LAW & REALTY: Maintenance of a building

Contributed by Andrew Wong Fook Hin

Friday, 01 June 2007 05:13am

…before management corporation is formed – Part 1

ON April 12, the Building & Common Property (Maintenance & Management) Act 2007 (“the Act”) came into force in all States within Peninsular Malaysia. The main purpose of the Act is to provide for the proper maintenance and management of buildings and the common property, AFTER delivery of vacant possession by the developer to the purchasers and BEFORE the Management Corporation (“MC”) comes into existence (“the applicable period”).

In line with the recent amendments made to the Strata Titles Act, 1985 (STA), which now allows land to be subdivided into land parcels to be held under separate strata titles, the Act will also apply to prescribed buildings on such land.

Each State Authority will appoint a Commissioner of Buildings to administer and carry out the provisions of the Act.

The Act empowers the Minister to make regulations for the better carrying out of the provisions of the Act (“the Regulations”), although at the time of writing this article, no regulations have been made or have come into force.

Scope

The Act is intended to apply to any building or land intended for subdivision into parcels, and which have been developed for the purpose of accommodation, including accommodation for commercial and industrial use. The choice of the word “accommodation” is certainly misleading, as accommodation usually denotes housing, lodging or quarters. Perhaps the Regulations can make it clear that the Act is intended to apply to any building or land intended for subdivision into parcels and developed for the purpose of housing accommodation, commercial use or industrial use.

It is pertinent to note that the Act defines common property, more exhaustively than the STA and the Schedule H agreement under the Housing Development (Control & Licensing) Regulations 1989 (Schedule H). In the STA, common property means so much of the lot as is not comprised in any parcel. Schedule H extended this definition to include lifts, refuse chutes, drains, sewers, pipes, wires, cables, ducts and all facilities and installations used in common by all purchasers.

Common property in the Act is now extended to include all structural elements of the building, stairs, stairways, fire escapes, entrances and exits, corridors, lobbies, exterior of all common parts of the building, playing fields and recreational areas, walls and fences.

Joint Management Body (JMB)

During the applicable period, the common property of any building or land intended for subdivision shall be in the hands of a JMB, which shall comprise the developer and the purchasers. Up until now, the maintenance and management of a building intended to be subdivided and the common property (“the maintenance works”) have always been the responsibility of the developer until the MC is formed.

The JMB is a body corporate, having a common seal, and therefore can sue and be sued in its name. The JMB shall be deemed to be dissolved three months from date of the first meeting of the MC.

Duties of JMB

The duties of the JMB are, among others, to:

· maintain the common property and keep it in good serviceable repair;

· fix and impose charges for the maintenance works;

· insure the building and apply insurance moneys received for rebuilding and reinstatement;

· prepare and maintain a register of all purchasers;

· ensure that the Building Maintenance Fund (BMF) is audited and provide financial statements to purchasers; and

· enforce house rules.

Powers of JMB

The JMB is empowered to:

· collect maintenance charges from purchasers;

· authorise expenditure for carrying out the maintenance works;

· recover monies due from purchasers;

· acquire property for use by purchasers in connection with the common property;

· secure the services of a person to undertake the maintenance works; and

· make house rules.

When must JMB be formed?

If the development is completed before April 12, 2007, and vacant possession has been delivered to the purchasers and the MC is not in existence, the JMB must be established not later than April 11, 2008.

However, if the development is completed on or after April 12, 2007 then the JMB shall be formed not later than 12 months from the date of delivery of vacant possession of the parcels to the purchasers.

There are no provisions in the Act to define when a development is completed. In line with the recent amendment to the Street, Drainage and Building Act, 1974, completion should mean the issue of the relevant certificate of completion and compliance.

How to form the JMB?

It is the duty of the developer to convene the first meeting of all purchasers within the time frame set out above. If the developer fails to convene this first meeting, the developer shall be liable to a fine not exceeding RM25,000, or imprisonment for a term not exceeding three months or both. Further, if the developer fails to convene this first meeting, the Commissioner may appoint a person to convene the first meeting.

Until the JMB is established, the developer is responsible for the maintenance works and this includes the responsibility to insure the building against fire and other risks.

First meeting of JMB

At its first meeting, the JMB shall elect a Joint Management Committee (JMC), and then confirm the taking over of insurances effected by developer, determine the amount to be paid by purchasers to the BMF for the maintenance works, determine the rate of interest for late payment of charges and make decisions on any other matter connected with the maintenance works.

The quorum for the first meeting shall be one quarter of the purchasers who have paid maintenance charges to a Building Maintenance Account (BMA). Only purchasers who have paid maintenance charges to the BMA are entitled to vote.

It would appear that the developer is not to be included in the determination of the quorum and is also not a person entitled to vote.

It is not clear whether:

(a) a purchaser is entitled to vote if he had previously paid maintenance charges to the BMA but is at the time of the first meeting in arrears; or

(b) a purchaser who has not paid maintenance charges to the BMA is entitled to attend the meeting or be elected to the JMC, even though he is not entitled to vote.

If within half an hour of the time fixed for the first meeting, no quorum is present, then the members entitled to vote who are present shall form the quorum. Further, if after one hour, no member entitled to vote turns up or all members present refuse to be members of the JMC, the meeting cannot take place, and the developer must inform the Commissioner within the next seven days of the ill-fated meeting.

The Commissioner may then appoint a new date for the first meeting or appoint a managing agent to maintain the common property.

All resolutions at the first meeting shall be decided by a show of hands. Joint purchasers (e.g. husband and wife) are not entitled to vote except by a jointly appointed proxy. However there are no express provisions for a purchaser who is a corporation, to appoint a proxy or a representative, to attend the first meeting and to vote.

If the first meeting is successful, then within 28 days thereafter the JMB must inform the Commissioner of the name of the JMB, and register its name with the Commissioner.

Annual General Meeting (AGM)

The AGM of the JMB shall be held once a year and not more than 15 months shall elapse between date of one AGM and the next AGM. The agenda is to consider the BMF and transact such other businesses as may arise.

Extraordinary General Meeting (EGM)

An EGM may be convened by the JMB, upon requisition in writing made by persons who are registered as purchasers of at least one-quarter of the total number of parcels, or when the JMB receives a direction from the Commissioner to transact a particular business, or on such other occasion as the JMB thinks fit.

The Commissioner may himself, authorise any purchaser to convene an EGM if he is satisfied that the JMB was not properly constituted.

It is pertinent to note that although the Act made provisions for rules to regulate the first meeting of the JMB, there are no provisions on how an AGM or EGM is to be conducted and it is not clear whether the rules on quorum and voting rights for the first meeting of the JMB will apply to an AGM or EGM. Perhaps such rules and other rules to clear up the uncertainties mentioned above will be contained in the Regulations or perhaps the Regulations will empower the JMB to regulate its meetings as they deem fit and proper.

Joint Management Committee (JMC)

The duties and powers of the JMB are to be performed and exercised by a JMC, which shall be elected by the JMB at its first meeting, and thereafter at the annual general meeting.

The JMC shall consist of the developer and not less than five and not more than 12 purchasers. A purchaser who is elected to the JMC can only hold office for a period not exceeding three years or until the dissolution of the JMB when the MC comes into existence.

A chairman, a secretary and a treasurer shall be elected from members of the JMC. Since the developer is a member of the JMC, its representative can be elected to any of the above three positions.

Proceedings of the JMC are regulated by the First Schedule of the Act and it is pertinent to note that the developer has a vote in the JMC even though the developer has no right to vote at the first meeting of the JMB. A member elected shall continue to be a member of the JMC until he resigns, dies, becomes a bankrupt or is no longer a purchaser. Once elected, a member of the JMC is expected to devote as much time as is necessary to discharge his duty effectively.

In a forthcoming continuation of this article, the writer will examine provisions in the Act relating to the Building Maintenance Account, the Building Management Fund, the payment of maintenance charges, the managing agent, and other features of the Act.

Register of purchasers

The developer or the JMB, as the case may be, is required to maintain a register containing the following particulars for all parcels in the development area:

• allocated share unit of each parcel;

• floor area;

• name and address of every purchaser;

• name and address of solicitor for the purchaser; and

• number of parcels unsold. Rights of purchasers

A purchaser or a prospective purchaser may apply to the JMB for a certificate, certifying:

• amount of charges payable;

• time and payment of charges;

• extent to which charges have been paid;

• amount recoverable by JMB in respect of the parcel;

• the sum standing in the credit of the BMF and the sum committed or reserved for expenses already incurred;

• nature of repairs and estimated expenditure which is likely to be incurred by a purchaser; and

• amount paid or to be paid by the developer for unsold units.

House rules

The JMB is required to keep a record of house rules in force and to furnish to a purchaser a copy of such rules or make the rules available for inspection to any person who has a proper interest. A copy of the rules and amendments thereto must be lodged with the Commissioner.

Dissolution of the JMB

One month after the first meeting of the Management Corporation (MC), the JMB shall hand over to the MC, the house rules, audited or unaudited accounts of the BMF, assets and liabilities, and all records connected with the maintenance of the building and common property. The JMB itself shall be deemed to be dissolved three months from the date of the first meeting of the MC.

If the JMB fails to hand over the above, every member of the JMB (meaning the developer and all purchasers) commits an offence punishable with a fine of not more than RM10,000, and a further fine of not more than RM1,000 for every day during which the offence is continued, unless the member proves that the offence was committed without his knowledge, consent or connivance and that he had taken all reasonable precautions and had exercised due diligence to prevent the commission of the offence.

Building Maintenance Account (BMA) and Building Management Fund (BMF)

What is the difference between BMA and BMF?

The BMA is an account operated Maintenance of a building by the developer before the JMB is formed. When the JMB is formed, surplus moneys in the BMA shall be transferred to the BMF which shall be maintained, administered and controlled by the JMB.

When must BMA be opened?

If the development is completed after April 12, 2007, the developer must open a BMA in the name of the development area, before delivery of vacant possession to the purchasers. Each development area shall have a separate BMA. The developer shall deposit into the BMA, all charges received from purchasers, and all charges for unsold units. The charges for unsold units is of the same amount as that payable by the purchasers had the parcels been sold. No person may collect any charges from any purchaser for maintenance or management, unless the BMA has been opened and vacant possession has been delivered to the purchasers.

Development completed before April 12, 2007

If the development was completed on or before April 12, and the developer has immediately before that day been collecting charges for maintenance from purchasers, the developer may continue to do so until the JMB is formed. It would appear that after April 12, the developer must open the BMA immediately and deposit all maintenance charges collected from the purchasers and all charges for unsold units, into the BMA.

Moneys in BMA do not belong to the developer

Moneys in the BMA shall not be deemed to form part of the property of the developer in the event of insolvency and some sort of a statutory trust has been created over such moneys. The developer is required to keep proper accounts of the BMA and to appoint a professional auditor to audit the BMA annually. A copy of the audited accounts and auditor’s report must be filed with the Commissioner within 14 days after audit. The Commissioner has full and free access to all records relating to the BMA.

In addition, any developer of a development which has been completed but for which the MC has not been formed, shall not later than six months from April 12, submit to the Commissioner, an account audited by an auditor, of all moneys collected and expended for the purposes of maintenance and management, and sinking fund (if any) prior to April 12. Failure to do so will render the developer liable to a fine.

The BMF

The BMF shall consist of maintenance charges imposed by or payable to the JMB and all other moneys received by the JMB and such moneys shall be used for purposes of repairing and maintaining the common property.

The JMB shall also maintain a sinking fund into which shall be paid such portion of the contributions as determined by the JMB, for the purposes of painting and repainting, acquisition of property, renewal or replacement of fixtures and fittings and other expenditure.

Payment of maintenance charges

Every purchaser is liable to pay maintenance charges in proportion to the allocated share units and payment must be made within 14 days of receiving a written notice supported by a statement of charges, issued by the developer or the JMB, as the case may be. If payment is not made within the 14 days, the JMB may impose interest for late payment provided the rate shall not exceed 10% per annum.

Recovery

Where charges become recoverable by the JMB, the JMB may institute legal proceedings in court to recover the amount due, after having given to the defaulting purchaser the requisite notices. Further, if the amount of charges payable is in arrears for six months, the JMB may request the Commissioner to issue a warrant of attachment to attach any moveable property belonging to the purchaser, found in the parcel or elsewhere within the local authority area. The officer from the Commissioner’s office who is executing a warrant may effect forcible entry.

If arrears and collection charges are not paid within seven days of attachment, property attached may be sold by public auction, and the amount recovered from the auction (after deduction of collection charges) shall be deposited into BMA. Any surplus shall be paid to the person who at the time of attachment was in possession of the property.

All provisions relating to payment and recovery refer only to payment by the purchasers and there are no provisions for recovery from a developer who fails to pay charges for unsold units. A warrant of attachment may not be issued against a developer who is in arrears, as only a purchaser’s movable property can be attached.

Any person who, without reasonable excuse, fails or refuses to pay maintenance and management charges shall be liable to a fine not exceeding RM5,000 and a further fine not exceeding RM50 for every day during which the offence is continued after conviction. What may constitute a reasonable excuse not to pay, remains to be seen.

Apart from the above statutory offence, if the developer fails to pay maintenance charges for unsold units, he is liable for an additional offence under section 17(7), and may be liable to pay a fine of not less than RM10,000 but not more than RM100,000 and a further fine not exceeding RM1,000 for every day during which the offence is continued.

The managing agent

The Commissioner has the power to appoint a managing agent to maintain and manage the building or land intended for subdivision and the common property, in the event that all the members present at the first meeting of the JMB refuse to be members of the JMC, or if the Commissioner is satisfied that the developer or the JMB is not maintaining or managing the building satisfactorily.

The managing agent shall have control of all moneys in the BMA or BMF and all moneys received by him shall be paid into the BMA or BMF. He shall perform all the duties and exercise the powers as if he was acting as the developer or the JMB, including giving notice to the purchasers to pay maintenance charges and instituting proceedings to recover outstanding charges. The remuneration or fees of the managing agent shall be charged to the BMA or BMF, as the case may be.

A person shall not be appointed as a managing agent if he has a professional or pecuniary interest in the property and he shall be regarded as having a professional or pecuniary interest, if he has been responsible for the design and construction, or he or his nominees, officers or employees has any material interest in the property, or he is a partner or is in the employment of a person who has a material interest, or he or his family holds any interest in the building or land.

A managing agent is required to lodge a bond with the Commissioner, to make good any loss caused by him as a result of his failure to account for moneys received or held by him. If he fails to pay moneys into BMA or BMF or if he fails to submit requisite statements to the Commissioner, he may be liable to a fine not exceeding RM100,000 or imprisonment for term not exceeding two years or to both.

Developer to pay deposit to rectify defects on common property

It is noted that the appointment of a managing agent does not relieve the developer of his obligation to carry out repairs to the common property or make good defects in the common property, during defects the liability period and the developer still has the responsibility to carry out repairs and varied and additional works to ensure that development is constructed in accordance with plans and specifications approved by the competent authority.

The Act now requires the developer to deposit (cash or bank guarantee) with the Commissioner such sum as shall be prescribed, for purpose of carrying out works to rectify any defects in the common property after its completion. This deposit shall be paid upon handing over of vacant possession to the purchasers. Any unexpended deposit shall be refunded to developer on expiry of the defect liability period for the development. If the developer fails to comply, he can be punished with a fine of not more than RM5,000 and a further fine of not more than RM50 for every day during which offence is continued.

Power of entry

The Act empowers the Commissioner to authorise any person to enter any building or land for purpose of carrying out inspection or investigation to determine whether any offence has been committed, and books, accounts or documents may be seized on such entry.

Entry is also permitted for the purpose of executing any works required by the local authority. However, if a building or premises is occupied, no entry shall be permitted unless the occupier or a representative is present during the entry. No private dwelling shall be entered upon except with consent of the purchaser or after giving 24 hours’ notice to the occupier.

In the case of any urgent repairs or works the Commissioner may, at all reasonable times enter any building. The act provides penal sanctions for anyone who assaults, obstruct hinders or delay entry authorised by the Commissioner.

Other contracts and deeds no longer apply

The writer is the Deputy Chairman of the Conveyancing Practice Committee, Bar Council, Malaysia http://www.malaysianbar.org.my

Note: This column is brought to you by the Malaysian Bar Council for your information only. It does not constitute legal advice. You should therefore seek professional legal advice for your specific needs. Neither the Malaysian Bar nor the Sun Media Corporation Sdn Bhd shall be liable to any reader who suffers losses as a result of relying on this column.