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.
