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Make them pay
15/06/2001 NST-PROP By Salleh Buang

Punitive measures are in place for false advertising, perhaps it is time to exercise them.

According to newspaper reports last April, 32 condo owners who had earlier sued their developer, Endah Raya Realty Sdn Bhd for breach of contract had finally agreed to an out-of-court settlement.

The subject matter of their dispute was the Shang Village condominium project in Kelana Jaya. The plaintiffs had filed a court action against the developer whom they felt had wrongly deceived them through misrepresentations in its advertising brochures. Apart from the developer (sued as first defendant), the plaintiffs had also sued Shan Management Services Sdn Bhd ( as second defendant) and Talam Corporation Bhd (project manager, as third defendant ).

While we may not know the actual terms of the agreed settlement (as the parties might like to keep them confidential), we can all derive an important lesson from the episode. And that lesson is this: house buyers should stand up and fight for their rights.

To fight well with a reasonably good chance of winning, three things are important. First, house have all the relevant documents and records in good order. Second, they must get all the affected purchasers to agree to a certain course of action (there is actually strength in numbers). Third, once the fight has started, the purchasers must not give up until they win.

Even if they do not win on all points of their claims, they will certainly not lose everything - which might probably be the case if they had given up from the start.

In their civil action against the defendants, the plaintiffs contended that the defendants enticed them by several representations ( in sales brochures and newspaper advertisements) that the condominium project would be provided with several common facilities e.g. a swimming pool, wading pool, jacuzzi, gymnasium, sauna, jogging track, multi-purpose hall and a children's development centre.

However, when the SPA was signed, no mention was made of these facilities. This was certainly a sore point for the plaintiffs, having regard to the price of these condo units, ranging from RM170,000 to RM262,000. that the developer had unilaterally changed the plans in the sales agreement. The plaintiffs also claimed that the defendants had breached their contract because they had failed to compete the construction of the project on the agreed date and had failed to provide all the facilities as promised in the brochures. The developer had also failed to give vacant possession of the condo units within the stipulated time.

By way of defence, the defendants argued that the plaintiffs no longer had the right to sue them because the plaintiffs had absolutely assigned theirs rights and interests in the condominium to various financial institutions (from which they had obtained end financing to complete the purchase). The defendants argued that the plaintiffs should have made the relevant financial institutions a party to the action. The defendants had also counter-claimed against the plaintiffs maintenance fees, insurance premium, quit rent and basic utility charges according to the sale and purchase agreement.

A look a the law (the Housing Developers (Control and Licensing) Regulations 1989) shows that very little is mentioned of false advertisements. Regulation 5(1) states that "No advertisement or sale shall be made by any licensed housing developer without an advertisement and sale permit having first been obtained from the Controller". That is easily understood. A housing developer must obtain and advertisement permit before he can advertise the sale of his project. And he cannot sell any house until he has obtained the permit to sell. Since the permit to advertise and the permit to sell is found in the same document (issued under Regulation 5(4), Schedule E) advertising brochures and the standard sale and purchase agreement (SPA) go hand in hand.

Without an advertising and sale permit, there is no way a developer can collect any money from a prospective purchaser. This is because under the law, no money can be collected unless the SPA has been signed (see Third Schedule of the SPA, item 1).

Regulation 5(2) describes the procedure involved in applying for the advertisement permit. It has to be made in the prescribed form and must be accompanied by several document such a copy of the approved building plans, two copies of the proposed advertisement including brochures, and such other particulars of information as may be required by the Controller. The brochures are to contain "particulars as prescribed under paragraph (1) of Regulation 6".

It is on Regulation 5(3) that we focus our attention. This states that "Any misrepresentation of the particulars or information required under paragraph (2) of this regulation shall be an offence under these Regulations."

With regards to the brochures, as already mentioned above, these must contain certain particulars. Under Regulation 6(1), there are 10 items which must be mentioned in these brochures, and of these, the law requires the developer to describe " the proposed housing accommodation".

Regulation 6(2) then concludes that a developer " shall issue a brochure in respect of the housing accommodation of each purchaser free of charge".

Put in simple terms, the general impression that the contractual relationship between the developer and the purchaser rest solely on the standard SPA is actually incorrect. The SPA is an important document, but it is not the sole consideration in determining the rights and obligations of the parties.

The brochures and any other advertising material which have induced ( or are calculated to induce) the purchaser to sign the SPA become an integral part of the contract between the developer and the purchaser. For that reason, Regulation 5(3) states that any misrepresentation is an offence, because it is deception that has induced a party (the purchaser) to enter into a contract (the SPA) with another (the developer).

Under Regulation 13, any person who contravenes any provision of the Regulations " shall be guilty of an offence and shall be liable upon conviction to a fine not exceeding RM5,000 or to a term of imprisonment not exceeding three years or both".

My question is whether you have heard of any managing director of a property development company being sent off to Sungai Buloh or Kajang prison for a year for false advertising?

 

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