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Developers not allowed to charge above RM500 administrative fee

The developer should not arbitrarily impose an exorbitant administrative fee and benefit itself for its own neglect in applying for the strata title.

It is not uncommon for a developer to impose, contracted or otherwise, administrative charges in giving its consent to any resale, transfer or assignment of rights for property purchase pending the issuance of a separate strata title. Such consent is required as a result of the developer’s neglect in applying for or obtaining the strata title after the completion of the building.

However, referring to the case of Samuel Naik Siang Ting v Public Bank Bhd (2015) 6 MLJ 27, the Federal Court ruled:

That the proprietor, after having entered into the sale and purchase agreement (SPA) and having received the purchase price, becomes a bare trustee, and as such, is not permitted to deal with the lots.

Datuk Chang Kim Loong

We are in agreement with the Court of Appeal that the subsequent sale, transfer or conveyance of the lot to Samuel was void ab initio, as the proprietor did not have any legal or requisite capacity to enter the agreement.

It is an established principle of law that a developer becomes a bare trustee upon receiving the full payment of the purchase price from the buyer. This basically means the developer has vested all its rights and interests to the purchaser and no longer has beneficial interest in the property. It is merely holding the property on trust for the benefit of the purchaser pending the issuance of the separate strata title, which the developer is obligated to apply for. As such, upon full payment, the purchaser is not liable to pay any administrative fees, as he no longer owes any obligation to the developer. 

The developer should not arbitrarily impose an exorbitant administrative fee and benefit itself for its own neglect in applying for the strata title. Any discretion must be exercised in good faith, rationally and not arbitrarily or even be abused, because the purchasers would then be at the mercy of the developers through no fault of theirs.

Landmark decision by Court of Appeal

In a Court of Appeal ruling of KAB Corp Sdn Bhd & Anor v Master Platform Sdn Bhd 752 (2019) 6 MLJ, the panel of judges, comprising Justice Datuk Vernon Ong, Justice Datuk Harmindar Singh Dhaliwal and Justice Datuk Has Zanah Mehat, was unanimous in its decision, verbatim:

We are of the view that the defendant had exercised its discretion unreasonably when it imposed the flat 1% rate for the administrative fee. The defendant failed to take into consideration that the work of updating the records was the same irrespective of the value of the transaction. At any rate, even if the value of the properties has appreciated considerably over time, the benefit accrues to the purchasers who have already paid the purchase price in full. Rather, the defendant was obliged to ensure that the strata title, once issued, was duly registered in KAB’s name, and until then, it had to maintain the records.

… that not only must the discretion be exercised honestly and in good faith but, having regard to the provisions of the sale and purchase agreement (SPA) and the house rules, it must not be exercised arbitrarily or unreasonably.

We are of the view that a nominal administrative fee of RM500 is fair and reasonable.

The appeal was filed by KAB Corp Sdn Bhd (KAB) and its related company Impiana Sdn Bhd, against their developer, Master Platform Sdn Bhd (MP).

According to the facts of the case, in 2015, the owner of the property concerned, KAB, had sought consent from MP, being the master title holder to the said land, to assign the property to a bank for additional revolving credit facility for the benefit of Impiana.

MP then had only agreed to offer its consent if KAB paid a sum of 1% equivalent to the facility sum, which worked out to be RM65,000, even though there was no stipulation for such a rate in the agreement.

Both KAB and Impiana then filed a suit which, among others, sought a declaration that the imposition of RM65,000 was exorbitant and excessive, and further for a declaration that any administrative fee imposed by MP should be nominal.

The developer contended it had always been the market practice to impose administrative fees to purchasers where the separate titles to the respective properties had yet to be issued in the name of buyers, such as shoplots, office premises and condominiums.

In the landmark ruling, the Court of Appeal said that developers or subsequent holders of master titles for land plots cannot unilaterally impose excessive and exorbitant fees where their consent is required for any resale, transfer or assignment of rights for properties purchased pending the issuance of separate strata titles.

Jo Ee, Chang

RM500 fair and reasonable 

In the case of Lim Seang Mee v Keepahead Holdings Sdn Bhd (1993) 2 AMR 51:3553, the decision pronounced in Penang High Court by Justice Mohamed Dzaiddin (who retired as the Chief Justice of Malaysia and was bestowed the honorific of Tun) was of the view that the developer is merely required to endorse its consent in the deed of assignment and to undertake to deliver the strata title and a valid memorandum of transfer.

As such, the developer was not entitled and had no legal rights to charge the plaintiff fees amounting to RM2,000, which was inordinately high. A fair and reasonable amount should be a sum of RM500 for administrative fees.

On Nov 1, 1993, the Supreme Court, in an oral judgment, upheld the decision of the trial judge.

Liquidators are de facto developers

Pursuant to Section 3 of the Housing Development (Control & Licensing) Act 1966 (amended), the definition of “housing developer” extends to include “a person or body appointed by a court of competent jurisdiction to be the provisional liquidator or liquidator for the housing developer”. In an occasion where the developer is wound up before the fulfilment of its duties and contractual obligation towards the purchasers, a liquidator is to be treated as a substitute to “housing developer” to fill in the void, such as completing the construction of the building or facilities, delivering vacant possession or applying and distributing individual or strata titles. 

With such an amendment made, the duties and responsibilities imposed on a liquidator will be subjected to the Act and may be held accountable for breach of duties of a “de facto housing developer”. Currently, there are liquidators who impose exorbitant administrative fees up to 2% or 3% of the purchase price on purchasers to carry out their duties of a de facto housing developer. A liquidator should be forbidden to charge or impose any additional administrative fees which may appear unreasonable, unfair and oppressive as the liquidators are expected to perform something which are required under the law anyway and should not be entitled to more. A liquidator should not unjustly enrich themselves through benefits which they aren’t entitled to. Unilateral imposition of such fees is devoid of legal basis.

Protection for commercial property owners

Due to the fact that there are currently no statutory protections given to owners of commercial buildings, these cases mentioned above act as some form of insight of their entitlements and the restrictions on the fees which can be levied by developers. Furthermore, developers may no longer be entitled to benefits from their failure or neglect to apply for strata titles.

Ironically, there will still be lacuna in the law without legislative intervention and the only way the owners could obtain remedy is by going through litigation through our courts of law, which is often costly and time consuming.

It should be noted that in deciding whether the imposition of administrative fee is reasonable, the developer needs to satisfy the “reasonability test”. Hence, developers, be they real or de facto, cannot exercise their discretions in mala fide (bad faith) and unilaterally impose excessive and exorbitant administrative fees.

MDI to play a more significant role

The Malaysian Department of Insolvency (MDI) has an excellent expressive website with a policy statement and commitment inter-alia:

Vision: To be the leader in insolvency management through efficient and dynamic administration, services and enforcement.
Mission: To manage insolvency affairs with integrity, fairness and professionally to secure and balance the interest of customers in order to minimise the impact of financial management failure.

Objectives:
Strengthening the administration, services and enforcement of the insolvency management
Strengthening the application and the implementation of the insolvency laws
Strengthening the ability and capacity of MDI
Strengthening co-operation and strategic partnerships

HBA has dealt with MDI, where the latter acted as official liquidators of defunct real property developers in cases of “verification exercise”, “distribution”, “transfer” and “sign off”. MDI is quite proactive because the process is merely procedural and administrative in natureIt should continue to keep up its efficiency and productivity to achieve its long-term mission statement.

Do you know that MDI actually charges the fair and reasonable fee of RM500 for the same process? MDI terms it as Gaji Pelikuidasi (Liquidator’s Wage).

This article is intended to offer an insight of the case authorities and is not intended to be nor should it be relied upon as a substitute for legal or any professional advice.

This article is jointly written by Datuk Chang Kim Loong, Hon Sec-Gen of the National House Buyers Association (HBA) and Jo Ee, Chang, Bachelor of Law (Hons) University of Essex.

HBA could be contacted at: 
Email: info@hba.org.my Website: www.hba.org.my . Tel: +6012 334 5676
 

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