Beware the deed

01/06/2002 Published in NST-PROP A Buyer Watch Article by National House Buyers Association

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 Agreement (SPA).

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 follows:

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 disconnected.

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.