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Building and Common Property Act / Housing Development Regulation

Compensation taken away by Housing Controller

Compensation taken away by Housing Controller

If the developer fails to deliver within the stipulated period, the developer has to compensate the house buyer by paying liquidated damages for late delivery.

AT the stroke of a pen, monies payable to a group of aggrieved house buyers are taken away by the Controller of Housing (Housing Controller).

We are talking about a group of house buyers who had suffered losses due to a delay in completion of their homes by their developer and the very ministry that is supposed to protect them signed away their rights and remedies. We are talking about such rights and remedies being taken away from them for the benefit of the very culprit developer who caused them the loss and suffering.

What is happening to the Housing Ministry? The ministry many an aggrieved house buyer turns to in times of developer defiance of the law, the ministry house buyers rely on for protection and for all the desperately needed interventions and assistance when a housing project is delayed or abandoned?

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) for late delivery.

This compensation is calculated at 10% per annum on the purchase price for the period of delay. It is no rocket science that delay by one party leads to losses for the other party, hence the compensation; and by the same token, if the house buyer is late in making payment to the developer, the house buyer has to compensate the developer for the delay at the same rate of 10% per annum on the delayed payment.

These are obligations imposed by law and LAD claims for late delivery is a well-recognised remedy for house buyers.

Now I hear, however, that the Housing Controller has granted a six-month extension of time to developers in several housing projects.

Does the Housing Controller know the ramification and repercussion of his action?

Extension of time

What does it mean when an extension of time 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 the house buyers 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.

The developer who committed the breach stands to benefit hundreds of thousands or even millions of ringgit at the pain and suffering of the house buyers, that is what it means.

Let’s take a look at a modest development of just 200 condominium units at the purchase price of RM700,000 each. In the event of a 6 months’ delay the developer is liable under the SPA to pay the following compensation or LAD to the house buyers:-

LAD per unit : RM700,000 x 10% per annum x 6 months = RM35,000

LAD on common facilities : RM700,000 x 20% x 10% per annum x 6 months = RM7,000

Total LAD per unit = RM42,000

Total LAD for 200 units = RM42,000 x 200 units = RM8,400,000

Yes, a saving of RM8.4mil for the guilty party at the cost of the innocent parties. And that is just 200 units at RM700,000 each.

Rights to LAD

The Federal Court in the landmark case of SEA Housing Corp Sdn Bhd v Lee Poh Choo decided that attempts by housing developers to get round the housing rules so as to remove the protection of house buyers would not be allowed. This principle has been consistently followed in cases where the developers attempted to avoid payment.

In Tang Kam Thai v Langkah Cergas Sdn Bhd & Ors, the developer attempted to avoid payment of LAD on the grounds that the planning authorities had imposed new demands.

The High Court decided that it was a matter for the developer to deal with and “The responsibility cannot be passed onto the purchasers as an excuse for not paying liquidated damages”. And, in Sentul Raya Sdn Bhd v Hariram Jayaram & Ors, the developer’s attempt to avoid payment of LAD because the 1997 financial crisis made it impossible to complete the houses in time also failed.

That the housing legislations are for the protection of house buyers in general was made crystal clear in 2007 when Parliament amended the Preamble to the Housing Act to read “An Act to provide for … the protection of the interest of purchasers …”. Even before this amendment, the Federal Court already decided in City Investment Sdn Bhd V Koperasi Serbaguna Cuepacs Tanggungan Bhd that:

“Having regard to the policy and objective of Housing Developers Act 1966 and the 1970 Rules … the protection afforded by this legislation to house buyers is not merely a private right but a matter of public interest that cannot be bargained away or renounced in advance by an individual purchaser”

In conclusion, house buyers’ rights under the SPA are not private rights, they are created by Parliament as a matter of public interest for the protection of the rakyat. They can neither be taken away by the developer nor given away by any house buyer individually.

What about Regulation 11(3) of the Housing Development (Control & Licensing) Regulations 1989?

It is well established that provisions of the SPA are statutory provisions which must be strictly complied with and cannot be changed other than with the sanction of the Housing Controller.

The Housing Controller’s power to allow changes to the SPA is contained in Regulation 11(3) which 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? Is he not entitled to exercise his power under this Regulation 11(3)?

Has “granting of extension” been exercised in a just manner?

First and foremost, the power given under Regulation 11(3), like other discretionary powers, must not be misused.

Secondly, the Housing Controller must be mindful of the purpose of the housing legislations so as not to affect such purpose or take away accrued rights and make a mockery of Parliament. By granting the extension of time and depriving the house buyers of compensation under the SPA, has the Housing Controller not used powers given to him by Parliament only to take away rights conferred by Parliament?

As was pointed out by the learned judge in Wong Thai Kuai & Anor v Kansas Corporation Sdn Bhd:

“It would be against public policy if the ordinary house buyers, having paid the entire purchase price were to be effectively deprived of their rights under the sale and purchase agreement.”

Has the Housing Controller not just acted against public policy when he sanctioned the extension of time thus effectively depriving the house buyers of their rights under the SPA to be compensated?

What were the grounds for granting the extension? Were the house buyers informed of the developer’s application and the reasons therefor?

Did the Housing Controller hear and consider the house buyers’ views before taking away their rights?

Thirdly, besides what is reasonably expected of a prudent Housing Controller, it must be borne in mind that the power given under Regulation 11(3) is not an absolute one; it can only be exercised where there are “special circumstances or hardship or necessity which make it impracticable or unnecessary for the relevant provision in the SPA to be complied with”.

A good example for exercise of this power will be where the housing project is approved before year 2007 but the SPA is post 2007. Modification can be done to avoid confusion between CFO and CCC.

No reasonable minded person, let alone the Housing Minister and those under his charge, can possibly imagine that the powers given under Regulation 11(3) is meant to be used against house buyers let alone blatantly and unilaterally take away rights which are expressly given to them by Parliament, rights which are expressly stated to be for their protection and created to serve and protect public interest.

If discretionary powers are not exercised with prudence, perhaps it is time for these powers to be removed or the minister replaced.

Chang Kim Loong is the honorary secretary-general of the National House Buyers Association (HBA): www.hba.org.my, a non-profit, non-governmental organisation manned purely by volunteers.

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