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Lacuna in the Strata Management Legislation – Part 1

Lacuna in the Strata Management Legislation – Part 1

These lacunas that were spotten have been thoroughly discussed between the ministry and various stakeholders, including HBA to clear the roadblocks in the SML.

The Strata Management Act 2013 (‘SMA’) is a significant improvement of its predecessor, the Building and Common Property (Maintenance and Management) Act 2007 which has since been repealed. However, the SMA is not flawless.

Two years down the road, the users of the SMA have spotted some lacunas in this legislation which require fine tunings or clarifications. Sometime mid of 2017, the Ministry of Urban Wellbeing, Housing and Local Government (‘Ministry’) invited various stakeholders to a meeting to discuss how the SMA can be fine-tuned. The HBA is proud to be part of it.

Prior to the said meeting, the HBA together with the Malaysian Bar Council, Association of Valuers, Property Managers, Estate Agents and Property Consultants in the Private Sector Malaysia (PEPS), Royal Institution of Surveyors, Malaysia (RISM) and the Board of Valuers, Appraisers and Estate Agents have submitted a joint memorandum to the Ministry highlighting the proposed possible amendments to the SMA.

In this article, we shall attempt to highlight some of the pertinent issues which were proposed and discussed during the meeting.

Developer’s Obligation to Pay Charges over Provisional Block

Under various provisions in the SMA, a developer is required to pay Charges and contributions to the sinking fund in respect of those parcels in the development area which have been completed but not sold. However, there is a long standing and unresolved debate on whether a developer is also obliged to pay Charges and contributions to the sinking fund in respect of the proposed parcels in each provisional block. In a phased development, provisional block refers to a block of building which has been proposed to be built or in the course of being erected for which a separate provisional strata title is applied for.

The proponent advocates that as the common property is built with a view to cater for the eventual usage by all the occupants in the development area and hence is constructed up to considerable scale, the developer shall bear responsibility as well to maintain the common property even although the provisional block is not completed yet.

Pursuant to sections 59(2)(a) and 61(3) of the SMA, the Management Corporation (‘MC’) has the duty and power to collect Charges as well as sinking fund contributions from the proprietor of provisional blocks based on the provisional share units. In addition, section 60(3)(b) of the SMA also provides for the MC to determine the Charges to be imposed in respect of provisional blocks. Although there is no specific provision that requires developers to pay 100% Charges for provisional blocks, section 60(3)(b) provides the MC with the power to do so.

There is an ongoing discussion and consultation on the issue whether a developer should only be required to pay a certain percentage of Charges and sinking fund contributions considering the fact that the developer, as the owner of the provisional block, does not utilise the common facilities and common services in the completed blocks save for service roads, drains, street lightings, landscape and security of the compound areas.

However, there are also cases where the completed common facilities are been designed and intended to be shared by the completed blocks and the uncompleted blocks. In such cases, it is gross injustice for the purchasers of the completed blocks to bear the full cost of management, operation and maintenance of such completed facilities without equal contributions from the uncompleted/provisional blocks.

Until the SMA is amended, HBA is of the view that, save for the management period by the management corporation, a developer should pay Charges and sinking fund contributions for its provisional blocks at the same rate as any other parcels in the development area.   

Developer’s Obligation to Pay Interest over Arrears

Section 12(6) of the SMA provides that, during developer’s management period (i.e. the period between the delivery of vacant possession and the handing over to the joint management body), a purchaser is liable to pay interest at the rate of 10% per annum on a daily basis over the outstanding sum if the purchaser fails to settle the outstanding charges and contribution to sinking fund within 14 days after receipt of a notice of demand from the developer.

However, there is no similar provision which require a developer to pay late payment interest if there is a delay of payment on their part. It thus appears that a developer is enjoying preferential treatment. As a matter of fairness, it has been suggested that a similar provision is introduced to impose the same obligation on the developers to pay late payment interest, if any.

Imposition of Different Rates

Pursuant to section 60 of the SMA, a MC may at a general meeting determines different rates of charges to be paid in respect of parcels which are used for significantly different purposes and in respect of the provisional block. This provision is intended to provide flexibility to the MCs, especially those managing a mixed-use development area comprising different components, eg. commercial, residential and retail, to impose different rates of charges to different components. However, this provision appears to be only applicable to MCs and not JMBs based on current regime. The naïve application of a single uniform rate of Charges in a mixed-use development area has caused unnecessary injustice to the purchasers of those affected component blocks. It has been suggested that the same flexibility to be extended to JMBs and developers of mixed-use development areas.

Deadline to Deposit Monies Collected into Account

The SMA contain provisions which stipulates that moneys collected from owners shall be deposited into the maintenance account and sinking fund account within 3 working days of receiving the moneys. These provisions are intended to prevent abuse of fund.

Based on the feedback received from property managers, this requirement places an onerous duty on them. More often than not, the moneys are paid by the owners in the form of a single cheque combining the payment for Charges and sinking fund contributions. In this regard, the management body has to deposit the said cheque into the Maintenance Account first and later the amount for the sinking fund will be reversed out and remitted into the Sinking Fund Account. Three working days is too short for the above purpose. This process will take some time especially when the cheques are outstation cheques involving different banks.

For practical reason, it has been proposed that the relevant provisions are amended to provide for longer time for the management body to comply with this requirement.

Refund of Deposit to Rectify Defects

Section 92 of the SMA imposes an obligation on developer to place a deposit with the Commissioner of Buildings in the form of cash or bank guarantee for the purpose of securing the developer to carry out works to rectify defects on the common property after the delivery of vacant possession. Subsection 92(5) of the SMA provides that any unexpended deposit shall be refunded to the developer on the expiry of the defect liability period for the development area.

This poses difficulty because while all sale and purchase of residential property from developers are required to use the statutory forms of agreements provided under the Housing Development (Control & Licensing) Act (revised) which contain clauses on the defect liability period of common property (‘DLP Clause’), the same clause may not be found in sale & purchase agreements of commercial stratified property which often are drafted by the developers. In this situation, the question that arose is when should the deposit be refunded to the developer?  In order to overcome this issue, it was proposed that section 92 of the SMA should be made clearer to state that this provision applies to all stratified development and to provide a deadline when the deposit shall be returned to the developer even in the absence of DLP clause in the sale & purchase agreements.

Closing Remarks

In the 2nd Part of this article, we will touch on the lacuna in the areas of conduct of meetings, requirements relating to notices and election of committee members of JMBs and MC etc under the SMA and SM Regulations regime.

This article was contributed by The National House Buyer’s Association to the Real Reserve team and edited by Gunaprasath Bupalan.

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GP

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