News

No Extension of Time for Housing Developers

On 14.5.2019, the Federal Court heard 6 appeals brought by the buyers and the developer of a development known as Kondo Sri Istana (“the Project“). The appeals concerned the decision of the Controller of Housing (“the Controller“) in granting an extension of time to the developer, for its completion of the Project.

The terms of the Sale and Purchase Agreements entered between the buyers and the developer (“the SPA“) were standard terms consistent with the prescribed form of the sale agreement under Schedule H of the Housing Development (Control and Licensing) Regulations 1989 (“the Regulations“). The prescribed form provides, amongst others, for the development to be completed within 36 months from the date of the SPA, failing which the developer would be liable to pay liquidated damages (“LAD“) to the buyers for late delivery, for the period from the stipulated completion date up to the date of actual delivery of vacant possession.

The developer of the Project was unable to complete the same within the agreed period in the SPA and it submitted an application to the Controller for an extension of time for completion and delivery of vacant possession to the buyers pursuant to Regulation 11(3) of the Regulations.

On 24.10.2014, the Controller rejected the developer’s application for such extension of time. Dissatisfied with the Controller’s decision, the developer appealed to the Minister pursuant to Regulation 12 of the Regulations.

On 17.11.2015, the Minister allowed the Developer’s appeal for an extension of time of a period of 12 months. Such extension of time, however, was made by letter dated 17.11.2015 signed by an officer on behalf of the Controller (‘the Impugned Letter“). Pursuant to the Impugned Letter, the time for delivery of vacant possession was extended from 36 months to 48 months.

 

Before the High Court and Court of Appeal

The buyers brought an action for judicial review against the Minister, the Controller and the developer in respect of the decision of the Minister granting the extension. The High Court quashed the decision and held, inter alia, that Regulation 11(3) is ultra vires of the Housing Development (Control and Licensing) Act 1966 (“the HDA“) and the decision in the Impugned Letter was null and void.

The Court of Appeal heard the developer’s appeal. It set aside the High Court’s decision and held that Regulation 11(3) is NOT ultra vires the HDA. However, the Court of Appeal also held that the Controller could not have made a decision on his own as it appears in the Impugned Letter the decision was that of the Controller.

 

The Federal Court’s Decision Both the buyers and the developer appealed to the Federal Court. The Federal Court allowed the buyers’ appeals and dismissed the appeals by the developer, It ruled that:-

(a)  By virtue of section 24(2)(e) of  the HDA, the Minister is empowered by Parliament to regulate the terms and conditions of the contract of sale and is expected to apply his own mind to the matter. Such responsibility cannot be delegated to the Controller despite Regulation 11(3) of the Regulations.

(b)  The Controller has no power to waive or modify any provision in a Schedule H contract of sale.

Regulation 11(3) of the Regulations, which confers power on the Controller to waive and modify the terms and conditions of the contract of sale, is ultra vires the HDA.

The HDA is recognised as a social legislation designed to protect the house buyers.

(c)   The Schedule H contract of sale prescribed by the Regulations is to carry into effect the provisions of the HDA, which is to protect the interests of the buyers. The regulations made by the Minister must thus achieve the object of protecting the interests of the purchasers and not the interests of the developers.

(d)  By granting an extension of time or by allowing modifications to the prescribed terms/conditions of the sale contracts, the Controller had denied the buyers’ right to claim for the LAD, which went against the intention of Parliament to protect/safeguard the interest of the buyers as provided for under the HDA.

 

Significance of this decision

Whilst the apex Court has ruled that the Controller has no powers to grant any extension to a developer for completion of a development, the Federal Court did not express any view as to whether the Minister himself may grant developers such an extension of time as it had found that the Impugned Letter was signed by the Controller with no indication that it was done on behalf of the Minister.

The HDA is only applicable to Peninsular Malaysia (and is extended to the Federal Territory of Labuan through Federal Territory of Labuan (Extension and Modification of Housing Development (Control and Licensing) Act 1966) Order 2010/ P.U.(A) 441/2010 which came into force on 1.1.2011) and to housing accommodations. The standard sale agreement provided for under s. 24 and Schedule H of the HDA is applicable to housing development projects only.

Financiers who finance the purchase of such units and whose security is represented by absolute assignments of rights over such units, would hold such rights to sue for the LAD. In the light of this decision, it is expected that there shall be more requests from purchaser-borrowers to request the financiers to assist them in pursuing the claim for LAD sums.

For further information, please do not hesitate to contact any of us.

 

Yoong Sin Min Partner [email protected]	Chan Kok Keong Partner [email protected]	Tan Gian Chung Partner [email protected].my
Ng Hooi Huang Partner [email protected]	Poh Choo Hoe Partner [email protected]	Samuel Tan Lih Yau Partner [email protected].my
Marianne Loh Suet May Partner [email protected]	Heng Chia Leng Senior Associate [email protected]