On Nov 26 2019, the Federal Court ruled that the Housing Controller can no longer grant an extension of time (EOT) to developers who are unable to construct or complete their projects on time. The new ruling is a great win for Malaysian homeowners.
What is Extension of Time (EOT) in construction contracts in Malaysia?
Extension of time is one of the provision clauses in the standard contract form – in light of unforeseen circumstances, it allows developers more time to complete the project without being penalised.
Under the terms of the Sale & Purchase Agreement (SPA) between a housing developer and the house buyer, the developer has to complete and hand over the house within 24 months (for landed properties) or 36 months (for stratified properties). If the developer fails to deliver within this period, the developer has to compensate the house buyer by paying liquidated damages (LAD) of 10% per annum on the purchase price for late delivery.
However, there are contractors (which fail to meet the timeline) who seek opportunities to claim for an extension of time in order to avoid this additional loss or expense. When an EOT is granted (loosely) by the Housing Controller for a delayed project, it is essentially taking away the compensation or liquidated agreed damages (LAD) owed to homebuyers.
Supposedly, an extension of time can only be granted in respect of an event that is expressly included in the contract as a “relevant event”, where the claimant must produce documentation which shows that not only are they not responsible for the delays, but also demonstrate the other parties that are responsible. This can either be the employer or other third parties including “Acts of God,” etc.
What does it mean when an EOT for delivery of vacant possession is given by the Housing Controller?
Effectively, it means breaking the developer’s contract and delay in completing construction is excused and homebuyers cannot claim compensation for late delivery. Rights and protection given by Parliament is extinguished by the Housing Controller with a stroke of his pen: that is what it means. Ultimately the developer who committed the breach stands to benefit hundreds of thousands or even millions of ringgit at the homebuyers’ suffering.
There had been a group of homebuyers who had suffered losses due to a delay in the completion of their homes by their developer. The Housing Controller ‘signed away’ their rights and remedies by granting the developer an Extension of Time (EOT) – thereby taking away any compensation the homebuyers were entitled to.
75.4% of EOT applications by developers from January – July 2019 had been approved by the Housing Controller. In 2018, the number was 78.15%, while 67.8% of EOT applications were allowed in 2017. -Ministry of Housing and Local Government (KPKT)-
On numerous occasions, these issues have been highlighted to the Housing Ministry and have even been published in 2015 articles by the media about such unjust unilateral granting of EOTs to housing developers at the detriment of homebuyers, but it seemed to have fallen on deaf ears.
Homebuyers rely on the Housing Ministry for protection and for all the desperately needed interventions and assistance when a housing project is delayed or abandoned. Does the Housing Controller know the ramifications and repercussions of their action or inaction? We have chronicled a summary of the events below.
Housing Development Regulation 11(3) was being misused
What is the section of the law that was invoked against homebuyers? Regulation 11(3) of the Housing Development (Control & Licensing) Regulations 1989 (HDReg) reads:
“Where the Controller is satisfied that owing to special circumstances or hardship or necessity compliance with any of the provisions in the contract of sale is impracticable or unnecessary, he may, by a certificate in writing waive or modify such provisions: Provided that no such waiver or modification shall be approved if such application is made after the expiry of the time stipulated for the handing over of vacant possession under the contract of sale or after the validity of any extension of time, if any, granted by the Controller.”
Hence, only the Housing Controller has the power to waive or modify the provisions of the SPA. So what is wrong with the Housing Controller giving an extension of time?
No reasonable minded person, let alone the Housing Minister and those under his charge, can possibly imagine that the powers given under HDReg 11(3) is meant to be used against homebuyers, let alone blatantly take away rights which are expressly given to them by Parliament. If discretionary powers are not exercised with prudence, perhaps it is time for these powers to be removed or the minister replaced.
Aggrieved home buyers were caught in a 3-year legal case
Alas, the National House Buyers Association (HBA) had to embark on a journey to attempt to nullify the EOT through the Court of Law. Our volunteer lawyers, working on a pro bono (free legal fees) basis took up the challenge on a public interest litigation. The class action was commenced by 71 aggrieved homebuyers in challenging the grant of the EOT by the Controller of Housing which has denied, against unit owners, the rights for entitlement of compensation in lieu of the one year delay in delivery of vacant possession of the homebuyers’ units. Another group of 36 owners, represented by another of HBA’s friendly law firm, also had their case heard on the same date. The common target was on the issue of EOTs.
New Federal Court ruling is a win for home buyers
Below is the sequence of events that transpired, leading to the Federal Court landmark decision:
Kuala Lumpur High Court, 9.8.2016: HBA volunteer lawyers have successfully obtained leave from the Appellate & Special Powers Division of the High Court to pursue with the application for Judicial Review against the decision of the Minister of Urban Wellbeing, Housing & Local Government and the Controller of Housing in a condominium project (Sri Istana Condominium, Jalan Kuchai Lama, Kuala Lumpur) developed by BHL Construction Sdn Bhd.
Kuala Lumpur High Court, 27.2.2017: The High Court case was heard and written submissions made before Her Ladyship, Justice Datuk Hanipah Farikullah and decision ruled that the Minister acted ultra vires his power under HDA and HDR 11(3). She granted the Applicants (104 affected homebuyers) an Order of Certiorari to quash the decision of the Minister of Urban Wellbeing and Housing. The granting of the EOT to the defaulting developer makes a mockery and defeats the intent and object of the Housing Act which is “for the protection of homebuyers”. It was a landmark decision.
Putrajaya Court of Appeal, 31.3.2018: The Court of Appeal case was heard and the appeal was allowed in part held as follows:
- that Regulation 11(3) is not ultra vires the Act;
- that the letter dated 17.11.2015 purported allowing the EOT was null and void;
- that the decision made by the Minister is null and void as the Purchasers were denied their Rights to be Heard.
Putrajaya Federal Court, 14.5.2019: Having heard arguments and written submission from lawyers for the purchasers, developers and the attorney general chambers, the Apex Court reserved judgment. Her Ladyship Chief Justice Tengku Maimum Tuan Mat, who led a 5-member panel reserved its decision to an unspecified date.
Putrajaya Federal Court, 26.11.2019: The Federal Court ruled that the Controller of Housing does not have the power to grant an extension of time (EOT) to housing developers. This means that, without the EOT, the housing developer will have to deliver vacant possession within the prescribed statutory period of 36 months, failing which the developers will have to compensate house buyers LAD that is equivalent to 10% per annum of the purchase price.
The Federal Court’s decision was delivered by Her Ladyship Chief Justice Tan Sri Tengku Maimum Tuan Mat, leading a panel consisting of Chief Justice of Malaya, Tan Sri Azhar Mohamed, Federal Court Judges, Tan Sri Idrus Harun and Datuk Nalini Pathmanathan. The written Court Judgment of the Federal Court is now available in all the Law Journals for all to understand our esteemed Judge’s rationale in upholding the primacy of homebuyers’ interest under the law.
If you enjoyed this industry update, read this next: Why Partial CCC should be disbarred for all homebuyers’ sakes.
Edited by Reena Kaur Bhatt
By YBhg Datuk Chang Kim Loong DSPN AMN, Honorary Secretary-General of the National House Buyers Association (HBA), a voluntary, non-profit, non-governmental Organisation manned purely by volunteers. You are welcome to visit www.hba.org.my