Thursday, July 3, 2008

Housing Development: Late Delivery Compensation



Hi again, This is the question a got recently from one of my viewer (translation bellow, correct me if wrongly translated):
'Assalamualaikum Wr. Wb.

Tuan yang dimuliakan ,

Saya memiliki satu medium cost appartment sehingga sekarang sudah melebihi 3 tahun belum mendapatkan sijil CF' dalam perjanjianS&P ada mengatakan kelewatan lebih 36 bulan dari tarikh S&P ditandatangani layak menuntut panalti sejumlah 10%, mohon nasehat dari tuan apa yang seharusnya saya perlu buat dan bagaimana caranya untuk membuat tuntutan.

Sekian, terima kasih.'

trans: I have one medium cost apartment until now is more than 3 years has yet to obtain CF (certificate of fitness) (and) in the S&P (Sale and Purchase Agreement) stated that any delay (of completion) more than 36 months from the date of S&P executed (purchaser) entitle for penalti of 10% (from the purchase price), need advise from you and what should I do and how to claim

This is a common question that I personally feel I wish to write in this blog so that every other aggrieved purchaser out there may share and get some idea on how to tackle this problem. In the mean time, I would like to invite any expert on this issue to share his/her view by commenting this post, be it from fellow lawyers or from professional Architect or most welcome from REHDA (housing developers association) or the relevant Ministry in particular Ministry of Housing and Local Government.

Few weeks ago, I was invited by my old friend to join him and other 'unfortunate' purchasers to meet and appeal to our Deputy Minister from Ministry of Housing and Local Government. The venue was at the abandon housing project somewhere outskirt southern KL. The Deputy Ministry came and meet the people (I saw few reporters, even one of local TV company at the project). Frankly, I do not know what he promised and I don't have the opportunity yet to follow up with my friend what is the outcome of the meeting (or shall I call 'demo'). Question: what's the point of telling this? I will deal with this later on this post regarding government intervention

Enough about that, let us talk about the law, legal remedy and alternative dispute resolution. But before that I would like to remind viewer that there are plenty of reference could be found regarding this issue be it from Ministry or REHDA or even other legal article. You may use the google search in this blog on top left corner to get one.

To start with, let us identify the usual reasons behind the problem;

  1. the housing developer under the sale and purchase agreement is paid progressively according to the payment schedule under the agreement. The basic rule apply! no money no further work will be done. There are occasion where the developer is not paid accordingly as per payment schedule. logically, if in one housing project at about 100 units of houses only few unit sold and having good 'pay master' (be it by cash or by financier help) from the purchasers, the developer won't be able to complete the whole project. Perhaps, now you should start thinking about other purchaser not only yourself, check detail list of purchaser and their financier or to be short, their progress payment. Tips: bringing action agaisnt developer is much more effective if it is done by all purchasers in the housing scheme.
  2. assuming that the developer get all the progressive payment in time and majority of units sold, there is one usual factor need to be considered; the contractor and the consultant! Almost all the developer engage several contractors in one single housing project, be it the main contractor, the electrical, the consultant and who knows who else... :) Again, the basic rule apply. no money no work done. check whether they all received their pay check in time.
  3. should there is no issue on the 'pay check', we might need to check on the land matter/ status, layout plan or those related. there are cases, where the developer being so aggressive start the project very fast and found out that some land issues are still pending or have to be rectified. One neutral example is that, if the project site have no reasonable access route and the adjacent land owner not being corporative resulting the developer have to bear a sky high cost preparing access route. Other example may be the burden of the developer to remove a high tension electric cable or retention pond. These all the factor might hinder the progress of the project. Yes, some due to the failure of the developer to identify the encumbrance earlier but some due to sudden change of local government policies or authority's requirement.
  4. lastly, if we may have the oppurtunity, check where the money goes? Remember, being a big developer does not 100% a guarantee performance. sometime small developer deliver your house in time. Reasons: small developers have limited project, they tend to stay focus and finishing the project well in time to cut unnecessary cost and to maximise profit. The big ones have a lot of project, not all project can be sold well, the good project might need to cover up bad one. Question: do you honestly think the law can control where the money goes?
There are some other reasons of delay (beside the developer really is a 'con' one!), try to identify them in order to plan for your strategy.

After you have identify the developer problem, you can start you action! I will deal with it later. But first, in all civil action or seeking legal remedy, you must first ask yourself what actually the you and other poor purchasers want? (of course, by emosional you want to claim all, typical answer I usually get. The truth is, be rasional and try to prioritize)

  1. do you want your house to complete with late delivery penalty?, or
  2. you dont really care about the penalty, just give me my house?, or
  3. you want your house and you still can negotiate on the penalty?
which one do you choose?

My advice; the first question may end up an uphill struggle, and in this situation the more delay in getting te house the more you will loose. Reason: if you have a housing loan, you have to bear the monthly instalment at interest running rate (no doubt government loan is not the case, ie you only need to pay opun completion of the house, but what if the project delay forever? You still loosing your entitlement of housing loan).

Second question only applicable to 'rare human specis' which is for me not so smart waiving your right. If you don't want the money just donate to my blog :) Nonetheless, if this is your choice, the chances of solving the problem is high.

The third question is the most appropriate choice. Reason: in negotiating process or to find solution to a dispute, sometime you have to lose some to get some. If the purchasers very firm in claiming the actual penalty and the amount keep hiking, most definately the developer won't finish the project at all (sad but true, very interest concept and yet the law could hardly do anything. make sure you read till the end to get to know why). Hence, let's be flexible on the penalty and the house.

Solving the problem:

  1. government intervention, in particular the Housing and Local Government Ministry may come into picture usually when pestered by the purchaser (like the incident I just explain above). What would be the significant of this government intervention? No doubt the breach of the contract is between the purchaser and the developer, it is more about personal contract between two parties (though the agreement is government by law). In normal case, the government will put a pressure to the developer asking them to complete the project by any means, but most cases the government is a bit reluctant to interfere into the penalty issues. Yes true there are cases where they did successfully sanction the developer to pay penalty. I have personally attended a meeting to solve an abandon project somewhere in Perak few years back. In that case, the original developer was unable to continue the project due to serious financial constrain, fortunately the was another new developer willing to take over the project. The best part is that the land owner is the local council, that is why the case could be resolve in good manner. The problems however among all, was that the new developer is not willing to take the liability of the late delivery and they have to, they want some contra land in return (which is for me very fair). The case solved, the local council basically agreed on the term. Second case or senario is not that fortunate, I have one new contractor/developer taking over an abandon project after few negotiation with the old developer (without the interference of the Ministry), the project beutifully completed. But the purchaser is still not happy and very firm in their right of the late delivery penalty (well, they have all right to do so). So they lodge a complaint to the ministry and after few meetings, the ministry sanction the project money to be paid to the purchasers as penalty (usually the last few percent progress claim). Ok now, the money paid to the purchasers in steed of to the new developer/contractor, everybody happy. Hey, what about the innocent new contractor/developer? He has done his job well delivering the houses and yet not getting any payment for the job. Legally, the original developer is liable to pay him. But knowing the fact that the original developer has no money, looks like the new developer is at loose (we talking about million of ringgit). The consequences, is that this kind of government sanction is not good as it will hinder future case to solve using the same method (ie private negotiation between original debeloper and new developer to solve the abandon project problem).
  2. Housing Tribunal under the Ministry: we are all well aware that the government has long ago setup this tribunal for the very purpose to solve any certain dispute between the developer and the purchaser (not limited to late delivery issue only). you may refer to the official website: http://www.kpkt.gov.my/kpkt/main.php?Content=sections&SectionID=7 The tribunal is good and has done a great job all this while. But there are certain loop hole that most people may not aware. The bad news is that this 'lacuna' has been used by the 'noughty developer' to escape their liability. I will explain how. One example is that, the tribunal will only hear cases only upon completion of a project (ie after the Certificate of Fitness is issued), not before that. In cases of abandon projects, no CF has been issued, thus the purchasers cannot bring it to the tribunal claiming the late delivery penalty. So insteed of completing the project (which is already long overdue) and pay the penalty, the developer might opt not to complete the project at all (perhaps waiting any government agencies to take over from them like the Khazanah Nasional or SPN). They cannot be brought to the tribunal as yet. So...?
  3. Legal proceeding in civil court: the other option is that the purchasers bring the case to court, perhaps forcing the developer to complete the project and pay the penalty (be it by whatever method: positive injunction or else). There are several success story regarding this method. The only issue is that you might need to engage an experience lawyer to do the job for you, and by that these comes to your mind: cost cost cost. My advice: better loose a little (legal cost) than the mountain (incomplete house and non claimable penalty). Again my advice is: better bring the suit in group rather than individually to safe cost). There are some setback of course but I think your lawyer will discuss that in details.
I hope this brief post about the issue is enough for now...till we meet again. Thank you.

image taken at one abandon project in southern KL that I attend personally with my friend.

5 comments:

  1. Good info. The very last option, is it really works? What's the estimate time frame untill fully settlement?

    ReplyDelete
  2. salam, as i said before there are several successful cases already given judgment in courts. i dare not give the exact time completing the whole process, it depends on many factors, among all the availability of court schedule to hear the your case, contested matter, and so on. In my experience sometimes it may drag up to 6 months or more (most often more!)

    ReplyDelete
  3. Very good info..an we
    what if the bank only disburse let say 20% and the project is not completed as promised... can we personally cancel the loan agreement with the bank after we settle the 20% that had been disburse to the developer? tq

    ReplyDelete
  4. we bought a unit of condo in Penang and was told to come and collect the VP.There was no CF and it has not been applied for.part of the finishes was not completed. Are they in the position to deliver VP?They also start charging management fees while we can not even make use of the facilities and stay in.The delivery date is due that why they rushed us to accept the VP. Please advice.

    ReplyDelete
  5. Anonymous,

    The developer is not in a position to deliver the vacant posession since there is no CF. Furthermore, they cannot collect the management fees since there is no CF.

    Regards
    Khairul Aiman
    Messrs. Irzuan

    ReplyDelete