There are safeguards intended to protect homebuyers prescribed under the Housing Development (Control and Licensing) Act 1966 (“HDA”) across Malaysia. Arguably, no milestone under the HDA is more crucial than the delivery of vacant possession within the prescribed tenure; whereby for housing developments with strata title, such developments have to be completed within 36 months from the date of the sale and purchase agreement (“SPA”) whereas for landed properties with individual titles, within 24 months therefrom. When a developer fails to deliver vacant possession according to the time stipulated in the statutory SPA, they would be liable to pay to the affected purchaser liquidated damages calculated from day to day at the rate of ten per centum (10%) per annum of the purchase price.[1]
One might well wonder, what about the developers?
Especially in this unprecedented time with restricted global mobility and the nationwide imposition of the Movement Control Order (“MCO”), surely the housing development projects would be hindered. Not only the supply of resources affected by the restrictions on travels and constructions work halted by disallowance of operations for non-essential services, there are also various layers of oversight and approval required which would have been delayed due to the mandatory closure of governmental offices. These would very likely affect the timely delivery of vacant possession for the housing development projects. As it is beyond the developers’ control, surely it would not be fair if the developers are to be held liable for the delay.
Up until recently, the Housing Development (Control and Licensing) Regulations 1989 (“HDR”) in Malaysia provided developers with an option to apply to the Housing Controller for an extension of time for the delivery of vacant possession, by virtue of Regulation 11(3) of the HDR that reads as follows:-
“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…”
However, in the case of Ang Ming Lee v. Menteri Kesejahteraan Bandar, Perumahan Dan Kerajaan Tempatan [2020] 1 CLJ 162, the Federal Court read Section 24(2)(e) of the HDA strictly and clarified that there exists no provision within the HDA which allows the Minister of Urban Well Being, Housing and Local Government (“Minister”) to delegate its power to waive or modify provisions in the prescribed statutory SPA to the Controller of Housing (“Controller”) and therefore held that Regulation 11(3) of the HDR (as passed by the Minister) to be ultra vires (or contrary to) the HDA. In simpler terms, the Court asserted that the Minister’s action of delegating its power to waive or modify the prescribed terms of the statutory SPA to the Controller, as exceeding what was intended by Parliament.[2]
What other options do the developers have then?
Apply for Extension of Time under Section 12 of the HDA
Notwithstanding the aforementioned ruling of ultra vires in the case of Ang Ming Lee v. Menteri Kesejahteraan Bandar, Perumahan Dan Kerajaan Tempatan [2020] 1 CLJ 162, the Federal Court also ruled that it was the duty of the Minister (and not the Controller) to “regulate and to prohibit” the terms of a statutory SPA, as can be read at para 36 in the grounds of judgment;
“By section 24(2)(e) of the Act, the Minister is empowered or given the discretion by Parliament to regulate and prohibit the terms and conditions of the contract of sale… In our view, having regard to the object and purpose of the Act, the words “to regulate and to prohibit” in subsection 24(2)(e) should be given a strict construction, in the sense that the Minister is expected to apply his own mind to the matter and not to delegate that responsibility to the Controller.”
This suggests that the Minister is empowered to extend time for the delivery of vacant possession under the statutory SPA. As such, the developers may write to the Minister narrating the dilemma and/or hardship they face as a result of the MCO and seek a written direction of the Minister to allow an extension of time to deliver vacant possession to purchasers[3] pursuant to Section 12 of the HDA that reads as follows:-
“The Minister may give to a licensed housing developer such directions as he considers fit and proper for the purpose of ensuring compliance with this Act, and any such direction shall be made in writing and shall be binding on the licensed housing developer to whom the direction is made.”
The term “this Act” hereunder could include the terms of the statutory SPA prescribed under the HDA and therefore, there appears to be scope for a developer to seek written directions from the Minister under Section 12 to permit the extension of time to deliver vacant possession and ensure compliance with the HDA and an amended form of the statutory SPA.[4]
Secure Mutual Agreements with the Purchasers
Another option could be for a developer in Malaysia to secure the agreement of the purchasers to an extension of time to deliver vacant possession.
This was achieved in the Court of Appeal case of Oxbridge Height Sdn Bhd v. Abdul Razak Mohd Yusof [2015] 2 CLJ 252, where the developer in the said case could not deliver vacant possession of a housing project within time due to financial difficulties and persistent flooding in the area. Subsequently, with the involvement of the Jabatan Perumahan Negara, the developer and the purchasers executed a Settlement Agreement where a new date of completion was agreed upon and the purchasers agreed to waive their claims for liquidated ascertained damages for the late delivery until the new completion date. The Court of Appeal upheld the Settlement Agreement and ruled that the purchasers were precluded from claiming liquidated ascertained damages in view of the Settlement Agreement.[5]
Aside to the above, the High Court in Pinpoint Consortium (M) Sdn Bhd v Mammoth Empire Land Sdn Bhd [2019] 1 LNS 766 held that housing developers and buyers may enter into settlement agreements to settle any dispute arising from the SPA concerning housing accommodation, based on, inter alia the following grounds:-
Housing developers and home buyers have the freedom of contract to enter into settlement agreements regarding housing accommodation and such freedom can only be restricted or abrogated by clear words of written law;
- Settlement agreements are valid under Section 64 of Contracts Act 1950 (“Contracts Act”). There is nothing in the HDA and HDR which invalidates a settlement agreement concluded under Section 64 of the Contracts Act. Nor is there any provision in the HDA and HDR which requires the Controller to approve or consent to the settlement agreement before the settlement agreement can take effect.
In this regard, the developers must ensure that the purchasers expressly, truly and indisputably agree to the extension of time to deliver vacant possession and to waive their claims for liquidated damages under the SPA until the expiry of the new completion date.[6]
Conclusion
In view of the aforementioned, it can be concluded that if developers in Malaysia are unable to meet the delivery of vacant possession deadline for their projects, they could either apply from the Minister or get the purchasers’ agreement for extension of time for delivery of vacant possession.
Looking at the current development of Covid-19, with the new coronavirus variant named Omicron declared to be of concern by the World Health Organization (WHO), it seems that the world is not going back to normal pre-Covid-19 anytime soon. In anticipation of future MCOs and/or restrictions, provided that the situation applies, it would be advisable for the developers to take the proactive measure to apply from the Minister for extension of time for delivery of vacant possession ab initio and incorporate the extended time of delivery into the SPA to be entered with the purchasers.
Having said that, it will be wise to note that each of the aforementioned options to be taken is not automatically granted and will respectively be subject to the Minister’s written direction to allow and/or the agreement from the purchasers to agree to the extension of time requested by the developers. Hence, the developers should only approach the options if there is material reason for the delay in delivering vacant possession. After all, the options are there to provide leeway to the developers in dire need; and not to be misused irresponsibly.
Author:
Nurul Izzah Jannah Binti Modh Rasidi, Associate, Mohamed Ridza & Co, Kuala Lumpur, Malaysia
Tel: +603-2092 4822
Email: izzah@ridzalaw.com.my www.ridzalaw.com.my
Web: https://laworld.com/law-firms/mohamed-ridza-co/
[1] Naseem Mohamed Abdulla & Muhammad Akhlil Mohamed Ridza (2021). Liquidated Ascertained Damages & The MCO Effect. Firasat. Retrieved November 22, 2021 from https://mailchi.mp/5f58a0a51ddb/latest-trends-on-islamic-finance-in-malaysia-8812034?e=7c3f78b066
[2] Leon Logan (2019). Controller of Housing not Empowered to Grant Extension of Time to Developers. Retrieved November 24, 2021 from https://hhq.com.my/publications/controller-of-housing-not-empowered-to-grant-extension-of-time-to-developers/
[3] Teo Qing Qing (2020). Developers’ Extension of Time. Retrieved November 26, 2021 from http://www.gtrz.com.my/article.php?id=3
[4] Gregory Das (2020). The Delivery of Vacant Possession in the Time of Covid-19. Retrieved November 24 from https://www.stsp.my/the-delivery-of-vacant-possession-in-the-time-of-covid-19/
[5] Ibid.
[6] Teo Qing Qing (2020). Developers’ Extension of Time. Retrieved November 26, 2021 from http://www.gtrz.com.my/article.php?id=3
