It is a known fact that many liquidators who take over from a wound-up housing developer, tend to capitalize on the homebuyers’ misfortune – by charging exorbitant administrative fees to execute the transfer of individual and strata titles. HBA shares some updates regarding these excessive charges issue, which was recently taken up in the Malaysian Courts of Law.
Liquidators to serve as ‘de facto’ developers
When a housing developer goes bankrupt, a liquidator is appointed (as a de facto developer) to manage the affairs of said developer. This includes completing construction of any pending buildings or facilities, delivering vacant possession of property units and applying for individual or strata titles of completed housing units. However, an ongoing dilemma faced by the homebuyers involved is that they have to fork out exorbitant administrative fees up to 2% or 3% of the purchase price (or current market value of the property in some cases) – as requested by the liquidator to execute property transfer documents. For instance, a homebuyer will have to pay at least RM10,000 (2%) in fees for a property worth RM500,000!
The high administrative fee is claimed to be used to cover the liquidator’s costs in retrieving the purchase documents which could be misplaced or damaged by the developer and to verify the same with the purchase proofs provided by purchasers. As a result, a straightforward perfection of transfer becomes a costly affair.
Pursuant to Sec. 3 of the Housing Development (Control & Licensing) Act 1966 (amended), the definition of ‘housing developer’ extends to include a person or body appointed by a court to be the provisional liquidator or liquidator for the housing developer. With such amendment being made, the duties and responsibilities reposed on a liquidator will be subjected to the Act and may be held accountable for a breach of duties as a de facto housing developer. A liquidator should be forbidden to charge or impose any additional administrative fees which may appear unreasonable, unfair and oppressive as the liquidators are expected to perform something which is required under the law to perform anyways and should not be entitled to more. A liquidator should not unjustly enrich themselves through benefits to which they aren’t entitled. Unilateral imposition of such fees is devoid of legal basis.
Court of Appeal decides that administration fees must be reasonable
In a recent case of KAB Corporation Sdn Bhd & Anor v Master Platform Sdn Bhd 752 (2019) 6 MLJ, the panel of judges made a unanimous decision on this issue, saying that developers or subsequent holders of a Master Title for lands cannot unilaterally impose excessive and exorbitant fees where their consent is required for any resale, transfer or assignment of rights for property purchased pending the issuance of a separate strata title.
The developer contended that it has always been the market rate and industry practice to impose an administrative fee to purchasers where the separate title to the respective properties has yet to be issued in the name of buyers for units such as shop lots, office premises and condominiums.
The appeal was filed by KAB Corporation Sdn Bhd (KAB) and its related company Impiana Sdn Bhd, against their developer, Master Platform Sdn Bhd (MP).
According to the facts of the case – in 2015 the owner of the property concerned, KAB had sought consent from MP (being the Master Title holder of the land) to assign the property to a bank for an additional revolving credit facility for the benefit of Impiana Sdn Bhd.
MP then had only agreed to offer their consent if KAB paid them a sum of 1% equivalent to the facility sum, that being RM65,000, even though there was no stipulation for such a rate in the sale agreement.
Both KAB and Impiana then filed a suit which, among others, sought a declaration that the imposition of RM65,000 was exorbitant and excessive, and further for a declaration that any administrative fee imposed by MP should be nominal.
The judges presiding over the case stated that:
We are of the view that the defendant (MP) had exercised its discretion unreasonably when it imposed the flat 1% rate for the administrative fee. The defendant failed to take into consideration that the work of updating the records was the same irrespective of the value of the transaction. At any rate, even if the value of the properties has appreciated considerably over time, the benefit accrues to the purchasers (KAB) who have already paid the purchase price in full. Rather, the defendant was obliged to ensure that the strata title once issued was duly registered in KAB’s name and until then it had to maintain the records’.
‘……….that not only must the discretion be exercised honestly and in good faith but, having regard to the provisions of the SPA and the House Rules, it must not be exercised arbitrarily or unreasonably.’
We are of the view that a nominal administrative fee of RM500 is fair and reasonable. -The Hon. Justice Datuk Vernon Ong led the panel of judges, which comprised The Hon. Justice Datuk Harmindar Singh Dhaliwal and The Hon. Justice Dato Has Zanah bt Mehat-
The issue of administration fee of RM500 was actually previously decided
In the previous case of Lim Seang Mee v Keepahead Holdings Sdn Bhd (1993) 2 AMR 51:3553, the decision pronounced in Penang High Court by Justice Mohamed Dzaiddin was that the developer is merely required to endorse its consent in the Deed of Assignment (DOA) and to undertake to deliver the strata title and a valid memorandum of transfer.
As such, the developer is not entitled and has no legal rights to charge the plaintiff fees amounting to RM2,000 which is inordinately high. A fair and reasonable amount should be a sum of RM500 for administrative fees.
It is an established principle of law that a developer becomes a bare trustee upon receiving the full payment of the purchase price by the purchaser. This basically means that the developer has vested all the rights and interests to the property purchasers upon full payment of the property and no longer has a beneficial interest in the property. Instead, the developer is merely holding the property on trust for the benefit of the purchaser pending the issuance of the separate strata title, for which the developer is obligated to apply for it. This being said, upon the full payment of the property purchase price, the purchaser is not liable to pay for any administrative fees as the purchaser no longer owes any obligation to the developer.
It is not an uncommon practice where the developer imposes administrative charges in giving its consent to any resale, transfer or assignment of rights for a property purchase pending the issuance of a separate strata title. Such consent was required as a result of the developer’s neglect to apply for/ obtain the strata title after the completion of the building. The developer should not arbitrarily impose an exorbitant administrative fee as it is through frolic of their own doing for not applying for the strata title. Hence, the developer should not benefit from their own neglect. Any discretion must be exercised in good faith, and should not be abused because the purchasers would then be at the mercy of the developers through no fault of theirs.
Tips for owners of commercial property
As there are currently no statutory protections given to commercial building owners, the cases mentioned above act as some form of insight into their entitlement and the fee restrictions which can be levied by developers. Furthermore, the developer may no longer be entitled to benefit from their failure or neglect to apply for strata titles.
Ironically, there will still be a lacuna in the law without legislative intervention and the only way the owners could obtain a remedy is by going through litigation via our Courts of Law, which is often costly and time-consuming.
It should be noted that in deciding whether the imposition of an administrative fee was reasonable, the developer needs to satisfy the ‘reasonability test’. Hence, a property developer and those de facto developers (liquidators) cannot exercise their discretions in ‘bad faith and unilaterally impose excessive and exorbitant administrative fees.
MDI can play a more significant role in managing property transfers
Do you know that the Malaysian Department of Insolvency (MDI) actually charges a fair and reasonable fee of RM500 for the same property transfer process? MDI terms it Gaji Pelikuidasi (Liquidator’s Wage). MDI has an excellent expressive website with policy statements and commitment inter-alia:
VISION: To be the leader in insolvency management through efficient and dynamic administration, services and enforcement.
MISSION: To manage insolvency affairs with integrity, fairness and professionalism to secure and balance the interest of customers in order to minimize the impact of financial management failure.
OBJECTIVES:
- Strengthening the administration, services and enforcement of insolvency management.
- Strengthening the application and the implementation of the insolvency laws.
- Strengthening the ability and capacity of MDI; and
- Strengthening the co-operation and strategic partnership
Note from HBA: We have dealt with MDI in situations of ‘verification exercise’, ‘distribution’, ‘property transfer’ and ‘sign off’ as Official Liquidators of defunct property developers. MDI is quite proactive because the process is merely procedural and administrative in nature. They should continue to keep up with their efficiency and productivity to achieve their long-term mission statement.
This article is intended to offer an insight into the case authorities and is not intended to be nor should it be relied upon as a substitute for legal or any professional advice. This article is jointly written by Datuk Chang Kim Loong, Hon Sec-Gen of the National House Buyers Association (HBA) and Jo Ee, Chang, Bachelor of Law (Hons) University of Essex.