CASE SPOTLIGHT

PURCHASER’S RIGHT TO MAKE LATE DELIVERY CLAIMS

By Miranda & Samuel | 2nd July, 2020 | Real Estate

The Court of Appeal recently gave purchasers some insights on how the law works to protect the purchasers’ right to make late delivery claims.

Housing legislation requires landed properties to be completed within 24 months of the signing of the sales and purchase agreement (SPA), and for hire-rise units, 36 months.

Any delay in completion entitles purchasers to claim liquidated ascertained damages (LAD).

Brief Facts

SRI DAMANSARA SDNBHD V VOONKUANCHIEN & ANOR [2020] MLJU 333

  • The purchaser made a late delivery claim. The Tribunal for Homebuyer Claims held that the developer was required to pay the purchaser a sum of RM40,860.36 for late delivery.
  • The purchaser had paid RM10,000.00 for booking fee before entering into a Sales and Purchase Agreement (“SPA“) with the developer.
  • Months after, when the SPA was signed, the developer issued a credit note, acting as a discount of RM63,108.00. However, this discount was not reflected in the purchase price stated in the SPA (which was RM731,080.00).
Issues Raised and Court Decision

Should purchasers pay booking fee or make any payments to the developer before entering into a Sales and Purchase Agreement (“SPA”)?

NO! Purchasers should not pay booking fees or make any payments at all before signing the SPA. Regulation 11(2) of the Housing Development (Control and Licensing) Regulations 1989 (“Regulations”) prohibits the developer from collecting any payment except as prescribed in the SPA. Since there is no SPA yet, then there should be no payments collected from the purchasers.

The Court of Appeal held that it does not matter if the purchaser consented to paying the booking fee. The Regulations are there to protect the purchaser, and if there is no SPA, then “the prohibition would have no bite” as it not regulated. 

When should the time for late delivery claim begin- from the date booking fee paid, or date SPA was entered into?

In the SPA, it is stated that the developer would have 42 months from the date of SPA, to deliver vacant possession to the purchaser. The Court found that to take the SPA date would be to allow something that the Regulation has expressly prohibited, hence the 42 months should begin from the date booking fee was paid. This is because the Regulation is meant to be interpreted in a manner which the purchaser should not be exploited or taken advantage of.

Should the calculation of damages for late delivery claim be based on the purchase price as stated in the SPA or the “discounted purchase price”?

The developer argues that there was a discount given on the purchase price and this is proven by the issuance of the credit note. The Court held that the credit note was found to be “nothing more than a device to attract sale at the expense of the purchaser who would ordinarily be able to have his SPA dated contemporaneous with the payment here of RM10,000.00 (the booking fee).Thus, the calculation should be made based on the purchase price stated in the SPA.

Commentary

The Covid-19 pandemic will have a significant impact on LAD claims.

Data from the Construction Industry Development Board (CIDB) shows that up to June 24 – 89 days since the start of the MCO – construction work had restarted at only 28% of 7,760 sites nationwide. These interruptions will likely cause delays in handing over vacant possession.

Delays in handing over vacant possessions typically are likely to attract LAD.

The Covid-19 Temporary Measure Bill, may provide some relief from contractual obligations and any proceedings for non-fulfilment of contracts. In spite of some relief, it is still widely expected that Developers will be faced with increased LAD claims.

This article was written by:
Dato’ George Miranda – george@mirandasamuel.com

Dato’ Paul Chin – paul@mirandasamuel.com