Introduction

This Write-Up considers the recent decision of our High Court in the case of PERBADANAN PENGURUSAN 3 TWO SQUARE V 3 TWO SQUARE SDN BHD 2020 1 LNS 1377

Brief Facts

1. 3 Two Square is a mixed development consisting of 6 commercial blocks owned by the various owners/purchasers.
2. The Developer of this project is 3 Two Square Sdn Bhd
3. The Developer owns the last block of this project at Block F.
4. The Management Corporation of this project is Perbadanan 3 Two Square.
5. It was the case of the Management Corporation that the Developer had failed to make it’s payments in respect of the sinking fund charges and maintenance payments over several years and this amounted to a colossal sum of RM 4,751,805.52 as at 31st October 2019.
6. The Developer disputed the validity of the sums claimed and proceeded to file it’s Statement of Defence and Counter-Claim.
7. Pursuant to Regulation 31 of the Strata Management (Maintenance and Management) Regulations 2015, the Management Corporation had issued two (2) statutory Notices for payment in Form 20.
8. The Management Corporation then proceeded to issue a letter notifying the Developer that the areas of payment had not been settled.
9. In that same letter the Management Corporation suspended the usage of common facilities pursuant to it’s statutory powers under By-Laws 6(5) of the Third Schedule of Regulations 2015.
10. The suspension of services of the usage of the common facilities which was to continue, until the Developer settled the arrears as demanded by the Management Corporation were as follows:-


1. the limited usage of the lifts for Block F to only 1 unit at any given time and;
2. That all the toilets in every floor on Block F were closed with the exception of the toilet on the 7th floor and;
3. That the chiller and cooling systems were to be switched on from 8.00 am to 4pm for Block F on weekdays only and not operational on weekends and public holidays.

Decision of Court

The Court decided in favour of the Management Corporation on it’s stand taken to suspend the usage of common properties as justified and lawfully exercised.

The Court disagreed with the contention of the Developer that it cannot be a defaulter as it had disputed the claims and this argument was flawed. The Court disagreed with the contention of the Developer that the suspension was a bullying tactic by the Management Corporation to force the Developer into a position of weakness whilst awaiting the pending of the suits. This argument according to the Court was a mere conjecture, in the absence of evidence and without merit.

Court held that a developer will fall under the definition of a defaulter based on By-Laws 6(1) of the Third Schedule of Regulations 2015 if there were outstanding charges/arrears.

Court held that By Laws 6(5) of the Third Schedule of Regulations 2015 on the recourse available for suspension of the usage of common facilities would be meaningless if the developer can avail itself of the argument that there is a dispute on the outstanding charges/arrears claimed to avoid the said suspension.

Conclusion

This decision is indeed welcomed as there is absolutely no reason to place a Developer in a higher pedestal as compared to the owners/purchasers of a subject project. It must be appreciated that both have an equal duty and obligation to pay their maintenance charges and sinking fund which will be utilized for the upkeep of the common facilities in a development.

It is often overlooked with regards to the fact that a Developer is mandated by law to continue with the payment of the maintenance charges/fees and sinking funds in respect of the unsold units/parcel in a development project. This is where the Developers frequently fail in their fiduciary duty and the arrears can be staggering !

The mandated duty of the developer to pay the maintenance charges/fees is clearly spelt out in the Strata Management Act 2013 (SMA 2013) Act 757. This Act states that a Developer can never hand over the liability to a property manager, and they have to pay service charge for unsold units just like any other residents. Section 12 (2) of the Strata Management Act 757 explicitly states that the developer shall pay the charges, and contribution to the sinking fund, in respect of those parcels in the development area which have not been sold, being a sum equivalent to the charges, and contribution to the sinking fund, payable by the purchasers to the developer had the parcels been sold.

Coming back to the mainstream of this decision, it undoubtedly serves as a useful reminder to Developers, that it cannot do as it pleases by not fulfilling it’s part of the maintenance and sinking fund payments. Developers are quick to file claims in court against purchasers for delay in maintenance payments.

Actions are taken by Developers to bar purchasers from using common facilities, suspension of access cards and many other prohibitions and restrictions.

It is in this context that the High Court decision is timely to confer the powers as vested in law for the Management Corporation to suspend the usage of common facilities if the Developer has failed to settle it’s part of the bargain on the settlement of maintenance charges and sinking fund payments.

The decision of the High Court ensures that Developers are held accountable and subjected to the law. The Developer cannot according to its whims and fancies willy-nilly dictate terms to the Management Corporation. There must be the safeguards like the powers conferred by law to suspend the usage of common facilities as a cost saving measure for the Management Corporation to ensure the smooth running of the development project.