spared.
Since developers were expected to be having tough times delivering their newly-launched property within the timescale stipulated in the SPA, it comes as no surprise that there are certain changes made on LAD claims that buyers need to know.
Read on below for some frequently asked questions on the Liquidated Ascertained Damages (LAD) for late delivery of property as well as some recent updates in conjunction with the recent COVID-19 Bill.
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What is Liquidated Ascertained Damages (LAD)?
The LAD or Liquidated Ascertained Damages is a contractually ascertained or pre-determined amount of damages that are claimable by either party in the event of a breach of contract. This clause can be found in the Sale and Purchase Agreement (SPA).
The LAD is designed to cover any predicted losses which might occur as a result of a project overrunning or being delayed.
If you are purchasing the property from a housing developer, Clause 24 (2) of Schedule G of the Housing Development (Control and Licensing) Act 1966 (HDA) and Clause 25 (2) of Schedule H of the Housing Development (Control and Licensing) Act 1966 (HDA 1966) provides that a buyer has the right to claim for LAD for any delay in the delivery of vacant possession at the daily rate of 10% per annum of the property purchase price. The delay in question would begin from the expiry of the period for delivery of vacant possession, up to the date the buyer receives the keys to the housing unit.
Developers are required to deliver the vacant possession of a landed home with an individual title within 24 months from the SPA date whereas for strata-titled properties such as serviced residences, condominiums and apartments VP has to be delivered within 36 months.
What are the LAD changes made that affect home buyers in 2022?
In January 2022 Temporary Measures for Reducing the Impact of Coronavirus Disease 2019 (COVID-19) (Amendment) Act 2022 has been gazetted and here are some key amendments affecting housing developers and purchasers as follows:
The changes, as stated in the Part XI of the COVID-19 Act and Part XIA of COVID-19 (Amendment) Act, involve the Schedules G, H, I and J of the Housing Development (Control and Licensing) Regulations 1989 (HDR 1989) are as below:
- Section 38(C) allows for an exclusion of any period from 1 January 2021 to 31 December 2021 from calculation of claims for LAD. This subsection only applies for purchase made before 31 May 2021. Section 38(D) mentioned the period from 1 June 2021 to 31 October 2021 for delivery of vacant possession which can also be excluded, where purchaser shall not be deemed to have taken such vacant possession, which is stated under subsection 38(C)(2).
- Section 38(E) states that the period from 1 June 2021 to 31 October 2021 shall be excluded from the calculations of defect liability period, which applies to the property after the delivery of vacant possession of the house and completion of common facilities.
- Section 38(F) mentions that the changes in sections 38(B), 38(C), 38(D) and 38(E) shall not affect any cases of late payment charges or LAD claims during the period from 24 October 2021 until the immediate date before the date of affect of this part. Those cases with the late payment charges or LAD claims that have been paid by the responsible parties before the date of affect for this part of the Act, will be considered as “validly paid under the HAD 1966 and shall not be refunded to the payer”.
How is the Liquidated Ascertained Damages (LAD) calculated?
The Liquidated Ascertained Damages (LAD) kicks in the moment the developer delays on the delivery of vacant possession (VP) of the property. Confusion over the actual start date for the LAD is pretty common. Ideally, the period for delivery of vacant possession is to be calculated from the date of the SPA and not the date of the booking fee.
It should be noted in a recent Court of Appeal case, it was held that the period for delivery of vacant possession can be calculated from the date of the booking fee payment.
However, Regulation 11(2) of the Housing Development (Control and Licensing Regulations) 1989 (HDR) prohibits housing developers from collecting any payment by whatever name called except as prescribed by the contract of sale (i.e. the SPA). This means that developers are not supposed to collect any payments before the SPA has been signed, and the 2-3% of the purchase price which is usually treated as the booking fee or earnest deposit, should only be collected after signing the SPA and not before.
In the event of any delay, buyers are entitled to compensation of LAD of 10% per annum of the purchase price over the period of delay and for Schedule H-type agreements, the house buyers, in addition to the above are entitled to 10% of the last 20% of the purchase price for the delay in completion of the common facilities.
So, here we are showing you the calculations for LAD from the date of the SPA and not the date of the booking fee.
As an example, say the property purchase price is RM350,000:
Date of SPA: 01/10/2018
Expected completion date as per SPA: 30/09/2021
Actual date of vacant possession: 31/01/2022
Days of delay (from 30/09/2021 till 31/01/2022): 124 days
Days of Exemption as per the COVID-19 Act: 93 days
LAD calculation:
Purchase price (RM350,000) x 10% (LAD damages) x 124 days = RM11,890.4
365 days
LAD calculation (after):
Purchase price (RM350,000) x 10% x 31 days = RM2,972.60
365 days
Thus, the amount of LAD claimable by the buyer would be RM2,972.60, as opposed to RM11,890.4 before the enforcement of COVID-19 Act.
But what about a situation where the developer issues a notice of vacant possession but has yet to obtain the certificate of completion and compliance (CCC)? In such circumstances, the LAD would be calculated from the date of the expected completion date until the date of the CCC.
This is because vacant possession cannot be said to be delivered unless the developer has already obtained the CCC – other conditions include the issuance of the strata title, ready connection of water and electricity supply to the property, and payment of the purchase price by the buyer.
How to claim for Liquidated Ascertained Damages (LAD)?
There are two channels for buyers to claim for Liquidated Ascertained Damages (LAD) – you can either file a claim at the Tribunal for Homebuyer Claims or file a civil action at the Legal Courts.
1. Tribunal for Homebuyer Claims
If the total amount of LAD does not exceed RM50,000, buyers can lodge a claim at the Homebuyers’ Tribunal. The claim may be made in person and must be lodged within 12 months from:
- The date of issuance of CCC for the housing accommodation or the common facilities; or
- The expiry date of the defects liability period as set out in the SPA; or
- The date of termination of SPA by either party and such termination occurred before the date of issuance of the CCC
To start the LAD claims in the Housing Tribunal, buyers must fill in the Form 1 – Statement of Claim which can be obtained from the Ministry of Housing and Local Government’s website.
Along with the Form 1, supporting documents such as the SPA, notice of vacant possession, CCC and any other relevant documents must be attached during the submission process. The filing fee for the LAD claim is RM10.
READ: What is a Strata Title and Why is it important for homeowners?
2. Legal courts
If the total amount exceeds RM50,000, home buyers will need to start a legal action against the developer in court to claim for breach of the SPA, LAD and general damages for the late delivery of vacant possession. The court action must be commenced within 6 years from the breach of contract (i.e. the late delivery of vacant possession).
Buyers would need to engage a lawyer who would appear for them in court. They should also bring along documents such as the SPA, vacant possession letter and CCC during their lawyer consultation to enable their lawyers to build a case for them.
Generally, LAD claims through the courts should be made on an individual basis. However, in circumstances where the developer has abandoned the housing project, a representative or class action may be initiated by the aggrieved buyers. It would be better to consult a lawyer regarding the action as Malaysia does not have a broad process on class actions.
What happens if the developer refuses to honour an award from the Tribunal for Homebuyer Claims?
Under section 16AD(1) of the HDA, failure to comply with a Housing Tribunal award becomes a criminal offence which is punishable with a fine not less than RM5,000 and exceeding RM10,000, or imprisonment not exceeding two years, or both.
In the case of a continuing offence, in addition to the above, the offender will also be liable to an additional fine not exceeding RM1,000 for each day or part of a day during which the offence continues after conviction.
Buyers who face this situation would have to initiate enforcement proceedings at the civil courts which may include proceedings such as attachment and seizure, judgement debtor summons and prohibitory orders. In the worst-case scenario, the courts may even resort to winding up the developer’s company.
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