Significant changes to Housing Act
Contributed by Andrew Wong Fook Hin
Friday, 04 January 2008 08:11am
SINCE April 12, 2007, the Housing Development (Control and Licensing) Act, 1966 (Act 118) was not only an Act to regulate the business of housing developers, but also an Act to protect the interest of purchasers. In line with this purpose, the recently amended Housing Development (Control and Licensing) Regulations 1989 (1989 Regulations), which came into operation on Dec 1, 2007, introduced some significant changes to the statutory agreements required to be used in the sale of a housing accommodation to a purchaser.
This article will examine some of the significant changes made to the statutory sale and purchase agreement for a housing accommodation comprising land and building.
Agreement for land and building (Schedule G)
The contract of sale of a housing accommodation comprising land and building is known as Schedule G agreement. A Schedule G agreement is required to be used where the building is erected on a plot of land to be held under a separate issue document of title under the National Land Code.
If a purchaser has obtained a loan from a financier, the normal practice is that the developer will execute the transfer in favour of the purchaser and deliver the title to the purchaser or his financier so that the property can be transferred to the purchaser and charged to the financier, even before the full purchase is paid to the developer. The developer will only do this if he has received an undertaking from the financier to pay the loan sum in accordance with the schedule of payment set out in the Schedule G agreement.
Many problems have arisen out of this practice, as it is common for the financier to stipulate various conditions in its undertaking to the developer, some of which are not really reasonable, to say the least Much time can be taken before the terms of the financier’s undertaking are acceptable to the developer and this battle of wordings to be used in an undertaking usually results in a delay in the release of the loan by the financier. The purchaser ends up paying interest for late payment of the purchase price claimed by the developer.
The recent amendment now requires the financier to furnish to the developer an unconditional undertaking to pay the loan sum and, in return, the developer will undertake to refund the loan sum in the event the transfer cannot be registered in favour of the purchaser for any reason which is not attributable to the purchaser. A notable point is that the developer is no longer required to furnish an undertaking to refund the loan sum in the event the transfer in favour of the purchaser cannot be registered “for any reasons whatsoever”.
Purchaser’s right to initiate and maintain action
In many instances, the separate title may not have been issued at the time of purchase or handing over of vacant possession. In such a case, as security for the purchaser’s loan, the purchaser will be required to assign absolutely all his rights and interest in the property to his financier. By doing so, the purchaser may be deprived of his right to initiate or maintain any action against the developer in respect of any matter arising out of the contract of sale.
The new Schedule G agreement makes it very clear that, in such a case, a purchaser may now initiate and maintain any action or suit in any court or tribunal provided that his financier is notified of the action or suit within 14 days after the action or suit has been filed.
Interest on late payment
A housing developer is not entitled to charge interest on any late payment of any instalment of the purchase price in the event the separate title has not been issued on the date of agreement and the purchaser has obtained a loan from a financier, if the developer delays or fails to execute and deliver the instrument of transfer of the housing accommodation to the purchaser.
Infrastructure and maintenance
A purchaser is required to contribute to the cost and expense of the maintenance of the infrastructure, including the roads, driveways, drains, culverts, water mains and sewerage plants until such time such infrastructures are taken over and maintained by the appropriate authority.
The new Schedule G agreement requires the developer to provide the buyer a list and description of the infrastructure and the expenditure incurred in the maintenance of these infrastructures before the purchaser becomes liable to make any contribution.
Maintenance of services
In addition to contributing to the maintenance of infrastructures, the purchaser is also liable to contribute to services provided by the developer for refuse collection, cleaning of public drains and grass cutting on the road reserves, until such time as these services are taken over by the appropriate authority. For such services, the purchaser is required to pay six months’ advance when he takes vacant possession of his property.
The new Schedule G agreement now provides that when such services have been taken over by the appropriate authority, the developer shall refund to the purchaser the balance of the amount of such contribution paid by the purchaser.
Delivery of vacant possession
It has been the case that even after taking delivery of vacant possession, the purchaser is not permitted to occupy the house until the certificate of fitness for occupation (CFO) has been issued by the appropriate authority.
Now, the developer shall let the purchaser occupy the house when the certificate of completion and compliance has been issued by the developer’s architect or engineer, as the case may be. The purchaser may immediately occupy the property as the CFO is no longer required.
Defect liability period
The defect liability period, which requires the developer to make good any defect shrinkage or other faults in the house, has been increased from 18 to 24 months.
Provisions allowing the purchaser to make a claim on the monies retained by the developer’s solicitors for this purpose have been enhanced and improved. A purchaser may make a claim before the expiry of eight or 24 months after he takes over the vacant property. Once a notice of claim by a purchaser has been made, the developer’s solicitors may not release the monies held by him until the developer’s architect has certified that the defect shrinkage or other faults have been repaired and made good by the developer.
Title not issued at time of vacant possession
If, at the time of taking vacant possession, the separate title to the plot of land has not been issued, an additional sum equivalent to 2.5% of the purchase price will be held by the developer’s solicitors and will not be paid to the developer until the separate title and the instrument of transfer in favour of the purchaser has been delivered by the developer to the purchaser or his solicitor.
Next month’s article will examine the significant changes made to the statutory agreement for a housing accommodation comprising a building or land intended to be subdivided into parcels held under strata titles.
LAST month, we examined some of the significant changes made to the statutory sale and purchase agreement for a housing accommodation comprising land and building. In part two this month, we look at significant changes made to the statutory agreement for a housing accommodation comprising a building or land intended to be subdivided into parcels held under strata titles, brought about by the recently amended 1989 Regulations, which came into operation on Dec 1, 2007.
Agreements for buildings or land intended for subdivision into parcels (Schedule H)
The title to the Schedule H agreement has been changed to “Building or land intended to be subdivided into parcels”. A recent amendment to the Strata Titles Act, 1985, has permitted land with buildings of not more than four storeys to be subdivided into land parcels to be held under strata titles. This new strata scheme will meet the needs of a new housing development concept referred to as Gated Community Schemes.
Parcels free from encumbrances before vacant possession
In the event the land upon which the development is taking place is encumbered to any bank, the amended Schedule H requires the proprietor/developer to deliver to the purchaser or his financier, a copy of the redemption statement and undertaking issued by such bank, in respect of the purchaser’s parcel, immediately after the date of the agreement. Previously, the time period to deliver such redemption statements and undertakings was not specified.
The purchaser’s financier is now required to furnish to the developer an unconditional undertaking to pay the loan sum and in return the developer will undertake to refund the loan sum in the event the transfer of the parcel cannot be registered in favour of the purchaser for any reason that is not attributable to the purchaser.
Right to initiate and maintain actions
The purchaser may now initiate and maintain any action or suit in any court or tribunal provided that his financier is notified of the action or suit within 14 days after the action or suit has been filed.
Defaults by purchasers
A new event of default has been added. If the purchaser fails to pay any sum or sums payable (other than any instalment payable and any interest thereon) for any period in excess of 28 days after the due date, the developer may take steps to annul the sale of the parcel.
Strata title and transfer
The duty and obligation of the proprietor/developer to execute an instrument of transfer in favour of the purchaser, within 21 days upon issue of the strata title to the parcel has been extended. The executed instrument of transfer shall now be forwarded to the purchaser together with the strata title. This is, of course, subject to full payment of the purchase price and observance of all terms and conditions by the purchaser.
Position and area of parcel
The purchaser is entitled to an adjustment of the purchase price if the area of the parcel shown in the strata title is less than the area shown in the building plan by more than 2% instead of 3%.
Infrastructure and maintenance
Under the new Building and Common Property (Maintenance and Management) Act, 2007 (Act 663), a Joint Management Body (JMB) is to be established if the management corporation is not in existence at the time of delivery of vacant possession.
The purchaser will contribute to the infrastructure maintenance costs, until they are taken over by the appropriate authority or the JMB and the developer shall provide to the purchaser a list and description of the infrastructure and the expenditure incurred in the maintenance thereof.
The purchaser shall pay to the developer service charges for the maintenance and management of the common property and for services provided by the developer until the establishment of the JMB. Thereafter services charges shall be payable to the JMB.
In respect of such service charges, the purchaser will pay four months’ in advance instead of one month’s deposit and three months in advance.
All services charges received by the developer shall be paid into a Building Maintenance Account established under Act 663. The service charge statement prescribed in the Fifth Schedule has been slightly modified. Service charges shall be paid within fourteen days, instead of seven days.
From the date the purchaser takes possession of his parcel, he is liable to contribute a sum equivalent to 10% of the services charges to a sinking fund established under Schedule H. All funds accumulated in this sinking fund, which is maintained by the developer, are held in trust for all purchasers, and the developer is required to transfer any accumulated funds into a sinking fund established under Act 663.
It is pertinent to note that before the establishment of the JMB, the contribution to the Schedule H sinking fund is a separate and additional payment. Once the JMB is established, the sinking fund established under Act 663 will comprise such portion of the contribution to the Building Maintenance Fund as may be determined by the JMB and the purchaser is no longer required to make a separate and additional payment to such sinking fund.
Delivery of vacant possession
The purchaser may now occupy the housing accommodation when the certificate of completion and compliance has been issued, water and electricity supply are ready for connection, and the purchaser has paid all monies payable and due. The certificate of fitness for occupation is no longer required.
Defect liability period
The defect liability period has been increased from 18 months to 24 months and a purchaser may make a claim before the expiry of 18 months or 24 months after he takes vacant possession. Once a notice of claim by a purchaser has been made, the developer’s solicitors may not release the monies held by him until the developer’s architect has certified that the defects, shrinkage or other faults have been repaired and made good by the developer.
The purchaser may assign all his rights and interest in his parcel to a third party without the consent of the proprietor or the developer, provided he has fully paid the purchase price and complied with all terms and conditions of the agreement, or if before full payment, the developer and the purchaser’s financier have exchanged undertakings mentioned earlier.
Two additional plans are required to be attached: the layout plan and the common facilities plan.
In the case of the Schedule G discussed last month and the Schedule H discussed in this part, the amended 1989 Regulations do not affect the validity of any contract for the sale and purchase of a housing accommodation entered into after April 12, 2007, but before Dec1, 2007, and such contract shall continue to have full force and effect even if inconsistent with or contrary to any provisions of the amended Schedule G or H. Further, if on Dec 1, 2007, a contract of sale has been signed in any phase of a housing development, the developer may continue to use the previous Schedule G or H agreements until all the housing accommodation in the said phase of housing development have been sold.
Article from Malaysian Bar