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What should be supplied to homebuyers during delivery of vacant possession?


HBA looks into a recent dispute over the delivery of vacant possession of properties – some homebuyers are shocked to find that their “completed properties” do not have running water and electricity. The developer claims that all that is required from them, as per the Housing Development (Control and Licensing) Act 1966 (HDA 1966) – is that they lay the necessary cables and make an application for internal connection to the related utility companies.

© 123rf

Under the current regime of HDA 1966 read together with Housing Development (Control and Licensing) Regulations 1989 (HDR 1989),  property developers are supposed to deliver vacant possession of the completed property to purchasers, with water and electricity supply ‘ready for connection’.

Unfortunately, some irresponsible housing developers contend that their job is completed as soon as the sub-stations in the housing development/estate are energized and commissioned. Whether the supply of water and electricity to each individual parcel unit actually occurs are then beyond their control. 

This has obviously created a dilemma for the purchasers. Without the supply of these basic necessities, purchasers could not possibly occupy their property as it is not habitable for human occupation. The agony of waiting to occupy their property, which they have fully paid for to the developers, continues notwithstanding the fact that these purchasers have made the requisite deposits to the utility providers for the meters.

Actual supply of water and electricity must be available, says High Court

In the recent case at the Shah Alam High Court in the decision of Bandar Eco-Setia Sdn Bhd vs  Tribunal Tuntutan Pembeli Rumah & 2 Ors  [2020] 1 LNS 778 the issue on ‘ready for connection’ was eloquently and articulately expressed by Justice Wong Kian Kheong. The decision has cast an important precedent that dealt with the interpretation of the need to provide an actual supply of water and electricity to a completed house in the delivery of vacant possession. Even though the decision was based on the Sales and Purchase Agreement (SPA) prescribed in Schedule I (BTS 10:90 model) to HDR 1989, it is equally applicable to Schedule G for land and building, and Schedule H & J for building and land intended for subdivision into parcels.

This was a case where 2 purchasers jointly purchased a double-storey semi-detached house from a property developer. They filed a claim at the Tribunal for Home Buyers Claims for liquidated damage for breach of SPA conditions regarding the delivery of vacant possession when they found out that there was no actual supply of water and electricity to their house upon collection of their keys. They claimed that the property developer was obliged under the agreement to deliver vacant possession with an actual supply of water and electricity within the prescribed period of 24 months, failing which the delivery of vacant possession cannot be valid.

© nizamkem | 123rf

However, the developer contended they were only required under Clause 21(1) of the SPA to apply for the internal connection of water and electricity from the house to the mains under the terms of the agreement and that there was no time frame set to do so. Hence, they were not obliged to provide an actual supply of water and electricity within the 24 months period. The Tribunal decided in favour of the purchasers and allowed the claim.

Aggrieved by the decision, the property developer applied for judicial review to the High Court.

READ: How to set up utilities in your new home after receiving Vacant Possession (VP)?

‘Ready for Connection’ argued by the developer

The SPA in contention was a Schedule I contract based on the Built Then Sell (BTS) 10:90 mode of payment. The main relevant clauses argued were:-

  1. Clause 26(1)(b) that the developer shall let the purchaser into possession upon the issuance of a certificate of completion and “water and electricity supply are ready for connection to the Building”; and
  2. definition of “ready for connection” in Interpretation Clause 1(f) of the SPA, which was defined as “…..means electrical points and water fittings and fixtures in the said Building have been installed by the Developer and are fully functional and supply is available for tapping into individual building units”.  

A literal interpretation of such relevant clauses was sufficient to convince the Court of Law that the actual supply of water and electricity was an integral part of the delivery of vacant possession and therefore the housing developer is required to ensure that these actual supplies are provided to the property. The presiding judge stated the following reasons for his decision:-

1) If a Developer is not bound by the relevant clauses to ensure actual supply of water and electricity to property when the Developer delivers vacant possession of the property within the 24 months period, then it will be detrimental to the purchasers and is contrary to the objectives of HDA 1966 and HDR 1989 as explained in Ang Ming Lee & Ors v Menteri Kesejahteraan Bandar & others (2020) 1 CLJ 162.

2) It was emphasised in this precedent case that the HDA 1966 is social legislation designed to protect the house buyers, where the interests of the purchasers shall be the paramount consideration against the interest of the developers;

3) If the purchasers cannot occupy their purchased property without actual water and electricity supplied to the property, such an outcome is clearly unjust to the purchasers who have fulfilled all their obligations owed to the developer; and

4) It is crystal clear that it is the developer’s obligation to ensure that there is actual water and electricity supply to the property when delivering vacant possession to their purchasers.

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What does this court decision mean for property purchasers?

© twinsterphoto/ GettyImages

The decision serves to clarify the requirement of the utility supplies for delivery of vacant possession under Clause 26 (1), which created much controversy prior to the decision. The Court of Law has decided that the actual supply of water and electricity is an essential integral part of the delivery of vacant posession.

Hence, delivery of vacant posession shall be completed with actual supply of water and electricity with the connection of utility meters and this has been the legitimate expectation all along following the introduction of HDR 1989.

More importantly, it allows the purchasers to claim for liquidated ascertained damages (LAD) for the period from the expiry of the 24 months (Schedule G & I) or 36 months (Schedule H) till actual supply is provided.

Property developers should be forewarned

Housing developers especially those who are state-owned can no longer deliver properties that do not have complete water and electricity connection and can no longer expect their purchasers to queue up at TNB and SYABAS, etc themselves.

“It is not sufficient for the developer to just lay the pipes and cables for electricity and water to connect the building to the substation or water mains. The developer must ensure, at the time of delivery of vacant possession of the said building, that there is a supply of water and electricity ready for tapping into the building”.

Property purchasers must expect the following upon delivery of vacant possession:

  • Water supply: with water running when one turns on the tap; and
  • Electricity supply: when one affixes a light bulb and it switches on

This article is written jointly by Datuk Chang Kim Loong, Hon Sec-Gen and Ar. Y S Ng, Technical Advisor of the National House Buyers Association (HBA).

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