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Duties of a housing developer
04/09/2004 NST-PROP By Salleh Buang

The duties of a housing developer can be put into two broad categories. One is its specific duties to purchasers under the standard Sale and Purchase Agreement (SPA) and the other, the more general (but equally onerous) duties towards the regulators under the Housing Development (Control & Licensing) Act 1966.

Both these duties have been extensively revamped in the latest amendments to the Act, which took effect on Dec 1, 2002. In this article, we will take a closer look at the developer's general duties under the Act.

The main purpose of the law is to protect purchasers, not to victimise them. The leading case for this legal proposition is SEA Housing Sdn Bhd vs Lee Poh Choo [1982](2 MLJ 31) in which the purchaser sued the developer for breach of contract and for delivery of the title to a house he had purchased.

The property in question was completed after 23 months, instead of 18 months as stated in the SPA. The issue before the court was whether the developer could be excused for the delay due to acute shortage of building materials, a state of affairs which was at that time public
knowledge.

The developer relied on Clause 32 of the agreement, which purported to exempt it if non-fulfillment of any term was caused by circumstances beyond its control.

The High Court trial judge held that the 1966 Act and the 1970 Rules were passed by the authorities to protect the interests of the public and the developer could not contract out of the Rules. The developer's appeal to the Federal Court was dismissed.

To my knowledge, the courts have never wavered from this stand. Having said that, the large number of abandoned projects that surfaced two decades ago (and which seems to have recurred again) shows that the authorities have somehow forgotten this important principle of law. Instead of protecting purchasers, the law has somehow been permitted to be used (or abused) by developers as an engine of injustice on helpless purchasers.

To add salt to the wound, there has been no case (as far as I know) where the Housing and Local Government Ministry has hauled developers of abandoned projects to court. At least in the past. As for the future, who knows?

Sections 11 and 12 of the Act allow the authorities to issue specific and general directions to a housing developer when it becomes apparent that the developer has become unable to meet its obligations to purchasers, is about to suspend construction, or is carrying on business in a manner detrimental to the interests of purchasers. In such situations, the Minister is empowered to direct the developer to take other measures that he may deem necessary. Such directions must be immediately complied with.

The extent of abandoned projects in the 80s would seem to indicate that the authorities have failed to exercise this statutory power.

Fortunately, a sense of realisation has set in. A March 8, 2004 news report said that purchasers of the Taman Terubung Indah apartments (formerly known as Majestic Heights) in Penang had their abandoned projects revived following the intervention of their State Assembly-man, Datuk Dr Loh Hock Hun.

The report went on to say that Housing and Local Government Minister Datuk Seri Ong Ka Ting had invoked his powers under Section 11(1)(d) to wind up the project's original developer, after which the buyers formed an ad hoc committee. With Dr Loh's help, the project was completed and the Certificate of Fitness for Occupation (CF) was issued.

Under Section 5 of the Act, every developer must be in possession of a valid licence. If a housing development is undertaken in phases, a licence is required for each phase. Any erroneous or misleading information furnished by the developer when applying for a licence or a renewal is an offence under the 1989 Regulations.

Under Section 6 (which was considerably revamped in 2002), a development company applying for a licence must:

? Deposit a sum of RM200,000 in cash ?or in such other form? with the Controller of Housing;

? Ensure that none of its directors, managers or secretaries have been convicted of an offence involving fraud or dishonesty or is an undischarged bankrupt;

? Ensure that none of the partners (if it is a firm) or directors, managers or secretaries (if a company) have been convicted of an offence under the Housing Development Act, and fined more than RM10,000 or jailed;

? Ensure none of the company's directors have been ?concerned in the management? of a housing development company that has since been wound up by a court; and

? Ensure that the registration of the developer's architect or engineer has not been cancelled under the laws governing the professions.

In short, the Act as revamped in 2002 wants only companies with clean records to be issued with licences.

Under Section 7 of the Act, developers face yet another long list of arduous duties. These include:

  • Exhibiting at all times in its office a copy of the last audited balance sheet, the names and particulars of each person who has control and management of the business of the company; as well as a copy of the developer's licence and advertisement and sale permits;
  • Keeping such records as will sufficiently explain the transactions and financial position of the company;
  • Sending to the Controller of Housing a copy of the auditor's report prepared under Section 9 of the Act;
  • Submitting a statement in the prescribed form to the Controller twice a year, not later than Jan 21 and July 21 of each year, indicating the progress of the projects it is currently engaged in;
  • Informing the Controller if it thinks it is likely to become unable to meet its obligations to purchasers. This duty to inform the Controller continues until CF issuance.

Further duties were added on developers under the amendments to ensure that purchasers get their houses completed in time as stipulated in the SPA, and that their titles and CF are ready. These additional duties are:

  • Informing the Controller of the handing over of vacant possession of houses to purchasers, and submitting certified true copies of their architect's certifications that the construction of the houses have been duly completed and that water and electricity supplies are ready for connection;
  • Informing the Controller if the appropriate authority has refused to accept the submission of any document relating to the issuance of the CF, and to submit this refusal letter to the Controller;
  • Ensuring that a development has been carried out in accordance with the law, and that diligence has been exercised for the issuance of CF and transfer of titles; and
  • Informing the Controller of the progress of the issuance of separate or strata titles for the housing accommodation and the transfer of such titles to purchasers.

Looking at the letter of the law, purchasers should be more than adequately protected and their interests safeguarded. Yet somehow, the housing industry still has plenty of black sheep roaming free to pounce on trusting purchasers.

Next week: The developer's specific duties towards purchasers under the SPA.

Salleh Buang is senior advisor of a company specialising in competitive intelligence. He is also active in training and public speaking and can be reached at sallehbuang@hotmail.com

 

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