A liquidator will be subjected to the duties and responsibilities imposed to housing developers when taking over a wound-up company/developer. By collecting administrative fees to execute the transfer of individual and strata titles, liquidators are effectively seeking a ‘fee’ to perform something which they are required under the HDA to perform anyway.
What is a housing developer’s responsibility?
It is the primary duty of a housing developer to ensure that the construction of the properties is completed in a timely and satisfactorily manner. Equally important is the duty of a developer to procure the issuance of individual and strata titles and subsequently to cause the transfer of the same in favour of purchasers. After all, the individual or strata title is the most important document to prove one’s ownership of a property.
When do property liquidators get involved?
However, things can get complicated when a developer is compulsorily wound up pursuant to a Court Order (mostly due to inability to pay a debt) before individual and strata titles are being issued and transferred to rightful purchasers. In the absence of a title and as a matter of procedure, a purchaser will have to obtain written confirmation from the developer before the purchaser can assign the property to another person, which is also known as Direct Transfer. This is where the developer consents to transfer the ownership in the title directly to the buyer and only the developer and new buyer would sign the Memorandum of Transfer (MOT).
It has now become an unhealthy norm in the industry where liquidators (who are appointed to manage the affairs of a wound-up developer company) imposes exorbitant administrative fees up to 2% or 3% of the purchase price (or current market value of the property in some cases) on purchasers for executing transfer documents.
Why are the fees charged by liquidators unreasonable?
The administrative fee collected is purportedly used to cover the liquidator’s costs in retrieving the purchase documents which are purportedly destroyed/ misplaced/ damaged by the developer and verifying the same with the purchase proofs provided by purchasers. As a result of this, a straightforward perfection of transfer becomes a costly affair.
Unilateral imposition of such fees by liquidators is devoid of a legal basis. Furthermore, the sum imposed is unreasonably high and is far more than enough to cover reasonable administrative costs to retrieve and verify the record of the purchase. This casts doubt on the motive of collecting such fees and raises the question of whether the liquidators are unjustly enriching themselves at the expense of bona fide purchasers who are already in a precarious position for not getting their individual titles.
Lets’ take a typical scenario of a condominium of 350 units valued at RM500,000 each and the liquidator’s charges a 2% fee of its value.
RM500,000 x 2% = RM10,000 (liquidator’s fee per unit)
350 units x RM10,000 = That’s a whopping RM3.5million for the liquidator’s fees alone.
What is a scenario of unjust fees charged by liquidators?
The scenario below is quite often heard in situations when dealing with defunct property developers. These complaints are not something new to the Malaysian Department of Insolvency (MDI) and the National Housing Department under the auspices of the Housing Ministry.
Scenario: Abu Kassim has been staying at a condominium for the last 12 years and has diligently paid his dues such as maintenance fees each month. The housing developer was later wound up and a liquidator was appointed to ‘stand-in’ for the developer. At that material time, all the strata titles have been issued by the Land Office and were in the possession of the now-defunct developer. The liquidator then taking custody; arbitrarily imposed on the owners (who wishes to collect their strata titles) to pay their ‘charges’ and ‘fees’ of 2% of the original purchase price or the sale price in a sub-sale, whichever is higher, for performing these functions of a developer ie transfer of strata title.
Abu Kassim is shocked by the double jeopardy especially when he has paid the entire purchase price to his developer. He couldn’t afford to pay the liquidator’s fees on top of having to pay the requisite stamp duties. The liquidator imposed a dateline to collect the titles, failing which they have threatened to ‘auction the unclaimed units. He is now in a dilemma.
NOTE: The Memorandum of Transfer only comes into play when the name of the new owner needs to be registered on the strata or individual title by the land authorities.
Is the practice of charging homebuyers with administrative fees legal?
It is an established principle of law that upon full payment of purchase price by the home buyer, a housing developer becomes a ‘bare trustee’ of the property. In other words, once a developer has received the full purchaser price for a property, the developer is no longer the ‘real’ owner of the property. The housing developer is merely holding the same property in trust for the benefit of the buyer. The developer, as a bare trustee, has no beneficial interest in the property. It follows that a developer could not deal with the property or treat it as if the property belongs to them.
Once a liquidator is appointed, the liquidator steps into the housing developer’s shoes. It follows that the liquidator assumes the same role as the bare trustee and is not in a better position than the developer. Similarly, a liquidator is not authorized by law to deal with the property other than to transfer the property to the rightful purchasers. Pending transfer of titles to purchasers, the liquidators are acting as ‘interim caretakers’ to the sold property. As bare trustees, the liquidators are not allowed to profit themselves using the trust property.
READ: What is a Strata Title and why is it important for homeowners?
What about the legislation in place governing housing in Malaysia?
One of the amendments to the Housing Development (Control & Licensing) Act, 1966 (Act 118) (HDA) which took effect on 1.6.2015, namely Section 3 of the Interpretation extends the definition of ‘housing developer’ to include a person or body appointed by a court of competent jurisdiction to be the provisional liquidator or liquidator for the housing developer.
The amendment to include a liquidator as a “housing developer” was intended to fill the void when a developer is wound up before completion of its duties and contractual obligations under Act 118. By duties, it means such as completing construction of the buildings or facilities, deliver vacant possession or applying for individual or strata titles, thus not leaving the purchasers in a lurch.
As a result of said amendment, a liquidator will be subjected to the duties and responsibilities imposed by HDA and may be liable for breach of duties of a ‘de facto’ housing developer’. In theory, a liquidator should not be allowed to charge or impose any additional administrative fees when carrying out his duties (since he is assuming the affairs and responsibility of the defunct developer) contracted in the sales and purchase agreement (SPA). For e.g. functions that are part and parcel of a developer’s duty such as updating the record of ownership and perfecting the transfer to a purchaser when a separate individual or strata title is issued, issuing written confirmation of particulars (for subsale) under Act 118.
Section 22D(3) of the HDA provides inter-alia:
‘A housing developer (in this case, liquidator) shall keep and maintain an up-to-date, proper and accurate register of all purchasers of the housing accommodation until separate or strata titles for all the housing accommodation in the housing development have been issued by the appropriate authority and registered in the names of all the purchasers of the housing accommodation in that housing development’
With a proper record of purchasers, liquidators will hardly face any difficulty in issuing written confirmation when requested to do so. It is for this reason that the HDA provides that a developer is only allowed to collect fees not exceeding RM50 for issuing a written confirmation. (Refer Section 22D(4)).
The SPAs adopting the statutory format set out in the HD Regulations 1989 have been consistently regarded by the Courts of Law as having the effect of statutory provisions. The agreement provides that it is the developer’s duty to execute the transfer document upon issuance of individual title, in favour of homebuyers
By collecting administrative fees above and beyond the cap set out in the HDA when it comes to transferring titles, the liquidators are effectively seeking a ‘fee’ to perform something which they are required under the law to perform anyway.
What power do liquidators have?
Liquidators are appointed by Court to manage the affairs of wound-up companies as far as is necessary to ‘realize’ the company’s assets and pay up creditors. As such, they are considered as performing their duties on behalf of the Court and is viewed as an ‘officer of the Court’. This word has been often abused so as to instil fear in the other party.
In addition, as a bare trustee, a liquidator is expected to diligently carry out the duty to verify the purchaser’s record whenever required to do so and should not be allowed to gain profit other than those expressly allowed by the Court when discharging the duty imposed upon him as an officer of the Court.
While there is no denial that liquidators should be reasonably remunerated for carrying out their duties, liquidators should decline the appointment if there is no money to make. Their fees should be from the sale and realising of the defunct company’s assets. Liquidators should not attempt to impose extra ‘top-ups’ on already burdened victims of an abandoned housing project. They could, instead, make their money from the unsold stocks in housing projects. Their remuneration must be in accord with the Companies Act 2016.
If at all the liquidators are allowed to collect an administrative fee, the fee shall be kept at a reasonable level for purpose of covering the liquidators’ expenses in retrieving and verifying the purchase record of housing projects.
Why should home buyers be held to ransom?
A liquidator appointed to manage the affairs of a housing developer company cannot place himself in a better position in comparison to the developer company. As a temporary custodian of the sold property and an officer of the Court, liquidators ought to perform their duties consistent with the HDA and the Companies Act 2016. Any attempts to seek additional profit beyond what is statutorily allowed should be stopped. Liquidators must not be allowed to hold the purchasers to ransom.
After all, individual and strata titles are not ‘asset per se’; they are the purchasers’ ownership papers.
This article is jointly written by Datuk Chang Kim Loong is the Hon Sec-Gen of the National House Buyers Association (HBA) and Koh Kean Kang, Esq is one of HBA’s volunteer lawyers.