Here’s everything you need to know about the industry terms involved in the property handover process, namely Vacant Possession (VP) and delivery of Vacant Possession.
Every home buyer looks forward to the day when they receive the keys to their new home. But before that highly-anticipated day, there are some formalities and industry jargon that you need to be familiar with.
What is vacant possession?
VP meaning: it stands for vacant possession. It’s a commonly encountered phrase in the real estate industry. For instance, “sold with vacant possession” means that a home must be empty (no other party is using or occupying the property) when the purchase is completed by the buyer.
The term is also used in renting with the same meaning – that the landlord should provide the rental property to the tenant with no other party renting the said premises, or the tenant must vacate the property once the lease expires.
What is delivery of vacant possession?
In simple terms, the delivery of VP means the bare house and any other fittings and furnishings listed in the Sale and Purchase Agreement (SPA) are given to the home buyer upon completion of the home purchase transaction.
The delivery of VP for a primary property depends on the house type. Under the Housing Development (Control and Licensing) Regulations 1989, housing developers are required to deliver VP of a landed home with an individual title within 24 months. For strata-titled properties such as serviced residences, condominiums and apartments, it has to be within 36 months.
When can a home buyer get vacant possession?
However, before the developer can deliver the VP, they must ensure that:
- The Certificate of Completion and Compliance (CCC) has been duly issued by the local authority. This document verifies that said property is completed and safe for occupation. A CCC and CF carry important differences.
- The electricity and water supplies are ready for connection.
- The buyer has paid the balance of the purchase price in accordance with the schedule of payments.
Once all three requirements have been met, a notice will be issued to the buyer to collect the keys to the property at either the developer’s office or the lawyer’s office. The buyer will be required to sign a set of forms provided by the developer to acknowledge receipt of the keys, CCC and a list of fittings and fixtures. The date on these signed forms marks the beginning of the Defect Liability Period (DLP).
NOTE: Some developers might issue the VP notice when the building or project is about 70% or fully completed as by that time, the residential units would have already been habitable. This might mean common facilities such as clubhouse or public gardens are not yet completed but what is important is making sure the CCC has been obtained and that electricity and water supplies are ready for use.
Take note that buyers are given 14 days from a notice date to take possession of a completed property. After this period, the buyer would be deemed to have taken vacant possession of the property from the developer.
Vacant possession vs Legal Possession
Anthony Lee Tee, an accredited building inspector and a director of Architect Centre Sdn Bhd, clarified the difference between Vacant Possession and Legal Possession.
The latter means that a property is legally completed and is in an acceptable state to be occupied and the buyer can finally get the keys from the developer or seller in the form of another homeowner.
On the other hand, legal possession means that the buyer lawfully owns the property even though he or she doesn’t yet hold the physical keys to the property.
How is the delivery of vacant possession done for a secondary property?
For a secondary property, the delivery of vacant possession depends on the payment of the balance purchase price for the property and as well as the Agreed Apportionments. The latter is a list detailing all the bills which have been paid by the previous owner including sinking fund, water bills and management fees.
The usual practice is to incorporate a 3 + 1 months timeline into the SPA to provide both parties ample time to secure funding, move out and transfer ownership. Delivery of VP is confirmed once the seller delivers the keys to the purchaser either personally or through the buyer’s lawyers.
When does the time of delivery of vacant possession start?
The time for delivery of VP starts from the date the Sale and Purchase Agreement is signed.
For instance, Anna makes a unit booking and pays the requisite fee on 1.09.2019. She then applies for a housing loan with a bank which is duly approved. On 1.10.2019, she goes to the developer’s office to sign the SPA which is dated on the same day. Hence, the time for delivery of VP would begin on 1.10.2019 and Anna could expect to receive vacant possession of her new unit by 30.09.2022.
The process for secondary purchases is much shorter. Buyers can expect to receive VP of the property by the end of the three-month mark. For example, Brian signs up to purchase Raj’s house and pays the earnest deposit on 11.03.2019. Brian signs the SPA at the lawyer’s office on 15.03.2019 upon securing a home loan. Here, the time of delivery of VP would start on 15.03.2019. Brian could expect to receive vacant possession of the house by 14.06.2019.
What is the compensation for late delivery of vacant possession?
Every SPA, be it the statutory Sale and Purchase Agreement (i.e. Schedule H or Schedule G) or a bespoke SPA drafted by a lawyer, would always contain a clause that states the effect of late delivery of vacant possession. Commonly known as the liquidated and ascertained damages (LAD) clause, it dictates the sum that the home buyer can collect as compensation for the breach.
The calculation of liquidated damages starts from the expiry date of the time for vacant possession and ends on the date the vacant possession is received by the buyer. The liquidated damages should then be paid to the buyer immediately.
If the developer refuses to pay the liquidated damages, the aggrieved buyer may take action against the developer through the Homebuyers Tribunal or the civil courts.
How do I claim for damages for late delivery from a developer?
In situations where the delay is unreasonable and the liquidated damages are not adequate compensation for the losses and damages suffered, both parties may enter into a Settlement Agreement.
A Settlement Agreement is a legally binding document wherein one party agrees to pay the aggrieved party an agreed sum as a full and final settlement of the matter. Malaysian courts recognise Settlement Agreements between housing developers and home buyers regarding late delivery of vacant possession.
The agreement would also include terms and conditions such as not suing the other party for the same matter in future. In most cases, home buyers opt for a Settlement Agreement to avoid having to go to court for a full trial.
What do I do if the developer refuses to pay the LAD?
Aggrieved home buyers can file a claim against errant developers at the Homebuyers Tribunal or the civil courts. Choosing between the two comes down to time, costs and the sum claimable.
Claim for LAD at the Tribunal for Homebuyers Claims
Claims at the Homebuyers Tribunal are generally inexpensive as there is no need for lawyers. The application procedure is straightforward: the home buyer fills up a set of forms stating the liquidated damages claimable, files it together with the requisite supporting documents and pays a fixed fee of RM10.
Any claim must be filed within 12 months from either the date of the Certificate of Completion and Compliance (CCC) or the expiry date of the defect liability period spelled out in the SPA. If a claim is successful, the buyer will be awarded liquidated damages.
Be aware however that the maximum sum claimable through the tribunal is RM50,000. If the liquidated damages exceed RM50,000, buyers would either have to waive the exceeding sum or split the claim into two. For the latter, the buyer will have to file for a specific period of time that does not exceed RM50,000 first and if it is successful, file another claim for another period of time until the total claim is recovered.
Also, the tribunal has no enforcement power. In the event that the developer does not comply with the award by the tribunal, the home buyer would need to request that the tribunal initiate enforcement proceedings on the award at the civil courts. The tribunal would then send a copy of the court recorded award to the buyer who can then enforce it against the developer through a civil action.
Claim for LAD through court action
Claims at the civil courts tend to be expensive and complex. Buyers who wish to take civil action against developers are advised to engage a lawyer.
Under the Limitation Act 1953, claims based on a breach of contract must be brought within 6 years from the date the actual vacant possession was delivered or from the date that the LAD becomes payable.
The aggrieved buyer must show that there was a breach of contract and that the contract contains a clause specifying the sum that must be paid upon breach.
Once successful, the buyer would be entitled to receive a sum not exceeding the liquidated damages stipulated unless it can be proven that the LAD clause and the sum stipulated therein are unreasonable.
If you find this guide helpful, make sure to read How to buy a subsale residential property in Malaysia in 7 steps
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Edited by G.Zizan