Business Common Sense Wins: Vacant Possession Clock Starts from First Approvals, Rules Federal Court

On 22nd October 2025, the Federal Court dismissed the Developer’s appeal in the case of Icon City Development Sdn Bhd v Lee Kean Hwa & Ors [2025] 10 CLJ 867, affirming that the 42-month period for delivering vacant possession of small office versatile office (SOVO) units under a sale and purchase agreement (SPA) commences from the date the conversion and building plan approvals were first obtained, not from the expiry of the approval period or the date of the last amended building plan. This interpretation aligns with business common sense, prevents manipulation by developers, and applies principles like contra proferentem and generalia specialibus non derogant. The court also confirmed that contractual interpretation issues can be resolved via summary judgment where facts are undisputed, and rejected new issues raised on appeal.

A timely wake-up call for property developers in Malaysia: strict adherence to the exact wording of sale and purchase agreements on timelines is non-negotiable, particularly for the delivery of vacant possession. Attempts to manoeuvre or reinterpret these timelines—whether by arguing that the delivery period only commences upon the expiry of the approval window or by relying on subsequent amendments to building plans—were firmly rejected as commercially absurd and prone to abuse. As practitioners advising developers, we must caution our clients that such strategies, intended to gloss over delays, often backfire spectacularly, triggering substantial liquidated ascertained damages (LAD) claims that courts are increasingly willing to enforce via summary judgment. The message is clear: draft with precision, comply rigorously, and avoid creative interpretations that invite the worst-case scenario of full liability plus costs.

Background of the Case

The appellant (“The Developer”) developed a project including SOVO units purchased by the respondents (“The Purchasers”) via individual SPAs. Clause 35A of the SPA required the Developer to obtain conversion and building plan approvals within 12 months from the SPA date, with a six-month extension allowed (totaling an 18-month approval period). Section 10 of Schedule A stipulated delivery of vacant possession within 42 months after obtaining these approvals. The approvals were secured on 17 January 2012 (conversion) and 2 August 2012 (building plans), both within the approval period. However, vacant possession was only delivered on 6 October 2016, after the 42-month period lapsed. The purchasers sued for liquidated damages (LD) for the delay and sought summary judgment under Order 14 of the Rules of Court 2012.

Court Rulings

High Court:

The High Court allowed the Purchasers’ summary judgment application, holding that the 42-month delivery period began on 2 August 2012 (date of building plan approval). It rejected the Developer’s arguments that the period should start from the expiry of the 18-month approval period (19 February 2013) or the last amended building plan approval (17 November 2015). The court found no ambiguity in the SPA clauses, noting that the dispute involved pure contractual interpretation—a question of law suitable for summary disposal, with no triable issues requiring a full trial.

Court of Appeal:

The Court of Appeal upheld the High Court’s decision, emphasizing a business common sense interpretation for the commercial SPA. It ruled that the 42-month period commences from the date the approvals were first obtained (2 August 2012), enabling construction to begin immediately. Reading clauses 13.1.1, Section 10 of Schedule A, and 35A.1 together, the court clarified that the period starts from the initial approval date, not subsequent amendments. It applied contra proferentem against the developer (as drafter) to resolve any ambiguity and generalia specialibus non derogant to prioritize specific delivery provisions over general ones. Time was deemed “of the essence” under clause 38.16.

Federal Court:

Held (dismissing appeal with costs; affirming decisions of Court of Appeal and High Court: On the first leave question, it held that the 42-month period starts from the date approvals were obtained within the approval period, not its expiry, as this aligns with business common sense and avoids postponing construction timelines. On the second question, it rejected starting from the last amended plan, as this would create a manipulable “moving timeline” contrary to clause 38.16 and open to abuse. The court confirmed summary judgment was appropriate for undisputed contractual interpretation facts, dismissed arguments for a trial under the “some other reason” exception, and refused to entertain new issues (e.g., LD calculation based on partial purchase price) not granted leave, citing constraints under the Rules of the Federal Court 1995.

Key Takeaways for Developers

• Business Common Sense in Contract Interpretation: Courts prioritize interpretations that reflect commercial reality, such as starting delivery timelines from initial approvals to enable prompt construction and avoid developer manipulation.
• Fixed vs. Moving Timelines: Defining “building plans” to include amendments does not extend delivery periods; context limits it to initial approvals to ensure certainty and prevent abuse.
• Summary Judgment for Contractual Disputes: Pure questions of law on contract interpretation, with undisputed facts, can be resolved summarily without a full trial, even if complex.
• Contra Proferentem and Time as Essence: Ambiguities in developer-drafted SPAs are resolved against the drafter, and clauses making time “of the essence” reinforce strict timelines.
• Limits on Appeals: Federal Court appeals are confined to granted leave questions; new issues cannot be raised to avoid miscarriage of justice unless exceptional circumstances exist.
• LD Calculation: Developers cannot limit LD to partial payments at the contractual delivery date; full purchase price applies if purchasers were ready and willing to pay upon actual delivery.