Dilemma in mixed development schemes
By Chang Kim Loong |   |  Featured, Property

Recently, on May 22, leave to appeal to the Federal Court was rejected and the Court of Appeal’s decision remains intact which means that a joint management body (JMB) is not allowed to apply different rates of charges despite having different components and common facilities given exclusively to a certain component.

With the said decision, we foresee there will be a large disruptive impact to a mixed development with multiple components, since now every owner is to pay a “single rate” to the JMB regardless of whether you enjoy or have access to the common facilities or not.

This is utterly unfair especially to low- and medium-cost parcel owners who are unable to enjoy or have access to the facilities used by the high-end owners in cases where there is one single JMB on a mixed development.

A strata owner should only pay for what he is entitled to use

We at the National House Buyers Association (HBA) are steadfast and unwavering in our views that there should be variable rates for mixed development schemes.

Mixed developments involve issues extending beyond the mere use of parcels and the factors enumerated in the formula contained in the First Schedule of the Strata Management Act 2013 (SMA 2013).

There are situations where even between parcels of the same use and with the same characteristics, the costs of maintaining such common areas could still vary.

This is because certain common property including facilities in such mixed-use strata development may not be shared in use equally by the components in a strata development (that is: there is exclusivity of use of certain designated parts of the common property to only one or more components but not all the components).

Furthermore, the Court of Appeal’s decision fails to appreciate the differences between en bloc parcel (a block with a single strata title) and multiple parcels (a block with multiple strata titles).

For example, an en bloc office parcel block could have little or no common area at all within its own block and it may be unfair to require the en bloc parcel block owners to foot the bill for maintaining the common facilities located in residential towers, such as swimming pool and gym.

A point to note is that the apartments and offices shared the same weight in computing share units.

Above all, the overriding principle in determining maintenance charges shall be that an owner only pays for what he is entitled to use and vice versa.

The allowance of different rates during management by the JMB will provide for flexibility, and of course, safeguards must be put in place to ensure that this mechanism is not being abused.

The rates of maintenance charges must be sanctioned by general meetings, and preferably with the passing of special resolutions.

When the SMA 2013 allows for the imposition of different rates of maintenance charges for developments managed by the management corporation (MC), the same shall be applicable to developments managed by the JMB unless there are valid justifications not to do so.

After all, the JMB is merely the precursor of the MC and will be succeeded by the MC once the strata titles are issued.

The spirit of the law is to have a smooth transition from the JMB stage to the MC stage and not to create confusion and dire ramifications.

How will JMBs be affected with this ruling?

The case in the limelight at the Court of Appeal is Menara Rajawali: a stand-alone mixed-use strata scheme in a single building block where facilities are shared in common by all parcels in the strata development. Hence, the uniform flat rate of maintenance charges apply fairly and reasonably well to all the parcels based on their allocated share units.

Generally, mixed-use strata schemes are very diverse in nature with regard to their development sizes, components mix, numbers of building blocks and large en bloc parcel blocks.

For the large and diverse mixed-use strata schemes where high-maintenance common facilities are exclusive to certain component or components only, the uniform flat rate of maintenance charges cannot be applied as it will be unfair to the other components which do not enjoy such common facilities. This may be further complicated by large en bloc block parcels in the mixed-use strata scheme. The allocated share units generated by the standard share unit formula in the First Schedule of the SMA 2013 or the Fourth Schedule of the Strata Titles Rules, as the case may be, will not be able to provide for a fair and reasonable uniform flat rate of maintenance charges in such cases.

Some of the JMBs in such large and diverse mixed-use schemes have passed “special resolution” under Section 32 of SMA 2013 in conjunction with the statutory by-law 4 of Strata Management Regulations 2015 (SMR) to grant exclusive use of designated parts of the common property to a particular component and thereby restricting such use from other components.

Thus, such JMBs, in our humble opinion, should be allowed to continue with their different rates of maintenance charges that have been approved at the AGM/EGM as fair and reasonable maintenance charges to the different components based on an approved rational operating budget. But, we stand corrected with other differing views.

Perhaps other JMBs of large diverse and complicated mixed-use strata schemes may want to emulate the abovementioned JMBs in their pragmatic approach to seek maintenance charges that are rational, fair and reasonable to their diverse components. However, they (JMBs) should seek independent legal advice prior to such undertaking.

Legislation intervention needed

It is pertinent to note that Section 60 of SMA 2013 allows different rates of maintenance charges for the MCs of mixed-use strata schemes.

KPKT and JKPTG have to quickly look into amending SMA 2013 and the Strata Titles Act to resolve the present dilemma of such large diverse and complicated mixed-use strata schemes, to offer clarity and in no uncertainty.

The minister may have to pass a new set of SMR to even differentiate between “residential” and “commercial” areas.

Real examples of the current dilemma:
(1) Mixed-use strata scheme comprising high-rise condominium blocks with low- and medium-cost flats.
(2) Mixed-use strata scheme comprising high-rise condominium blocks with exclusive facilities and land parcels of linked terrace houses without facilities.
(3) Mixed-use strata scheme comprising retail mall, hotel, office, apartments and en bloc retail car park parcels.
(4) Mixed-use strata scheme comprising high-rise towers of multiple office parcels, en bloc retail mall podium and en bloc three-storey shop parcels fronting access road.
(5) Mixed-use strata scheme comprising high-rise block of office parcels and en bloc block of hotel.

Datuk Chang Kim Loong is the honorary Secretary-General of the National House Buyers Association (HBA), a non-government and not-for-profit organisation wholly manned by volunteers.

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