by Chang Kim Loong
Scenario 1: Abdul Rahim joined the job market after graduating from university three years ago. With his savings, he sought to buy an apartment in Subang Jaya.
However, Abdul Rahim is a newbie to stratified development. He knows practically nothing of the selling and buying process and sought the professional service of a lawyer.
The lawyer attended to the usual ‘sub-sale’ transaction with Abdul Rahim eventually taking possession and keys of the property from the seller.
After shifting into his apartment with his family, he received a ‘service charge statement’ from the Joint Management Body (JMB) that evidenced that there is outstanding arrears from the previous owner to the tune of RM5,280 which the seller defaulted in paying his monthly dues for maintenance charges and sinking fund.
He sought help from his lawyer but was informed that Abdul Rahim will have to litigate and sue the previous owner for the reimbursement. The lawyer will have to charge him separately for the court proceedings. The legal process cost is estimated to be about RM5,000. Abdul Rahim felt disgusted being victim of the ‘oversight’.
A ‘standard’ sale and purchase agreement was prepared by the law-firm in a sub-sale transaction for Sally.
One of the clauses stated that ‘all the outstanding arrears are to be borne by the vendor prior to the completion of the sale transaction’.
The owner collected his portion of the balance sales price (after redemption from the bank) and migrated overseas.
Sally was saddled with an outstanding amount of RM7,830 being arrears of maintenance charges, sinking fund, insurance and apportioned quit rent.
The management corporation (MC) took Sally to the Strata Management Tribunal to recover the ‘indebtedness’ in the account.
Sally reluctantly chose to pay up the arrears (by instalments) to avoid the legal quagmire.
The lesson from the above two cases is about the inexperience and flaws of certain unwary lawyers attending to the sale & purchase transaction in a strata property commercial or residential.
It is the duty of the lawyers to ensure all outstanding charges, debts incurred in the parcel unit by the owners, to the Joint Management Body (JMB), management corporation (MC) or subsidiary MC, collectively known as Management Bodies are paid in full before the transaction is completed so as to ensure that the buyer(s) are not burdened with the oversight of ‘past debts’.
In Brightvite Sdn Bhd v. Pantai Towers Management Corporation & another, (2019), the Court of Appeal made an important ruling on the recoverability against a new proprietor of management charges and other dues accrued before transfer/ conveyance.
In that case, the Judge, commenting on Section 45 of the Strata Titles Act 1985 (similar provisions can be found at Sections 60, 61 and 68 of the Strata Management Act, 2013 (SMA) ruled that the debt is recoverable from two parties, namely the existing proprietor or the proprietor’s successor in title, that is, the new owner.
But the Section clearly refers to one and the same debt, that debt being the sum outstanding as management fees. In other words, that single debt is recoverable from either the proprietor or the proprietor’s successor in title when he/she becomes the new owner, but the debt of the first owner cannot be transferred to the new owner.
The debt incurred by the previous owner is not divisible, or transferable to the new owner. It is pertinent to consider Section 73 of the SMA.
This provision, implemented on June 1, 2015 allows conveyancing lawyers to apply for a certificate on behalf of the owner or potential buyer of the unit for a fee not exceeding RM50.
The management bodies is to issue to that person a ‘certificate’ certifying the amount that is due from the unit owner.
It also stipulates the time and manner of payment of the amount determined and other matters. This certificate provides conclusive evidence of the total debts due on a particular unit.
The issuance of this certificate by management bodies is to ensure the dues are paid in full. It also enables a prospective buyer to find out what is the total debt, if any, that is outstanding to the management bodies and to decide if he is getting a fair deal from the purchase.
And if there is any debts outstanding, he can then negotiate a further quantum to be considered during the negotiation process and before finalising the purchase price.
This can be referred to in Form 19 of the Strata Management (Maintenance & Management) Regulations, 2015 (SMR) – Regulations 19.
Outstanding arrears recoverable from the buyers
The aim of Section 73 is to enable prospective buyers to ascertain the outstanding dues attributable to a parcel prior to transfer/ conveyance so as to avoid an unpleasant situation where the prospective buyer has to ‘foot’ the dues accrued by the previous owner.
The purpose of the section, namely, is to ensure that the management bodies recover their dues so as not to make all the other unit owners subsidise the debt incurred. This would amount to a considerable prejudice to the other unit owners.
So conveyancing lawyers should ensure that settlement of debts due to the management bodies prior to transfer be made a condition in the sale and purchase contract and such ‘figures’ to be calculated on a strata unit shares basis.
Successor-in-title or ‘proprietor’ may not evade the obligation to pay contributions
Prior to Brightvite case referred to above, the High Court in Sri Wangsaria Management Corporation v Yeap Swee Oo @ Yeap Guan Cheng (2009) made a similar ruling. The subsequent buyers refused to pay arrears of maintenance charges for the period prior to vacant possession, denying all liability for such arrears.
The Judge held that Section 45(5) of the Strata Titles Act, 1985 (STA) allows the amount to be recoverable from the proprietor, or who may no longer be a proprietor as defined.
Although this Section 45 of the STA has been deleted (amongst others) and now ‘migrated’ to the newly minted SMA, the principle of law established in Brightvite and Sri Wangsaria Management Corporation continues to be applicable.
The provision shows the intention of the legislature that neither a proprietor nor a successor in-title nor that category of ‘proprietor’ may evade the obligation to pay contributions i.e. debts.
It is incumbent for the buyer(s)’ lawyers to make a written requisition under Sec 73 of the SMA to inquire about the amount of charges and contribution to the sinking fund payable; time and manner of payment and any levied contributions owing by the sellers or any amounts outstanding pursuant to the SMA.
If they have failed or neglected to do so, the buyer(s) and/or their lawyers cannot later allege that they are not aware of the indebtedness because of their own omission.
Litigation process could be avoided if the parties entrusted had done what is required of them under the SMA. The liability of buyers to be duly registered as proprietors and successor-in-title are clearly provided for in the law.
It is also the obligation of the buyer(s), as prospective buyers, to be vigilant of the need to conform to the SMA and its regulations if they choose to stay in a stratified property.
There is a corresponding Section 31 in the SMA that relates to the same issue titled: ‘Right of parcel owners or prospective purchaser’ for those developments still under developer management period or JMB status, where individual strata titles have not been issued.
Three-fold legal relationship
A person who purchases a unit in a strata development enters into a three-fold relationship. Firstly, he is the individual owner of his unit. Secondly, he is a co-owner with all other owners of the common property and the land of the strata development, and thirdly, he is automatically a member of the owners body (management body) to whom the management and maintenance of the scheme is entrusted.
Harmony can only be achieved if the strata development is managed properly, the common property and facilities maintained adequately and regularly. The proper maintenance, efficient management and ultimately the success of the strata development will depend on a steady flow of payments to the coffers of the common funds. This includes the ‘debts’.
Datuk Chang Kim Loong is the Hon. Sec-Gen of the National House Buyers Association (HBA), a non-government, non-political and not-for-profit organisation.