In April 2025, the Court of Appeal overturned a High Court decision that had prohibited STRs (rentals ≤6 months) at MARC Service Residence. The Management Corporation (MC) sought to enforce a prohibition through its House Rules (HR), claiming STRs caused nuisance and violated residential use. The High Court initially agreed, issuing injunctions to halt STRs. However, the Court of Appeal reversed the judgment, affirming the rights of property owners and establishing a precedent for strata developments.
The Dispute
- The MC enforced HR prohibiting STRs, claiming it violated residential use and caused nuisance.
- However, at the MC’s 6th Annual General Meeting (AGM), Resolution No. 3 was passed by a special resolution (three-quarters majority), allowing STRs provided they comply with the Commissioner of Buildings (COB) guidelines.
- A RM200 penalty was set for non-compliance with HR, including COB guidelines.
- The High Court disregard Resolution No.3, upholding the HR’s ban, and issued injunctions against STRs, prompting an appeal.
The Outcome
The Court of Appeal set aside the High Court’s decision, dismissed the MC’s suit, awarded RM80,000 in costs, and ordered an assessment of damages for losses caused by the High Court’s injunctions. The Court held that the Resolution No.3, passed under Section 70(2) SMA, was valid and binding, prevailing over the HR. The ruling affirmed that STRs are permissible in strata properties unless explicitly prohibited by law.
Key Legal Principles for Developers
The ruling clarified several principles under the Strata Management Act 2013 (SMA) and Strata Management (Maintenance and Management) Regulations 2015 (SMR):
- No Statutory Prohibitions on STRs: Neither the SMA nor SMR expressly or impliedly prohibits STRs. Without a clear legal restriction, STRs are permissible.
- Limited MC Authority: Under Section 59 of the SMA, MCs are responsible for managing common property and enforcing by-laws, but lack the authority to regulate the use of individual parcels. The Court ruled that the MC could not ban STRs, as neither the SMA nor HR defined or restricted them.
- Binding AGM Resolutions: Resolution No. 3, passed by a special resolution under Section 70(2) of the SMA, was valid and binding. It permitted STRs in compliance with COB guidelines and imposed a RM200 penalty for non-compliance with HR, including COB guidelines.
- Sale and Purchase Agreements (SPAs) and Deed of Mutual Covenants (DMCs) Don’t Override SMA: Under Section 148 of the SMA, SPAs and DMCs that conflict with the SMA cease to have effect. Thus, Resolution No. 3 prevailed over any restrictive HR or DMC provisions.
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Legal Guidance for Developers
To ensure compliance with the SMA and facilitate STRs in strata developments, developers should consider the following:
1. Draft SMA-Compliant Documents:
- Ensure SPAs and DMCs align with the SMA and avoid restrictive covenants that limit parcel owners’ rights to use their units for STRs, unless explicitly prohibited by valid by-laws.
- Clearly address STRs in initial HR to provide clarity and reduce disputes.
2. Understand MC Limitations:
- Inform MCs that their powers under Section 59 are limited to common property management and by-law enforcement. MCs cannot regulate parcel usage without special resolutions under Section 70(2).
- Assist MCs in drafting by-laws that balance STR permissions with community interests.
3. Ensure Transparent AGMs:
- Conduct AGMs with proper notice and transparency, as required by the SMA.
- File updated by-laws with the COB within 30 days, as required by Section 70(6), to ensure compliance.
4. Address Nuisance and Illegal Activities:
- Include provisions in DMCs or HR to address nuisance or illegal activities through civil remedies or police reports.
5. Align with COB Guidelines:
- Adhere to COB guidelines (e.g., Prosedur Operasi Standard Aktiviti Penginapan Sementara Jangkamasa Pendek) to ensure STR operations meet regulatory standards.
6. Avoid Marketing Misrepresentation:
- Ensure promotional materials accurately reflect the property’s STR potential, supported by by-laws and planning permissions, to avoid misrepresentation.
Note
While this ruling establishes that MCs cannot prohibit STRs without legal authority under the SMA, local regulations in states like Sabah and Penang impose additional requirements.
In Sabah, STRs in residential properties may be restricted unless conducted on commercially zoned land/or with a lodging house license.
In Penang, local by-laws restrict STRs in residential properties, often requiring commercial zoning or specific approvals.
Developers and hosts should consult local council regulations to ensure compliance, as these may limit the ruling’s application in these states.
– By George Miranda, Joy Sam Jia Qian, Nurafiqah ‘Izzati –
This article is for general information purposes only and does not constitute legal or professional advice. It should not be used as a substitute for legal advice relating to your particular circumstances. Please note that the law may have changed since the date of this article.
