As many of us in Malaysia are already familiar with , housing or residential projects by a licensed property developer (“Developer”) is governed by the Housing Development (Control & Licensing) Act 1966 (“HDA”). The HDA, amongst other statutes, was passed, mainly to protect the interest of buyers, especially anxious first-time home owners who may be unfamiliar with the basic terms and conditions of a sale and purchase agreement (“SPA”). Developers of primary market residential properties must therefore adopt the standard form SPA as prescribed under the HDA, with terms which are not negotiable.
One of the safeguards built into the SPA is the prescribed tenure for the completion of the housing project and the implications of a delay. Briefly, for a housing development with strata title, such development has to be completed within 36 months from the date of the SPA whereas for landed properties with individual titles,[1] a 24 months period calculated from the date of the SPA has been prescribed.[2]
As delays in completion of projects do not come as a surprise, SPAs contain a liquidated ascertained damages (“LAD”) clause which makes the Developer liable to pay to the affected purchaser, liquidated damages for its inability to complete the development within the period as promised. LAD is calculated from day to day at the rate of ten per centum (10%) per annum of the purchase price.
While the HDA and the issue of LAD is not a new issue, the recent development in the Federal Court case of PJD Regency Sdn Bhd v. Tribunal Tuntutan Pembeli Rumah & Anor And Other Appeals and the Relief Period introduced by the Temporary Measures for Reducing the Impact of Coronavirus Disease 2019 (COVID-19) Act 2020 (“COVID Act”) has resulted in a renewed interest on the issue of LAD for SPAs governed by the HDA.
WHEN LAD SHOULD BE CALCULATED?
Although the HDA has clearly prescribed that buyers are entitled to claim for LAD in the event of late delivery of vacant possession, there was an uncertainty on whether the calculation should begin from:
the date of payment of deposit/booking fee/initial fee/expression by purchase of his written intention to purchase; or from the date of the SPA.
On 19 January 2021, this question of law was tested at the Federal Court in the landmark case of PJD Regency Sdn Bhd v. Tribunal Tuntutan Pembeli Rumah & Anor And Other Appeals where it was decided that in the event of delay of delivery of vacant possession by the Developer, the date for calculation of LAD begins from the date of payment of the booking fee and not from the date of the SPA.
In the case, where a developer fails to deliver vacant possession according to the time stipulated in the statutory sale and purchase agreement, the calculation of the LAD begins from the date of payment of the booking fee and not from the date of that statutory agreement. This was further clarified and cemented by the nature of the HDA and HDR being a social legislation. Thus, the subsequent judicial decisions and legislative changes did not support the developers.
While the decision of the apex court must have come as a relief to many purchasers who have paid a booking fee in advance only to have the SPA signed at a later date, the Covid-19 pandemic has resulted in a temporary set-back
COVID-19 AND ITS IMPACT ON LAD
The COVID Act was passed to help “cushion” the effect of inter alia any delays in the delivery of vacant possession due to the various movement control order (“MCO”) imposed by the Government of Malaysia to curb the spread of the COVID-19 virus.
One of the measures introduced by the COVID Act deals with the inability of any party/parties to perform any contractual obligations due to measures prescribed, made or taken under the Prevention and Control of Infectious Diseases Act 1988 [Act 342] to control or prevent the spread of COVID-19, which shall not give rise to the other party or parties exercising his or their rights under the contract.[3]
Section 35 of the COVID Act provides that any agreement between the purchaser and the Developer from the period commencing 18 March 2020 to 31 August 2020 (“Relief Period”) shall be excluded from the calculation of:
- a) the time for delivery of vacant possession of a housing accommodation; and
- b) the liquidated damages for the failure of the developer to deliver vacant possession of a housing accommodation.
The Relief Period may, upon application by the Developer and upon satisfactory reason being provided by the Developer to show that granting of an extension of time is justified, be extended until 31 December 2020. However, the possibility that such period may be further extended to provide further relief to the Developer due to the recent announcement on the full MCO (“FMCO”) where non-essential construction sector is not allowed to operate during the FMCO cannot be dismissed. Where such relief is granted to the Developer, perhaps statutory remedies should also be offered to the purchaser even the Developer’s joint venture partner who are also affected by the recent directive.
Conclusion
While the latest Federal Court decision allows the purchaser to claim a higher amount of LAD due to the longer duration of delay, the success is to some extent, short lived as in the case where vacant possession of the property is to occur during or after the Relief Period and should you be a purchaser who is entitled to claim for LAD, the Relief Period has to be deducted when computing the LAD. Where such relief provides consolation to the Developer, at the same time it may cause devastation to the purchaser. Not only that there is a delay for them to rejoice their new house, but they are also not entitled to claim from for LAD from the Developer during the Relief Period.
Mohamed Ridza Abdullah
Mohamed Ridza & Co, Kuala Lumpur, Malaysia
Authors:
NASEEM MOHAMED ABDULLA, Partner
naseem@ridzalaw.com.my
MUHAMMAD AKHLIL MOHAMED RIDZA, Associate
[1] SCHEDULE H of the Housing Development (Control and Licensing) Act 1966 Housing Development (Control and Licensing) Regulations 1989 (Regulation 11(1))
[2] SCHEDULE G of the Housing Development (Control and Licensing) Act 1966 Housing Development (Control and Licensing) Regulations 1989 (Regulation 11(1))
[3] Section 7 of the Temporary Measures for Reducing the Impact of Coronavirus Disease 2019 (COVID-19) Act 2020
