Pandemic COVID-19 Lock Down and the Delivery of Vacant Possession – Part One

By Kalaivani Govindasamy Associate
Law chamber of Vin Sa & Ian
Graduated with LLB (Hons) from National University of Malaysia, Kalaivani advises and represents property developers pertaining to real estate and project development. She also advises developers, joint management bodies and management corporations on all matters relating to the Strata Management Act and Strata Titles Act.

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All housing development projects in Malaysia have been stopped since 18th March 2020 when the Prime Minister announced the Restricted Movement Order (MCO). Inevitably, all construction activities must comply with the MCO and suspend all activities on site until the MCO is lifted for this economic sector. This has inevitably resulted in developers possibly facing issues of late delivery of vacant possession to the purchasers due to incomplete projects within stipulated period.

Time essence of a contract under the Sale and Purchase Agreement

In Malaysia, the housing development projects are governed by the Housing Development (Control and Licensing) Act 1966 (the Act) and the Housing Development (Control and Licensing) Regulations 1989 (the Regulations). The Act, being a social legislation designed to protect house buyers, the interests of the purchasers shall be the paramount consideration against the developer. Therefore, parties are bound by the terms  and conditions mentioned in the Schedule G and Schedule H of the Act.

By virtue of Clause 9 of Schedule G and clause 8 of Schedule H of the Act, it clearly states that the time of the contract shall be of an essence in relation to all provisions of the agreement. Further, Clause 26 of Schedule H and Clause 24 of Schedule G provide that vacant possession of the property shall be delivered to the purchaser as follows: –

(i)         under Schedule H of the Act, the vacant possession shall be delivered within 36 calendar months; and

(ii)        under Schedule G of the Act, the vacant possession shall be delivered within 24 calendar months.

In the event, the developer fails to deliver vacant possession within the stipulated period in the SPA, the developer shall be liable to pay to the purchaser liquidated damages calculated from day to day at the rate of ten per centum (10%) per annum of the purchase price from the due date for the delivery of vacant possession until the date the purchaser actually takes vacant possession of the said property/parcel. Since time is of the essence for the developer to perform its obligations such as deliver vacant possession within stipulated time under the Act, otherwise the developer may be exposed to late liquidated damages due to the lock down.

On the other hand, if the developer has completed the property but was unable to deliver the keys to the purchaser due to MCO and the developer’s notice to the purchaser could not been served to the purchaser. According to Schedule G and H of the Act; any notice or letter shall be served by registered post or by hand. Nevertheless, based on these clauses in Schedule G and H of the Act, the developers may be unable to serve the notice to the purchaser during the MCO. Obviously, this scenario is unfavourable to the developers as Schedule G and H of the Act do not have any exemption clause or Force Majeure clause to protect the interest of the developers in cases where there are any unforeseeable circumstances i.e. the MCO prevented developers from fulfilling their obligation under agreement. More so, the Federal Court has decided in the case of S.E.A. Housing Corp Sdn Bhd v. Lee Poh Choo [1982] CLJ Rep 305 that a Force Majeure defence does not apply in the context of a SPA.

In that sense, questions arise on, what are the alternatives available to a developer to mitigate losses due to MCO as there is no exemption clause to protect the developer in Schedule G and Schedule H. Therefore, reference should be made to the legislation to find out whether any potection is available to the developer.

Application for an extension of time for the delivery of vacant possession due to MCO

It is however emphasised that developers are unadvisable to apply for an extension of time under Regulation 11(3) of the Regulations. Under this, a developer is given an option to apply to the Housing Controller for an extension of time for the delivery of vacant possession of a housing development. Regulation 11(3) permits the Housing Controller to “waive or modify” the terms of the SPA where compliance with the SPA becomes “impracticable or unnecessary” due to “special circumstances or hardship or necessity”. Undeniably, COVID-19 pandemic may fall within the circumstances provided in the said Regulation 11(3) of the Regulations which is special circumstances or hardship or necessity compliance with any of the provisions in the SPA is impracticable or unnecessary.

Despite the above, there is a diferring view which I will discuss in the next issue.

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