indepth

Extending the Defects Liability Period (DLP) protection post-CCC

SCENARIO 1: Cindy is ready to buy a house, but having heard of plenty of abandoned housing projects in Malaysia, she did not want to take the risk of buying newly-launched or still-under-construction properties. Hence, she waited for the developer to complete the housing development and subsequently decided to buy a terraced house from the developer after she was able to physically see the house. In the usual way, she asked her lawyer to assist her with the sale and purchase contract and acquisition process.

Upon handover, she found that although the house was new, it had multiple defects such as cracks on the ceilings and walls. She then asked the developer to rectify them. Much to her dismay, the developer told her the defects liability period (DLP) had expired already and her purchase was on an “as is where is” basis. The developer said that the DLP was not mandatory after the Certificate of Completion and Compliance (CCC) had been issued.

SCENARIO 2: Latiff was ready to buy an apartment in Subang Jaya from an established housing developer. This was his first time buying a property in a stratified development. He knew practically nothing of the selling and buying process and sought the professional services of a lawyer. The lawyer attended to the usual sub-sale transaction with Latiff eventually taking possession of the property from the housing developer.

After shifting into his apartment with his family, he discovered water leakage coming through his ceiling and walls. He consulted his lawyer and was informed that the purchase was on an “as is where is” basis and that the purchaser was deemed to have inspected the property and was satisfied with the condition before signing on the dotted line. Consequently, he had to fork out RM7,850 for the repairs and repainting works when the apartment was barely six months old.

What the existing laws say

Every Contract of Sale shall be in the forms prescribed in Schedules G (Land & Building), H (Stratified Property), I (Land & Building — 10:90 concept) and J (Stratified Property — 10:90 concept) of the Housing Development (Control & Licensing) Regulations, 1989 (HDR).

However, HDR provides exemption to the rule, inter-alia:

HDR 11(1B) “…such (contract of sale) shall not apply if at the time of the execution of the contract of sale, the certificate of completion and compliance (CCC) of the housing accommodation has been issued and a certified true copy… has been forwarded to the purchaser.”

The language of HDR 11(1B) is clear enough. The statutory contracts of sales (i.e. Schedules G, H, I & J) do not apply to a sub-sale or a sale in a secondary market after the issuance of the CCC. In a nutshell, Cindy and Latiff had thought by purchasing their completed properties directly from the developers, they would have a right to ask the developers to rectify defects, if any. They were not aware that the developer was selling through the secondary market via a sub-sale and was not under any legal obligation to rectify any defects as their sub-sale contracts were silent on the DLP warranties normally found in statutory contracts of sales.

Sub-sales are not within the purview of the Ministry of Housing & Local Government and do not enjoy the protection accorded to purchasers who buy properties under construction. Hence, there is no DLP in sub-sale contracts though such terms are sometimes negotiated depending on the “goodwill” and benevolence of the housing developer. “Goodwill” in this context means the developer’s prerogative and at its sole discretion.

Protection under DLP

The statutory schedule contracts of sale carry a mandatory warranty period of 24 months after the date the purchaser takes vacant possession of the property — against any “defects, shrinkage or other faults” which become apparent and which are due to defective workmanship or materials or not having been constructed in accordance with the approved plans and descriptions. Such faults should be rectified by the developer at its own cost and expense within 30 days from the date of the purchaser’s written notice.

However, this clause on DLP is missing in most of the sub-sale or sale in secondary market contracts. It is a case of caveat emptor or “let the buyers beware”. There is no protection from the defects, shrinkage and other faults. These defects may include cracks in the walls, water leakages, water marks, mouldy ceiling panels, clogged piping, loose floorboards or tiles, unusable fixtures (such as electric connections, light switches, water taps, etc.) and even misaligned doors, windows and safety grills. Generally, it is a case of “what you see is what you get”. Those contracts even have the audacity to state that the purchaser has conducted independent checks and is satisfied with the state and conditions.

House buyers’ rights to better protection

Legal rights are created by the terms and conditions embodied in the contracts between two covenanting parties. House buyers who purchase a new property from a housing developer will establish a contractual relationship with the developer via the sale contract. Hence, the buyers will have contractual obligations with and entitlement from the developer in the event of defects, etc.

As such, why shouldn’t buyers who purchase directly from developers post-CCC be offered the same protection?  We do not see the justification for the non-entitlement to DLP, even if the property is bought after CCC. As long as the purchase is from a licensed housing developer, the buyer should be entitled to DLP warranties. After all, the defect warranties from the developer’s contractors/builders are still subsisting on the balance of the unexpired warranty period given by them.

That being the case, we propose that a new schedule contract (of sale) be formulated to protect the rights and entitlement of those who buy houses after the issuance of the CCC from licensed housing developers. This is to ensure that buyers will not be shortchanged in terms of quality and compliance with the specifications of constructions as stipulated by the authorities. Also, it is an extension of consumer protection who should also be accorded rights to enforce warranties under the DLP period or whatever its balance thereof. Justice-wise, like buyers who purchase properties in a primary market, sub-sale buyers should also be given the right to seek redress at the Tribunal for Home Buyers Claim, which is a more affordable, fast and expedient legal process.

Proposing new terms

Perhaps, a new set of contract of sale should be prescribed in the proposed new Schedule K (Post CC: Land & Building) and Schedule L (Post CCC: Stratified Property) to be included in the HDR.

These new contracts should cater for provisions post-CCC with a new prescribed schedule of payments considering that some properties are leasehold with “restrictions in title” compared to freehold status. But the main objective is to design a new contract of sale to include DLP for those buyers of post-CCC properties whether they are landed or stratified housing properties.

Perhaps, the Minister of Housing should consider this proposal that will accord better or “extended” protection to house buyers post-CCC.

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

This story first appeared in the EdgeProp.my e-Pub on Oct 23, 2020. You can access back issues here.

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