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Banking on Interest

01/04/2005 Published in Malaysian Business - Housing & Property By The National House Buyers Association of Malaysia

At one of our Meet the Public Session, a group of terrace-house buyers came in disillusioned at their developer. They had just received a notice of delivery of Vacant Possession from their developer. What infuriated the buyers were the late payment interest charges accumulated for late payment of progressive bills which the buyers claim they were not aware of. There were no tabulation provided of the various details of indebtedness; the various dates that interest were levied or the number of days delayed that resulted in the imposition of interest. Obviously, the developer did not allow handover of vacant possession of their houses or the handover of keys thereof until and unless such alleged “interest” were settled in full.

Building the paper trail

In solving a problem of this sort, the grand thing is to be able to reason backwards. For properties under construction, the progressive payment will be released to the developer according to the completed stage of construction as per the Architect's Certificate. In situations like the above, our first advice was for the buyers to get details of the alleged indebtedness from their developer. Subsequently, write to both their lawyers: undertaking the Sale & Purchase transaction and the Loan documentations (on behalf of the financiers) for events that transpired that resulted in so-called “late payment interest”. Seek a written explanation from their lawyers – the chronological events and circumstances that attributed to the delays and resulting the buyer/mortgagee having to pay penalty and holding the short end of the stick. With a little bit of consultation and piecing together the paper trail, common sense would prevail as to who, which, how, whom attributed to the delays.

To instill some orderliness in the burgeoning industry, the Housing Development (Control & Licensing) Act was amended and improved on 1.12.2002 with the granting of more time for the purchaser to make progressive payment. Presently, buyers are allowed twenty one (21) working days (as compared to previously fourteen (14) days, irrespective of working days or not) after receipt by the purchaser of the Developer’s written notice, enclosing an Architect’s Certificate of progressive works, to effect payment. With the amendment, the developer can only charge interest on late payment, if any of the installments shall remain unpaid by the purchaser at the expiration of the twenty one (21) working days’ period.

Circumstances where Developer may not charge interest

By law, all housing developers are not supposed to charge interest on progressive billings in the event that the fault lies with the developers. To better protect the purchasers, a new clause has been inserted to the recent revamped statutory Sale & Purchase Agreement which is produced as follows:-

“ Clause 9 (2)- Interest on late payments

(2) The Vendor shall not be entitled to charge interest on late payment in respect of any instalment if the delay in payment of such instalment is due to any one or more of the following:

(a) the relevant progressive claim notice referred to in the Third Schedule hereto furnished by the Vendor to the Purchaser and/or the Financier is not complete or is not in compliance with the requirement of subclause 4(2) hereof;

(b) in the event the said Land is encumbered to any bank and/or financial institution by the Vendor, such bank and/or financial institution shall delay or fail to issue and deliver the redemption statement and undertaking letter in respect of the said Lot to the Purchaser or the Financier; and

(c) in the event the said Land is encumbered to any bank and/or financial institution by the Vendor, the Financier shall refuse to release the relevant portion of the Loan equivalent to the progressive payment due on the ground that such progressive payment is insufficient to settle the full redemption sum payable in respect of the said Lot.

This new clause is to identify and state expressly certain instances where the developer shall not be entitled to charge interest on late payment where the delay in payment of such instalment (or progressive payment) is not due to the fault of the purchaser but due to reasons attributable (direct or indirectly) to the act or omissions of the Developer. Before the inclusion of such a clause, the Developer had a free rein and appeared to have the absolute right to charge the purchaser interest on late payments immediately after the expiration of the stipulated period (previously being fourteen (14) days) regardless of who is in fact at fault in delaying such payments.

Customer Service

No buyer likes receiving a demand for late payment interest from the developer through no fault of them. If there is a genuine dispute, or the interest charged has been made incorrectly, then the claim should be queried at once. In a different article written by HBA – ‘Principles to build by” we recommended that developers adopt a policy of disclosure and divulge all information that is in the interest of their customers (the buyers) instead of adopting the attitude which puts the entire onus of obtaining information on the buyer.

No doubt buyers are expected to do their homework but unfortunately, there is no learning curve to speak of when purchasing a property since few make more than one acquisition in their lifetimes. Developers with social conscience should not take advantage of this situation. Some very responsible developers have even offer to waive interest (part or otherwise) even though it is the fault of the end-financiers or their lawyers doing the legal documentation that had somehow delayed disbursements of the loan or part thereof. It would be a goodwill gesture on the part of the developer (rather than “splitting hairs” in the process) to their buyers, with the latter walking contended and smiling, with memories of their Developer’s name synonymous to “Good Developers’. Good communication is a must between all parties involved to help reduce the incidence of late payment.


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