Article by: Gurdial Singh Nijar
TODAY I narrate a personal story. It relates to housing developers – and their selling "antics". It needs to be told so that you will be on guard when you face a similar situation. I am not indicting all developers of course.
First, the developer announces the launch of a project over a weekend. The roads to the launch site are well signposted with fancy boards and bunting. A lavish spread awaits you at the site – complete with a professionally-designed show house.
An elaborate model of the entire location is placed at the centre. Replete with eco-forested areas, exquisite landscaping, a fancy club house, ponds and pools galore.
It's a contrived carnival atmosphere – to lure you into making possibly the biggest financial commitment in your life.
Officers from a coterie of banks sit alongside the developer's representatives. To show you how incredibly easy it is to make a purchase and how little it will eat into your budget. There are profuse promises – getting the loan approved? After a quick calculation of your income – an assurance: no problem, lah!
The developer's rep then assures you – if any problem in getting the loan the money "can sure refund".
And then the infamous – "only few lots left" – better confirm now – pointing to the red "sold" dots on the plan. A sense of daring overcomes you. You abandon your "hum and hah" as you are gently nudged into signing a document headed "Option to Purchase".
Fast forward to some time ahead – you can't get the loan; or you realise that the property is not affordable. What then? No problem – you ask for your money back. It is then that you crash into a barrier.
Whatever you do – even beg or plead – these (few) developers will not return the money. They will give every possible reason to avoid a refund. They will ask you to put your money as a deposit for another house in their other project. Or that they have suffered a loss – even though the same house has been now sold to someone else.
You can sue for your money – but if lack of money prevented you from making the purchase – how can you possibly afford a lawyer? And how will you match the deep pockets of these fat cats and their legal officers?
After a while you let the matter rest in utter despair. You are left to little else than telling your sad story to your friends and others.
In my case I even knew the top echelon "owner" of this development company – a former college mate. We don't cheat people of their money, he declared glibly when first told of my plight in not getting the refund from his company. But after almost three years of phone calls and several stories of how it was his employees and not he who was refusing the refund – the reality dawned of how much more difficult it must be for others less well-connected to get a refund.
What is the legal position then? First, there is a difference between paying this money for a "residential" property and a "commercial" property, even an inexpensive shop lot.
It is illegal for a developer to collect any money before signing a sale and purchase agreement (SPA) in respect of a residential property. It can be labelled by any name – deposit, earnest money, option to purchase, advance, stakeholder sum or whatever other name the developer's fertile imagination creates. The developer cannot take this money until the purchaser has signed the SPA. If he does so, he commits an offence under the Housing Development (Control and Licensing) Regulation 1989. The developer commits a criminal offence punishable with a fine up to RM20,000 or jail up to five years or both.
Further all monies collected must be refunded – in full and without any deduction. As long ago as 1981 the Privy Council (then our highest court) brought to book a developer in Johor Baru. The law, said the court, was there to protect house buyers; and developers would be punished for flouting it (Daiman Development Sdn Bhd v Mathew Lui Chin Teck).
Then the lawyers got into the act. They started collecting the monies on the developers' behalf as "stakeholders". And they called it an "option fee". A genuine stakeholder holds money (or anything else) pending the fulfilment of an event – such as approval from some authority. The court struck down this forensic devious device in a 2013 decision: Wan Ming Sun v Planet Uno Sdn Bhd. It was illegal, the court declared.
But then there are lawyers who continue to flout this provision. And despite a clear Bar Council warning against this practice. Should not the Bar Council turbo-boost its enforcement machinery; and at least alert the authorities to prosecute the lawyer(s) under the housing regulations? Surely the knowledge is in the legal fraternity's public domain.
What of those who buy a commercial shop lot and end up in the same predicament? There is no similar protection in this case. The only recourse is to argue that the contract has not come into existence because the precondition of signing the SPA has not materialised. This is a lot harder as the developer will argue that the basic terms – set out in the sheet that he got the purchaser to sign – are clear (property, price and such like). And without doubt, the unethical developers will likely get their favourite obeisant legal eagle to include a clause that says that the money will not be refunded if the SPA is not signed.
Should not the government consider enacting a law similar to that for residential properties to protect the buyers of commercial property – especially now that the volume of the sale of small shop lots has grown so large?
Gurdial is professor at the Law Faculty, University of Malaya.
