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The Not-So-Mutual Deed of Mutual
Covenant
01/02/2004 Published in Malaysian Business - Housing
& Property By National House Buyers Association of Malaysia
Pay attention to what you sign
Whenever one buys a piece of property where there are common facilities,
such as security, social amenities and other areas that require the involvement
of all unit owners, one will be requested to enter into a Deed of Mutual Covenant
(DMC). This is done simultaneously upon the signing of the Sale and Purchase
Agreement (SPA).
In layman's language, the DMC is an agreement of mutual undertaking between
the developer and the purchaser. The contents vary from developer to developer,
and they are distinctly separate from those in the SPA.
Unlike the SPA, the contents of DMC are not dictated by the Housing Development
Act. The contents are purely clauses that spell out the mutual agreements/undertakings
of both buyer and the developer. Many house buyers do not really pay attention
or understand the details of what they are signing for. This is particularly
so in cases where the buyers, to save cost, have not engaged their own lawyers
but rely on the developers' lawyers who have prepared both the SPA and the DMC.
Some of these clauses one has to be wary of are as follows:
This is where the clauses is invariably left open ended. Usually the agreed
amount is valid for a set period (say two years). After that, it is likely
to be increased by what is merely stated as 'a reasonable amount'. A lot of
dispute have arisen from this 'reasonable amount', and buyers are holding
the short end of the stick. Remember, you must understand what you are signing,
and if you are not comfortable, ask questions to clarify.
- The undertaking not to lodge a caveat
This clause explicitly removes the right of the purchaser and his financier
from lodging any caveat on the property. Thus, in the event of non-performance
on the part of the developer and, in particular, if the developer has gone
into liquidation, the buyer may have nothing to fall back on. Question the
deveoper as to how else your interests can be protected.
- Right of the developer to cease supply of utilities
This clause gives the developer the right to cut utilities, such as water
or electricity, in the event of any payment default by the buyer/resident.
Thus, in the event of any unresolved dispute, the resident will not be in
a position to argue his case when he already has his utilities disconnected.
This clause unconditionally indemnifies the developer from any form of
liability arising from the usage of the common properties by any party concerned.
This indemnity also covers injury or losses that are brought about by the
negligence of the developer. It is a one-way traffic.
- Consent to assignment/subsale ('consent fees')
Before the enforcement of the amendments to the Housing Development (Control
& Licensing) Regulations 1989 (Housing Regulations), it was not uncommon to
find purchasers caught unaware that they have to pay the developer and administrative
charge when they want to sell or refinance their condo unit before the strata
title has been issued. The amount charged varies from developer to developer
or sometimes from original purchaser and subsequent purchasers.
With the amendment to the Housing Regulations, effective Dec 1, 2002, developers
can now only charge a sum of 0.5% of the purchase price or RM500, whichever
is lower. This is regardless of when the SPA was signed. The amended Housing
Regulations also states that: '... No housing developer shall collect any
fee by whatever name called for giving his consent to any purchaser or subsequent
purchaser of a housing accommodation to assign his rights and benefits to
and in the contract of sale to any financial institution providing a loan
for such purchaser to finance or part finance the purchase of the housing
accommodation ...'
- Period of validity of the DMC
A DMC is usually only valid until strata titles have been issued to the
individual unit owners and a management corporation is formed. Until then,
this is the only governing document in which the developer has the upper hand
to control the usage and payments towards the management and maintenance of
the common property. When some purchasers wish to amend certain contract wordings
in the DMC, the developers often refuse, arguing that the deed has been ratified
and put on record and, thus, cannot be changed.
HBA is of the view that the DMC should also be standardised like the standard
SPA to ensure fairness and protection for the purchasers.
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