In continuation of our past two articles published in the EDGEPROP titled: ‘Victims of runaway developers face double woes from exploitative liquidators’ (7.5.2021) and ‘Liquidators making fortune from homebuyers misfortune’ (9.7.2021) saga, we write to enlighten the readers that the issues of ‘excessive charges’ has been taken to the Courts of Law for their deliberation and rulings.
Landmark decision by the Court of Appeal (COA)
In the recent Court of Appeal ruling of KAB Corporation Sdn Bhd & Anor v Master Platform Sdn Bhd 752 (2019) 6 MLJ, the panel of judges were unanimous in their learned 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 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 Hon. Justice Datuk Vernon Ong led the panel of judges, which also comprised The Hon. Justice Datuk Harmindar Singh Dhaliwal and The Hon. Justice Dato Has Zanah bt Mehat.
In the landmark ruling, the Court of Appeal said that developers or subsequent holders of a Master Title for lands cannot unilaterally impose excessive and exorbitant fees where their consent is required for any resale, transfer or assignment of rights for property purchased pending the issuance of a separate strata title.
The developers contended that it has always been the market rate/practice by developers to impose an administrative fee to purchasers where the separate title to the respective properties has yet to be issued in the name of buyers such as shop lots, office premises and condominiums.
The appeal was filed by KAB Corporation 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 an additional revolving credit facility for the benefit of the Impiana.
MP then had only agreed to offer their consent if KAB paid them a sum of 1% equivalent to the facility sum, that being 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.
Issues of the administration fee of RM500 was previously decided
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 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 is not entitled and has no legal rights to charge the plaintiff fees amounting to RM2,000 which is inordinately high. A fair and reasonable amount should be a sum of RM500.00 for administrative fees.
On 1.11.1993, the Supreme Court, in an oral judgment upheld the decision of the trial judge.
Meaning of ‘Bare Trustee’
In 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 in the Sale & Purchase Agreement and having received the purchase price becomes a bare trustee and as such was not permitted to deal with the lots’. ‘We are in agreement with the Court of Appeal that the subsequent sales, 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 by the purchaser. This basically means that the developer has vested all the rights and interest to the purchasers upon the full payment of the purchase price and no longer has a beneficial interest in the property, but merely holding the property on trust for the benefit of the purchaser pending the issuance of the separate strata title in which the developer is obligated to apply for it.
With this being said, upon the full payment of purchase price, the purchaser is not liable to pay for any administrative fees as the purchasers no longer owes any obligation to the developer.
It is not an uncommon practice where the developer imposes, 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 was required as a result of the developer’s neglect to apply for/ obtain the strata title after the completion of the building. The developer should not arbitrarily impose an exorbitant administrative fee as it is through frolic of their own doing for not applying for the strata title.
Hence, the developer should not benefit from their own neglect. Any discretion must be exercised in good faith, rationally and not arbitrarily or even being abused because the purchasers would then be at the mercy of the developers through no fault of theirs.
Liquidators are ‘de facto’ developers in Housing Legislation
Pursuant to Sec. 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 fulfilment of its duties and contractual obligation towards the purchasers, a liquidator is to be treated as a substitute for a ‘housing developer’ to fill in voids/ gaps, such as completing construction of the building or facilities, deliver vacant possession or applying and distribute individual or strata titles.
With such amendment being made, the duties and responsibilities reposed on a liquidator will be subjected to the Act and may be held accountable for a breach of duties of a ‘de facto housing developer’. Currently, there are situations where liquidators impose exorbitant administrative fees up to 2% or 3% of the purchase price on purchasers to carry out their duties/ responsibilities 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 is required under the law to perform anyways and should not be entitled to more. A liquidator should not unjustly enrich themselves through benefits to which they aren’t entitled. Unilateral imposition of such fees is devoid of legal basis.
Commentary to owners of commercial property
Due to the fact that there are currently no statutory protections given to owners of a commercial building, these cases mentioned above act as some form of insight into their entitlement and the restrictions on the fees imposed on owners which can be levied by developers. Furthermore, the developer may no longer be entitled to benefits from their failure or neglect to apply for strata titles.
Ironically, there will still be a lacuna in the law without legislative intervention and the only way the owners could obtain remedy is by going through litigation thru our Courts of Law which is often costly and time-consuming.
It should be noted that in deciding whether the imposition of an administrative fee was reasonable, the developer needs to satisfy the ‘reasonability test’. Hence, real property developers and those ‘de facto’ developers cannot exercise their discretions in ‘mala fide’ (bad faith) to unilaterally impose excessive and exorbitant administrative fees.
MDI to play a more significant role
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 professionalism to secure and balance the interest of customers in order to minimize the impact of financial management failure.
- Strengthening the administration, services and enforcement of insolvency management.
- Strengthening the application and the implementation of the insolvency laws.
- Strengthening the ability and capacity of MDI; and
- Strengthening the co-operation and strategic partnership
We have dealt with MDI in situations of ‘verification exercise’, ‘distribution’, ‘transfer’ and ‘sign off’ as Official Liquidators of defunct real property developers. MDI are quite proactive because the process is merely procedural and administrative in nature. They should continue to keep up with their efficiency and productivity to achieve their long-term mission statement.
Do you not 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.
HBA could be contacted at: Email: firstname.lastname@example.org Website: www.hba.org.my . Tel: +6012 334 5676