Extend the Defect Liability Period (DLP) post-CCC to include new “subsale” homes

It is a known fact that purchasers of primary or new-launch residential properties are able to claim for any defects during the Defect Liability Period (DLP) – which usually runs for 24 months from the date you take vacant possession of the property or when you receive the keys. This means that within this time period, the home buyer has the right to request the developer to rectify any defects, shrinkage or other faults which becomes apparent. These could be due to defective workmanship or materials and not having been constructed in accordance with the approved plans and descriptions. Such faults should be rectified by the developer at their own cost and expense within 30 days from the date of the purchaser’s written notice.

Subsale house buyers i.e those who buy a house off the secondary market/previous owner meanwhile do not have the same luxury. However, what happens you purchase a brand new property which has been fully constructed and is deemed ready for occupation via the CCC?

Technically once a developer sells a newly-completed property, it is classified as a “subsale” property (even though you are its first owner).

No DLP for new residential properties which have received the CCC

The statutory Schedules in the Sales and Purchase Agreement (SPA) for primary properties carries a mandatory warranty period of 24 months after the date of vacant possession. However, this DLP clause is missing in most of the ‘subsale’ or ‘sale in the secondary market’ SPAs. It is a case of ‘caveat emptor’ or let the buyers beware. There is no protection from the defects, shrinkage and other faults. These defects may include cracks in the walls, water leakages, watermarks, molded ceiling panels, clogged piping, loose floorboards or tiles, unusable fixtures (such as electric connections, light switches, water tapes, etc.) and even misaligned doors, windows and safety grills. Generally, it is a case of ‘what you see is what you get’. Those SPAs even have the audacity to state that the purchaser has conducted independent checks and is satisfied with the state and conditions.

There have been various such instances:

Scenario 1: Cindy has just graduated from a foreign university and was ready to buy a terrace house from a developer, with a separate title deed. She has heard of plenty of abandoned housing projects in Malaysia and did not want to take the risk of buying a newly launched property, which is still under construction. Thus, she waited for the developer to complete the housing development and subsequently decided to buy a terrace house from the developer after she was able to physically see the house. In the usual way, she asked her lawyer to assist her with the Sales and Purchase Agreement (SPA) and acquisition process.

She found that although the house was new, it had multiple defects such as cracks in the walls and on the ceiling. She then asked the developer to rectify them. Much to her dismay, the developer told her the defects liability period (DLP) has already expired and their property sale to her was on an ‘as is where is’ basis. The developer said that DLP was not mandatory after the Certificate of Completion and Compliance (CCC) was issued (which is true).

Scenario 2: Latiff was ready to buy an apartment in Subang Jaya from an established property developer. This was his first time buying a property in a stratified development. He knows practically nothing of the property buying and selling process and sought the professional services of a lawyer. The lawyer attended to the usual ‘subsale’ transaction with Latiff eventually taking vacant possession and receiving keys of the property from the developer.

After shifting into his apartment with his family, he realized that there were water-leakages in his ceiling and walls. He consulted his lawyer and was informed that the purchase was on an ‘as in where is basis’ and that the purchaser was deemed to have inspected the property and was satisfied with the conditions. He felt let down with the course of events where he had to pay for the repairs and repainting works of RM7,850 considering that the apartment was barely 6 months old.

Schedules G, H, I & J in your SPA do not apply for subsale properties

Every Sales and Purchase Agreement (SPA) shall be in the forms prescribed in Schedule G (Land & Building), Schedule H (Stratified Property), Schedule I (Land & Building- 10:90 concept) and Schedule J (Stratified Property – 10:90 concept) of the Housing Development (Control & Licensing) Regulations, 1989 (HDR).

However, HDR provides an exemption to the rule, inter-alia:

HD Regulations 11(1B) “…….such (contract of sale) shall not apply if at the time of the execution of the SPA, the certificate of completion and compliance (CCC) of the housing accommodation has been issued and a certified true copy of which has been forwarded to the purchaser”.

The language of HD Regulation 11(1B) is clear enough. The statutory contracts of sales (ie Schedules: G, H, I & J) do not apply to a ‘subsale’ or a ‘property sale in the secondary market’ after the issuance of the CCC. In a nutshell, Cindy and Latiff had thought by purchasing their completed properties directly from the developer, they would have a right to ask the developer to rectify the defects. They were not aware that the developer was selling through the secondary market via a subsale and was not under any legal obligation to rectify any defects as their ‘subsale’ SPAs were silent on the Defect Liability Period (DLP) warranties that would appear in the statutory contracts of sales.

Subsale homes are not within the purview of the Ministry of Housing & Local Government (KPKT) and do not enjoy the protection accorded to home buyers who purchase an under-con property. Hence, there is no DLP in their SPA though such terms are sometimes negotiated depending on the ‘goodwill’ and benevolence of the developer. ‘Goodwill’ in this context means by the developer’s prerogative and at their sole discretion.

House Buyers deserve better protection

Legal rights are created by the terms and conditions embodied in the contracts between two covenanting parties. House buyers who purchase a new property from the developer will establish a contractual relationship with the developer via the sale contract or Sale and Purchase Agreement (SPA). Hence, the buyers will have contractual obligations and entitlement upon the developer in the event of defects, etc.

Then, why not offer the protection for those buyers who purchase a property from the developer, post-CCC. We do not see the link with not having the effects and entitlement to DLP, even if the property is bought after CCC. But as long as the purchase is from a licensed housing developer especially, the buyer should be entitled to DLP warranties. After all, the defects warranties from the developer’s contractors/ builders are still subsisting depending again on the balance of the unexpired warranty period given by the contractors/ builders of the housing developer.

That being the case, we propose that a new scheduled contract (of sale) or SPA be formulated to protect the rights and entitlement of house buyers who buy a property from developers and which CCC has been issued. This is to ensure that the buyers will not be shortchanged in terms of quality and compliance with the specifications of constructions as stipulated by the authorities. Also, it is an extension of consumer protection who should also be accorded rights to enforce warranties under the defects liability period or whatever balance thereof. In the interest of justice, like buyers who had purchased property in a primary market, these subsale buyers should also have access to justice by being given the right to make a claim at the Tribunal for Home Buyers Claim, which is a more affordable, fast and expedient’ legal process.

Proposal to add-in new Schedules K & L in the SPA

Perhaps, a new set of SPA should be prescribed in the proposed new Schedule K (Post CC: Land & Building), Schedule L (Post CCC: Stratified Property) to be included to the Housing Development (Control & Licensing) Regulations, 1989 (‘HDR’).

These new contracts are intended to cater for provisions post CCC with a new prescribed schedule of payments considering that some properties are leasehold with ‘restrictions in title’ as compared to freehold status. But, the main objective is to design a new contract of sale to include DLP for those buyers of post CCC properties whether they are landed or stratified housing properties.

Perhaps, the Minister of Housing should ponder over this proposal that will accord better or ‘extended’ protection to house buyers post-CCC.

Source: iProperty