VIEWPOINT: BY the National House Buyers Association Malaysia
By the stroke of a pen, a group of house buyers have been denied their rights and made to suffer for the benefit of those who caused the suffering. The delivery of vacant possession for their purchases was delayed, and after a long wait to make their claims, the Controller of Housing granted an “extension of time” (EOT) to their developer, effectively extinguishing the purchasers’ claims.
Do they not know the ramifications and repercussions to the house buyers?
The claim for late delivery is a well-recognised and clearly spelt-out right of purchasers. The period for delivery is clearly stipulated and the formula for calculation of late delivery is stated in the sale and purchase agreement (SPA), which is 10 per cent per annum of the purchase price.
First, the former Housing Minister turned his back on house buyers by refusing to make the build-then-sell 10:90 (BTS 10:90) mandatory come year 2015, as committed by his predecessor. Now, the current Housing Controller is giving an EOT to certain developers, thus depriving all the house buyers of their benefits and entitlement to liquidated and ascertained damages (LAD) for late delivery.
What is happening to the Housing Ministry, the Ministry which many an aggrieved house buyer turns to when developers defy the law, a Ministry house buyers rely on for advice, for guidance and for all the desperately needed interventions and assistance when a housing project is delayed or abandoned?
Extension of Time (EOT) and its ramifications
What does it mean when an EOT is granted? Effectively, it means that the developer’s contract-breaking delay in completing construction is now excused, and the basis for late delivery claims is removed by the Housing Controller. In short, the rights and protection given by Parliament is extinguished by the Housing Controller with a stroke of the pen.
Under the terms of the SPA, the developer is under an obligation to complete construction and deliver vacant possession within the stipulated period (24 months for landed properties or 36 months for apartments or other stratified dwellings) to house buyers. If the developer fails to complete and hand over within this period, it has to compensate the house buyers in the form of LAD for the period of the delay.
It is no rocket science that the delay leads to losses to the other party, hence the compensation. By the same token, if the buyer is late in making progressive payments to the developer, he/she has to compensate the developer for the delay at the same rate.
The SPA is not freely negotiated between the developer and the purchaser. It is a statutory contract, as stated by the Court of Appeal in Raja Loh Sharuddin Bin Raja Ahmad Terzali and Others v Sri Seltra Sdn Bhd: “… all the provisions… are actually statutory requirements which must be strictly complied with”.
These statutory requirements, including the provision for LAD, are a statutory right given by Parliament in its effort to protect house buyers, the weaker party.
Rights to LAD as compensation for late delivery
The Federal Court in the landmark case of S.E.A Housing Corp Sdn Bhd v Lee Poh Choo decided that attempts by housing developers to get round the housing rules so as to remove the protection of house buyers would not be allowed. This principle has been consistently followed in a number of cases where the developers attempted to exempt themselves pleading special circumstances beyond their control.
In another case of Tang Kam Thai v Langkah Cergas Sdn Bhd & Ors, the developer attempted to avoid payment of LAD on the grounds that the planning authorities had imposed new demands. The High Court decided that it was a matter for the developer to deal with and “the responsibility cannot be passed onto the purchasers as an excuse for not paying liquidated damages”. Similarly, in Sentul Raya Sdn Bhd v Hariram Jayaram & Ors, the developer’s attempt to avoid payment of LAD, citing the the 1997 financial crisis, also failed.
That these statutory requirements are for the protection of house buyers was made crystal clear in 2007 when Parliament amended the Preamble to the Housing Act to read “An Act to provide for … the protection of the interest of purchasers …”. This is definitely in line with the Federal Court’s decision in City Investment Sdn Bhd V Koperasi Serbaguna Cuepacs Tanggungan Bhd: “Having regard to the policy and objective of Housing Developers Act 1966 and the 1970 Rules… the protection afforded by this legislation to house buyers is not merely a private right but a matter of public interest that cannot be bargained away or renounced in advance by an individual purchaser”.
In conclusion, house buyers’ rights under the SPA are not private rights. They are created by Parliament as a matter of public interest for the protection of the Rakyat. They can neither be taken away by the developer nor given away by any house buyer individually.
What about regulation 11(3) of the Housing Development (Control & Licensing) Regulations 1989 (“Regulations”)?
Regulation 11(1) & (2) of the Regulations makes it mandatory for the SPA to be in the format prescribed by the Regulations (in Schedule G, H, I or J as the case may be) and it is well established that the format as prescribed cannot be modified or changed other than with the sanction of the Housing Controller.
The mandatory SPA is therefore a piece of subsidiary legislation made under authority given by Parliament.
The Housing Controller’s power to allow modification or changes to the prescribed format is contained in Regulation 11(3) which provides that:
“Where the Controller is satisfied that owing to special circumstances or hardship or necessity compliance with any of the provisions in the contract of sale is impracticable or unnecessary, he may, by a certificate in writing, waive or modify such provisions; provided that no such waiver or modification shall be approved if such application is made after the expiry of the time stipulated for the handing over of vacant possession under the contract of sale or after the validity of any extension of time, if any, granted by the Controller”.
So it would appear that we have a scenario whereby only the Housing Controller has the power to waive or modify the provisions of the SPA. So what is wrong with the Housing Controller giving an EOT to the developer? Is he not entitled to under this Regulation 11(3)? This provision has no application to specific claims arising from the developer’s observance of the SPA. There can be no retroactive amendment to excuse wrongs done in the course of construction.
Has “granting of extension” been exercised in a just manner?
First and foremost the power given under Regulation 11(3), just like other discretionary powers, must not be misused.
Secondly, the Housing Controller must understand and be mindful of the purpose of the housing legislations so as not to affect such purpose and undo accrued rights and make a mockery of Parliament. By granting an EOT of six months, and depriving the house buyers of compensation equivalent to six months, has the Housing Controller not used powers given to him by Parliament to take away rights conferred by Parliament?
The learned judge in Wong Thai Kuai & anor v Kansas Corporation Sdn Bhd said that: “It would be against public policy if the ordinary house buyers, having paid the entire purchase price, were to be effectively deprived of their rights under the sale and purchase agreement”.
Has the Housing Controller not just acted against public policy when he sanctioned the EOT, thus effectively depriving the house buyers of their rights?
Example: Purchase price – RM700,000
Completion date extended by six months, thus LAD waived – RM35,000 per house
Project has 200 units, thus LAD waived RM35,000 x 200 units = RM7 million
That’s an enormous savings of RM7 million by the developer.
Thirdly, besides what is reasonably expected of a prudent Housing Controller, it must be borne in mind, the power given under Regulation 11(3) is not an absolute one; it can only be exercised where there are special circumstances or hardship or necessity which make it impracticable or unnecessary for the relevant provision in the SPA to be complied with and the application for modification has been made before the contracted date for delivery of vacant possession. A good example for exercise of this power will be cases where the housing project is approved before year 2007 but the SPA is post 2007 vis-à-vis CFO v CCC.
Did the Controller disclose the grounds and did he invite the affected purchasers to state their objections after letting them know the reasons for the developer’s application? Was the application made only after the purchasers’ right to the claim had been accrued or is the developer merely trying to avoid making a loss? Isn’t it the developer’s responsibility to inform its customers about the reasons justifying the application?
No reasonable-minded person, let alone the Housing Minister and those under his charge, can possibly imagine that the powers given under Regulation 11(3) is meant to be used against the interest of house buyers, let alone blatantly take away the house buyers’ rights which are expressly and clearly conferred on house buyers by Parliament, rights which are expressly stated to be for the protection of house buyers and created to serve and protect public interest.
Tireless efforts have been made by many stakeholders and Parliament to improve the housing legislation and to protect innocent house buyers. If discretionary powers are not exercised with prudence, perhaps it is time for these powers to be removed or the Minister replaced.
This unilateral granting of EOT by the Minister and the Housing Controller on alleged “hardship and special circumstances” is rather ambiguous and must be reined in. HBA’s group of volunteer lawyers, working on a pro bono (no legal fees) basis, have since filed two cases in the Court of Law to challenge this discrepancy.