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Addressing
and defining vacant possession.
“MY new house is
ready and I can now collect my keys,” or so the house-buyer thinks. No more having to pay
rent.
But his dreams come
crashing down, however, when he is informed that although he may have gained vacant
possession, he cannot not move into his house because the Certificate of Fitness for
Occupation (CFO) is not ready.
Months later, he
receives a copy of the CFO, and when he asks to be compensated for the delay, the developer
says liquidated damages for late delivery (liquidated ascertained damages or LAD) is
calculated up to the date of their notice for delivery of vacant possession and not up to the
date of the CFO.
Who then is to
compensate the house-buyer who has to service a housing loan for a house he or she is not allowed
to occupy, and who, at the same time, pays for a rented place while waiting to move in?
This is a common
scenario faced by house-buyers for years.
Is the house-buyer
entitled to damages up to the date the CFO is issued? The answer is a definite yes, if the
sale and purchase agreement (SPA) is in the format prescribed by the Housing Development
(Control & Licensing) Act, 1966 – year 2007 amendments, according to a recent decision
of the Tribunal for Home Buyer Claims, a.k.a. the Housing Tribunal.
Recently I was in the
vicinity of the Housing Tribunal located in the Wellbeing, Housing and Local Government
Ministry building, and decided to pay a visit before my next meeting in Putrajaya.
As I entered the
hearing room, the ongoing case involved a claim for LAD. It was by no means a simple LAD
case. The developer’s defence ran into several pages and touched on several legal
technical issues. I am writing this article to share with the readers the LAD
issue vis-a-vis the CFO as
opposed to the certificate of completion and compliance (CCC).
Is
LAD calculated up to date of CFO or CCC?
Having stressed that
the delivery of vacant possession in a housing project entailed more than just developers
issuing their notice for delivery of vacant possession, the tribunal president went on to explain
that the SPA contained specific requirements for delivery of vacant possession, which
must be complied with.
One of these
requirements as provided by Clause 26(2) of the SPA is that delivery of vacant possession must be
supported by a CCC. The LAD must, therefore, be calculated until the date of the CCC. That was simple
enough to understand. But what happens if a CFO is issued instead of a
CCC?
In the past when
houses were certified fit for occupation by way of the CFO, developers were not required to
procure the CFO before handing over the houses to their buyers. Developers would deliver vacant
possession before the CFO was issued and would not be liable for damages or any delays
in the issuance of the CFO. House-buyers would collect their house keys but would not be
allowed to move into their newly-completed houses simply because the CFO had not been
issued yet.
In 2007, the
statutory SPA was amended. Developers were now required to procure the CCC to deliver vacant
possession so that house-buyers could move in as soon as they collected their keys. This mode
was more meaningful to buyers. The CCC system to certify a house or apartment safe for
occupation was intended to replace the CFO system. Unfortunately, there were many cases where
building approvals were given before the 2007 amendment with the SPA being signed
after the amendment. In such cases, some local authorities insist that developers must
procure the CFO, and not the CCC, even though the SPA says otherwise.
So, we have a
situation where the SPA says that the developers must produce the CCC, but developers are not
able to do so because the local authorities insist on the developers applying for the CFO.
This was what had happened in the case being heard by the Housing Tribunal.
The developers argued
that damages should be calculated up to the date of their notice for delivery of vacant
possession and not the date of the CFO. Clause 26(2) of the SPA was not applicable because
the local authorities insisted on the developers getting the CFO instead of the CCC.
This means that the
developers would have to bear damages amounting to more than 10% of the purchase price if
damages were calculated up to the date of the CFO. This explains why developers are
fighting tooth and nail to save themselves a lot of money; money which should rightfully be
paid to the house-buyers.
The SPA, in this
case, was in the form of Schedule H (for strata properties such as apartments) and
Clause 26(2) says that “the delivery of vacant possession by the vendor shall be supported by a CCC
certifying that the said building is safe and fit for occupation and includes the handing
over of the keys of the parcel to the purchaser”.
“To my mind, the
provisions of clause 26(2) can best be understood and dealt with by tracing the purpose for which
such provisions were made,” said the tribunal president. (See Star
Online
for the tribunal president’s analysis).
The tribunal
president said substantial amendments were made to the housing legislations in 2002 and 2007 to
protect house-buyers. The certificate of compliance was introduced and the SPA was amended to
make it mandatory for delivery of vacant possession to be supported by the CCC. Developers
were required to ensure their houses and apartments were certified safe and fit for
occupation before delivery of vacant possession, as in Clause 26(2). The tribunal
president said the clause must be read to mean the CFO in cases where a CFO is issued instead of a
CCC.
Here is her
reasoning:
“... the CCC system
of certification is a system ... much like the CFO. The 2007 amendment was to address the
cumulative problem of house-buyers not being allowed to occupy their houses upon
collection of their keys.
“How that
certification is done is not the main purpose for this Clause 26(2). The crux
of the issue is not about
the system of certification (be it CFO or CCC), but about the house being certified as safe and
fit for occupation.
“... the statutory
SPA (after the 2007 amendment) refers only to the CCC. No mention is made of the CFO. To
say that the CCC cannot be equated with the CFO will mean that in cases where the local
authorities require a CFO (as opposed to a CCC), vacant possession can never be delivered in
accordance with the provisions of the SPA because no CCC will ever be issued.”
The tribunal
president said this interpretation defeated the purpose of the 2007 amendments to the statutory SPA,
and made a mockery of parliament and the housing legislations.
The tribunal awarded
damages up to the date of the CFO to the house-buyer.
Thumbs
up to the Housing Tribunal
The Housing Tribunal
assists parties in the conduct of their cases, especially when they are not represented by
lawyers, and where one party is superior to the other. “Independent” legal representation is
rarely allowed at the Housing Tribunal.
I am pleased by the
detailed reasoning given by the tribunal and was impressed by attempts made in trying to
settle the matter and the informal, yet solemn, atmosphere surrounding the entire proceedings.
As I left the Housing Tribunal some two hours later, I could not help but feel rather uplifted
by my experience.
As I write, I wonder
if the decisions of the Housing Tribunal ought to be reported and made available for public
consumption. I intend to make representations to the Wellbeing, Housing and Local Government
Minister that decisions of the Housing Tribunal should be made available for public
reading on their website so that the public would be able to comprehend and aim towards the
empowerment of information so as to make an informed decision.
If the Financial
Mediation Bureau (under Bank Negara, http://www.fmb.org.my/pc04.cb.htm)
can have its case
reviews published on their website, and Tribunal for Consumer Claim
(http://ttpm.kpdnkk.gov.my)
decisions made available, why not the Housing Tribunal?
How
to identify the differences
Last but not least,
how do you know whether your SPA is in the format prescribed by the year 2007 amendment?
Easy. Look for the defect liability clause in your SPA. If the defect liability period is
24 months, then your SPA is post-2007. I learned that at the Housing Tribunal that day
too!
Here
is a record of the Tribunal President’s analysis, as provided by Mr Chang Kim Loong,
honorary secretary-general of the National House Buyers Association (HBA).
“Before a house buyer
can move into his/her new house it must be certified safe for occupation. This used
to be done by the local authority issuing a CFO. For decades, developers were not
required to obtain the CFO before delivery of vacant possession. Many house buyers were not
allowed to occupy their newly purchased houses or apartments even though they were
completed, fully paid for and handed over to them, simply because there was no CFO.
“Many developers,
having collected the full purchase price and handed over vacant possession, were not
the least bothered about the delay in the CFO. Such delay was through no fault whatsoever
of the house buyers and completely beyond their control. Yet they were the ones to bear the
burden of financing houses they could neither move into nor rent out.
"In 2002,
substantial amendments were made to the housing legislations to give added protection to house
buyers.
"One such
amendment was to address the problem of vacant possession without CFO. Developers were
required to secure the acceptance of Borang E (Application for CFO) by the local authority before
delivery of vacant possession.
“According to the
then Housing Minister, Borang E once accepted by the local authority was
‘ ... sort of as good
as a CFO’ because once the Borang E was accepted the CFO should be issued by the
relevant authority within 14 days. In the course of my presiding at the
Tribunal, I have indeed seen
many CFO issued within 14 days of acceptance of Borang E by the relevant authority.
“Unfortunately, there
remained many delayed cases in the issuance of CFO and the nightmare
continued for many
vulnerable and innocent house buyers. In the year 2007, Parliament again tried to address the
grievances of house buyers. The CCC was introduced and the SPA was amended to make it
mandatory for delivery of vacant possession to be supported by the CCC.
"So for the
first time in the history of the housing industry, developers (through their appointed Architects
and Engineers), were required to ensure their houses and apartments are certified safe and
fit for occupation before deliver of vacant possession. This is clearly reflected in Clause
26(2).”
The Tribunal
President then went on to say that the CCC referred to in Clause 26(2) must be read to mean the CFO
in cases where a CFO was issued instead of a CCC. Here is her reasoning:
“First and foremost,
one must bear in mind that the CCC system of certification is just a system or mechanism,
very much like the CFO system, for certifying that a building is safe for occupation, thus,
permitting the house owners to occupy their houses.
“One of the main
reasons for the 2007 amendments was to address the cumulative problem of house buyers not
being allowed to occupy their houses upon collection of their house keys.
“This is clearly
reflected by the then Housing Minister’s statement in Parliament that
'Pindaan ini dan
peraturan baru diharap akan dapat menyelesaikan masalah di mana pembeli
berjaya memperolehi
kunci tetapi tiada CFO.'
“It must be taken
that the main purpose of Clause 26(2) is to ensure that the building in question is certified
safe and fit for occupation when vacant possession is delivered so that house buyers can move
into their houses. How that certification is done is not the main purpose of this
Clause 26(2).
“The crux of the
issue is not about the system of certification (be it CFO or CCC) but about the house being
certified as safe and fit for occupation.
“Further, it must be
noted that the statutory SPA (after the 2007 amendment) refers only to the CCC. No mention
is made of the CFO. To say that the CCC cannot be equated with CFO will mean that in
cases where the local authorities require a CFO (as opposed to a CCC) to be issued, vacant possession can never be delivered in accordance with the provisions of the SPA because no CCC
will ever be issued.
"It will mean
that in cases where the local authority requires a CFO (as opposed to the CCC) to be issued there is
no provision at all under these SPAs requiring the developers to ensure that the houses or
apartments sold to the house buyers are certified safe and fit for occupation. Such
interpretation will not only defeat the purpose of the 2007 amendments to the statutory SPA but
make a complete and utter mockery of Parliament and the housing legislations.
“Clause 26(2) must be
interpreted as requiring vacant possession to be supported by a certificate
certifying that the building/house/apartment in question is safe and fit for occupation. Whether
this certification is done by the former CFO system or under the new CCC system of
certification is secondary and does not affect the developers’ responsibility
to deliver vacant
possession only when the building is certified safe and fit for occupation.”
Chang
Kim Loong is the honorary secretary-general of the National House Buyers Association
(HBA): www.hba.org.my, a non-profit,
non-governmental organisation manned purely by volunteers. He is
also an NGO councillor at the Subang Jaya Municipal Council.
This article appear in thestar in Jan2014.
