7 September 2020
Malaysia

This is a follow-up article from our earlier article in relation to potential disputes faced by property developers under Schedule H and G of the Housing Development (Control and Licensing Act) 1966 (“HDA 1966”) issued on 23 April 2020.

On 25 August 2020, the Malaysian Parliament passed the Temporary Measures for Reducing the Impact of Coronavirus Disease 2019 (COVID-19) Bill 2020 (“COVID-19 Bill”). It is expected to be gazetted in the near future to be an Act of Parliament. The COVID-19 Bill provides temporary measures for reducing the impact of COVID-19.

The COVID-19 Bill, if passed into law, will have retrospective effect. It was specifically drafted to address any issues and situations faced by various sectors during the Movement Control Order (“MCO”) until the current Recovery Movement Control Order (“RMCO”) phase.

One of the key measures taken was to address the major predicament faced by developers who were ordered not to carry out any construction work during the MCO period. As mentioned in our earlier article, the developers caught in this bind may face the issue of having to pay their purchasers Liquidated Assessment Damages (“LAD”).

Modifications to the law

The HDA 1966 is one of the 16 legislation that the COVID 19 Bill seeks to modify. We summarise the proposed modifications below:

  • Section 32 provides that the modifications to the HDA 1966 will have retrospective effect as if it had come into operation from 18 March 2020, despite it being recently passed at Parliament.
  • Section 33 of the COVID-19 Bill provides that the modification will cover any agreement under Schedule G, H, I and J of the Housing Development (Control and Licensing) Regulations 1989 (“HDR 1989”) that were entered into before 18 March 2020.
  • Section 34 provides that the developer shall not impose any late payment charges on the purchaser who has failed to make payment towards any instalment for the period from 18 March 2020 to 31 August 2020. Further, the bill also allows the purchaser to apply to the Minister for an extension of the period and the Minister has the power to extend it up to 31 December 2020 (section 34(2) and 34(3)). In the event the extension is granted, the developer will not be allowed to impose any late payment charge on the purchaser during the extended period.
  • Section 35 of the COVID-19 Bill also provides protection to the developer against any claim by the purchaser for LAD between 18 March 2020 and 31 August 2020. Likewise under section 35(2), it also allows the developer to seek for an extension up to 31 December 2020. Once it is granted, the purchaser is restricted from seeking any LAD against the developer up to 31 December 2020.¹
  • On another note, section 35(4) provides further protection to the purchaser. Where the purchaser has been unable to take possession of the said property, from the date of service of notice to take vacant possession from the developer, between 18 March 2020 to 31 August 2020 or any extension period granted, the developer is not allowed to deem that the purchaser has taken vacant possession of the said property.
  • As for the defect liability period, which is provided under section 36 of the COVID-19 Bill, the time for the developer to carry out works to repair and make good the defects from 18 March 2020 to 31 August 2020 or any extension period granted by the Minister up to 31 December 2020 has been excluded from the calculation of the defect liability period.
  • Section 37 of the COVID-19 Bill provides that the modification under sections 34, 35 and 36 will not affect any legal proceedings commenced, any judgment or award to recover the late payment interest payable by the purchaser or LAD by the developer during the period from 18 March 2020 until the date of the publication of the new Act.
  • Any late payment charges paid by the purchaser and LAD paid by the developer before the publication of the new Act shall be valid and is not refundable
  • Furthermore, the government also made further modification with regards to the filing of a homebuyer claim under section 16N(2) of the HDA 1966. Section 38 of the COVID-19 Bill provides that if the limitation period of the homebuyer to file a claim has expired during the period from 18 March 2020 to 9 June 2020, the homebuyer is entitled to file the claim from 4 May 2020 to 31 December 2020 and the Housing Tribunal shall have the jurisdiction to hear the claim.

If one is worried of any inconsistencies between the modifications and the HDA 1966, section 3 clearly states that if there is any inconsistency between the provisions of the new Act and any other written law, the provisions of the new Act shall prevail.

Potential effect of COVID-19 Bill

An important issue that one must bear in mind is that the COVID-19 Bill only covers the period from 18 March 2020 to 31 August 2020, with a further possible extension up to 31 December 2020.

Although the COVID-19 Bill offers protection for developers up to 31 December 2020, we are of the view that the major concern for most developers is whether they are able to complete their projects on time after having been ordered to stop all construction work during the MCO. With standard operating procedures as well as restrictions imposed by the government during the Conditional Movement Control Order (“CMCO”) and RMCO, it is plain to see that these have continued to directly or indirectly cause further delays to projects, albeit to a lesser extent.

Therefore, we are of the view that that given the circumstances facing developers it will be more reasonable if they are allowed to apply for a longer extension of time i.e. an extension of up to six to eight months rather than until 31 December 2020. Due to the impact of COVID-19, some developers may be facing difficulties in getting their foreign-made construction materials and supplies when most countries have shut their borders due to the pandemic. Some developers were only allowed to deploy 50%-60% of their manpower to start construction work during the CMCO period.

Some comparisons with our neighbour

To combat the effect of the pandemic, Singapore passed the COVID-19 (Temporary Measures) Act (“Singapore COVID-19 Act”). Both the COVID-19 Bill and Singapore COVID-19 Act offer similar protection in respect of LAD claims whereby LAD claims are not allowed during the lockdown period i.e. the term of the MCO in Malaysia and Circuit Breaker (“CB”) in Singapore respectively.

However, the Singapore COVID-19 Act was introduced and gazetted before the implementation of the CB. The difference here is that the Malaysian COVID-19 Bill, if passed into law, will apply retrospectively. The Singapore COVID-19 Act came into being before Singapore’s lockdown period and offers protection for the whole lockdown period.

Furthermore, whilst the Malaysian COVID-19 Bill 2020 has offered protection for the purchaser against any late payment charge imposed by the developer, such protection is not wholly forthcoming in Singapore. In Singapore, the developer is able to claim late payment charges of 5% per annum of simple interest against the purchaser.

Another major difference between the two jurisdictions is on notification. Since the Malaysian COVID-19 Bill was only introduced after the lockdown period and applies retrospectively, there is no need for any party seeking relief to serve any notice to the developer or purchaser. However, in Singapore the relief is not automatic. Any party who wishes to seek relief under the Singapore COVID-19 Act will need to apply for and serve a “Notification for Relief” to the other party before they can obtain such relief.

Conclusion

With Parliament having passed the COVID-19 Bill on 25 August 2020, it is just a matter of time for the Senate to pass the bill, which will then be gazetted and come into law.

We are of the view that, if passed into law in its current form, it will offer some limited relief, albeit temporarily, for the developer as well as the purchaser under the HDA 1966.

However, in our opinion even though the COVID-19 Bill does provide some relief, it is not sufficient to fully help ease the problems faced by the developer, unlike the purchaser who appears to have greater protection and relief. Such relief provided under the COVID-19 Bill may be detrimental to the developer. For instance the relief granted to the purchaser to delay making payment of the statutory installments for the purchase of the property. This rescheduling will heavily affect the cash flow of the developer who has to maintain its workers, leasing of machinery and payment to suppliers, amongst other ongoing construction costs.

Furthermore, for the developer, as mentioned above, the extension of time up to 31 December 2020 may not be adequate to help resolve the problem of the delay in completing the project due to the aforementioned difficulties faced by the developer.

Overall, we are of the view that the COVID-19 Bill provides more benefits to the purchaser as compared to the developer. One glaring inequality is that it eases the burden on the purchaser by allowing the purchaser to defer the payment of the installments up to 31 December 2020. On the other hand for the developer, it only protects the developer from the purchaser’s claims for the LAD up to a maximum of six months only.

If you have any questions or require any additional information, please contact Neo Chi Chyn or the Zaid Ibrahim & Co. partner you usually deal with.


This alert is for general information only and is not a substitute for legal advice.

¹Section 35(3) of the COVID-19 Bill 2020

²Section 37(2) of the COVID-19 Bill 2020