indepth

Another headache for mixed developments

A leave to appeal to the Federal Court was rejected recently and the Court of Appeal’s decision that a Joint Management Body (JMB) is not allowed to have different rates of charges despite a development having different components and common facilities, remains intact.

With the said decision, we foresee a lot of disruptive impact to a mixed development with multiple components since now every owner is to pay a ‘single rate’ to their respective JMB regardless whether one enjoys or has access to the common facilities or not. This is utterly unfair, especially to low and medium cost parcel owners who are unable to enjoy or have access to the facilities used by high-end owners in cases where there is one single JMB on a mixed development.

The House Buyers’ Association (HBA) is steadfast and unwavering in our views that there should be variable rates for mixed development schemes. Mixed developments involve issues extending beyond the mere use of parcels and the factors enumerated in the formula contained in the First Schedule of the Strata Management Act, 2013 (SMA).

There are situations where even between parcels of the same use and with the same characteristics, the costs of maintaining such common areas could vary. This is because certain common property including facilities in such mixed-use strata development may not be shared in use equally by the components in a strata development (that is: there is exclusivity of use of certain designated parts of the common property to only one or more components but not all the components).

Furthermore, the Court of Appeal’s decision fails to appreciate the differences between en bloc parcel (a block with a single strata title) and multiple parcels (a block with multiple strata titles). For example, an en bloc office parcel block could have little or no common area at all within its own block and it may be unfair to require the en bloc parcel block owners to foot the bill for maintaining the common facilities located in residential towers such as swimming pool and gym.

A point to note is that the apartments and offices shared the same weight in computing share units.

Above all, the overriding principle in determining maintenance charges we believe shall be that an owner only pays for what he is entitled to use. The allowance of different rates during management by the JMB will provide for flexibility. Of course, safeguards must be put in place to ensure that this mechanism is not abused. The rates of maintenance charges must be sanctioned by general meetings, and preferably, with the passing of special resolutions.

When the SMA allows for the imposition of different rates of maintenance charges for developments managed by the Management Corporation (MC), the same shall be applicable to developments managed by the JMB unless there are valid justifications not to do so.

After all, the JMB is merely the precursor of the MC and will be succeeded by the MC once the strata titles are issued.

The spirit of the law is to have a smooth transition from the JMB stage to the MC stage and not to create confusion and dire ramifications.

The case in the limelight at the Court of Appeal was the Menara Rajawali: a stand-alone, mixed-use strata scheme in a single building where facilities are shared by all parcels in the strata development. Hence, the uniform flat rate of maintenance charges apply fairly and reasonably to all the parcels based on their allocated share units.

However, mixed-use strata schemes are very diverse in nature with regards to their development sizes, component mix, numbers of building blocks and large enbloc block parcels. For large and diverse mixed-use strata schemes where high maintenance common facilities are exclusive to certain component or components only, the uniform flat rate of maintenance charges cannot be applied as it will be unfair to the other components which do not enjoy such common facilities.

This may be further complicated by large en bloc block parcels in the mixed-use strata scheme. The allocated share units generated by the standard share unit formula in the First Schedule of the SMA or the Fourth Schedule of the Strata Titles Rules, as the case may be, will not be able to provide for a fair and reasonable uniform flat rate of maintenance charges in such cases.

Advice to JMBs with regards to this ruling

Some of the JMBs in large and diverse mixed-use schemes have passed ‘special resolutions’ under Section 32 of the SMA in conjunction with the statutory by-law 4 of Strata Management Regulations, 2015 (SMR) to grant exclusive use of designated parts of the common property to a particular component and thereby restricting such use from other components. Such JMBs, in our humble opinion should be allowed to continue with their different rates of maintenance charges that have been approved at AGM/EGM as fair and reasonable maintenance charges to the different components based on an approved rational operating budget. But, we stand corrected with other differing views.

Perhaps, other JMBs of large diverse and complicated mixed-use strata schemes may want to emulate the abovementioned JMBs in their pragmatic approach to seek maintenance charges that are rational, fair and reasonable to their diverse components. They may want to seek independent legal advice prior to this undertaking.

Legislative intervention needed

It is pertinent to note that Section 60 of SMA allows different rates of maintenance charges for MCs of mixed-use strata schemes.

The Housing and Local Government Ministry and the Director-General’s Department of Land and Mines have to quickly look into amending the SMA and the Strata Titles Act to resolve the present dilemma of such large diverse and complicated mixed-use strata schemes, to offer clarity.

The Minister may have to pass a new set of SMR to even differentiate between ‘residential’ and ‘commercial’ areas.

Real examples of current dilemma

1 Mixed-use strata scheme comprising highrise condominium blocks with low and medium cost flats.

2 Mixed-use strata scheme comprising high-rise condominium blocks with exclusive facilities and land parcels of terraced houses without facilities.

3 Mixed-use strata scheme comprising retail mall, hotel, office, apartments and en bloc retail carpark parcels.

4 Mixed-use strata scheme comprising high-rise towers of multiple office parcels, en bloc retail mall podium and en bloc 3-storey shop parcels fronting access road.

5 Mixed-use strata scheme comprising high-rise block of office parcels and en bloc block of hotel.

Datuk Chang Kim Loong is the Hon. Secretary-General of the National House Buyers Association (HBA).
HBA can be contacted at: Email: [email protected]
Website: www.hba.org.my
Tel: +6012 334 5676

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This story first appeared in the EdgeProp.my e-Pub on June 5, 2020. You can access back issues here.

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