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16 February 2021
On 19 January 2021 the Federal Court delivered a landmark decision in PJD Regency Sdn Bhd v Tribunal Tuntutan Pembeli Rumah.(1) The apex court decided that in the event of delay of delivery of vacant possession for Schedule G and H-type contracts under Regulation 11(1) of the Housing Development (Control and Licensing) Regulations (HDR) 1989, the timeframe for calculating liquidated and ascertained damages (LADs) begins from the date of payment of the booking fee, not the date of the sale and purchase agreement (for further details please see "Housing developers beware – Federal Court upholds Faber Union").
This article focuses on PJD's impact on housing developers with respect to their completed and ongoing housing projects under Schedules G and H of the HDR.
It has been a deep-rooted practice for housing developers to collect a booking fee from purchasers – in most cases, many months before the sale and purchase agreement is signed and dated. The Federal Court made this observation in PJD. Prior to PJD, it was presumed that the time to deliver vacant possession, regardless of whether it was 24 or 36 months, started from the date of the sale and purchase agreement and not the date of payment of the booking fee.
PJD leaves no ambiguity as to the date on which the calculation of LADs should start. The Federal Court plainly held that the calculation commences from the date on which the purchaser pays the booking fee to the developer. This leaves developers which have collected such a booking fee exposed if they cannot complete on time.
The questions that the industry now faces are examined below.
Can PJD be applied retrospectively in favour of purchasers' claims for LADs in ongoing and completed projects?
Generally, Federal Court rulings apply retrospectively unless the court invokes the doctrine of prospective overruling to give only prospective effect thereto.
This is illustrated by the high court's decision in Alvin Leong Wai Kuan v Menteri Kesejahteraan Bandar.(2) In this case, the high court judge decided that the Federal Court's decision in Ang Ming Lee v Menteri Kesejahteraan Bandar applied retrospectively (for further details please see "Apex court finds controller of housing's powers to waive or modify provisions of statutory contract invalid"). The judge in Alvin Leong discussed the rule of retrospective and prospective overruling and, having examined Ang Ming Lee, concluded that the Federal Court's decision applied retrospectively.
In PJD the Federal Court did not apply the doctrine of prospective overruling.
Thus, in the absence of an expression that it applies only prospectively, PJD should be understood to also apply retrospectively. The strong emphasis on the Housing Development (Control and Licensing) Act 1966 and its subsidiary legislation, the HDR, being social legislation makes this even more compelling.
Therefore, PJD applies to housing projects which have been completed (ie, vacant possessions delivered before PJD was handed down) and ongoing housing projects (ie, projects for which booking fees have been collected and which are under construction).
Can purchasers which took vacant possession in completed projects prior to PJD now claim against housing developers for LADs for delay of vacant possession counting from the date of payment of the booking fee?
Case law answers this question in the affirmative. That said, claims made in said scenario are still subject to various challenges, such as the limitation period for claims of LADs and relief provided to housing developers under the Temporary Measures for Reducing the Impact of Coronavirus Disease (COVID-19) Act 2020 – the application of which has been extended until 31 March 2021.(3)
Assuming that a purchaser claimed and was awarded LADs by a homebuyers tribunal for a completed project prior to PJD, can said purchaser now claim against the housing developer for remaining LADs counting from the date of payment of the booking fee (if the same is not in its existing claim)?
With respect to LADs claims which have been concluded (ie, claims which a homebuyers tribunal heard and decided prior to PJD and for which the tribunal's award is no longer subject to review or appeal), if the same purchasers bring fresh claims against the housing developers before the tribunal pursuant to PJD, the housing developers may argue that the fresh claims are barred or not within the tribunal's jurisdiction.
As for ongoing claims (ie, LADs claims which are pending before the tribunal), the tribunal's jurisdiction is confined to the prescribed form lodged by the claimant (purchaser) or the written agreement between the parties (reached prior to the lodgement of the claim) which extends the tribunal's jurisdiction. This means that ongoing claims cannot be extended to LADs from the earlier date on which the booking fee was paid if this is not already the subject of a claim before the tribunal.
Extension to deliver vacant possession?
As for housing projects which are under construction, housing developers should be mindful of PJD. The timeframe for delivery of vacant possession starts from the date of payment of the booking fee. Even if all purchasers give written consent to extend the date for delivery of vacant possession, the validity of such written consent is open to questioning as it may amount to contracting out of the statutory safeguards and would be unfavourable to the purchasers, which was pejoratively disapproved of in PJD.
That said, in Ang Ming Lee the Federal Court ruled only that the controller of housing is not empowered to grant an extension for delivery of vacant possession. What about an extension granted by the minister of urban wellbeing, housing and local government?
In Alvin Leong, the judge observed (although it appears to have been in passing) that there is nothing in the HDR which empowers the minister of urban wellbeing, housing and local government to extend or modify the prescribed period for delivery of vacant possession in statutory sale and purchase agreements (Schedules G and H).(4) This observation in Alvin Leong remains to be tested before the appellate courts. As far as ongoing housing projects are concerned, seeking an extension from the minister of urban wellbeing, housing and local government might still be an option for housing developers.
While the dust on the calculation of LADs for housing projects is now settled, the storm may be brewing for housing developers. However, this storm may be calmed or avoided with proper project planning backed by a comprehensive legal strategy.
For further information on this topic please contact Foo Joon Liang or Eri Fu Swee Theeng at Gan Partnership by telephone (+603 7931 7060) or email (email@example.com or firstname.lastname@example.org). The Gan Partnership website can be accessed at www.ganlaw.my.
(3) Further information is available here.
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