indepth

LAD to be calculated from collection of ‘booking fee’ — Federal Court

By common practice, in Malaysia, developers have been collecting booking fees ranging from a few hundreds up to 5% of the property prices. However, the question is, in case of late delivery of vacant possession (VP), can the purchaser claim liquidated ascertained damages (LAD) by calculating from the date the booking deposit is paid?

In a landmark decision on Jan 19, 2021, the Federal Court has delivered its grounds of judgement in respect of the case of PJD Regency Sdn Bhd v Tribunal Tuntutan Pembeli Rumah & Another & 6 Other Appeals. It has finally clarified the legal position as to when time starts to run, in respect of VP of the property.

Though this issue had earlier been decided by two Supreme Court cases in Hoo See Sen & Anor v Public Bank Bhd & Anor and Faber Union Sdn Bhd v Chew Nyat Shong & Anor, the legal position had remained unresolved for 32 years before it was re-visited by the Federal Court recently.

Background

National House Buyers Association (HBA) volunteer lawyers, led by Dato K L Wong and Wong Renn Xin, working on a pro bono (no legal fees) basis, had taken up this case for Wong Kien Choon and Ng Chee Kuan (purchasers) against their developer, PJD Regency Sdn Bhd on a public interest litigation and as a matter of principle. Meanwhile, counsellors Viola DeCruz and Koh Kean Kang held a brief for the HBA.

The purchasers had paid a booking fee of RM10,000 to the developer earlier but the sale and purchase agreement (SPA) was only executed two months thereafter by the developer. The SPA stated VP to be within 42 months from the date of the agreement.

Upon late VP, the purchasers made a claim in the Tribunal for Homebuyers Claim based on the date the booking fee was paid. The Tribunal awarded the sum claimed by the purchasers.

The developer then filed a judicial review application with the High Court, followed by the Court of Appeal, but both were dismissed.

The developer then filed an appeal to the Federal Court on the following questions of law.

Question 1:

For the purpose of ascertaining the date of VP or completion of common facilities under a statutory agreement prescribed in the Housing Development (Control & Licensing) Regulations, 1989 (HDReg) made pursuant to the Housing Development (Control & Licensing) Act, 1966 (HDA), whether the date when time starts to run is the date of the agreement notwithstanding the decision of the Supreme Court in Faber Union Sdn Bhd v Chew Nyat Shong & Anor (1995) 3 CLJ 797 and Hoo See Sen and Anor v Public Bank Bhd (1988) 1 CLJ (Rep) 125

Question 2:

For the purpose of ascertaining the date of completion of common facilities under a statutory agreement prescribed in Schedule H and J of the HDReg, whether the relevant date is when the prescribed architect certifies they are completed

Decision of the Federal Court

Question 1:

The Federal Court highlighted the Third Schedule (Schedule of Payment of Purchase Price) of the SPA, which clearly states that the SPA should be dated on when the first payment of 10% is made by the purchaser.

Thus, speaking in ideal terms, if the law is strictly complied with, there is no question as to whether the date of calculation of the LAD runs from the date of payment of the booking fee or from the formal date of the agreement.

However, in order to circumvent this rule, the developer had split the payment of 10% into two parts (i.e. 2% and 8%). The reason was to ensure the SPA was not dated when the developer collected the 2% but only when the balance 8% was collected. This would reduce the amount of LAD the developer had to pay the purchaser.

The developer did so in spite of the fact that HDReg 11(2) expressly prohibits all types of collection of any form of payment from the purchaser before the SPA is signed.

HDRegulation 11(2): “No person including parties acting as stakeholders shall collect any payment by whatever name called except as prescribed by the contract of sale.”

The scope of prohibition is wide enough to include estate agents, lawyers and any third parties purportedly acting as stakeholders for the housing developer in respect of collection of the booking fees.

Nonetheless, there has been no reported prosecution in the courts of law against those housing developers and sale agents who flout this prohibition. No one has been prosecuted for this blatant disregard for the law, to the best of our knowledge.

It is clear that developers are not allowed to collect any payment from purchasers before the SPA is signed. Yet, it does not seem to deter the developers. There remains to be a plethora of cases involving the issue of collection of booking fees by housing developers because of the lax and lack of enforcement. In fact, it is a criminal offence to collect booking fees as stipulated in HDRegulation 13(1):

“Any person who contravenes any of the provisions of these Regulations shall be guilty of an offence and shall be liable on conviction to a fine not exceeding fifty thousand Ringgit or to a term of imprisonment not exceeding five years or to both.”

Chief Justice Datuk Tengku Maimun Tuan Mat had this to say:-

“If it is the developer’s attempt to secure an early bargain through the collection of booking fees, then the protective veil cast by the legislature over the purchasers should operate in a way so as to bind the developers to the booking fees. In this way, the developer would have to bear the full extent of the LAD payable to them to the purchasers consistent with the overall intent of the written law in respect of late VP.”

Flouting the law with impunity

The main idea behind the legislative framework is that the developers should be confined to a set timeline. Booking fees are prohibited, yet developers have continued to brazenly flout the law by calling it “standard practice”.

At the same time, they very boldly demand that the statute be construed in their favour by strictly limiting the commencement period to the dates printed in those contracts.

The objective of the HDA and its regulations is to protect the purchaser who is in a more vulnerable position due to inequality of bargaining powers. If this mischief of collection of booking fees, which is legally prohibited, is not corrected, it would be a retrospective step for the protection of the unsuspecting purchasers.

The rights of the purchasers would be severely eroded. It would allow housing developers to continue perpetuating a practice that HDReg 11(2) expressly prohibits. This will further encourage developers to flout the law with impunity and offer the message that developers are allowed to circumvent the legislation, acting in total disregard to the housing laws.

Thus, in answering Question 1, the Federal Court held the following:-

“Where there is a delay in the VP by a Developer to the Purchaser in respect of scheduled contracts, the date for calculation of LAD begins from the date of payment of deposit or booking fee or initial fee or expression of intention to purchase and not from the date of the SPA literally.”

Question 2:

The second question is whether the developer can be deemed to have delivered common facilities to the purchaser upon the issuance of the Certificate of Practical Completion (CPC) and not the Certificate of Completion and Compliance (CCC).

Reverting to the principles of interpretation of social legislation, the Court is required to construe the statutory contract in a manner most favourable to the purchasers. It is clear that the SPA only refers to one type of certification, namely the CCC. This CCC issued by the architect is required for the VP to the purchasers.

Tengku Maimun held the following:-

“It cannot be the intention of the legislature to refer to one standard in respect of VP and another standard in respect of the completion of common facilities. Furthermore, CCC is a legal requirement imposed by law which will be issued upon the developer complying with all regulatory laws such as the Street, Drainage and Building Act, 1974. This affords protection to purchasers who can be rest assured that the relevant authorities have approved the construction. The same cannot be said in respect of the CPC or any other such documents not amounting to a CCC.”

In answering Question 2, the Federal Court had this to say:-

For the purposes of ascertaining the date of completion of common facilities under a prescribed statutory contract of sale, the relevant date is the date when the CCC is issued for purposes of VP of the Property.

Only one type of certification for both parcel and common facilities

The Apex Court had made the following distinction between CPC and CCC.

1) CPC is a certification for building works done under a construction contract entered into between the owner and the builder or contractor. Such certification is a private legal obligation between such parties

2) Whereas CCC is a statutory requirement as pointed out by Her Ladyship and that “... is only issued upon the developer complying with all regulatory laws such as the Street, Drainage and Building Act 1974”.

The Chief Justice also affirmed Azizah Nawawi J held in the lower court that there could only be one CCC that is issued “... to certify the Property (namely the parcels), together with the common facilities, has been constructed and completed in conformity with the approved plans and requirements of the Street, Drainage and Building Act 1974 and its by-laws”.

Hence, it is abundantly clear from the decision that parcels and common facilities ought to be completed and handed over to the buyers simultaneously and not separately. Completion of the common facilities must be in tandem with the completion of the property itself, as the purposes of the common facilities are for the use and comforts of the purchasers.

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-weekly on Jan 22, 2021. You can access back issues here.

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