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Amendments to the Standard Schedule H

Sale and Purchase Agreements

Shamsulbahri bin Ibrahim
Legal Adviser,
Ministry of Housing and Local Government

and

Teh Sek Hock
Advocate & Solicitor

1. Introduction

The Housing Developers (Control and Licensing) (Amendment) Act, 2001 ("the Amendment Act") which was gazetted on 31st January, 2002 introduced a major revamp of the entire legislation on the law relating to the housing industry including the changing of the name of the governing act to the "Housing Development (Control and Licensing) Act, 1966".

Similarly, the Housing Development (Control and Licensing) (Amendment) Regulations, 2002 ("the Amending Regulations") introduces major changes to the statutory sale and purchase agreement prescribed under Schedule H for residential apartments or condominium units.

The purpose of this article is to highlight and explain some of these changes and amendments.

2. Title

The first of these amendments is the introduction of a new title to the standard sales contract, namely, "SALE AND PURCHASE AGREEMENT (BUILDING INTENDED FOR SUBDIVISION)" in place of the old title which was stated as "SALE AND PURCHASE AGREEMENT SUBDIVIDED BUILDING)". The old title was a misnomer as it gave the impression of the existence of a completed and subdivided building at the time of the signing of the sale and purchase agreement by the purchaser when obviously this was not the case.

With the new title, it is clearly stated that it is a sales contract in connection with a building intended for subdivision. This will also make it consistent with the Strata Titles Act, 1985 ("STA") which is primarily an Act to facilitate the subdivision of buildings into parcels

3. Amendments to the Preamble of Schedule H Sale and Purchase Agreement

3.1 There are two amendments to the Preamble. The first is the amendment to paragraph 1 of the Preamble to state clearly the tenure of the land on which the building is erected on in that it is either freehold land or leasehold land. In the case of a leasehold land, the year of expiry of the leasehold is to be stated clearly. This is to ensure that purchasers are made aware of the tenure of the land at the time of signing of the sales and purchase agreement.

3.2 The second amendment to the Preamble is the inclusion of an additional "accessory parcel plan" to be annexed in the First Schedule to provide for the delineation of accessory parcels like car parks if the said car parks are included in the sale of the parcels. Under the old standard sale and purchase agreements, these were not provided for and car park plans were inserted together with the floor plans, storey plans and site plans under the First Schedule more like an afterthought.

4. Parcel free from encumbrances upon handing over of vacant possession (New Clause 2)

4.1 The old Clause 2 prohibited the developer from subjecting the land to further encumbrances (apart from the existing charge on the master land, if any) immediately after the signing of the sale and purchase agreement. This has given rise to an ambiguous situation whereby the developer may be entitled to further encumber the land - not immediately - but after a lapse of time to the detriment of the purchaser. This potential problem has been resolved by the insertion of the phrase "at any time" after the word "immediately" in this Clause 2. It is clearly stated therefore that the developer is now not entitled at any time after the signing of the sale and purchase agreement to further encumber the land.

Secondly, the interest of the purchaser is further safeguarded by a new provision to the effect that the purchaser shall grant approval to the developer to further encumber the land only if the purchaser shall have first received written confirmation from the relevant bank providing such further loans to the developer disclaiming their rights and interests over the relevant parcel. The said bank must further undertake to exclude the said parcel from foreclosure proceedings which the bank may take against the developer for the said land.

4.2 A further amendment under the new Clause 2(3) obliges the vendor to give the purchaser and/or purchaser's solicitors a copy of the redemption statement and undertaking letter from the vendor's banker if the master land is encumbered to a bank and the purchaser is authorised to progressively pay (out of the purchase price) such redemption amount (and in the case of the purchaser's financier - to progressively release such portion of the loan as shall be equivalent to the redemption amount) directly to the vendor's banker.

This new clause will prevent the not uncommon situation whereby a cash purchaser is put at a loss as the vendor does not utilise the monies paid to redeem the property purchased from the existing chargee bank notwithstanding the completion of the development project.

5. Schedule of payment (New Clause 4)

The existing Clause 4(1) pertaining to the schedule of payment has been amended to allow the developer to claim progress payments from the purchaser according to actual works completed instead of in the strict and inflexible order previously provided in the Third Schedule. This amendment was requested for by the Real Estate And Housing Developers Association ("REHDA") to allow for flexibility of works in view of modern construction methods.

The interest of purchasers are not compromised by this amendment as there is a proviso inserted to this effect that the developer must repair and make good at the developer's own cost and expense any damage to previously completed works by subsequent stages of work. Another further protection is that developer is obliged to repair and make good such damage before delivery of vacant possession.

6. Loan (New Clause 5)

Previously a purchaser who were unable to raise a loan to facilitate the purchase of the parcel was obliged to continue with the transaction. He was not allowed to withdraw from the transaction on the ground.

With the introduction of the new Clause 5(3), a purchaser who fails to obtain a loan due to his ineligibility of income and produces proof of such ineligibility to the vendor need only pay to the vendor 1% of the purchase price and the Agreement will be terminated. The vendor must then refund the balance of the amount paid by the purchaser within 21 days of the termination.

7. Purchaser's right to initiate and maintain action (New Clause 7)

One of the major changes introduced by the Amendment Act is Section 22C which provides as follows:-

"Notwithstanding anything contained in any written law or any rule of law, a homebuyer as defined in Section 16A shall be entitled on his own volition and in his own name to initiate, commence, institute and maintain at any court or tribunal any action, suit or proceeding against a housing developer or any other person in respect of any matter arising out of the sale and purchase agreement entered into between the purchaser and that housing developer unless a contrary intention is expressed in any agreement, assignment or charge between the homebuyer and the financier must first be obtained before he exercises any of his rights under this section".

This is an important provision as it now allows purchasers who have assigned their rights and interests under the respective sale and purchase agreement to the financier as security for the loans granted to them to maintain an action in the purchaser's capacity against the developer in connection with the sale and purchase agreement without having to involve the relevant financier as a plaintiff or even as a co-plaintiff in the action.

The provisions of Section 22C of the Amendment Act has been restated mutatis mutandis under the new Clause 7 of the standard sale and purchase agreement. This restatement is intentional as the Housing Ministry wishes to draw the attention of both purchasers and developers to this important piece of legislation.

8. Interest on late payments (New Clause 9)

The 14 days deadline for progressive payment under the old clause has been extended to 21 working days to provide for a more reasonable time frame for the disbursement of loan by the purchaser's financier. Interest in late payment shall be charged by the developer only after the expiry of the said 21 working days.

As an added protection to purchasers, the vendor shall not be allowed to charge interest on late payment of instalment if the delay in payment is due to any one or more of the circumstances more particularly set out in the new clause 9(2). Generally, these are circumstances where the reasons for the delay in payment are attributable to the vendor and where the purchaser is not at fault for the delay in payment.

9. Default by purchaser and determination of Agreement (New Clause 10)

9.1 Previously, the breach by the purchaser of any term, condition or covenant of the Sale and Purchase Agreement would allow the vendor to terminate the Agreement. This rather onerous provision has been amended by the new Clause 10(1)(b) which provides that the vendor can only proceed with the termination if the purchaser (amongst other events previously set out) shall commit a breach of a material term, condition or caveat.

9.2 Another amendment to the termination clause is the insertion of the phrase "at the option of the vendor" in the last line of the new Clause 9(2). This is to clarify that it is the vendor who makes the final decision on whether to terminate the Agreement or to treat the Agreement as subsisting if there is a default on the part of the purchaser.

9.3 As further protection for the purchaser, it is provided in the new Clause 10(3) that in cases where the purchaser is in default but the purchaser shall have (before the expiry of the 14 days' repudiatory notice) obtained a bank loan and settled the differential sum between the purchase price and the loan, the vendor shall not be allowed to terminate the Agreement unless the purchaser's banker shall fail to release the loan within 30 days from the expiry of the said 14 days' repudiatory notice.

10. Consent to assignment/sub-sale (new Clause 12)

Prior to the provisions of this new Clause 12, it was not unusual for vendors to impose consent fees or administrative charges of up to 1% to 2% of the sub-sale purchase price before consenting to sub-sales and assignments by purchasers.

With the amendment, vendors are now obliged to endorse their consent to those sub-sales, transfers and/or assignments to third parties (including their financiers) subject to the payment of the sum of RM500.00 or 0.5% of the purchase price - whichever is the lower. No other fees are chargeable by the vendor.

11. Position and area of parcel (New Clause 13)

Previously, either party to the sale and purchase agreement were entitled to an adjustment of the purchase price in the event the area of the parcel as shown in the building plan (and, consequently, the area shown in the sale and purchase agreement) was different from that shown in the strata title when issued.

Although either parties were allowed to claim for such adjustments, cases have shown that the majority of claims were made by the developers for extra land built. Further the claims for the adjusted amount came only after the relevant strata titles have been issued which in most cases were many years after the completion of the relevant housing project.

In view of this perennial problem, Clause 13 of the standard sale and purchase agreement now prohibits the developer from claiming any adjustment of the purchase price if there is any 'over building'.

On the other hand, if there is any shortfall in the area of the parcel in that the area of the parcel as shown in strata title when issued is less than the area as shown in the building plan, there shall be an adjustment of the purchase price for the difference (if any) in excess of 3% of the area shown in the building plan calculated at the rate the purchaser paid for each square metre of the parcel.

In effect, if the developer 'under builds' by less than 3%, there is no adjustment as there is tolerance level of 3%. But if the developer 'under builds' by, for example, 5% of the area shown in the building plan then the purchaser is entitled to an adjustment amounting to 2% of the purchase price (i.e., 5% - 3% = 2%).

With this new provision, therefore, the developer 'over builds' or 'under builds' at the developer's peril.

12. Restriction against change to colour code (Clause 16)

A new Clause 16 is has been introduced to the effect that purchasers of parcels in Kawasan Perbadanan Putrajaya are prohibited from carrying out any change in the colour of the exterior of the parcels without the prior written consent of the Appropriate Authority. This is to preserve the uniformity of development in Putrajaya.

13. Payment of Service Charges (New Clause 19)

13.1 The provisions of the new Clause 19(2) obliges the purchaser, in addition to the payment of one month's deposit for service charge, to pay three months' service charge in advance and payments thereafter shall be payable monthly in advance. The requirement for the three months' service charge payment in advance is effected as it is common for developers to face problems in the collection of the service charges from purchasers.

13.2 It was previously provided in the old standard sale and purchase agreement that all notices requesting for payment of service charges must be supported by a service charge statement issued by the developer. A common source of complaint by purchasers is that there are insufficient information provided with regard to the actual services rendered by the developer and the breakdown of the relevant charges. In view of this, the new Clause 9.(3) provides that all notices for payment of service charge must be supported by a service charge statement in the form set out in the Fifth Schedule in which the relevant particulars of the services rendered and the relevant amounts to be paid for such services are clearly stated. Purchasers would now be fully aware how the monies collected for service charges are utilised by the developer.

To cater for different projects which may have different facilities and services provided, developers are to delete from the standard list of services set out in the Fifth Schedule those services which are not so provided by those particular developers.

As additional protection to purchasers, the developer is not allowed to add to the list of services set out in the said service charge statement unless the prior written consent of the Controller of Housing is obtained.

13.3 Under the provisions of new Clauses 19(5) and 19(6), the vendor may appoint a duly qualified person or agent to provide the maintenance and management services provided that the vendor shall provide the purchaser with a copy of the annual audited accounts for the expenses incurred for the services.

14. Sinking fund (New Clause 20)

Under the Strata Titles Act, 1985 ("the STA"), sinking funds (or "special accounts" as stated in the STA) are only collected upon the formation of the management corporation for the relevant project.

This posed a problem since it could be many years before the strata titles to the relevant parcels are issued. The management corporation is formed only upon the issue of strata titles to the building. In some older buildings without strata titles, therefore, there were no funds available for major maintenance works such as the repainting of the building.

In view of this, there is now a provision under Clause 20 for the collection and maintenance of a sinking fund prior to the formation of a management corporation for the purpose of meeting the major liabilities such as the painting and repainting of the common property, the acquisition of movable property for use in relation to the common property or the renewal or replacement of any fixtures comprised in the common property. All funds accumulated in the sinking fund are held by the vendor in trust for all purchasers of parcels in the relevant housing development. The vendor or his agent shall be obliged to provide the purchaser with a copy of the annual audited accounts for the provision of the said services.

The collection of sinking fund, however, should not be confused with the service charges which are meant for the general maintenance and management of the common property and for the other services agreed to be provided by the developer.

15. Payment of outgoings (New Clause 22)

Previously purchasers were liable for all outgoings in respect of the parcel from the date of the Sale and Purchase Agreement. This has now been amended to the effect that a purchaser is only liable for all outgoings for the parcel from the date he take vacant possession of the Parcel and not earlier.

16. Time for delivery of vacant possession (New Clause 26)

16.1 The new Clause 26(2) obliges the vendor to pay liquidated damages for late delivery immediately upon the date the purchaser takes vacant possession of the parcel.

16.2 It is further provided in Clause 26(3) that the cause of action to claim liquidated damages shall accrue on the date the purchaser takes possession of the parcel. It means therefore that purchasers will not be able to claim liquidated damages for the period between the time the parcel is contractually due for delivery of vacant possession (i.e. after the expiry of 36 months from the date of the Sale and Purchase Agreement) and the time the purchaser actually takes possessions of the same.

16.3 Finally, Clause 26 (4) states that any claims for liquidated damages in the Tribunal of the Homebuyer Claims established under Section 16 B of the Housing Development Act 1966 (Act 118) must be made within twelve (12) months from the date of issue of the Certificate of Fitness for Occupation of the parcel or the expiry date of the defects liability period - whichever is the later.

17. Manner of delivery of vacant possession (New Clause 27)

One of the main grievances sounded by purchasers is the fact that delivery of vacant possession does not give the purchaser the right to occupy the parcel until such time the certificate of fitness of occupation ("the CFO") is issued.

To address this problem, the new Clause 27(2) provides that the delivery of vacant possession must be supported by, firstly, the vendor's architect certifying that the relevant building has been constructed and completed in accordance will all relevant laws and regulations and that all conditions imposed by the Appropriate Authority for the issue of the CFO have been duly complied with.

Secondly, the vendor must provide to the purchaser a letter of confirmation from the Appropriate Authority certifying that the Form E under the Second Schedule to the Uniform Building By-laws has been duly submitted by the vendor and checked and accepted by the Appropriate Authority.

With these new measures, the CFO should be issued by the Appropriate Authority within a period of 14 days from the date the vendor submits the application for the CFO.

18. Defect liability period (New Clause 30)

Prior to the amendment, there was no line frame for the vendor's solicitor who is holding the 5% retention sum as stakeholder to release the monies claimed by a purchaser who has carried at rectification works himself. The vendor's solicitor is now obliged, under the new Clause 30(1), to release such rectification costs from the stakeholder sum within 14 days after receipt of the purchaser's written demand for the same.

19. Service of documents (New Clause 32)

The provision of the new Clause 32(1)(a) clarifies that notices, requests or demands sent by registered post shall be deemed to have been received upon the expiry of 5 days after the posting of such registered letter.

20. Interpretation (Now Clause 35)

20.1 The definition of "Appropriate Authority" has been widened to include such corporations or private agencies licensed by the Appropriate Authority to cater for the privatisation of the electricity, telephone, sewerage and other related services.

20.2 The definition of "Controller" meaning the Controller of Housing appointed under the Housing Developers (Control and Licensing) Act 1986 is now introduced.

20.3 The term "ready for collection" is amended to clarify that the developer is obliged to install, inter alia, "electrical points" instead of electrical fittings and fixtures.

21. Third Schedule

The Third Schedule of the standard sale and purchase setting out the schedule of payment of the purchase price has been amended as follows:-

21.1 The purchaser now has a longer period of 21 working days after receipt of the vendor's written notice to make the progressive payments. This should also alleviate the common problem of late interest penalties being levied by the vendor on the purchaser when the purchaser's banker releases the relevant loan amounts after the old deadline of 14 days.

21.2 The single progressive payment under the old Item 2(f) of the Third Schedule for roads, drains and sewerage works is now divided into 3 separate progressive payments of 5% of the purchase price each for the completion of roads, drains and sewerage stages respectively. This is to assist developers with their cash flow as it would facilitate progressive payments as when each of the said 3 stages of work are completed.

21.3 The previous 15% progressive payment to be paid by the purchaser upon handling over of vacant possession under Item 3 of the Third Schedule has also been divided into 2 separate progressive payments.

The first payment of 12.5% of the purchase price is to be paid upon handling over of vacant possession.

The second payment (under the new Item 4 of the Third Schedule) amounting to 2.5% of the purchase price is payable by the purchaser within 21 working days after receipt of the written confirmation of the vendor's submission to and acceptance by the Appropriate Authority of the application for subdivision of the building. This is to ensure that the vendor would diligently work towards and, without undue delay, make the necessary application for subdivision.

22 Concluding Remarks

As can be seen above, the Amending Regulations have been put into place taking the interests of both purchasers and developers into account with a principal aim of having a well managed, flexible, healthy and thriving housing industry.

 

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