In Malaysia, homebuyers are protected under the Housing Development (Control and Licensing) Act 1966, also known as the HDA. The HDA lists out the duties of a property developer selling units within a housing development. What happens when a developer does not adhere to the terms and conditions listed in the Sale and Purchase Agreement (SPA)? Or when the developer does not rectify defects properly within the defect liability period (DLP)?
Over the years, there have been cases of frustrated buyers not getting their unit as what was promised in the SPA, or even not getting it at all when a developer falls behind schedule or goes bust. Many buyers are not aware of their legal rights and what avenues are available to them.
Should a property developer fail to carry out his responsibilities and duty of care as laid out in the HDA, homebuyers may consider taking legal action. Taking someone to court is serious business and usually means that one party has exhausted all means to get the other party to do what is expected of them. Going to court not only takes up a lot of time and energy but also requires financial resources. However, if the stakes are high, it is something that would be worth doing.
We speak to John Chan, Partner at MahWengKwai & Associates, for advice on when a buyer can take legal action against a developer.
On what grounds can you take legal action against your developer?
1. Non-delivery or late delivery of vacant possession of your purchased property
Under the HDA, a developer must deliver the vacant possession of the property to buyers within a stipulated time: 24 months for landed homes with an individual title or 36 months for strata-titled properties. Buyers can take legal action if the property is not delivered within this time frame.
2. Defects and latent defects to your property
When you purchase a new property, the property developer is required under the HDA to fix any defects which pop up in the property within 24 months from the delivery of vacant possession. This “warranty” period is known as the defect liability period or DLP. Defects include, but are not limited to, uneven tiles, paint cracks, scratched windows, leaking pipes, and bad workmanship. Latent defects, on the other hand, are defects that cannot be seen and will usually manifest themselves over time. More often than not, these latent defects will appear after the 24-month DLP period. Examples of latent defects are improper foundation works that cause sinking of soil, and cracks on walls due to substandard material used.
3. Property delivered not in compliance with the specifications provided in the SPA
The developer needs to deliver the housing unit exactly as specified in the Sale and Purchase Agreement (SPA). For example, the buyer can take legal action if there are only two bathrooms in the unit when the SPA specifies three bathrooms.
4. Failure to apply for the subdivision and strata titles of the project within time pursuant to the Strata Titles Act 1985
A strata title is a title issued for stratified properties such as condominiums and apartments. Developers have to apply for a strata title for the purchasers and the application can be done once the construction of the superstructure (the frame, walls and floors) has been completed. Under the Strata Titles Act 2013, the developer must apply for a Certificate of Proposed Strata Plan (CPSP) from the Department of Survey and Mapping Malaysia (JUPEM)’s Director of Survey. The application for strata titles has to be done within one month of the issuance of CPSP.
5. Failure to transfer the individual strata title for your property to you
Under the Strata Titles Act 2013, strata titles should be issued upon vacant possession of the property. If the developer is not able to transfer the strata title to purchasers due to reasons out of its control, the developer needs to apply to the Controller of Housing for an exemption. However, the developer would still have to transfer the strata titles within a timeframe determined by the Controller of Housing.
6. Failure to convene the 1st annual general meeting (AGM) of the joint management body (JMB) or management corporation (MC)
Under the Strata Management Act 2013 (SMA), a property developer has to convene the 1st AGM of the JMB not later than 12 months from the date of delivery of vacant possession and/or the 1st AGM of the MC not later than 1 month after ¼ of the aggregate share units of the strata titles have been transferred to the purchasers.
What can you do if your housing development is postponed or categorised as a “sick” property?
The Ministry of Housing and Local Government (KPKT) categorises a housing development as a ‘sick property project’ when the construction progress is delayed by more than 30% when compared to its scheduled progress or upon the SPA expiry/lapse of vacant possession.
A “sick” property could eventually lead to the housing development being abandoned before completion. Homebuyers will suffer because they will have to continue servicing their home loans and may never ever see their “new” property. According to KPKT – as of 7 July 2022, there are 239 property developers in Malaysia with abandoned housing developments
In summary, when a property development company is wound up, a liquidator is appointed to step into the shoes of the developer to perform the duties and functions of the developer, including completing the construction of the development, delivering vacant possession and applying for individual strata titles.
In the case of a delayed development, the buyer may bring a claim against the developer for LAD at the Tribunal for Home Buyers Claims or Court.
In the case of an abandoned development by an insolvent developer, the buyer may theoretically file a claim against the developer for termination and refund of the purchase price due to a breach of the sale and purchase agreement. However, in practice, buyers would have to wait a long time, or in some cases, never receive their refund from the insolvent developer/liquidator.
Another available alternative which is rarely carried out is the statutory termination of sale and purchase agreements provided for under the Housing Development (Control and Licensing) Act 1966. In summary, you would need to fulfil the following requirements:
(i) The developer must agree in writing to terminate the sale and purchase agreements;
(ii) The application must be submitted within 6 months after the execution of the first SPA;
(ii) At least 75% of all the purchasers must agree to terminate the SPA.
Ultimately, the discretion lies with the Minister on whether to approve the application.
In the case of a delay or failure to perfect the transfer of strata tiles to the buyer, the buyer may file a claim against the developer and the liquidator for an order to compel the liquidator (who is appointed to manage the affairs of the developer) to complete the perfection of the transfer.
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What is the best way to approach a legal/civil suit involving a developer? Should I go through my Management Corporation (MC)?
The best starting point is always to consult a lawyer to advise you on your rights and liabilities arising from a potential dispute. The lawyer should also identify any underlying issues, provide alternative strategies and attend to initial correspondence with the developer’s legal team.
As the litigant, the best approach for the buyer would be to ensure that you have all the relevant documentation and records in order. This will include the advertising brochures, sale and purchase agreement, deed of assignment, receipts, letters and emails.
For the disputes arising from the grounds/causes of action stated above, there is no necessity to go through the JMB or MC as it is the buyer who has the locus standi (right/capacity) to bring the action against the developer by virtue of the SPA.
Both the JMB and MC are statutory bodies established to run and maintain and manage the common property in strata properties. A JMB is formed before the issuance of strata titles and is established when the 1st AGM is convened. Both the property developer and unit owners will constitute as members of the JMB. Meanwhile, an MC is established after ¼ of the aggregate share units of the strata titles have been transferred to the purchasers. It serves the same purpose, but its members consist only of unit owners and are voted in by the other property owners.
When does it make sense to take legal action against the Contractor instead of the Developer?
In almost all circumstances, the buyer’s claim will lie against the developer, instead of the contractor or subcontractors engaged by the developer. Once the legal suit is commenced against the developer, it will be up to the developer to bring in the contractor or subcontractor as third parties to the suit.
Within the Malaysian construction sector, there is also something called a collateral warranty. Specialist works (such as waterproofing, paintwork, aluminium works and mechanical and electrical works) carried out by contractors and sub-contractors come with an extended warranty, some ranging up to ten years. However, this warranty is only given to the party engaging the works, usually the developer or the main contractor.
The National House Buyers Association has been advocating for this collateral warranty to be extended to the home buyers because they are the ones who will be affected by defects that may only surface after the expiry of the defect liability period covered by the developer.
How do I complain/report about a developer in Malaysia?
You can proceed to the Ministry of Housing and Local Government / Kementerian Perumahan dan Kerajaan Tempatan (KPKT) to make your complaint/report against the developer.
Here’s how you can make a complaint through the KPKT website:
STEP 1: Under “Public” or “Awam”, select “Online Services” or “Perkhidmatan Dalam Talian”.
STEP 2: You will be directed to its online complaint system. In the “Aduan Baru” section, select “Aduan Pemaju Perumahan”
STEP 3: Select the type of complaint.
STEP 4: Fill in your personal details.
STEP 5: Fill in the details of the developer.
STEP 6: Fill in the details of the development.
STEP 7: Provide any additional or specific details.
STEP 8: Submit your complaint.
Step-by-step instructions are provided on the KPKT website.
Some errant developers have devised a way around making LAD payments for their delay in delivering vacant possession by ‘arm-twisting’ buyers to agree to LAD waivers. What should buyers know about these LAD waiver agreements?
The LAD or Liquidated Ascertained Damages is a clause found in the SPA that states a pre-determined amount of damages that are claimable by either party in the event of a breach of contract. It aims to protect homebuyers if the project is delayed.
Under the HDA, a buyer has the right to claim LAD for any delay in the delivery of vacant possession at the daily rate of 10% per annum of the property purchase price. This begins from the expiry of the period for delivery of vacant possession, up to the date the buyer receives the keys to the housing unit.
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In essence, a Liquidated Ascertained Damages (LAD) waiver agreement is a settlement agreement between the developer and the buyer whereby the buyer waives his right to claim for LAD against the developer if the developer delays in delivering vacant possession of the property.
It is very important that buyers fully understand the terms and clauses of the LAD waiver agreement when such an agreement is presented to them by the developer. Because it is prepared by the developer, the agreement will most likely contain terms favouring the developer. Therefore, it is again highly advisable to seek your own legal advice before agreeing to a LAD waiver.
In any case, it is important to note that if you agree to the settlement offer, and should you wish to claim for additional LAD in the future, the court will almost always hold the view that buyers cannot bring a claim for further LAD once a settlement has been entered with the developer. Therefore, sign only if you agree to the amount.
Before taking a developer to court, consider what is at stake and weigh the pros and cons of doing so. Not only do you need a significant amount of financial resources to pursue legal action but a court case could drag on for years and delay the completion works even further. If your fellow property owners are facing the same problem, form a group so that you will have more bargaining power. You will also be able to share the necessary costs and distribute any tasks involved among other owners.
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Note: This article does not constitute legal advice. Readers should consult a lawyer for specific legal advice on their particular matter.