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Understand LAD waiver conditions before signing, says Rehda

Buying a new home should be an unforgettable experience – a happy one, that is. From the moment you sign your sale and purchase agreement (SPA), you would expect a smooth-sailing journey all the way to getting your house keys. 

In the SPA itself, it has been mandated that the delivery of vacant possession for landed properties is within 24 months and strata properties within 36 months. 

However, there may be times when the developer is unable to deliver the project within the stipulated date in the SPA. As a homebuyer, you have a right to claim compensation for the late delivery through the Liquidated Ascertained Damages (LAD) clause in your SPA.

LAD is a contractually ascertained or predetermined amount of compensation which shall be claimable by either contracting party who has suffered loss in the event the contract is breached. 

If developers fail to deliver within the stipulated deadline, they have to pay a penalty fee of 10% per annum of the purchase price to homebuyers. However, while this clause exists, there have been instances where developers would come up with an LAD waiver agreement for buyers to sign. 

Settlement agreement between developer and buyer

EdgeProp.my has reached out to Real Estate and Housing Developers’ Association Malaysia acting president Datuk N K Tong in an email interview regarding this matter.

“The LAD waiver letter is a settlement agreement between a developer and a purchaser. By signing this letter, buyers will no longer be able to claim the LAD should there be delays on the project,” says Tong.

However, Tong explains that it requires the consent of both parties for the LAD waiver letter to be enforceable. He reminds buyers to understand thoroughly the terms and conditions of the agreement before signing it.  

“The decision to agree to the waiver is up to the buyers. They need to understand the terms and conditions of such an agreement,” he says. “Ultimately, it is the buyers who hold the power to agree or disagree with such an agreement.”

Reasons for delay

On why there is such a practice, Tong shares there are unforeseen difficulties that cannot be avoided that will result in the delay of a project’s completion.

“There are several reasons developers would suggest LAD waivers to their buyers. It could be from the unexpected challenges caused by the various lockdowns due to the Covid-19 pandemic,” Tong says. 

Hence, some developers would resort to producing LAD waiver agreements in order to preserve their cash flows. 

“Developers need to preserve their cash flows to complete the projects for the benefit of the purchasers as well,” Tong points out. 

He adds that while the government may have provided some relief, the measures have been so slow that they jeopardise the delivery of homes. Therefore, the developers have to take matters into their own hands.

Additionally, Tong notes that buyers still have the power to take action if developers are caught being dishonest on the LAD waivers. 

“Should developers be caught being dishonest about the LAD waivers, purchasers can take action and the infringements are punishable by the courts of law.

“Should there be cases like this, we strongly recommend the aggrieved party to make sure the necessary reports are made and brought forth to court.”

On the other hand, if a homebuyer does not agree to signing a waiver letter, there are steps he or she can take to claim compensation through the Housing Tribunal or by filing a civil action in court.

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