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Obtaining strata titles: a developer's duty
15/11/1998 NST-PROP By Salleh Buang

Prof Salleh Buang hopes that a recent decision of the Malacca High Court can throw some more light on this difficult area of the law. When we buy properties, whether landed or stratified, we expect to be furnished with some document of title so we can show to the world that the properties belong to us. This human urge has been given due recognition by law, specifically the National Land Code 1965 and (if the property is part of a highrise building), the Strata Titles Act 1985.

Although the document that we have in our possession is only an Issue Document of Title or IDT (the actual title - called the register document of title - is kept and maintained by the appropriate authorities), to all intents and purposes, the IDT is accepted as proof of ownership.

Having said this, the case that becomes the focus of today's commentary concerns the predicament of five people who had purchased certain units in the Garden City Apartments complex in Malacca.

No, their problem was not that the project was abandoned - their grouse was that the developer had delayed in getting the strata titles for the apartments which they had purchased.

The case, Sor Kor Wah & four others vs Draland Sdn Bhd (1998) 4 AMR 3602), was decided on by Datuk S. Augustine Paul JC at the Malacca High Court on March 16 this year.

The facts

The Garden City City Apartments complex (hereinafter referred to as the complex) comprises 1,038 units spread over 11 blocks. Four of the plaintiffs in the case each bought a unit in Block B2 while the fifth chose one in Block B3.

When executing their purchases, each of the plaintiffs signed identical Sale and Purchase Agreements (SPAs) with the developer, Draland Sdn Bhd, but they did so at different times ranging between Sept 8, 1988 and March 31, 1990.

Of particular interest in their SPAs is a provision in Section 2.04 which states that the developer "shall apply to the proper authority for the issue of a strata title to each of the individual parcels under the provisions of the Strata Titles Act upon completion of of the complex".

On April 24, 1990 a Certificate of Fitness for Occupation was issued to all the apartments in Phase 1A of the complex. Unfortunately for Draland, between 1991 and 1996, several private caveats were lodged over the master title to the land upon which the complex was built. These caveats were entered by the purchasers. Draland was only able to have the last of these caveats removed in August 1997.

In October 1997, Draland applied for a final survey of the land, but at the time this case was filed in court, the relevant survey department still hadn't reverted to the developer with favourable news. The final survey is crucial, because only after this hurdle has been crossed can a developer expect to obtain a final title. And only after a final title has been issued can a developer apply for strata title.

According to court judgement, for Malacca's Land Office to issue strata titles, the process takes about "five years ... from the date an application is made for it." The plaintiffs were, as to be expected, quite unhappy. Without the strata titles, they could not (in collaboration with the other apartment owners form a Management Corporation (MC) - a statutory right given to them under the Strata Titles Act. And in the absence of an MC, Draland was entitled to collect service charges from the plaintiffs for the maintenance of their apartments.

The plaintiffs were especially unhappy since 30% of the service charges which they were forced to pay (as stipulated under the terms of SPA) were actually "surcharges", which Draland could use to meet its own upkeep. The plaintiffs argued that if the developer had applied for (and obtained) the strata titles in the normal course of events, their obligation to pay the surcharge of 30% would have ceased when the strata titles were issued.

The issue

The main issue in the case, said Augustine Paul JC, is "whether there is a time period within which the defendant must apply for and obtain the strata titles?" To resolve this, the Court had to answer the following questions:

->Whether Section 2.04 of the SPA is valid and enforceable;

->Whether the developer had applied for the strata titles within the time-limit prescribed by the Strata Titles Act, and if not, the effect of such failure; and

->The remedy available to the plaintiffs resulting from the developer's default.

The judgement

Augustine Paul JC observed that Section 2.04 of the SPA was "couched in wide terms" and imposed an obligation on Draland to apply for strata titles "only when the complex has been completed." While Phase 1A of the complex was completed in 1990, the entire complex had not been completed when the plaintiffs filed the case.

The JC then considered submission made by the plaintiffs' solicitors, who contended that Section 8 of the Act prescribes a time period within which an application for strata titles must be made - which on the facts of this case must be "six months from the date of the sale ... or the first of such sales or agreements."

The plaintiffs' solicitors also contended that the object of Section 8 was "to protect purchasers" and Section 2.04 of the SPA was clearly "an attempt to contract out of a statutory provision and is therefore void."

The JC also considered submissions made by Draland's solicitors, who contended that Section 8 was not applicable. They argued that "before an application for strata titles can be made there must be a final title", and that final title to the land would be available "only when the complex is completed and when the master title ... is surrendered."

Draland s solicitors argued that the developer "could not have acted earlier as caveats had been lodged" against the land by various parties." Until the final title is issued by the relevant authorities, they said, "there can be no application for strata titles and that in the circumstances, the defendant could not be faulted."

The learned JC then referred to Section 8 of the Act and held that in view of the criminal sanctions behind it, the nature of the developer's duty to apply for strata titles under the provision is "mandatory".

The court also referred to Section 7(2) of the Act which states that the proprietor of any alienated land held under qualified title "which has been duly surveyed and in respect of which a certified plan has been approved by the Director of Survey, may apply for the subdivision of any building thereon."

Considering all the circumstances of the case, the learned JC held that:

->As the object of the Act is to protect the interests of the purchasers, the developer "ought to have obtained the certified plan and the survey by the Director of Survey within a reasonable time after approval of the layout plan";

->Section 2.04 of the SPA "is contrary to the scheme of phased development authorised by the Act";

->Under such "phased development", the proprietor of any land may apply for the issue of provisional strata titles for a provisional block in respect of the building that has been completed on a lot - a procedure envisaged under Section 10A of the Act:

->The Act provides specific time periods within which an application for strata titles must be made even when the land has not been subdivided;

->The developer should have taken the necessary steps to apply for provisional strata title "instead of adopting the course that he is now taking";

In his concluding remarks, the learned JC said: "It follows that Section 2.04 which gives the defendant time till completion of the entire complex to apply for strata titles is inconsistent with the Act. This amounts to an attempt by the defendant to contract out of a statutory provision."

As such, the JC said the defendant must compensate the plaintiffs "for any damages suffered by them."

Conclusion

Most lawyers agree that the Strata Titles Act is not an easy piece of legislation to comprehend.

Other professionals with whom I have had the pleasure of exchanging ideas with are generally in agreement that the Act needs to be continuously looked into so that it will facilitate, rather than hinder, development.

I earnestly hope this recent Malacca High Court decision can throw some more light on what has otherwise been a difficult territory of law to comprehend.

 

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