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Stalled projects
25/10/2005 The Star Articles of Law with Bhag Singh
Matters relating to purchase of property continue to be of concern to the
public whether they are citizens or not. This is because anyone can buy
property in Malaysia though in the case of non-citizens there could be some
restrictions.
Quite apart from the fact that there may be defects, one of the more
frequent grievances of a house buyer is that of delay. It could be a delay
in which completion is foreseeable, but sometimes there is likelihood that
the project will be stalled indefinitely.
One option is for the house buyer to wait until the house is completed and
then sue the developer for late delivery which is already allowable in all
housing Sale and Purchase Agreements (SPA).
In fact the law prescribes a percentage of the cost of the residential
properties to be paid as liquidated damages in case of delays by the housing
developer.
However, a question that arises is whether a person who is a party to an SPA
can in view of the fact that he is entitled to liquidated damages actually
terminate the agreement if the house is not completed on time?
This question arises because it has at times been said that since a house
buyer has already contractually agreed to be paid liquidated damages, he
cannot therefore terminate the SPA and sue for damages.
The answer is that even though there is a clause conferring on the house
buyer a right to liquidated damages for the period of the delay, the house
buyer still has an option to terminate the agreement. The house buyer would,
in such a case, also be entitled to claim damages.
The reason for this is based both on logic and common sense. If such a
clause precluded the house buyer from terminating the agreement, it would
create a ridiculous situation. This would especially be so if there was an
indefinite delay or abandonment of the project.
Ordinarily in such a scenario the house buyer could upon termination of the
SPA be entitled to a refund of whatever he has paid. In addition to that, he
would be entitled to damages. The measure of this would be the loss suffered
by him.
In ordinary circumstances the loss would have to be determined by looking at
the value of similar properties at the time the breach took place. Thus it
would be the opportunity that is lost which would have been the difference
between the purchase and the appreciated price.
However, where there is a liquidated damages claim in the SPA, the more
appropriate measure would be the computation of the agreed liquidated
damages for the period between when the house ought to have been completed
and the point of time when the agreement was terminated.
If during this period the property price has appreciated steeply then the
agreed liquidated damages may not measure up to the actual damage suffered.
However, if property prices have been stable during this period and there
has been no appreciation or even a fall in prices then the liquidated
damages would turn out to be a windfall.
Of course, it has been said in some cases that the house buyer should wait
until the house is completed. However, this approach was disapproved of in
Xavier Kan Yoon Mook vs Insun Development Sdn Bhd in which the court said
this would cause hardship to the plaintiff for two potent reasons.
Firstly, if the house buyer is supposed to wait for the said house to be
built and delivered to him before he can sue the defendant for liquidated
damages, then at the end of the day the house buyer would be put in great
jeopardy because the limitation period might set in.
Secondly, if the house buyer cannot sue the housing developer for liquidated
damages upon its failure to comply with the agreement then it would be
tantamount to the court allowing eternal procrastination with no possible
and immediate form of remedy to the house buyer.
And the court went on to quote an earlier judgement the effect of which was
that a party who rightly rescinds a contract is entitled to compensation for
any damage which he has sustained.
It would therefore be the position in law that once the time set for
completion has passed, the house buyer can terminate the agreement and seek
a refund of whatever has been paid as well as damages which can be proved.
While on this point another reader, who is a foreigner, says he has been
locked in litigation with a housing developer over liquidated damages which
he is entitled to.
When he had a meeting with the developer to resolve the matter, he was told
by one of the developer's officers that in some of the cases in court, the
presiding officer had told the house buyer not to go all out because the
developer was, after all, helping them get homes.
However, any such suggestion that is said to have been made in court must
have been taken out of context. It cannot be said that in a transaction
between a house buyer and a developer any one party is doing the other a
unilateral favour.
It is a transaction in which there is a reciprocity of obligations and
benefits. The housing developer gets the money which is committed by the
house buyer. Similarly, the house buyer must get his house. Each must
perform its obligation on time. If either causes a delay, the consequences
are set out in the agreement.
Of course, the developer may face difficulties in terms of delays in getting
the work done or supply of material on time and at prices he has
anticipated. It is to get all these things done for which his reward is in
his profits. If he fails to do so then he must honour his promises which,
after all, he has voluntarily undertaken. |
