An abandoned housing project is a serious issue which cannot be ignored in Malaysia. Based on the official statistics, there were 216 private housing projects certified to be abandoned for the period between year 2009 and 31 January 2015. As such, the government has amended the existing laws to improve the legal aspects to enable the National Housing Department and the Ministry of Urban Wellbeing, Housing and Local Government to take more aggressive action against irresponsible developers and to protect house buyers from being victims of abandoned projects.

The Housing Development (Control and Licensing) Act 1966 ("Act 118") which provides for the control and licensing of the business of housing development in Peninsular Malaysia and the protection of the interest of the purchasers has been in force since 29 August 1969 and this Act has gone through 5 times of amendments in which the last amendment was made on 12 April 2007.

The Housing Development (Control and Licensing) (Amendment) Act 2012 ("Act 1415") which was gazetted on 9 February 2012 came into operation on 1 June 2015. Even though the Amendment Act was gazetted in 2012, it was not enforced earlier as the Act needed to be enforced together with the Strata Management Act 2013 and Strata Titles Act (Amendment) 2013.

The amendments to Act 118 involved 8 existing provisions, 1 new provision and the abolition of 1 provision, as follows:-

1. Amendment of section 3 where the interpretation of a 'housing developer' has been extended to include a person or body appointed by a court of competent jurisdiction to be the provisional liquidator or liquidator for the housing developer in a case where the housing developer is under liquidation.

Let's take a common scenario in the housing development industry: A housing developer company was wound up and the court had appointed a liquidator to take over the affairs of the company. The liquidator then called for a Purchasers Verification exercise and charged 2% of the purchase price as administrative fee in transferring the separate title / strata title to the house buyers; or when the current house buyer wanted to sell his property to another party pending issuance of the separate title / strata title, the liquidator imposed an administrative fee (range between a certain sum to 3% of the purchase price) on the house buyer for a written confirmation of the record of the beneficial owner of the property in the housing development and consent for the assignment. The imposition of the administrative fee on the house buyers is certainly a burden on them. This issue is not resolvable by Act 118 as the conduct of affairs of the liquidators is not covered by Act 118 but the Companies Act 1965 which allows the liquidators to collect fees permitted by the court or a committee of inspection or through an agreement with its creditors.

As a result of the amendment, a liquidator will be subjected to the duties imposed by Act 118 and may be liable for the offences of breaching such duties of a housing developer. That is to say, a liquidator will not be allowed to charge or impose any administrative fee on the house buyers when carrying out his duties under the sale and purchase agreement, for example, when updating the record of ownership and perfecting the transfer of the separate title / strata title, etc.

2. Amendment of section 6 where the developer's requisite deposit has been increased from RM200,000 to 3% of the estimated construction costs (including financial costs, overhead costs and all other expenses necessary for the completion of the housing development but excluding the land cost).

This amendment seeks to ensure that only housing developers who have a strong financial position and are thoroughly committed are involved in the housing development industry and that there are financial resources available for the completion of the development in the event a project is certified to be an abandoned project.

Under Regulation 11A of the Housing Development (Housing Development Account) Regulations 1991, the Housing Controller may use the money in the Housing Development Account (HDA) to assist in the completion of problematic housing projects until the issuance of the Certificate of Completion and Compliance (CCC) and/or to comply with an award made by the Tribunal for Homebuyer Claims.

3. Amendment of section 7B to include section 7 enables legal action to be taken against the housing developer who commits an offence under section 7 where the housing developer's license has expired but the project has not been completed at the time the offence was committed.

The amendment on section 7B applies to 2 categories of housing developers, i.e. licensed housing developers and housing developers whose licenses have expired pending completion of the housing projects.

4. Amendment of section 8A entitles a house buyer to terminate the Sale and Purchase Agreement (SPA) at any time if the licensed developer refuses to carry out or delays or suspends or ceases work for a continuous period of 6 months or more after the execution of the SPA.

Previously, the house buyers do not have such right of termination. Instead, the house buyers would need to apply to the Ministry of Housing and Local Government for approval to terminate the SPA and such application shall be received by the Minister within 6 months after the execution of the SPA. Furthermore, the application requires the consent of at least 75% of all the purchasers who have entered into the SPA and agreed with the housing developer in writing to terminate the SPA.

Hence, through this amendment, the purchaser can individually apply to terminate the SPA at any time if there is no progress of work at the construction site continuously for 6 months or more after the SPA was signed provided that the purchaser has obtained the written consent from the end financier and the Controller has certified the abandoned project.

5. The amendment to section 16N aims to expand the jurisdiction of the Tribunal for Homebuyers Claims ("the Tribunal") to enable the house buyers to claim damages in the Tribunal for cases involving SPA entered with the unlicensed housing developer.

6. Amendment of section 16Q where the phrase of "the cause of action not to be split" has been substituted by "claims not to be split" in order to clarify and give a more accurate picture of the purpose of the application of this provision. For example, the claim for defects and claim for liquidated damages for late delivery of vacant possession.

7. Amendment of section 16AD(1) to increase the rate of the fine from not less than RM5,000 but not exceeding RM10,000 to not less than RM10,000 but not exceeding RM50,000. The increase of the rate of the fine is required in order to overcome cases where housing developers default in complying with the award made by the Tribunal.

8. New section 18A was introduced to enable the purchasers to initiate criminal proceedings against any licensed housing developers who abandon or cause to be abandoned any housing project. The licensed developer who abandons or causes a housing development to be abandoned may be fined between RM250,000 and RM500,000 or imprisoned for a term not exceeding 3 years, or both. This amendment aims to restrict the housing developers from exploiting the house buyers.

9. As a result of the amendment of section 24(2)(g), the fine against housing developers has been increased from RM20,000 to RM50,000. It covers, for example, housing developers who do not have a valid development license or housing developers who default to comply with the Tribunal award.

10. The abolition of subsection 16N(iii) which prevents disputes relating to limitation of the jurisdiction of the Tribunal to hear cases concerning claims for damages for late delivery of vacant possession (LAD).

The effect of the aforementioned amendments to the Act is perspective and not retrospective. Hence, any action or proceeding commenced or pending immediately before 1 June 2015 is still bound by the principal Act 118 (before the amendments).

In addition, the standard SPAs (i.e. Schedule G, H, I & J) have been amended by the Housing Development (Control and Licensing) (Amendment) Regulations 2015 to further improve and protect the rights and interests of house buyers. The amendment took effect on 1 July 2015.

Some of the main amendments to the Regulations are as follows:-

1. Amendment of regulation 8 on the advertisement and sale permit in which the licensed housing developers are not allowed to include the following contents in the advertisement:

  1. offer of free legal fees;
  2. projected monetary return gains and rental income;
  3. claim of panoramic view;
  4. travelling time from housing projects to popular destinations; or
  5. any particular to which a housing developer cannot genuinely lay a proper claim.

2. All the timeline for payment under the standard SPA has been standardized to 30 days. For example, the payment term of progressive billings has been amended from 21 working days to 30 days and the payment term for the refund by the developer has been changed from 21 days to 30 days.

3. The manner of delivery of vacant possession to the buyer has been amended in which the buyer must be furnished with the CCC, separate strata title to the parcel (for stratified properties) with the completion of any alteration or additional work, if any.

Summarily, the list of the amended/new Acts is as follows:-

List of the corresponding regulations as amended pursuant to the enforcement of the above Acts, as follows:-

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.