In pursuit of the elusive strata title
10/02/2007 NST BY Derek Fernandez

HOMEOWNERS of properties without individual titles are in limbo. Most of them are apartment and condominium owners, whose numbers run into hundreds of thousands.

According to the National House Buyers Association’s website www.hba.org.com, more than 29 per cent of the approximately 30,000 complaints made each year to the Ministry of Housing and Local Government against developers relate to their failure to issue buyers with individual strata titles.

This figure is set to break the 30 per cent barrier this year. Failure to provide the buyer with the basic document of ownership, the elusive strata title, has become a disgrace in the administration of land matters, especially since it has been 22 years since the Strata Title Act 1985 was passed.

Without the strata title, homeowners face substantial problems and added costs in the use and enjoyment of their property.

For starters, they can be held to ransom by unscrupulous developers who choose to profiteer from service and maintenance charges and misuse sinking fund money while providing shoddy services.

Recently, homeowners have complained about this. They also face unjustifiable increases in charges when trying to sell their property when it does not have a strata title, as some developers have been known to demand unreasonable administrative charges and legal fees for "vetting the documents".

More serious, however, are the increased water and electricity rates these homeowners face because they lack an effective body to negotiate with the utility providers on the basis for charges.

The overall lack of transparency in many management companies and breaches of the Housing Developer (Control And Licensing) Act 1966, which requires them to give owners audited accounts, has made the situation intolerable.

It appears that the promises of the glossy advertising brochures have long since been forgotten, after the bitterness of the reality of high-rise property ownership sinks in.

In several cases, the developer’s management company or agent have misused even the sinking fund money, sold off car parks and spent the money allocated for the strata titles for other purposes.

Some developers and their management companies have also gone into liquidation, leaving the homeowners stranded and having to deal with a large number of creditors.

In the past, even electricity and water supply have been cut to apartments because the developer’s management company was unable to pay the electricity bills, even though responsible owners had been promptly paying their charges.

In short, the situation is an absolute mess. Under the present law, until the strata title has been issued, a homeowner’s management corporation cannot be formed and so homeowners cannot effectively deal with these problems.

In fairness, there are some responsible developers who have done a good job, but the present number of complaints suggests the problem is serious.

Despite a 22-year-old law that ma- kes it mandatory for a developer to apply for strata titles within six months of the sale and purchase agreement, the strata title remains the elusive holy grail of high-rise ownership. There appears to be no effective enforcement against offenders of the Strata Titles Act 1985, and impotence on the part of some to make these errant developers accountable.

In addition to prosecution under the Act by the Ministry of Environment and Natural Resources and the blacklisting of errant developers and their directors by the Ministry of Housing and Local Government, money in the housing developers’ accounts for the project should also be seized to cover the cost of the strata titles if, after six months, no proper application is made.

Unless there is genuine will to protect the public, the recent 2006 amendment to the Strata Titles Act 1985, which, among others, increases the penalties against the developer, will fail and it will just be a case of "all bark and no bite".

No doubt the 2006 amendment to the Housing Developers (Control and Licensing) Act 1966, which links the final 2.5 per cent of the purchase price to the issuance of strata title, will help homebuyers of new projects.

But for the rest, the nightmare continues with the hope that the new Building and Common Property (Maintenance and Management) Act 2006, once implemented, will lead homeowners to the "promised land".

The management of apartments and condominiums is very profitable, especially if there is no transparency and accountability. Although Section 21 of the Valuers, Appraisers and Estate Agents Act 1981 prohibits a developer from charging property management fees, some developers have resorted to innovative ways to "milk the cow".

Some of the techniques used are denying access to accounts, charging large directors’ fees, engaging service providers at inflated prices, selling car parks allocated for the public and, in some cases, building on, leasing out and using the common property for private benefit. In cases of commercial property, the whole issue of income from parking charges needs to be looked at.

Many of these actions may violate the law and some may constitute criminal offences under the Penal Code, such as cheating and criminal breach of trust. However, there must be a will to enforce the law.

What homeowners should do, once the new management corporation is formed under the Strata Titles Act or empowered under the Building and Common Properties Act 2006, is to immediately commission a forensic audit of all accounts inherited from the previous management, if the accounts warrant such treatment.

They must make sure that when they take over, everything is fully disclosed and transparent because, in some instances, they end up with a serious cash-flow deficit.

The simplest solution to the strata titles problem, and a solution to most of the homeowners’ complaints, is to make mandatory the 10/90 model for the sale of property governed by the Housing Developers Act 1966.

This means unless the strata title is registered in the name of the buyer, the developer will not be entitled to the balance purchase price. This is quite normal when property with an individual title is bought and sold.

However, there are a lot of "lame duck" excuses as to why this cannot be mandatory, even though most people conduct business on the basis that full payment is made after the job is completed.

It is a joke that when a person has paid the full purchase price for his property, he has not got the strata title after 10 years.

It remains to be seen how effective the amendments and new laws will be in solving this problem. If they don’t work, then the 10/90 model must be made mandatory. Until then, caveat emptor (buyer beware).