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Right to vacant possession
26/07/2003 NST-PROP By Salleh Buang

In a standard Sale and Purchase Agreement (SPA) for residential accommodation signed with a developer, a purchaser is guaranteed the right to receive vacant possession of a completed building within the period stipulated in the agreement.

Houses built on terra firma fall under Schedule G of the Housing Development (Control and Licensing) Act 1966, and must be completed 24 months; units in sub-divided buildings come under Schedule H can take 12 months longer to be finished.

In the event of any delay beyond the duration, the developer is obliged to compensate the purchaser at the rate of 10 per cent per annum based on the purchase price.

With the recent amendments to the Act, (which came into force on Dec 1 last year), Schedule G has been revamped and made clearer to protect purchaser’s interests.

It now states that if a developer fails to deliver vacant possession within the stipulated period, liquidated damages calculated day to day at the rate of 10 per cent per annum determined from the “expiry date of the delivery of vacant possession … until the date the purchaser takes vacant possession” of the house must be paid.

It also states that such damages shall be paid by the developer “immediately upon the date the purchaser takes vacant possession” of the completed building.

To avoid the possibility of any doubt between the parties, there is a paragraph which pronounces that any cause of action to claim liquidated damages by the purchaser “shall accrue on the date the purchaser takes vacant possession” of his new house.

In the past, there was uncertainty (due to divergent judicial decisions) as to whether vacant possession of a completed house includes the provision of running water and electricity in the building. The Courts were evenly divided - one side said the amenities should be available (for example the decision of James Foong J in Lew Yoke Leng v Syarikat Kar King Sdn Bhd [2000] 4 AMR 3911). The other, however, felt differently (see the decision of Siti Norma J in Salmah binti Sulaiman v Metroplex Development [1994] 3 AMR 2514).

The uncertain state of affairs was laid to rest when the 1989 Regulations were amended in August 1994. As the law stands today, a purchaser has the right to receive vacant possession of a completed house within the stipulated period, but with no guarantee of when water and electricity will be made available to the premises. The developer is only required to ensure that water and electricity supply is “ready for connection”.

The term “ready for connection” has been expressly defined in the amended regulation as follows:
a) Water and electrical fittings have been installed by the developer;
b) Fittings have been tested and commissioned by the appropriate authority; and
c) Supply is available for tapping into individual houses.

Apart from water and electricity, there is the perennial problem involving the issuance of Certificates of Fitness for Occupation (CFs). Common sense says that it is meaningless for a purchaser to receive the keys to his new house (after receiving vacant possession) if CF is not attained.

Local authorities invariably take the stand that for as long as CFs have not been issued, connection of water and electricity to the premises will not be permitted.

Thus, it is on record that in 1993, the Selangor Waterworks Department publicly announced that no water would be connected to the housing units in phase two of Taman Pandan Mewah, Ampang, Selangor, until CFs were issued by the local authority.

The department director was quoted as saying that “The only way for them to get their water supply is to produce the Certificates of Fitness” (New Straits Times, Dec 28, 1993).

If we review past judicial decisions, we can note that the Courts have not been of much help to purchasers when it comes to CF.

On the question of whether delivery of vacant possession for a completed house also means the developer is obliged to make available CF at the same time, the Court said in Syarikat Lean Hup v Cheow Chong Thai [1988] 3 MLJ 221 that the CF “is distinct and separate from the issue of vacant possession”.

This decision practically mirrors the reasoning adopted by another judge in the early 70s. In the earlier case of South East Asia Brickworks v Maria Antonette [1974] 2 MLJ 46, the trial judge said “completion” does not mean that the house must be issued with a CF.

To add further injury to the purchaser’s cause, the judge said that to construe the term “completion” as meaning the issuance of CF as well would be to import a term “not within the contemplation of the parties and would have the effect of frustrating the contract”. I am lost as to how the learned judge reached such a conclusion, but that judgement has never been questioned or overruled all these years.

More than seven years ago, in early January 1996, the Federal Cabinet took the side of purchasers with its administrative ruling, directing all local authorities to issue CFs within 14 days of a building having met all structural and legal requirements.

The ruling was a result of a joint study conducted by the Malaysian Administrative Modernisation and Management Unit (Mampu) under the Prime Minister’s Department and the Ministry of Housing and Local Government, which found that many houses (though completed) had to wait for indefinite periods before their CFs were finally issued.

Hopefully, this sad picture will not be around much longer, now that the newly revamped housing law has come into force.


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