ART_Lacunae in STA 1985

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1993] 2 MLJ xvii; [1993] 2 MLJA 171993 2 MLJ xvii; 1993 2 MLJA 17

1993Article: LACUNAE IN THE STRATA TITLES ACT 1985 AND SCHEDULE H OF THEHOUSING DEVELOPERS (CONTROL & LICENSING) REGULATIONS 1989Stephen Sya Lieng

Siew, LLB (Hons)(Sing) Advocate & Solicitor, High Court of Malaya

[*17]

In view of the many learned treatises and the relatively rich case law on this subject, I

propose for the purposes of this paper, to focus on the practical legal problems faced by

both purchasers and developers of subdivided buildings alike. The main problems

confronting purchasers of such buildings, in my view, are:

(1) delay in the issuance of strata titles;

(2) developers subjecting the main title to further encumbrances before issuance of strata

titles;

(3) buildings or facilities not being built according to expectations or specifications; and(4) management problems particularly the issue of enforceability of by-laws.

I shall examine whether and how the Strata Titles Act 1985 and the Housing Developers

(Control & Licensing) Regulations 1989 addresses these problems (if ever). After attempting

a full discussion of these issues, I shall, in the course of this paper, propose legal solution

including a call for legislative intervention to resolve any lacunae or gaps (if any) in the

existing legislation.

Strata titled developments are a relatively recent phenomenon in Malaysia. Although

proving increasingly popular, this form of development brings with it certain practical

problems that are usually not faced by purchasers of bungalows, link or semi-detached

houses. First, purchasers of strata titled developments have to contend with the problem of

living in harmony with fellow residents whilst sharing common facilities. Secondly, they have

to face the reality that they will not get the title to their parcel for some time.

Delay in the issuance of strata titles

The long delay in the issuance of strata title is a well known phenomenon in this country.

Many reasons and various parties have been blamed for this. Whatever the case, all parties

involved in the process must fulfil their roles for the good of the public. It would be ideal to

have the process sped up and for strata titles to be issued at a much faster pace than they

presently are.

However, with the present situation, how does the purchaser of a sub-divided building effect

a resale of his parcel in the absence of a strata title? [*18The] legal document such a

purchaser would use would be a deed of assignment. This deed purports to assign all his

legal and beneficial rights under the original sale agreement to the new purchaser.


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Since there is no title and therefore no provision for registration with a land registry, what is

to stop an unscrupulous purchaser from engaging in multiple resale transactions, ie he sells

the same parcel to two or more parties. Again, what if the developer sells the same parcel

twice by mistake.

To prevent this, lawyers normally require the consent of the developer before the balance

purchase price is released. This was a standard clause in all sale agreements before reg

11(1) 1came into effect.

Regulation 11(1) reads:

Every contract of sale for the sale and purchase of a housing accommodation together

with the subdivisional portion of land appurtenant thereto shall be in the form prescribed in

Schedule G and where the contract of sale is for the sale and purchase of a housing

accommodation in a subdivided building, it shall be in the form prescribed in Schedule H.

In prescribing Sch H as the only statutory and standard sale and purchase agreement, thelegislature was responding, in typical knee jerk fashion, to a situation where developers

were drawing up all kinds of contracts with vastly differing terms. Some contained terms so

onerous that there was a call for a standard form sale agreement.

Although the intention was laudable, reg 11(1) and Sch H unfortunately contains several

lacunae.

First, it is highly disturbing that the requirement for the developer s consent before a

purchaser can assign his parcel (a safeguard clause contained in all sale agreements before

Sch H) had disappeared in Sch H. This lacunae alone, has led to a proliferation of remedial

measures with lawyers and developers drawing up separate documents such as deeds ofmutual covenants, supplemental agreements, etc to preserve the requirement for the

developer s consent to be obtained before the property can be assigned. However, one

wonders whether such side agreements are valid or even enforceable in view of reg 11(1) s

clear and unequivocal language.

Schedule H should therefore be amended to make it mandatory for consent to be obtained

from the developer before the purchaser can assign his parcel. By the same token, its

neighbour Sch G, which relates to the sale of houses, should also be amended for the same

reasons

To tackle the problem at its roots, however, we have to resolve the problem of delay in theissuance of strata titles.

Clause 10(1) 2of Sch H attempts to do this by requiring the developer to apply at it s own

cost and expense, for subdivision of the building so as to obtain a separate title under the

Strata Titles Act 1985. However cl 10(1) is silent as to the time frame within which the

developer must make the application. [*19The] Strata titles Act 1985 is not of much help

either. Section 7 of the Act appears to make it optional for the proprietor of any alienated
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land and which there is any building capable of being subdivided to apply for subdivision.

Section 7 reads;

The proprietor of any alienated land on which there is any building which is capable of

being subdivided under section 6, may subject to the provisions of this Act, apply for the

subdivision thereof to the Director.

In fact, s 8 of the 1985 Act exacerbates the problem further by referring to a completed

building .

Section 8(1) reads:

The proprietor of any alienated land on which there is a completed building capable of

being subdivided under Section 6 shall, within the period specified in subsection (2), apply

in accordance with Section 10 for the subdivision of the building if at any time he has sold

or agreed to sell any parcel in such building to any person.

We must remember that s 8 of the 1985 Act which has its origin in the former s 151A of theNational Land Code 1965 was aimed at curbing the then prevailing and undesirable practice

of some developers not to apply for strata titles even after the building was completed. Lack

of separate strata titles meant that purchasers were not legal owners but mere beneficial

owners. This enabled some less scrupulous developers to use the building that were not

fully sold as collateral for further loans by charging the main title. To the further detriment

of purchasers, financial institutions declined their individual parcels as collateral for loans as

the purchasers were not, strictly speaking, legal owners. Section 8 therefore sought to

compel all developers of completed buildings so long as they have sold or agreed to sell any

parcel in such building, to apply for subdivision of the building within six months from the

date of the first sale or agreement.

The use of the phrase completed building in s 8(1) gives rise to difficulties of interpretation.

Does it mean that only if the building is completed need the proprietor apply for subdivision

even though the first sale or agreement to sell which was later than 1 June 1985 took place

more than six months before the building was completed? To remove any such ambiguities

which may arise on an interpretation of s 8(1) and (2) of the 1985 Act, a new section should

be added to supplement s 8 or s 8 itself amended to remove the ambiguity. 3

Alternatively, guidance may be had to the former s 151A(2)(i) of the National Land Code

1965 in which case the application for subdivision would have to be made within six months

from the date of completion of the building. This latter interpretation is to be preferred in

view of the requirements laid down in s 9(a) and (b) of the 1985 Act.4

One can quite understand the concern of the authorities to ensure that the building is

constructed in accordance with the plans and specifications before approval for subdivision

is given. However the present situation of long delays before the issuance of strata title

cannot be accepted. [*20]

To achieve a lasting and sustained solution to this problem of delays in the issuance of


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strata titles, a way to overcome such delays would have to be found. One way, it has been

suggested, is for qualified strata titles to be introduced in the same way that qualified titles

for houses are issued. This would be a temporary title issued upon approval of building

plans or even upon certificate of fitness for occupation being issued pending the issuance of

the final strata title once the Director of Lands and Mines is satisfied that the conditions

specified in s 9 have been complied with.

Another way is to amend s 7 5of the Strata Titles Act 1985 to make it mandatory for all

developers of multi-storeyed buildings (whether intended for sale or not) to apply for

subdivision and strata titles within a statutorily prescribed time frame.

Restrictions against further encumbrances

As discussed earlier, another common complaint made by purchasers relates to the

undesirable practice of some developers to offer buildings which has been partially sold ascollateral to secure further loans by charging the main title. This was possible due partly to

ignorance and partly to the blind insistence of financial institutions here for titled collaterals.

As strata titles had not been issued, the purchasers were mere beneficial owners and not

legal owners. Such developers could charge their main title with impunity on the basis that

they have still not sold some parcels and since the building had not been subdivided yet, the

developers remain the legal owner of the title.

To overcome this and to prevent such abuse, many lawyers resorted to lodging private

caveats to block further transactions.

The legislature has not been idle either. Clause 2 of Sch H6

expressly prohibits thedeveloper from subjecting the land to any further encumbrances without the prior approval

of the purchasers. The developer also has to undertake that the parcel shall be free from

encumbrances immediately prior to the handing over of vacant possession to the

purchasers.

Clause 2 reads:

The Proprietor and the Vendor shall not immediately after the date of this Agreement

subject the said Land to any encumbrances without the prior approval of the Purchaser and

the Proprietor and the Vendor hereby undertakes that the said Property shall be free from

encumbrances immediately prior to the handing over of vacant possession of the said

Building to the Purchaser.

At first impression, cl 2 appears to have plugged the loophole of developers subjecting the

land to further encumbrances.

However, a closer examination will show that the drafting of cl 2 leaves much to be desired.

It may still be argued that the clause as it stands only prohibits the developer subjecting the

land to further encumbrances only for the period immediatelyafter the date of execution of


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the sale agreement. [*21So] long as the developer were to remove the encumbrances

immediately prior to the handing over of vacant possession to the purchasers for the

specific parcel, the developer may not have contravened cl 2 even if he were to subject the

main title to further encumbrances after a lapse of time from the date of the sale

agreement.

Such ambiguity could lead to confusion. Even worse, it could lead to abuse. Perhaps if a

comma were to be inserted after the phrase the Vendor shall not the meaning of cl 2 would

become clearer, ie immediately after the agreement is executed the developer cannot

subject the land to further encumbrances. 7However, as things stand, we are bound by the

language of the Parliamentary draftsman. Therefore, unless and until cl 2 is amended and

tidied up, lawyers will attempt to continue lodging private caveats on behalf of their

purchaser clients. On the other hand, the Supreme Court s decision in Tan Heng Poh v Tan

Boon Thong & Co, 8that a caveat expressed to building the whole land would be invalid if

the party lodging the caveat has an interest in only a portion of the land, has further

complicated the issue.

To counter this, most developers resort to inserting a clause in deeds of mutual covenants

expressly prohibiting the lodgement of any caveat against the master/main title or block

title to the parcel.

However, as pointed out earlier, the legality of all supplemental agreements conflicting with

Sch H are suspect in the light of reg 11(1).

Building and facilities not built according to expectations and specifications

A frequent source of conflict arises from differing perceptions of structural, or architectural

finishes for both the parcel and the common facilities.

Common marketing devices employed by developers include the use of glossy brochures,

artist impressions and perspectives as well as scale models. Whilst these marketing tools

play a large part in influencing the purchasers decision to buy, they do not form in any way

part of the contract between the developer and the purchaser.

Schedule H only ties the developer down to the location and level of the parcel and the

building design and specifications within the parcel together with the common facilities.

Clause 12 of Sch H9

only requires the developer [*22to] construct the parcel and thecommon property in accordance with the very perfunctory specifications in the fourth

schedule. Clause 15 enjoins the developer to construct the common facilities and provide

maintenance services according to the second schedule thereto

Practical experience tells us that most of the specifications listed in the fourth schedule and

the second schedule are inserted by the developers themselves and are, at best,

perfunctory.
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The saving grace is however found in cl 12 of Sch H where the developer is required to

adhere to the plans approved by the appropriate authority over and above the specifications

in the fourth schedule thereto.

Perhaps, Sch H should at least emulate Sch G which is used for the sale of houses. ScheduleG requires front, back and side elevations together with a section plan. The same can be

done for Sch H to protect the buyer from architectural omissions. Besides the finishes of the

parcel itself, Sch H should also provide for some of the finishes of the common facilities.

Management problems - by-laws

Regulation 11(1), 10in prescribing Sch H as the only agreement that purchasers and

developers could enter into, had led the legislature to overlook the issue ofmanagement,

a very important and crucial aspect of condominium living.

A close examination of Sch H will evince the alarming fact that, apart from cl 27, Sch H is

virtually silent on the by-laws for the purchasers to abide by and the management to

enforce. Without by-laws, the potential for anarchy is omnipresent.

Clause 27 by itself is too specific to be of much use. It relates only to the use, without or

with vehicles of every description ... to pass and repass along, over and upon all roads

serving the said development ... and to use in a proper manner the drains, pipes, cables

and wires laid or constructed by the Vendor ... . 11Thus even though cl 27(2) 12requires

the developer to undertake that subsequent purchasers should enter into similar covenants,

the clause itself renders the covenants virtually trapped by its very restrictive drafting, iethe covenants can only relate to the use and enjoyment of the roads, drains, pipes, cables

and wires in the development. No mention is made of the perils of unrestrained human

behaviour. What happens if some purchasers decide to hang out long and unsightly laundry

poles, keep domestic pets or party late into the night with loud music? [*23]

Perhaps the legislature was of the impression that such by-laws have been covered by the

Strata Titles Act 1983. Indeed, at first reading, s 44(1) 13of the 1985 Act appears to

prescribe by-laws as laid out in the third schedule of the same Act. In fact s 44(2) even

goes so far as to give the management corporation the flexibility to make additional by-

laws or make amendments to such by-laws .

However, on closer scrutiny, the third schedule by-laws cannot come into force until the

opening of a book of the Strata register . 14For all practical purposes, therefore, these by-

laws can only take effect after the issuance of strata titles which, we are well aware, could

be many years down the road.

So what happens in the meantime? Many developers resort to requiring all purchasers to

execute the often mentioned deed of mutual covenants containing, inter alia, by-laws
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loosely borrowed from the third schedule of the 1985 Act. However as we have discussed

earlier, such deeds may not be legally enforceable because of reg 11(1). 15

Proponents of the deed of mutual covenants, so popularly used nowadays, may argue that

reg 11(1) only precludes amendments to the provisions of Sch H. Since the deed is a

separate instrument and relates only to management issues (having nothing to do with thesale), the parties are free to execute such deeds in the absence of a clear prohibition by reg

11(1).

In my view, as the courts have yet to make a ruling on this issue, caution should be

exercised here. Developers would be well advised to invoke reg 11(3) 16and write to the

Controller of Housing to incorporate their deeds of mutual covenants as a modification or

waiver of the provisions of Sch H. The Controller may or may not grant the certificate as he

may feel that reg 11(3) is limited strictly to special circumstances, hardship or necessity

(sic) compliance with the provisions of Sch H. Thus he may consider modification for the

purposes of regulating management problems outside the ambit of his discretion as

defined by reg 11(3).

Legislative intervention is therefore clearly required here. The Strata Titles Act 1985 should

be amended to bring forward the operation of the third schedule by-laws to the date of the

handing over of vacant possession [*24of] the parcels instead of after the opening of the

strata register. The jurisdiction for enforcing these by-laws should be given to the developer

pending the issuance of strata titles and the formation of the management corporation.

After all, s 62(1) of the Strata Titles Act 1985 appears to have anticipated this problems by

making an exception for lower cost subdivided buildings.

Section 62(1) reads:

The by-laws set out in the Third Schedule shall during the period before themanagement corporation comes into existence, have effect in relation to every

subdivided low-cost building and shall apply by substituting for the word corporation

wherever it appears the words original proprietor .

Therefore in the case of low-cost subdivided buildings the developer is given the power to

enforce the third schedule by-laws even before the issuance of strata titles and the coming

into existence of the management corporation.

It is difficult to fathom why the legislature should make an exception only for low cost

developments. The problem of delay in issuance of strata titles and consequently non-

formation ofmanagement corporation is an industry-wide problem affecting virtuallyevery type and level of development from condominiums, shop offices to medium cost

apartments.

Perhaps, s 62(1) could be amended to delete the reference to low cost subdivided buildings

and, to extend the third schedule by-laws to all subdivided buildings of every description

irrespective of cost. In view of the many completed subdivided buildings still without strata

titles, this amendment would have to be given restrospective effect.


8/9

Return to Text

n 1Regulation 11(1) of the Housing Developers (Control & Licensing) Regulations 1989.

n 2Clause 10(1) of Sch H reads: The Vendor shall, at its own cost and expense, apply for

subdivision of the said Building so as to obtain the issue of a separate strata title to the said

Parcel under the Strata Titles Act 1985.

n 3See Strata Titles in Malaysia by Teo Keang Sood (Butterwoods) at p 10.

n 4Ibid at p 10.

n 5Section 7 reads: The proprietor of any alienated land on which there is any building

which is capable of being subdivided under section 6, may subject to the provisions of this

Act, apply for the subdivision thereof to the Director.

n 6Clause 2 of Sch H of the Housing Developer (Control & Licensing) Regulations 1989.

n 7See Halim Abdullah, Everything the Condominium Developer Should Have Told You But

Didn t.

n 8[1992] 2 MLJ 1.

n 9Clause 12 reads: The said Parcel together with all the common property shall be

constructed in a good and workmanlike manner in accordance with the description set out in

the Fourth Schedule hereto and in accordance with the plans approved by the Appropriate

Authority which description and plans have been accepted and approved by the Purchaser,

as the Purchaser hereby acknowledges. No changes in writing of the Purchaser except such

as may be required by the Appropriate Authority. The Purchaser shall not be liable for thecost of such changes or deviations and in the event that the changes or deviations involve

the substitution or use of cheaper materials or the omission of works originally agreed to be

carried out by the Vendor the Purchaser shall be entitled to a corresponding reduction in the

purchase price herein or to damages in respect thereof.



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n 11Paraphrased and abbreviated.

n 12Clause 27(2) reads: The Vendor hereby undertakes that the purchasers of parcelscomprised in the said housing development shall enter into similar covenants and hereby

further undertakes to ensure that in the event of any transfer of the said Parcel from the

Purchaser to a subsequent purchaser the latter shall undertake to be bound by the

covenants of this clause which shall continue to apply notwithstanding the completion of the

sale and purchase agreement.

n 13Section 44(1) reads: The by-laws set out in the Third Schedule shall, as and from the

opening of a book of the strata register be in force for all purposes in relation to every

subdivided building and shall not be amended by the management corporation. Section

44(2) reads: The management corporation may be special resolution make additional by-laws, or make amendments to such additional by-laws, not inconsistent with the by-laws set

out in the third Schedule, for regulating the control, management, administration, use and

enjoyment of the subdivided building.

n 14Vide s 44(1).


n 16Regulation 11(3) reads: Where the Controller is satisfied that owing to special

circumstances or hardship or necessity compliance with any of the provisions in the contract

of sale is impracticable or unnecessary, he may, by a certificate in writing, waive or modify

such provisions.

LOAD-DATE: 11/06/2009

ART_Lacunae in STA 1985

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