Abandoned Housing Projects: Remedies for the Purchasers

According to The Star news dated 16 November 2019, there were 107 abandoned projects in Malaysia between years 2011 and 2019.

What is an Abandoned Project?

A project is abandoned if:

(a) the developer refuses to carry out/delays/suspends/ceases work continuously for a period of completion as agreed under the sale and purchase agreement (“SPA”) (Section 18A(2) of Housing Development (Control and Licensing) Act 1966 (“Act 118”));

(b) a winding-up petition has been registered in the High Court of Malaya under the Companies Act and the developer is forced to stop any construction work on-site; or

(c) the developer is liquidated or under receiver and manager.

What Can the Purchasers Claim?

If a housing development project is abandoned pending completion, the purchasers may resort to the remedies as follows:

1. Terminate & Refund

On 1st June 2015, the Housing Development (Control and Licensing) (Amendment) Act 2012 came into force to amend various provisions of the existing Act 118 to protect the purchasers who buy houses from developers.

The amendments now allow the purchasers to terminate the SPA at any time under the following circumstances pursuant to Section 8A of Act 118 provided:

(a) the licensed housing developer refuses to carry out/delays/suspends/ceases work for a continuous period of six months or more after the execution of SPA; 

(b) the purchaser has obtained the written consent from the end financier; and

(c) the Controller has certified that the licensed housing developer has refused to carry out/delays/suspends/ceases work for a continuous period of six months or more after the execution of SPA.

In the event a purchaser exercises his right to terminate the SPA, the developer is required to refund all the monies paid by the purchaser within 30 days of termination, free from interest, failing which, the developer is committing an offence and shall be liable to a fine not less than RM50,000.00 but not exceeding RM250,000.00 and to a further fine of RM5,000.00 for every day during which the offence continues after conviction. 

Other main significant changes made include:

(a) Section 18A of Act 118: Project abandonment is now an offence and the Developer shall be liable to a fine which shall not  be less than RM250,000.00 but not exceeding RM500,000.00 or imprisonment not exceeding three years or both; 

(b) Regulation 3A of Housing Development (Housing Development Account) (Amendment) Regulations 2015 (“HDHDAAR 2015”’): Increase of deposit paid by Developer from RM200,000.00 to an amount equivalent to 3% of the estimated cost of construction certified by an architect in charge of the housing development; and

(c) Regulation 11A 0f HDHDAAR 2015: The Controller can utilise the monies in the account to comply with an award made by the Tribunal for Homebuyer Claims (“TTPR”).

2. Continue & Claim for LAD

In the event the purchaser chooses to continue the SPA/ enter into a new SPA with the rehabilitating project developer and the project is completed with late delivery, the purchasers may file their claim to TTPR for LAD or damages. If the claim amount is exceeding RM50,000.00, they should file a case in the civil court.

It should be noted that a claim made to TTPR must be made within 12 months from either:

(a) the date of issuance of the certificate of completion and compliance (“CCC”) of the property;

(b) the expiry of the defect liability period set out in the SPA; and/or

(c) the date of termination of SPA and such termination occurred before the date of issuance of CCC.

3. Rescind & Terminate

What happens if the purchaser’s situation is not covered by the law, for example, the project is commercial in nature instead of residential or the developer does not refuse to carry out/delays/suspends/ceases work for a continuous period of six months, the purchasers will not be able to terminate the SPA pursuant to Section 8A of Act 118. 

Alternatively, the purchasers may file a suit in the courts for an order for specific performance or rescission of SPA depending on the degree of completion.

To fasten the proceedings, parties may apply for summary judgment under Order 81 of Rules of Courts 2012 provided there is no substantial dispute of facts (Woolley Development Sdn Bhd v Mikien Sdn Bhd [2008] 1 MLJ 585 and Diong Tieow Hong & Anor v Amalan Tepat Sdn Bhd [2008] 3 MLJ 411).

What To Do Before Buying Houses From the Developers?

To avoid the risk of buying from abandoned projects by the developer, purchasers may:

(a) Build then Sell Scheme

The purchasers can buy from “Build Then Sell Scheme” rather than “Sell Then Build Scheme”. The purchasers here pay a 10% deposit and pays nothing until completion upon receipt of the certificate of completion and compliance and title deed; and

(b) Conduct Due Diligence

The purchasers may check with authorities such as Urban Wellbeing, Housing & Local Government Ministry as to whether the developer is blacklisted. Please refer to https://ehome.kpkt.gov.my/index.php/pages/view/43. Understand your developer, whether the developer has experience, the quality of workmanship and refer to their accolades/public feedback for the past development projects before buying the property.

The contents of this article do not constitute legal or other professional advice or an opinion of any kind. It is provided for general information purposes only. Please contact us for further enquires.iry.