The issues of maintenance charges and contribution to sinking fund (collectively ‘Maintenance Fees’) are always the subject of great contention in the context of strata management. Further complications could arise when a management body seeks to recover from a current purchaser of a parcel, the outstanding Maintenance Fees accrued by the previous owner.
You read it right. You could be buying a stratified property from the secondary market but if you are not careful or properly advised, you could find yourself having to foot the bill although you are not even the owner of the parcel yet.
This was what happened in a recovery action initiated by a management corporation (MC) against two purchasers of multiple stratified properties.
The Court of Appeal in that case interpreted subsections 45(5) and (6) (now repealed) of the Strata Titles Act 1985 (STA) where subsection 45(5) provides that any contribution levied by a MC in accordance with subsection 45(3) may be recovered as a debt from:
(a) a proprietor; or
(b) his successor in title to the parcel/s.
Section 45(6) STA further provided that the word ‘proprietor’ includes:
(a) the person for the time being receiving the rent of the parcel, whether as an agent or a trustee or a receiver, and who would receive the same if the parcel were let to a tenant; or
(b) a purchaser to be duly registered as a proprietor.
The Court of Appeal concluded that section 45 of the STA envisages that the debt may be recovered from two ‘parties’ namely the existing proprietor or the proprietor’s successor in title. But the section clearly refers to one and the same debt, that debt being the sum outstanding as Maintenance Fees. In other words, that single debt is recoverable from either the proprietor or the proprietor’s successor in title.
This decision was certainly welcomed by MCs struggling to recover dues vis-à-vis parcel units that have undergone ownership change over the years. However, for a prospective purchaser, in light of this decision, it is imperative that prior to buying a parcel, he or she must ensure that the parcel is free of any debt owed to the MC. This can be done by requesting a certificate from the MC stating the outstanding amount of Maintenance Fees payable by a vendor to the MC before the signing of the sale and purchase agreement (SPA). A purchaser could also insert relevant clauses in the SPA imposing an obligation upon the Vendor to settle the dues, if any.
On the other hand, the ramifications of the decision of the Court of Appeal above is arguably limited given that section 45 of the STA has since been repealed by the Strata Titles (Amendment) Act 2013 which came into force in June 2015.
However, in an interesting development, one of the purchasers in the suit above has filed a separate suit at the Kuala Lumpur High Court seeking amongst others, a court declaration to nullify a resolution passed during an EGM on the grounds that this purchaser had been denied of voting rights during the said EGM. The resolution approved the collection of RM3,000 from each owner/proprietor to settle the extra legal fees incurred by the MC in resisting the appeal of the purchaser at the Court of Appeal. The purchaser argued that it has the right to vote during the EGM although strata titles have not been transferred to his favour.
The High Court ruled that following the decision of the Court of Appeal and in reliance of section 52(8) of the Strata Management Act 2016 (SMA), it would be absurd to suggest that the purchaser who is required to pay Maintenance Fees is not entitled to attend and vote at general meetings. Section 52(8) of the SMA imposes obligation upon a purchaser who has yet to have the strata title transferred to his favour to pay Maintenance Fees.
Let’s examine from another aspect
With due respect, the High Court’s decision could be examined from the following angles.
Firstly, the Court of Appeal’s decision, which is in relation to interpretation of subsections 45(5) and (6) of the STA, has little relevance to the High Court case. This is because when the resolution was passed on 30.4.2017, subsections 45(5) and (6) of the STA have been repealed and since replaced by various provisions in the SMA. In this regard, the provisions in the SMA are the correct place to find the answer.
Secondly, Rule 21 (Voting rights of proprietor), Second Schedule of the SMA is clear that only a ‘proprietor is entitled to vote’ during a general meeting of a MC. The word ‘proprietor’ under section 4 of the STA is defined as a person or body for the time being registered as the proprietor of a parcel.
Thirdly, the adoption of purposive approach in this matter may not be appropriate for at least two reasons. There is little room to adopt purposive approach when the letters of law are clear and unambiguous like in the present case. It is also arguable that the decision of the High Court has not only failed to give effect to the true purpose of legislation (which the High Court did not elaborate much) but actually run counter to the spirit of the law itself. To allow unregistered owners to vote during general meetings will only discourage purchasers to come forward to cause the strata titles to be registered in their favour.
Look out for the decision of the Appeals Court
The appeal of the High Court decision is coming up soon. It remains to be seen whether the High Court decision will be affirmed or reversed.
HBA shall keep the readers posted of the decision.