Beware the deed
Published in NST-PROP
A Buyer Watch Article by National House Buyers
The House Buyers Association calls for the Deed
of Mutual Covenant to be standardised in the interest of buyers
Whenever we buy a piece of property where there are
common facilities such as security, social amenities and other areas that require the involvement of all unit owners, we will be
required to enter into a Deed of Mutual Covenant (DMC). This is done simultaneously upon the signing of the Sale and Purchase
In layman's language, the DMC is an agreement of mutual
undertaking between the developer and the purchaser. The contents vary from developer to developer and are distinctively separate
from those in the SPA.
Buyers should be aware that the standard SPA in relation
to the purchase of residential properties comes under the purview of the Housing Development Act, whereby the contents and clauses
therein are governed by the legislation. For landed properties the SPA is legislated as Schedule G to the Act and for sub-divided
properties it is under Schedule H.
But unlike the SPA, the contents of the DMC are not
dictated by the Housing Development Act. The contents are purely clauses that spell out the mutual agreements/undertaking of both
the buyer and the developer. This is where we notice that a lot of house buyers do not really pay attention or understand the
details of what they are signing.
This is particularly so in cases where the buyers, to
save cost, have not engaged their own lawyers but rely merely on the developers' lawyers who have prepared both the SPA and the
DMC. The only time when they refer to the documents in when something has gone awry. By which time it is already too late.
Some of the clauses that we should be wary of are as
1. Maintenance charges
This is where the clause is invariably left open-ended.
Usually the agreed amount is valid for a set period )of say two years). After that, it is likely to be increased and the measure
of increase is merely stated as "a reasonable amount". Many disputes have arisen from this "reasonable amount" and buyers are
usually left holding the short end of the stick.
2. Undertaking not to lodge caveat
This clause explicitly removes the right of the
purchaser and his financier from lodging any caveat on the property. Thus in the event of non-performance on the part of the
developer and in particular, if it has gone into liquidation, the buyer may have nothing to fall back on. Question the developer
as to how else can your interests be protected.
3. Right of developer to cease supply of utilities
This clause basically gives the developer the right to
cut utilities such as water, electricity or other such utilities in the event of any payment default by the buyer/resident. Thus,
in the event of any unresolved dispute, the resident will not be in a position to argue his case when his utilities have been
4. Exclusion of liabilities
This clause unconditionally indemnifies the developer
from any form of liability arising from usage of the common properties by any party concerned. This indemnity also covers injury
or losses that are brought about by the negligence of the developer.
5. Administrative charges (call them 'consent fees")
It is not uncommon to find purchasers caught unaware
that when they want to sell their condo or refinance it before the strata title has been issued, that there is a charge by the
developer for administration work. The amount charged varies from developer to developer or sometimes from original purchaser and
subsequent purchasers. Many are unaware that they have signed to pay this charge that is included in the DMC.
A sample DMC preamble would read like this:
"Whereas pending the establishment of the Management
Corporation in accordance with the provisions of the Strata Titles Act, 1985 and in order to provide for the peaceful enjoyment
and beneficial occupation of the said Parcel in common with the Vendor and all parcels comprised in the said Project (hereinafter
referred to as "the other Purchasers") the Vendor and the Purchaser hereby agrees to make further covenants and agreements upon
the terms as hereinafter set out, which covenants and agreements upon the terms as hereinafter set out, which covenants and
agreements are separate and independent of the Sale Agreement."
This would mean that the DMC is only valid until strata
titles have been issued out to the individual unit owners and a Management Corporation is formed. Until then, this is the only
governing document that gives the developer the upper hand to control the owners' usage and payments towards the management and
maintenance of the common property. When some purchasers wish to amend certain contract wordings in the DMC, it is often the case
that the developers refuse to accept, arguing that the deed has been ratified and put on record and thus cannot be changed.
HBA is of the view that the DMC should also be
standardised just like the SPA to ensure fairness and protection for the purchasers.