Report: Some developers defaulting on maintenance fee of unsold strata property

PETALING JAYA (July 3): The enforcement of long periods of Covid-19 movement control measures have resulted in some developers failing to pay maintenance charges and sinking fund of strata developments, The Edge Malaysia reported this week.

“Developers are required by law to pay the monthly maintenance fee and contribute to the sinking fund, but many are defaulting on their payment, citing financial distress. This is expected to result in millions of ringgit in defaults, as well as poorly managed strata properties,” wrote the weekly.

“There are good developers and the not-so-good ones. That is why some developments are poorly maintained due to inadequate collection as the not-so-good developers are not paying [their fair share of money] for their unsold units,” Malaysia Institute of Property and Facility Managers (MIPFM) president Adzman Shah Mohd Ariffin told The Edge.

“Some developers were facing financial difficulties even before the Movement Control Order (MCO) and [their] situation has worsened due to the MCO. The default on payment of maintenance charges and sinking fund has led to their assets falling into disrepair,” he said.

The default amount is running into millions of ringgit and it could get worse under the now-extended MCO, he added.

Lawyer Ranjan N Chandran, a commercial and construction partner at Hakem Arabi & Associates, explained that developers are “duty-bound” by the Strata Management Act 2013 (SMA 2013) to pay the monthly maintenance charges and towards the sinking fund for the unsold units.

“Many developers will be cash-strapped amid the current challenging economic climate and may choose to ignore their maintenance and sinking fund payments for these unsold units,” he added.

Both Ranjan and Adzman Shah also said that “to the best of their knowledge” they have “mostly seen errant individuals taken to task while cases involving errant property developers are few”.

Still, Ranjan said that a “penalty imposed by the court against a strata property owner who fails to comply with an award by the SMT for failure to pay the outstanding maintenance charges and contribution to the sinking fund must likewise apply with equal force to a defaulting developer”.

He went on to say that there is a lack of action against developers who fail to pay for these unsold units, and that it is “disappointing” that there has been “no decision yet by the SMT and no criminal prosecution” against such property developers.

“Why only look at strata owners on their default? When is the law going to catch up with developers for their dereliction of duties and responsibilities?” asked Ranjan.

He said the maintenance charges and sinking fund to be paid by the developer in respect of these unsold units can be a colossal amount and “must be held by the developer as trustee for the property owners”.

Read the full report in this week’s The Edge Malaysia

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