Liquidated Ascertained Damages for Late Delivery of Property

Imagine this...

You visited a show room and found your dream house. Without much hesitation, you filled up the booking form and paid the booking fee. Then you signed the Sale and Purchase Agreement (“SPA”). However, the developer keeps delaying the delivery of vacant possession even beyond the delivery date stipulated in the SPA. What can you do in such a situation?

Fret not!

When a developer fails to deliver the property in accordance with the timeline provided in the SPA, a purchaser has a right to seek legal recourse based on the terms of the SPA. One such term is the obligation for the developer to pay Liquidated Ascertained Damages (“LAD”) for the period of delay.

What is LAD?

LAD is a contractually agreed ascertained or pre-determined amount of damages which shall be claimable either contracting party who have suffered loss in the event the contract is breached.

According to Clause 24(1) of Schedule G of the Housing Development (Control and Licensing) Act 1966 (“HDA”) and Clause 26(1) of Schedule H of the HDA which provides for the statutory form of SPA, a purchaser has a right to claim for LAD for any delay in the delivery of vacant possession.  The said LAD clauses read as follows:

Clause 24(1) of Schedule G of the HDA (for landed property):

“Vacant possession of the said Property shall be delivered to the Purchaser in the manner stipulated in clause 26 within twenty-four (24) months from the date of this Agreement.”

Clause 26(1) of Schedule H of the HDA (for subdivided property):

“Vacant possession of the said Parcel shall be delivered to the Purchaser in the manner stipulated in clause 27 herein within thirty-six (36) calendar months from the date of this Agreement.”

The clauses above, which are common in most if not all SPA, provide a statutory remedy for a purchaser to seek compensation for any failure by the developer to fulfil its contractual obligation to deliver vacant possession of the property by a specific date. 

How is LAD calculated?

There had been some controversy in the decisions of our Courts in relation to the actual start date for calculation of LAD.

Based on the Federal Court in Faber Union Sdn Bhd v Chew Nyat Shong & Anor [1995] 2 MLJ 597 which referred to the Supreme Court case of Hoo See Sen & Ano v Public Bank Berhad [1988] 2 MLJ 170, it was decided that the calculation for LAD commences from the date of payment of booking fee prior to the execution of the sale and purchase agreement. 

In Faber Union’s case, the SPA expressly provides that the premises shall be completed by the vendor and vacant possession delivered to the purchaser within 36 calendar months from the date of the agreement. The developer failed to complete the property within the stipulated time, and the purchaser sued for liquidated damages. The issue before the court is from which date shall the calculation of the LAD start from. The Federal Court controversially held that time starts from the date which the purchaser paid the booking fee, not the date of the SPA.

Recently, the Court of Appeal in GJH Avenue Sdn Bhd v Tribunal Tuntutan Pembeli Rumah & 2 Ors [2019] 1 LNS 1184 have resolved the controversy in respect of this issue.  The Court of Appeal, upon inspecting the SPA (Schedule G Of HDA), specifically referred to the phrase “the vacant possession shall be delivered within 24 calendar months from the date of this Agreement”, held that it is clear and unambiguous that the actual date LAD is to be calculated from is the date of the SPA and not the date of the payment of booking fee. 

In reaching its decision, the Court of Appeal affirmed the decision in Kompobina Holding Sdn Bhd v Tribunal Tuntutan Pembeli Rumah & Anor [2017] 1 LNS 2034 which involved the same Schedule G agreement which provides that the date of delivery of vacant possession was 24 months from the date of SPA. The High Court decided that the phrase “… this Agreement” in Clause 22 of the SPA meant that the date of the SPA, not the date of payment for the booking fee.  

The Court of Appeal also made a distinction that both Faber Union and Ho See San were decided prior to the Tribunal for Homebuyers Claim and Housing Development (Control and Licensing Regulations) 1989 (“HDR”). The Court also referred to Regulation 11(2) of HDR which prohibits housing developers from collecting any payment by whatever name called except as prescribed by the contract of sale. In GJH Avenue, there is no clause in the SPA allowing collection of deposit. Even 10% of purchase price, according to its Third Schedule, can only be collected upon signing of SPA and not before. 

Despite the clear wordings of the SPA, there have been occasions where developers try to pressure the purchaser to accept a lesser amount or even try their best to avoid paying the LAD. A purchaser who is not aware of his legal rights to LAD may ended succumbing to the pressure and accepts whatever the developer may offer despite their delay.

What can a Purchaser do when the Developer has delayed delivery of Vacant Possession?

An effective way of claiming LAD is for a purchaser to lodge a claim at the Tribunal for Homebuyer Claims (the “Tribunal”), an agency under the jurisdiction of the Ministry of Urban Well-being, Housing and Local Government, which was established under HDA to provide better protection to house buyers in Malaysia.

The Tribunal has jurisdiction to determine a claim where the total amount in respect of the claim does not exceed RM50,000. Such a claim can only based on matters or issues arising from the SPA entered into by the purchaser and the licensed housing developer. Like any Court actions, there is also a limitation period for a purchaser to bring a claim to the Tribunal. Pursuant to Regulation 3 Of Housing Development (Tribunal for Homebuyer Claims) Regulations 2002, a purchaser must bring a claim not later than 12 months from:- 

• The date of issuance of certificate of completion and compliance for the housing accommodation or the common facilities; or
• The expiry date of the defects liability period as set out in the SPA; or 
• The date of termination of SPA by either party and such termination occurred before the date of issuance of the certificate of completion and compliance. 

However, the Tribunal will not be an option in the event the LAD amount exceeds RM50,000. In such a situation, the purchaser will have to commence a legal action in the Court to claim for breach of SPA, LAD and general damages for the late delivery of vacant possession. The limitation period to commence legal suit in court would be 6 years pursuant to Section 6(1) of the Limitation Act 1953. This is the avenue to be taken if the delays can be quantified (i.e delivery of vacant possession has taken place) and the purchaser intends to continue with the transaction.

What happens when the developer continues to delay or fails to delivery the property at all?

In such a situation, a purchase has the option to terminate the SPA and file a claim for a full refund of all monies paid to the developer up till the date of termination.

An example of such a claim can be seen in Tan Yang Long & Anor v Newacres Sdn Bhd  [1992] 1 MLJ 289 where the purchaser had already paid the developer 50% of the purchase price and applied for a loan which was paid direct to the seller and debited to the purchaser on terms of deed of assignment. The developer did not complete the apartment by the stipulated date in the agreement. The purchaser then wrote to rescind the agreement and demand payment of the full sum paid by them on account. They also wrote to the financier giving notice of their rescission and directed them not to release any further sums. The court allowed the purchaser’s application to do so. 

Further, the purchaser who terminated the SPA will also be entitled to LAD calculated up to the date of termination.  This can be seen in the case of Diong Tieow Hong & Anor v Amalan Tepat Sdn Bhd [2008] 3 MLJ 411 (HC)  where the developer failed to deliver vacant possession of the property, together with the completed common facilities before the date specified in the SPA, and subsequently abandoned the contract. 

The plaintiffs in that case demanded for the construction of the property to be completed and the vacant possession to be handed over on or before 08.05.2004, failing which the SPA shall be terminated.  The court held that though it is clear from the SPA that the plaintiffs could only claim for LAD after actual handing over of vacant possession of the property, to hold that developers who delayed the completion of housing projects not liable to pay LAD would, in fact, be against public policy because house buyers would then had no protection against unscrupulous or recalcitrant developers.

“The attempt of the appellants to contract out of the Act is clearly not a device which can be described as legitimate. It is an open defiance of the Housing Developers legislation. Having regard to the policy and objective of Housing Developers Act 1966 and the 1970 Rules made thereunder the protection afforded by this legislation to house buyers is not merely a private right but a matter of public interest which Parliament has intended to protect from being bargained away or renounced in advance by an individual purchaser”

In Penang Development Corporation v Teoh Eng Huat & Anor [1993] 2 MLJ 97, the Supreme Court had this to say :

“We are mindful of the fact that the Act was intended to protect innocent buyers from some unscrupulous and dishonest housing developers. There had been instances of developers who abandoned their housing projects when running out of funds to complete them, or heavily indebted to banks or financial institutions and absconded after having accepted deposits or full payments from the prospective buyers, especially during hard times in the property market. Many also had become bankrupts while others disappeared overseas out of the clutches of the law and legal process.”

In summary, the law in Malaysia has effectively recognized the rights of purchasers and also established mechanisms to protect the purchasers. For this reason, it is prudent for all property purchasers to be aware of their legal rights to prevent any situation where they can be taken advantage of by the developers.