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Subsidiary Management Corporations: A Panacea? Subsidiary Management Corporations: A Panacea?
Share this on WhatsAppBY The National House Buyers Association This is the fifth in a series of articles by the National House Buyers Association... Subsidiary Management Corporations: A Panacea?
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BY The National House Buyers Association

This is the fifth in a series of articles by the National House Buyers Association (HBA) that focuses on strata management. The first article introduced the Strata Management Act, 2013 (Act 757) (SMA) and submitted that legislation was aimed to provide an improved legal framework for strata management.

The second article highlighted the terms of the SMA, covering what a management body and management committee are in particular. The stringent conditions for the election of the management committee were also discussed.

The third explored power struggles within the management body. It was submitted that opposing groups of parcel owners would emerge when the management body’s actions lack integrity. These groups attend the annual general meetings (AGM) of the management body and their presence may culminate in open hostility or even manipulation of the election process to retain their office. The way in which the SMA resolves this hostility and/or power struggle was discussed.

The fourth article discussed what the management body must inherit from the developer, focusing particularly on the documents to be handed over to the management body after the body is formed and highlighting relevant sections of the SMA providing the list of the documents.

This article will discuss the subsidiary management body which is formed in a mixed-use development where residential, office and retail buildings are part of one large development at the management body’s discretion.

In a mixed-use development, the management body would comprise a variety of parcel owners who own residential, office and/or retail parcel units in the development.

In a mixed-use development, the management body would comprise a variety of parcel owners who own residential, office and/or retail parcel units in the development.

Mixed-use Development Issues

The SMA and Strata Titles Act (Amendment), 2012 (STA) give the management corporation the option to form a subsidiary management corporation for the different buildings in a mixed-use development, thus resolving many of the issues plaguing such buildings.

In a mixed-use development, the management body would comprise a variety of parcel owners who own residential, office and/or retail parcel units in the development. These owners pool their funds to maintain and manage the different buildings in the development and share the use of common property.

Due to the mixed-use nature of the buildings, issues usually arise regarding the management and maintenance of the structure as well as the use of the common property. For example, should residential parcel owners have free access to the common property used by the office or retail parcel owners, or should the retail parcel owners pay more charges on maintenance charges and sinking funds compared with the residential or office parcel owners?

Additionally, proper use of the maintenance funds implies keeping organised records of accounts. One issue which will undoubtedly crop up is whether the management body can use money from the maintenance fees paid by the retail parcel owners to pay the expenses incurred to maintain the common property of the residential or office buildings and vice versa.

The parcel owners can argue stubbornly about these issues. When they reach a deadlock, hostile AGMs or power struggles among the owners become a likely event.

Subsidiary Management Corporations

Under the SMA and the Strata Titles Act (Amendment), 2012 (STA), the management corporation (MC) has the option to form a subsidiary management corporation (subsidiary MC) for the different buildings in the strata development.

Due to the mixed-use nature of the buildings, issues usually arise regarding the management and maintenance of the structure as well as the use of the common property.

Due to the mixed-use nature of the buildings, issues usually arise regarding the management and maintenance of the structure as well as the use of the common property.

The subsidiary MC enables the parcel owners of the respective buildings to form their own distinct and separate management corporations which would independently manage and maintain their own building and the common property serving the building.

However, it is noted that the parcel owners during the period of the Joint Management Body (JMB), which is the management body formed before the MC is formed, lack the power to form a subsidiary JMB.

Separate Accounts and Funds

Similar to the MC, the subsidiary MC is a corporate body with perpetual succession and as such can sue and be sued. It is empowered to collect directly from its members the maintenance charges and sinking fund.

Subsidiary MC’s members comprise the parcel owners of the respective buildings. For example: the residential subsidiary MC’s members comprise the parcel owners of the residential building; the office subsidiary MC’s members comprise the parcel owners of the office building; and the retail subsidiary MC’s members comprise the parcel owners of the retail building.

Each subsidiary MC must manage its own maintenance charges and sinking fund accounts for its building, all of which must be audited annually by an independent auditor. All these accounts would be consolidated to form the MC’s accounts which are then presented at the MC’s AGM.

The Formation of Subsidiary Management Corporations

As stated above, the parcel owners of a mixed-use development have, through the MC, the option to form a subsidiary MC. The process to achieve this starts when the MC calls for a general meeting and procures a comprehensive resolution to form the subsidiary MC.

Section 2 of the SMB defines “comprehensive resolution” as a resolution which:

a) is considered at a duly convened general meeting of the management corporation of which at least 30 days’ notice specifying the resolution has been given; and

b) at the end of the period of 60 days after the general meeting in paragraph (a) is convened, on a poll, the total of the share units of the parcels for which valid votes are counted for the resolution is at least two-thirds of the aggregate share units of the parcels of all the proprietors who constitute the management corporation at the end of such period.

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The formation of the subsidiary MC requires the consent of at least two-thirds of the aggregate share units.

Limited Common Property

An interesting point about the subsidiary MC is that it can designate limited common property for its own use.

Sections 17A (2) and (3) of the STB provide that:

(2) Limited common property designated by a comprehensive resolution passed by the management corporation shall –

a) describe, identify or define the boundaries or area of the limited common property in the special plan;

b) specify each parcel comprised in that special plan whose proprietors are entitled to the exclusive benefit of the limited common property; and

c) conform with any other details as may be prescribed by the Director of Survey.

(3) The management corporation shall make an application in Form 9 for the approval of the Director for the issue of certificate of subsidiary management corporation for the designated limited common property and shall be accompanied by:

a) such fee as may be prescribed;

b) a copy of the comprehensive resolution together with a certificate signed by the Commissioner certifying the receipt of the same filed with him by the management corporation; and

c) a special plan prepared under subsection (2) and any approved amendments thereto.

Although the subsidiary MC can designate limited common property for its own use, the limited common property must be identified clearly. Similarly, the parcels whose owners will enjoy exclusive use of the limited common property must be identified.

Conclusion

Generally, in a mixed-use development comprising residential, office and retail buildings, the MC has the option to form three subsidiary MCs, namely, a residential subsidiary MC, an office subsidiary MC and a retail subsidiary MC.

It is submitted that through the subsidiary MCs, the interests of the parcel owners regarding the maintenance and management of the mixed-use development can be resolved in a more formal way.

However, the formation of the subsidiary MC is a huge matter. It involves getting the consent of at least two-thirds of the aggregate share units of the parcels of all the parcel owners who constitute the MC as well as the land office.

In the absence of a subsidiary MC, parcel owners in a mixed-use development would have to co-exist harmoniously as well as practice mutual respect and cordial behaviour towards the varied interests in the development.

The SMA, though passed by Parliament in 2012 has since been implemented wef 1.6.2015.

 

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NATIONAL HOUSE BUYERS ASSOCIATION [HBA]

No. 31, Level 3, Jalan Barat, Off Jalan Imbi, 55100, Kuala Lumpur

Tel: 03-2142 2225 | 012- 334 5676 | Fax: 03-22601803

Email: info@hba.org.my | Web Site: www.hba.org.my

 

 

 

 

 

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