The collection of booking fees by developers is a common practice in Malaysia during property transaction, but many might not be aware that it is actually prohibited under the Housing Development (Control and Licensing) Regulations 1989 (‘HDR’). The HDR states:
HDR 11(2). “No person including parties acting as stakeholders shall collect any payment by whatever name called except as prescribed by the contract of sale”
This article is penned as a follow up to our earlier one in regards to the Federal Court decision on 19.1.2021 pertaining to Liquidated Ascertained Damages (LAD) to be calculated from collection of ‘booking fees’. Numerous readers have written to us seeking a better understanding of the landmark case as they are in the same dilemma and ‘short-changed’ by their developers.
The Federal Court, in the case of PJD Regency Sdn Bhd v Tribunal Tuntutan Pembeli Rumah & Another & 6 Other Appeals  2 CLJ 441 (“PJD Case”) has clarified the legal position on an important point of law: – Q: Whether time should start to run from date of booking fee or date of the sale and purchase agreement for purposes of calculating late delivery?
- In PJD Case, the Purchaser paid RM10,000 to their Developer on 16.01.2013 to secure a unit in a housing development known as You Vista but the sale and purchase agreement was only signed on 21.03.2013.
- The Purchaser claimed there was a delay in the delivery of vacant possession and completion of the common facilities but the Developer resisted the claim on the following grounds:-
- time should start to run from the date of the SPA and not from the date when the booking fee was paid; and
- the common facilities were completed when the architects certified its completion and not on the date when Certificate of Practical Completion (“CPC”) was issued to the Purchaser;
- On 5.06.2017, the Housing Tribunal made an Award in favour of the Purchaser and held that time should start to run from the date when ‘booking fee’ was paid and the common facilities were completed on the date when the CCC was issued to the Purchaser as the common facilities must be completed and ready to be delivered to the Purchaser at the time of delivery of vacant possession.
- The Developer filed an application for Judicial Review in the High Court to quash the Tribunal’s Award. On 14.12.2017, the learned High Court Judge dismissed the Developer’s application for Judicial Review.
- Being dissatisfied with the said decision, the Developer appealed to the Court of Appeal and on 2.04.2019, the Court of Appeal dismissed the Developer’s appeal and affirmed the decision of the High Court. The Developer, thereafter filed an appeal to the Federal Court.
HDA is a Social Legislation
In arriving at its landmark decision, the Federal Court applied the concept of “social legislation” when interpreting the Housing Development (Control and Licensing) Act 1966 (‘HDA 1966’). The Chief Justice of Malaysia, Tengku Maimun CJ in her judgment said:-
“In disputes between home buyers and housing developers, its significance lies in the approach taken by the Courts to tip the scales of justice in favour of the home buyers given the disparity in bargaining power between them and the housing developers.”
“A social legislation is a legal term for a specific set of laws passed by the Legislature for the purpose of regulating the relationship between a weaker class of persons and a stronger class of persons. Given that one side always has the upper hand against the other due to the inequality of bargaining power, the State is compelled to intervene to balance the scales of justice by providing certain statutory safeguards for that weaker class.”
Down Memory Lane vis-à-vis Housing Legislation
Let us take you through history on the evolution of the housing laws. It was during the tabling of the Housing Development (Control and Licensing) Bill in Parliament on 25.03.1966, the then Minister of Local Government and Housing, the late Tan Sri Khaw Kai Boh, stated as follows:-
“Mr Speaker, Sir, as you are well aware, there have been repeated instances, where innocent members of the public have fallen victims of rapacious and unscrupulous persons, who pose as housing developers and obtain substantial deposits as booking fees for houses, which they not only do not intend to build but also are in no position to do so. I also have personally received a continuous stream of letters from several persons concerned that they have paid deposits for houses in housing scheme and found to their dismay that no houses were being built and that they could not recover their deposits.”
The Bill was passed, and it now known as the HDA 1966. Soon after the HDA 1966 was passed, the Minister prescribed the Housing Development (Control and Licensing) Rules 1970 (‘1970 Rules’) which at that time allowed the developers to collect ‘booking fees’ from purchasers provided that the amount of such fees did not exceed the statutory range of 2.5% of the purchase price. This has resulted in many problems faced by house buyers and the Minister sees fit to change the law on the collection of ‘booking fees’.
It was in year 1982, the Housing Developers (Control and Licensing) Regulations 1982 (‘HDA 1982’) was introduced and it repealed the 1970 Rules. The reason for the change can be seen in the Parliament Hansard and it reads as follows:-
“Kementerian saya sedar atas masalah-masalah yang timbul daripada kutipan wang tempahan perumahan seperti yang berlaku dalam kes-kes ini dan cadangan-cadangan sedang ditimbangkan oleh Kementarian saya untuk memperketatkan lagi undang-undang yang ada sekarang bagi mengurangkan masalah-masalah yang timbul.”
“Di antara lain, Kementarian saya akan mempertimbangkan kemungkinan di mana pihak pemaju perumahan hanya akan dibenarkan mengutip wang deposit 10% dan menandatangani perjanjian jual beli apabila mereka menjalankan projek perumahan dan tidak dibenarkan mengutip wang tempahan”.
The statement strongly manifests the intention of Parliament to completely eradicate the practice of collecting ‘booking fees’ by developers.
HDR 1982 imposes a strict prohibition and it was and still is a criminal offence if any housing developer acted in breach of the said regulation.
In 1989, HDR 1982 was repealed and the new set of regulations: HDR 1989 came into effect. With HDR 1989, the law against the collection of ‘booking fees’ remain unchanged. It is therefore clear that Parliament no longer saw it fit for housing developers to collect ‘booking fees’ before signing of any sale and purchase agreement. This has put to rest any notion that the collection of ‘booking fees’ is still permissible.
In 2015, an amendment was made to HDR 1989 (P.U.(A) 106/2015) (‘2015 Amendment’). There were too many cases where the developers devised several ‘schemes’ with vested interest stakeholders to circumvent the provisions of the law. It was therefore necessary to introduce the amendment ie HDR 11(2) stated in our synopsis above, to further protect the interests of house buyers and to prohibit all parties including stakeholders from collecting the ‘booking fees’. HDR 13(1) also increased the penalties for offenders to ‘a fine not exceeding RM50,000 or to a term of imprisonment not exceeding 5 years or to both’.
Rationale behind the PJD decision
The Federal Court in their wisdom held that the Courts will not tolerate the bypassing of statutory safeguards meant to protect the house buyers. When it comes to interpreting social legislation, the Courts must give effect to the intention of Parliament and not the intention of parties. Otherwise, the attempt by the Legislature to level the playing field by mitigating the inequality of bargaining power would be rendered nugatory and illusory.
The Federal Court disagreed with the developer’s contention that it is a standard commercial practice to accept booking fees from purchasers. The development of the law clearly suggests to the contrary. From the Parliament Hansard in 1966 to the change in the subsidiary legislation up to the amendment to the HDR 1989 in 2015, the written law in force has made it crystal clear that the collection of booking fees is to be absolutely prohibited. The Court must give effect to the intention of Parliament.
Given the clear legislative intent and the status of the HDA 1966 and HDR 1989 as social legislation, it follows that the date of the contract cannot be taken to mean the date printed in the statutory contracts. The Court must construe the statutory contract in accordance with the statutory protection afforded by Parliament. Otherwise, the Court would be condoning the developers’ attempt to bypass the statutory protections afforded to the purchaser put in place by Parliament.
One Step Forward, Two Steps Back?
There is an undercurrent now which was expressed by the recently resigned Minister, Datuk Zuraida Kamaruddin and that of her charge in attempting to reverse history to allow legal collection of booking fees. It is absurd to allow such collection when the issue has been exploited time and again. This is a serious enough issue to take careful consideration on the part of the lawmakers when deciding on whether an act should be legalised or decriminalised. Why is the Government back-pedalling?
Our lawmakers would have to look into the future impact of an action and determine whether or not legalisation would provide sufficient advantages or ‘watered-down’ protection to house buyers or was it actually to benefit the housing developers?
To put it simply, ‘legalisation’ is the process of making a particular action legal. For example, collection of booking fees is prohibited according to the current laws. However, the act becomes completely legal and is just as acceptable, if the law is tweaked in favour of the housing developers. All the punishment and consequences previously attributed to the act are no longer in effect.
On the other hand, “decriminalisation” means that the criminal penalties attributed to an act are no longer in effect.
This article is jointly written by Wong Renn Xin, one of the legal advisors of the National House Buyers Assoc. (HBA) and Datuk Chang Kim Loong, the honorary secretary-general of HBA, a voluntary non-government and not-for-profit organisation manned wholly by volunteers. Their link: www.hba.org.my