Time to legalise booking fees collection?

By Chang Kim Loong

For many naïve and unwary purchasers, paying a booking fee before the formal sale & purchase agreement (SPA) is signed is part and parcel of the standard operating procedure to purchase a residential property. 

But the law prohibits the collection of booking fees, as stated in the Housing Development (Control and Licensing) Regulations 1989 (HDR).

The HDR provides inter-alia: HDRegulation 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”.

The statutory form of sale and purchase agreement provides that the first 10% of the purchase price is only payable immediately upon the signing of the SPA.

The scope of prohibition is wide enough to include estate agents, lawyers and any third parties purportedly acting as stakeholders for the housing developer in respect of collection of the booking fees. 

This prohibition, first introduced way back in the early ’80s, is actually a good form of protection designed to prevent an errant developer from treating a booking proforma as a binding contract to gain a contractual right to forfeit the booking fee already paid by a purchaser who failed to sign an SPA, when so requested. 

Stories of fellow purchasers crying foul when they are denied a refund of booking fee abound. There have been wanton cases of such abuse by unscrupulous housing developers. 

In too many cases, promises by sale representatives that the booking fee is fully refundable if the buyers could not secure a bank loan were not honoured. 

Vulnerable buyers were left with no options but to forgo the booking fee simply because they feel that the cost and legal quagmire to pursue the matter does not commensurate with the booking fee.

Any action by the Housing Ministry?

Nonetheless, there has been no reported prosecution in the court against those housing developers and sale agents who flout this prohibition. No one has been prosecuted for this blatant disregard for the law, to the best of my knowledge.

This fact has been made known to us by the enforcers ie the Ministry of Housing & Local Government during our frequent meetings with them. Enforcement is lax; if there is any enforcement action taken, it would have been imposing a meager compound fine and a slap on the wrist. 

This led us to ponder whether a more systematic approach to regulating booking fees should be adopted in place of this absolute prohibition. Since enforcement is lacking and no one has been brought to the court, why not consider legitimising collection of the booking fees? 

Option to purchase – Cooling-Off period 

For starters, a housing developer should grant an option to purchase to an intending purchaser in exchange for a reasonable deposit referred to as ‘booking fee’. 

A reasonable duration shall be given to the intending purchaser to freely consider whether to exercise the option to purchase the property or not. No penalty shall be imposed on the intending purchaser if he decides not to exercise the option within the option period. 

There shall be at least a duration of thirty (30) days (option period) from the date of collection of booking fee for the intending purchaser to consider.

During the option period, a developer shall not accept other bookings for the same unit property. An intending purchaser shall be given the full right to either exercise the option before expiry of the option period or decline to exercise option without the need to furnish any reasons whatsoever.

If a purchaser decides to exercise the option, the booking fee shall be utilised to partially set-off the purchase price. If he decides not to exercise the option, the booking fee shall be refunded in full to him within 14 days. 

There should also be a provision that the developer is not permitted to deduct any form of so-called ‘administrative fees’ in attending to the refund and such a refund must be made in full. 

During the option period, all the relevant available information pertaining to the property including the estimated parcel/ land area, the layout of the property and a copy of the SPA shall be made available to the intending purchaser to enable him/ her to make an informed decision. 

The amount of booking fee should not be excessive and in all cases shall not be more than RM5,000 or 1% of the purchase price, whichever is the lower. 

After all, the booking fee merely serves as a security for the developer to grant a right of option to the purchasers and also to allow the developer to gauge the marketability and saleability of their project.

It is also intended to convince the bridging financiers that the project has reached a reasonable margin of sales and give credence to the project undertaken by the housing developer. 

The booking fees collected from potential buyers shall be placed in a ‘Fidelity Fund’ under the Housing Development Project Account to facilitate the refund exercise in the event that the option is declined. 

This will also prevent unscrupulous developers or their authorised agents from absconding with the booking fee.

Prescribed option to purchase form

In order to ensure uniformity, a standard booking form shall be prescribed in the relevant law such as the HDR. The rights, entitlement and obligation of respective parties shall be drafted in plain language and set out in the standard booking form with the deadline to exercise option clearly indicated. 

All the terms and conditions in the standard booking form shall be explained to the intending purchasers before the developer collects any form of booking fee. This standard approach to booking fee will legitimise the collection of the booking fee and its refund process and will provide certainty and recourse to the treatment of booking fee.

 If the enforcer are unable to effectively prohibit the collection of booking fees by housing developers, we might as well outdo them and thereby possibly gain an advantage. There’s an old Scottish proverb: ‘Better bend than break’ carries no connotation of surrender. It is used to indicate that the way to take over the opposition’s strength is to adopt their positions and platform. 

Datuk Chang Kim Loong is the Sec-Gen of the National House Buyers Association (HBA), a non-governmental and not-for-profit organisation.

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