A critical analysis on the Housing Development (Control & Licensing) (Amendment) Act 2012 and its possible effects on house buyers of abandoned housing projects.
According to the Ministry of Urban Wellbeing, Housing and Local Government, there are 155 abandoned housing projects which involved 28,637 houses and affecting 28,255 buyers as at March 2015.
The Housing Development (Control & Licensing) Act 1966 ("HDA") has always been used by the Government to monitor housing projects and provide the necessary guidelines. The latest amendment to the HDA is the Housing Development (Control and Licensing) (Amendment) Act 2012 [Act A1415] ("the Amendment"). This latest amendment to the HDA in my view offers greater protection to house buyers who are trapped in a situation where housing projects are abandoned.
The amendments to the HDA will be discussed in the following paragraphs:
DEPOSIT IN APPLYING LICENCE
According to Section 6 of the HDA, it is a condition for an applicant, e.g. a licensed housing developer, to place a deposit of not less than RM200,000.00 in order to apply for a housing development licence.
Section 6 of the HDA has been amended by section 3 of the Amendment to alter the sum of deposit for obtaining a housing development licence from the current RM200,000.00 to 3% of the estimated cost of construction. The proposed amendment is to ensure that only licensed housing developers with sufficient financial capability in proportion to the construction cost of their development are allowed to undertake any housing development.
The meaning of "estimated cost of construction" under the Amendment is the cost of constructing a housing development and includes financial costs, overhead costs and all other expenses necessary for the completion of the housing development but excludes land cost.
It is hoped and envisaged that the Amendment will also help the Government financially in reviving the project in case the licensed housing developer abandons the project.
TERMINATION OF SALE & PURCHASE AGREEMENT
The amended section 8A of the HDA provides for statutory termination of sale and purchase agreements if the buyer finds that there is no development on a housing project within six months from the date the sale and purchase agreement was signed.
This amended provision provides for the right of a purchaser to terminate the sale and purchase agreement if the licensed housing developer refuses to carry out or delays or suspends or ceases work for a continuous period of six months or more after the execution of the sale and purchase agreement.
The purchaser has to first obtain the written consent from the end financier and confirmation from the Controller of Housing appointed by the Minister that the licensed housing developer has refused to carry out or delayed or suspended or ceased work for a continuous period of six months or more after the execution of the sale and purchase agreement to be entitled to a refund of deposit and ensuing damages.
ABANDONING HOUSING PROJECT IS NOW A CRIMINAL OFFENCE
The Amendment has also made it an offence for any licensed housing developer who abandons a housing development by virtue of the amended section 8A.
This is to hopefully deter the occurrence of abandoned housing developments and to enable criminal proceedings to be taken against licensed housing developers who abandon their housing developments.
This provision states that any licensed housing developer who abandons or causes to be abandoned a housing development shall be guilty of an offence and will be liable to a fine between RM250,000.00 to RM500,000.00 or to imprisonment for a term not exceeding 3 years or to both.
The Amendment has also finally defined the word "abandons" in subsection (2) of section 18A to mean refusing to carry out or delaying or suspending or ceasing work continuously for a period of six months or more or beyond the stipulated period of completion as agreed under the sale and purchase agreement.
However, it is thought that the above approach of criminalizing housing developers who abandon their development projects will only serve as a penal measure but not as a preventive one. The most effective method in preventing abandoned housing projects could be by making it statutorily compulsory for all housing developers to fully adopt the BuildThenSell ("BTS") concept of housing delivery.
This is suggested by Pasukan Petugas Khas Pemudahcara Perniagaan (PEMUDAH). According to PEMUDAH, the Government should adopt the BTS concept in the Malaysian housing industry in order to more effectively deal with the problem of abandoned housing projects.
PEMUDAH also proposed the introduction of a Home Completion Insurance or Guarantee Scheme to counter the problem of abandoned housing projects. In my view, this is a good suggestion as it may reduce the problem of insufficiency of funds on part of the defaulting developer and facilitate rehabilitation by the white knights.
PEMUDAH further proposed that the schedule of payment for the respective agreements (Schedules G, H, I and J) should be amended. This proposal is to ensure that the title and vacant possession to the property can be made available simultaneously.
With all the amendments and proposals made in contemplation of protecting purchasers' interest, the purchasers too have to be mindful of the procedures in upholding their rights.
One example can be found in the case of Zulkepli Bin Mohamad Zain & Ors v. BCM Development Sdn. Bhd [2010] MLJU 1165 where a purchaser of an abandoned housing project failed to serve a notice of termination on the developer and the proprietor of the land (if there was a joint venture) to terminate the sale and purchase agreement.
The Court held that, if the notice of termination was not duly served on the relevant parties (i.e. the developer and the proprietor), the purported termination will not be recognised under the law.
This is because serving of the notice on one party alone renders the notice defective and incompetent pursuant to sections 6(a), 67 and 77 of the Contracts Act 1950. Following this failure, the purchaser was not entitled to any compensation and damages from the defaulting abandoned housing developer, even though the developer had breached the terms and conditions of the agreement by abandoning the project.
It is also interesting to note that the Court in Zulkepli's case above was of the view that even though the developer was not in a position to complete the housing project due to the termination of the Development Rights Agreement between the developer and the land proprietor, the developer was still under an obligation to complete the housing project pursuant to the Sale and Purchase Agreement made between the developer and the purchaser. The reasoning behind this judgment was that the Development Rights Agreement is distinct and separate from the Sale and Purchase Agreement.
In reality, this may be impossible to achieve as the developer may not be able to continue being on the land if the land owner has terminated the Development Rights Agreement. The housing developer in this case should have terminated the Sale and Purchase Agreement immediately upon the termination of the Development Rights Agreement, and then face the contractual consequences from the buyers.
The Housing Developer (Control and Licensing) (Amendment) Act 2012 became officially operative on 1st of June, 2015. Other corresponding statutes such as the Strata Management Act 2013 and the Strata Titles (Amendment) Act 2013 have also come into effect in June 2015 to satisfactorily deal with, inter alia, the problem of abandoned housing projects.
The author is of the opinion that even though the latest amendments offer greater protection to house buyers and might reduce the problem of abandoned housing projects, it would not necessarily end the problem.
This is because as previously mentioned, the above amendments seems to serve more as a penal measure and not a preventive measure.
It is hoped the proposals forwarded by PEMUDAH, especially on the BTS concept to be incorporated in the next amendment to ensure the disease of abandoned housing projects is finally cured.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
