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. Especially with the COVID 19’s Movement Control Order affecting many businesses and industries, buyers of new launch properties might find that they would not be receiving their home on time, more so than ever.
With developers failing to complete the construction and delivery of housing projects on time, what then happens to the affected buyers? Well, there is a clause in the Sale and Purchase Agreement called Liquidated Ascertained Damages that allows you to claim for compensation in such circumstances.
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.
What is 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).
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 HDA 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.
How is the LAD calculated?
The LAD kicks in the moment the developer delays on the delivery of vacant possession of the property. Confusion over the actual start date for the LAD is pretty common. It should be noted in a recent Court of Appeal case, it was held that 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.
Furthermore, 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.
As an example, say the property purchase price is RM350,000:
Date of SPA: 01/06/2017
Expected completion date as per SPA: 31/05/2020
Actual date of vacant possession: 30/09/2020
Days of delay (from 31/05/2020 till 30/09/2020): 123 days
Purchase price (RM350,000) x 10% (LAD damages) x 123 days = RM11,794.52
Thus, the amount of LAD claimable by the buyer would be RM11,794.52.
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 LAD?
There are two channels for buyers to claim for Liquidated Ascertained Damages – 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.
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.
How will the proposed COVID-19 Bill affect home buyers?
Recently on 25 August 2020, the Malaysian Parliament passed the Temporary Measures for Reducing the Impact of Coronavirus Disease 2019 (COVID-19) Bill 2020 (COVID-19 Bill). The Bill, which is anticipated to be implemented later this year, brought about certain proposed modifications to 16 pieces of legislation, one of which was the HDA 1966.
Below is a summary of the proposed modifications:
• Section 32 of the COVID-19 Bill provides that the modifications to the HDA 1966 will have retrospective effect, i.e. the modifications will come into operation from 18 March 2020.
• Section 33 provides that the modification will cover any SPA under Schedule G, H, I and J of the Housing Development (Control and Licensing) Regulations 1989 (HDR 1989) that were entered into before 18 March 2020.
• Section 34 provides that the developer shall not impose any late payment charges on the buyers who failed to make any payments towards the purchase price for the period from 18 March 2020 to 31 August 2020. Furthermore, the bill also allows the buyers to apply to the Minister for an extension of the payment period and the Minister has the power to grant the extension up to 31 December 2020 (section 34(2) and 34(3)). If the extension has been granted, the developer cannot impose any late payment charge on the buyer during the extended period.
• Section 35 protects the developer against any claim for LAD between 18 March 2020 and 31 August 2020. Under section 35(2), the developer is allowed to seek for an extension up to 31 December 2020. If granted, the buyer is not allowed to claim any LAD against the developer up till the extended period.
• Section 35(4) provides that if the developer has issued the notice of vacant possession between 18 March 2020 to 31 August 2020 or any extension period granted, and the buyer is unable to take possession of the said property, the developer is not allowed to deem that the buyer has taken vacant possession of the property.
• Section 36 provides that from 18 March 2020 to 31 August 2020 or any extension period granted by the Minister up to 31 December 2020 shall be excluded from the calculation of the defect liability period or the time for the developer to carry out repair works or make good the defects, shrinkages and other faults in the property.
• Section 37 provides that from 18 March 2020 until the date of the publication of the new Act, the modification under sections 34, 35 and 36 will not affect any legal proceedings commenced, any judgment or award to recover the late payment interest payable by the buyer or LAD by the developer. However, any late payment charges paid by the buyer and LAD paid by the developer before the publication of the new Act shall be valid and is not refundable.
• Section 38 provides that notwithstanding section 16N(2) of the HDA 1966, if the limitation period of the homebuyer to file a claim has expired during the period from 18 March 2020 to 9 June 2020, the homebuyer is entitled to file the claim from 4 May 2020 to 31 December 2020 and the Homebuyers’ Tribunal shall have the jurisdiction to hear the claim.
It is plain to see that the COVID-19 Bill proposes multiple modifications to the HDA that seem to be beneficial to the buyers, from allowing buyers to defer payments of the purchase price until 31 December 2020 to granting buyers an extension of time to take possession of their vacant property.
However, the proposed Bill also protects developers against the buyer’s claims for the LAD until at least 31 December 2020. It is anticipated that with the Recovery Movement Control Order and Conditional Movement Control Order that is currently ongoing, there might still be delays in completing the housing developments due to difficulties faced by developers that may continue well into the coming new year. As the Bill is to be gazetted and come into law, it remains to be seen what further modifications would be made to protect the buyers against the delay in the completion of their property.
If you enjoyed this guide, read this next: How to buy a subsale property in Malaysia in 7 steps
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