Federal Court verdict on EOT a welcome relief for homebuyers

By Ranjit Singh

The recent ruling by Malaysia’s apex court that the Housing Controller cannot give property developers an extension of time (EOT) to complete their projects is a positive development for homebuyers.

An EOT is a delay that could not be reasonably foreseen at the time of contract signing. The granting of an EOT relieves the developer from liability of damages, such as liquidated damages, from the original date of contract completion for the period of the claim.

National Housing Buyers Association (HBA) secretary-general Datuk Chang Kim Loong tells FocusM that the Federal Court’s decision is a major victory for house buyers.

“It’s a major victory; for a long time, house buyers were being ‘bullied’ by errant and irresponsible housing developers. We are indeed glad that the Federal Court has made a wise and fair decision for house buyers’ protection in the spirit of the Housing Development Act,” he says.

Chang adds that the lawyers who had represented HBA had fought the case on a pro bono basis for four years.

Real Estate Housing Developers’ Association (Rehda) president Datuk Soam Heng Choon told FocusM on Nov 28 that Rehda would not comment on the matter until it has studied the written judgement and has met the housing and local government (KPKT) minister on Nov 29.

“We will withhold our comments on the issue at this juncture as the written judgement has not been analysed yet, and our meeting with the minister has not taken place as the judgment has far-reaching consequences,” says Soam.

How it started

HBA, representing Kondominium Sri Istana’s 104 homebuyers, had presented three appeals at the Federal Court against the Housing Controller for granting an EOT to the project’s developer, BHL Construction Sdn Bhd.

The case was brought by the homebuyers against the then Ministry of Urban Wellbeing, Housing and Local Government and BHL Construction in July 2016.

The Kondominium Sri Istana development located on Jalan Kuchai Lama was slated for completion in April 2016, which was 36 months from the date of the sale and purchase agreement (SPA).

However, the developer submitted an application to the Housing Controller on Nov 17, 2015 for an EOT for the delivery of vacant possession (VP) on the grounds that there were complaints by nearby residents. There were also stop work orders issued by the local authorities and investigation conducted on the piling contractor. This led to a delay in delivering the VP based on the completion period of 36 months as stipulated in the SPA.

In April 2016, the purchasers received a letter from the developer stating that they were not entitled to be compensated in liquidated ascertained damages as there was an EOT of 12 months that had already been granted.

The buyers then filed a judicial review application in July 2016, challenging Regulation 11(3) of the Housing Development (Control and Licensing) Regulations 1989 as well as the EOT issued on Nov 17, 2015.

Regulation 11(3) confers powers on the controller to waive and modify the terms and conditions of the contract of sale between purchasers and the developer.

On March 30, 2018, the Court of Appeal ruled that the then Ministry of Urban Wellbeing, Housing and Local Government must give homebuyers the right to be heard before developers are given an EOT to complete a project.

But the bench ruled and disagreed with the Kuala Lumpur High Court’s decision, saying that Regulation 11(3) of the Housing Development (Control and Licensing) Regulations 1989 was not ultra vires or against the Housing Development (Control and Licensing) Act 1966.

In delivering the recent Federal Court decision, Chief Justice Tan Sri Tengku Maimun Tuan Mat said that granting extensions or modifications to the prescribed terms and conditions would deny house buyers the right to claim for liquidated damages.

“These modifications and the granting of EOTs to the developer do not appear to protect the purchasers, which militates the intention of Parliament,” she was quoted as saying in allowing the appeal of the 104 buyers.

“As can be seen from the long line of authorities, it is the interests of the purchasers that prevail over that of the developer.”

She adds that EOTs would only determine payment of damages. However, the court did not mention whether the minister could grant an EOT to developers as the point was not raised during the proceedings.

Is EOT being abused?

On Nov 6, KPKT announced that 75.4% of EOT applications by developers from January to July 2019 had been approved. In 2018, the number was 78.15%, while 67.8% of EOT applications were allowed in 2017.

After KPKT’s announcement was made, Chang has hit out at the current government for continuing what he calls a “Barisan Nasional-era” practice of giving property developers EOTs without justified and valid reasons.

He says under the statutory SPA, housing developers are supposed to complete a unit and hand over the keys to a buyer within 24 month (for landed property) to 36 months (for stratified property) of the signing of the SPA, failing which they will have to pay 10% per annum compensation in liquidated ascertained damages to the buyer.

Chang states that the delivery date can be extended without the need to pay compensation if the developer can get an EOT from the Housing Controller or the KPKT minister due to “special circumstances”.

“We are disappointed that the ministry has approved 75% of EOT applications between January and July this year and 78% of EOT applications in 2018,” he says.

PPC International Sdn Bhd executive director Datuk Thiruselvam Arumugam says an EOT can technically be granted if there is no contract or SPA signed.

“If there are no sales, then there is no impact to anyone and the developer should be able to delay its project in order to re-strategise its marketing policies or strategies in order to secure buyers,” he tells FocusM.

In the first place, marketability studies should have been done before the commencement of the project, but since it was not completed on time, an EOT can be used to re-strategise, he adds.

However, he says it will be a worrying issue if there are sales and buyers locked in.

“The government should not grant any EOT because it can burden the purchasers. Any excuses given should have been anticipated before the start of the project.

“Moreover, their cost of purchase will increase since they have to incur additional interest to be paid to their financiers as well as their loan tenure. If they don’t own a house then they will be paying rent for a longer period together with the interest.”

He advises buyers to be cautious of the completion date stated in SPA. “The buyers must always check with the developer on the completion date and if EOT is granted before the sales. Then it is the decision of the buyers to proceed with the sales, provided that the buyers are notified about the completion date.”

Impact of construction delay

Recently, KPKT in a written reply to a query in the Dewan Rakyat cited that the reasons for EOT applications include local council restrictions on permitted hours, abiding by infrastructure requirements such as the integrated water supply scheme, high-rise design of the building and additional earthworks.

Other reasons mentioned were the need to construct podiums and basements, and considerations over the location of a project, including restrictions due to proximity to schools.

Although the law did not specify the “special circumstances”, Chang says poor planning and project management should not be seen as a special circumstance but as “incompetence”.

“If there is an event of force majeure, earthquake or civil commotion, then yes, those are reasonable, but if a developer does not do its homework properly, then house buyers should not be denied their rights to compensation,” he says.

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