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Tug Of War

 

Shannon and Suet Mey review three recent disputes between developers and joint management bodies over ownership of common property

Enticed by the prospects of greater security, artists' impressions of stylish common facilities like infinity pools and sky lounges with panoramic views, professional standard gymnasiums, well-appointed clubhouses, multi-purpose halls and outdoor barbeque areas, as well as advertisements that promote luxurious or resort-style living, an increasing number of homebuyers in Malaysia are setting up homes in high rise condominiums.

To facilitate the management and maintenance of common property in condominiums and landed strata developments, the Strata Titles Act 1985 ("STA") provided for the establishment of management corporations comprising of members who are elected by the owners of units within the development.

An inherent weakness in the STA is that a management corporation can only be established after strata titles have been issued and a quarter of the aggregate share units have been transferred to the owners – a process which can take many years.

To address the aforesaid shortcoming of the STA, the Government introduced the Building and Common Property (Maintenance and Management) Act 2007 ("BCPA") which provides a framework for the establishment of a joint management body ("JMB") which is tasked to manage and maintain common property in strata developments from the time of delivery of vacant possession by the developer to the purchasers until the management corporation is formed under the STA.

While the STA and the BCPA facilitate the establishment of bodies corporate to manage and maintain common property, a different problem has arisen lately when it transpired that developers or other parties have claimed ownership over facilities that purport to be common property in a strata development.

This article examines three recent cases where the Malaysian Courts had to consider the tussle between JMBs and parties claiming ownership to areas which have been earmarked as "common property" in strata developments.

JMB SILVERPARK SDN BHD v SILVERPARK SDN BHD & ANOR [2013] 9 MLJ 714

This dispute concerns the status of a clubhouse located in the Silverpark Apartments in Fraser's Hill, Pahang Darul Makmur. The plaintiff, JMB Silverpark Sdn Bhd ("JMB Silverpark"), contended that the clubhouse was "common property" for the use and enjoyment of the residents, whilst the developer alleged that it was the owner of the same.

JMB Silverpark applied for, inter alia, declarations that (i) the clubhouse described in the sale and purchase agreements ("SPA") between the purchasers and the developer was "common property" as envisaged under the BCPA and the STA; and (ii) the developer was occupying the clubhouse as a trespasser. JMB Silverpark also sought an order to compel the developer to deliver the clubhouse to it.

The Court examined the terms of the SPA and the statutory provisions of the STA and the BCPA in order to determine whether the clubhouse was common property.

Firstly, the Court held that "common property" was defined widely in the SPA so as to cover the clubhouse and that the Second Schedule of the SPA had described the clubhouse as a common facility of the development. The Court also found ample evidence to show that the purchasers were using and enjoying the common facility of the clubhouse in line with the terms of the SPA.

Next, the Court held that the clubhouse fell within the more exhaustive definition provided in section 2 of the BCPA, which defined "common property" as "so much of the development area as is not comprised in any parcel ... and all other facilities and installation and any part of the land used or capable of being used or enjoyed in common by all the occupiers of the building."

Finally, the Court examined section 4 of the STA, which defined "common property" to mean "so much of the lot as is not comprised in any parcel (including accessory parcel), or any provisional block as shown in an approved strata plan."

The developer contended that the clubhouse had never been sold. To support its contention, the developer produced the official site plan and location plan to show that there was a separate parcel for the clubhouse. However, the developer was unable to produce an approved strata plan as the draft strata plan was pending approval by the relevant authorities. In the absence of concrete evidence in the form of an approved strata plan to prove that the clubhouse was included in any parcel, or in any provisional block, or was a separate plot owned by the developer, the Court held that the clubhouse was common property according to section 4 of the STA.

In the light of the above, the Court found in favour of JMB Silverpark.

IDEAL ADVANTAGE SDN BHD v PALM SPRING JMB & ANOR [2014] 7 MLJ 812

This case concerns the status of 439 car parking lots situated at the Palm Spring Condominium in Kota Damansara, Selangor Darul Ehsan.

Ideal Advantage Sdn Bhd ("Plaintiff") purchased 45 units of condominium in the Palm Spring Condominium together with 439 accessory car park parcels ("accessory parcels") from the developer. After delivery of the vacant possession of the units, the Plaintiff proceeded to operate a car park rental business by renting out the 439 accessory parcels to residents and tenants of the condominium. This resulted in an acute shortage of car parks at the condominium.

After the first defendant had notified the residents to channel all car park rental payments to it and that it would not recognise the receipts issued by the Plaintiff, the Plaintiff sought a declaration and/or an injunction to restrain the defendants from collecting rentals for the 439 accessory parcels attached to its 45 units of condominiums. The first defendant refuted the Plaintiff's claim and alleged that 213 accessory parcels were visitors' car parks, which were common property within the context of the STA.

The defendants also contended that the Plaintiff's claim to ownership of the accessory parcels was illegal and in contravention of the STA, the BCPA and the Town and Country Planning Act 1976 ("TCPA").

The defendants referred to the development order which, inter alia, stipulated that each condominium unit was to be allocated with one accessory parcel and that 10% of the 2,449 car parks were to be reserved as visitors' car parks. The defendants contended that there had been a clear breach of the development order, which was made pursuant to the TCPA, as only five units of the condominiums purchased by the Plaintiff had been allocated with one accessory parcel each, whilst each of the remaining units purchased by the Plaintiff had been allocated between eight to fifteen accessory parcels.

The first defendant also claimed that the Plaintiff had breached sections 4, 34(2) and 69 of the STA. The STA envisaged that the accessory parcels shown in a strata plan are to be used in conjunction with the main parcels and are not to be dealt with or disposed of independently of the main parcel. The defendant submitted that the Plaintiff's intention was not to use the accessory parcels in conjunction with its 45 units of condominiums, but to use the same independently and separately by renting them out to persons other than those occupying the 45 condominiums.

The Plaintiff argued that its title was indefeasible under the National Land Code 1965 ("NLC") in respect of 394 accessory parcels that were attached to the 39 strata titles which had been registered in its name. The strata titles for the remaining six units were in the process of being transferred to the Plaintiff.

During the trial, the Plaintiff's witness admitted that the accessory parcels had been given free to the Plaintiff by the developer due to the closed relationship between the Plaintiff and the developer.

The Court held in favour of the defendants. It upheld the first defendant's contention that the Plaintiff had breached section 34(2) of the STA. According to the Court, the phrase "dealt with" in section 34(2) of the STA, which prohibits any rights in an accessory parcel from being dealt with or disposed of independently of the main parcel, was wide enough to encompass the act of renting the accessory parcels to tenants who were not occupants of the condominium units owned by the Plaintiff.

More significantly, the Court was of the view that the sale of the 439 accessory parcels by the developer to the Plaintiff together with 45 condominium units with the object for these parcels to be used commercially was void and unenforceable under section 24 of the Contracts Act 1950. The Court further held that it was against the spirit and intent of the TCPA and illegal for the Plaintiff to own such a substantial number of accessory parcels for the purpose of operating a car park rental business at the condominium.

Consequent on its decision that the sale of the 394 accessory parcels was unlawful as being in contravention of the TPCA and the Contracts Act 1950, the Court held that the Plaintiff had unlawfully acquired such titles from the developer. As the Plaintiff was unable to satisfy the Court that it had obtained title to the accessory parcels in good faith and for valuable consideration, its title to those accessory parcels was not indefeasible under the NLC. Hence, the Court held the transfer of the accessory parcels by the developer to the Plaintiff to be void.

MALAYSIA LAND PROPERTIES SDN BHD v WALDORF & WINDSOR JMB [2014] 3 MLJ 467

Malaysia Land Properties Sdn Bhd ("Appellant") was the owner and developer of a piece of land in Sri Hartamas, Kuala Lumpur, on which Waldorf & Windsor Tower ("W&W Tower") had been built. The Appellant claimed that the JMB of W&W Tower ("Respondent") had trespassed onto a part of the 7th floor of the W&W Tower by occupying it as its management office.

The Appellant claimed to be the registered owner of the entire 7th floor by virtue of a strata title and that the disputed area, which included a movie room, karaoke room, lifts and the management office, was not common property but was privately owned by it. The Respondent denied trespass and claimed that the disputed area was part of the common property of W&W Tower and that it had the legal right to occupy the same.

The Appellant applied for various reliefs, including (i) a declaration that it owned the disputed area; (ii) an injunction to compel the Respondent to remove its office; and (iii) damages for trespass.

The Respondent filed a counterclaim, seeking, inter alia, declarations from the Court that (i) the Appellant's right, title and interest in and to the disputed area were not indefeasible; (ii) the registration of the disputed area ought to be cancelled on the grounds of fraud and misrepresentation; and (iii) the disputed area formed part of the common property.

The Court of Appeal held that the disputed area formed part of the common property of W&W Tower as the entire 7th floor was initially planned and approved as a floor for common facilities and that the building plans for the same did not provide for any commercial area. The Court observed that if the 7th floor was in fact intended to be a commercial area to be sold at some point in time, it would have been part of the stock in trade of the Appellant and entered into its accounts as fixed assets for tax purposes. In this regard, the Court found that the Appellant had failed to produce any accounting records to show that the disputed area formed part of its stock in trade.

The Court also reviewed the Appellant's sales brochure together with the sale and purchase agreement ("Agreement"). These documents showed that the common facilities were to be located on the entire 7th floor and not merely confined to the disputed area, whilst the commercial areas were to be on the ground, 1st and 2nd floors only. As the Court found that the 7th floor was initially designated as common property, it held that the Appellant was not entitled to invoke clause 43.1(f) of the Agreement to de-designate the disputed area and convert it for its own benefit after the performance of the Agreement had been completed viz. the delivery of vacant possession of the condominium units to the respective purchasers.

The Court was of the view that the Appellant had obtained the strata title through fraud and/or misrepresentation perpetrated on the land office and the Department of Survey and Mapping Malaysia (JUPEM) by submitting plans and drawings which showed that the entire 7th floor was private property. Accordingly, the Court concluded that the Appellant's right, title and interest in and to the disputed area were not indefeasible. As the Appellant was not the rightful owner of the disputed area, the Respondent was not liable for committing trespass by constructing the management office in that area.

COMMENTARY

It can be seen from the above cases that the Courts, in determining whether an area within a property development is "common property", would examine the provisions in a variety of instruments, such as the BCPA, the STA, the NLC, the development order, the sale and purchase agreement and the sales brochure, in order to establish the original intent of the use and purpose of that area. The Courts have adopted this meticulous approach to ensure that the developers do not detract from what was represented and promised to the purchasers during the sales stage.

In each of the cases discussed above, the Courts held that the disputed areas were "common property" for the use and benefit of the residents of the strata development. Whilst the Courts' decision and reasoning may be reasonable within the facts of the respective cases, the same must be cautiously applied in other cases, especially when dealing with commercial properties. For instance, would the Courts have come to the same conclusion in the Ideal Advantage Case if the developer had strictly complied with the development order by providing the prescribed number of parking lots for visitors? Is it legally objectionable for a developer to retain ownership of a specified number of car parking lots for the purpose of operating a car park rental business in a residential development if this intention is disclosed to purchasers from the outset?

The JMBs may have won the early battles over the ownership of common property, but it does not necessarily mean that they will prevail in every dispute that may arise over such property in the future.

Writers' e-mail: This e-mail address is being protected from spambots. You need JavaScript enabled to view it & This e-mail address is being protected from spambots. You need JavaScript enabled to view it

SUBJECT MATTER: LAND LAW

WRITERS' NAMES: SHANNON RAJAN (L) & SIEW SUET MEI (R)

WRITERS' PROFILES:

Shannon is a Senior Associate in the Construction and Engineering Practice Group of SKRINE. He is also an accredited mediator on the panels of the Malaysian/Singapore Mediation Centres.

Suet Mei is an Associate with the Dispute Resolution Division of SKRINE. She holds a Bachelor of Laws degree from the University of East Anglia and a Master of Laws from Cardiff University.

 
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