Developer’s Concerns After Existence of Management Corporation

in Malaysia

By Chua Park Chinpcchua@gmail.com

Mobile: +60 12 213497816 September 2016

Relevance & Applicability

• Strata management is applicable for the vacant possession of a parcel in a building or land intended for subdivision into parcels or a subdivided building or land that has been delivered by the developer to a purchaser, governed under Strata Management Act 2013 (SMA 2013), commenced on 8 February 2013 & enforced since 1 June 2015.

Developer & Management Period

• Developer – original proprietor of the lot of land relating to the development area.

• Preliminary Management Period (PMP) – period commencing from delivery date of vacant possession of a parcel to a purchaser by the developer until 1 month after the 1st Annual General Meeting of the Management Corporation (MC).

• Initial period of MC – period commencing on the day on which the MC exists until the end on the day on which there are proprietors, excluding the original proprietor of the land lot or developer, the sum of whose share units is at least ¼ of the aggregate share units.

Developer’s Duties & Power During PMP

1. Be responsible to properly maintain & manage the subdivided building or land & common property.

2. Exercise the power & perform the duties of MC from the first existence of MC until the expiry of PMP.

3. Set aside a separate area out of common property for the sole purpose of an admin office to conduct duties of developer.

Restrictions During PMP

1. Developer shall not borrow money or give securities.

2. Developer shall not enter into any contract relating to the maintenance & management of any subdivided building or land & common property in the development area for any period even beyond PMP.

Liabilities To Developer

• If Developer fails to comply to restrictions, MC may recover any loss or damage suffered due to contravention & breach of statutory duty from the Developer.

• Developer shall be liable to a fine not exceeding RM250k or imprisonment not exceeding 3 years or both, on conviction.

Setup Maintenance Acct (MTA) for MC

• Developer shall open & maintain a Maintenance Account (MTA) for the development area in the name of MC with a financial institution.

• Before collecting Charges from proprietors of parcels, Developer should ensure the MTA consists of all or part of money or charges:

i. paid by the proprietors to MC;

ii. imposed by or payable to MC under the SMA 2013;

iii. derived from the sale, disposal, lease or hire of or any dealing with any property, mortgage, charge, or debenture vested in or acquired by MC;

iv. incidental to functions & power of MC;

v. lawfully received by MC, including interest, donation & trust.

Purposes of MTA1. Maintain common property in good condition on daily

basis;

2. Provide cleaning services for common property, security services & amenities;

3. Pay insurance premium effected under SMA 2013 or any insurance approved by special resolution in a general meeting;

4. Periodically inspect development area to comply local authority order & Street, Drainage & Building Act 1974;

5. Minor paint on premises of common property;

6. Inspect, repair & replace of all electrical wiring systems & main water tanks;

Purposes of MTA

7. Pay rent & rates, if applicable;

8. Prepare, administer, & audit account maintained by MC;

9. Pay allowance & expenses of management committee;

10. Engage professional like Managing Agent, consultants, legal properly incurred & accepted by the MC to perform its functions & exercise power;

11. Manage subdivision into parcels & common property.

Setup Sinking Fund Account (SFA) for MC

• Developer shall open & maintain a Sinking Fund Account (SFA) in the name of MC with a financial institution to receive contribution of sinking fund from proprietors.

Purposes of SFA

1. Paint & repaint any part of the common property;

2. Acquire any moveable property related to common property;

3. Renew or replace any fitting or fixture comprised in common property & any moveable property vested in MC;

4. Upgrade & refurbish common property;

5. Use for capital expenditure as MC deems necessary.

Charges & Sinking Fund Contribution

• Proprietors shall pay charges & contribute to sinking fund to MC for maintenance & management of the subdivided building, land & common property of development area.

• Developer shall determine charges in proportion to the share units assigned to each parcel during PMP.

• Sinking fund is equivalent to 10% of charges.

• Proprietor shall pay charges & sinking fund within 14 days upon Developer notice.

• Proprietor shall pay interest 10% per annum on daily basis on unpaid sum at the expiry of 14 days.

Building Commissioner Review• Proprietor can apply a review on dispute of charges &

sinking fund by the Building Commissioner.

• Building Commissioner may

i. directly determine;

ii. instruct Developer, at own expense, to appoint a registered property manager to recommend & submit report to Commissioner.

• “Proprietors” can be either

i. Person receiving rent of the parcel;

ii. Purchaser registered as a proprietor;

iii. Developer in respect of unsold parcels.

Prohibition of Collection

• No person can at any time collect charges & sinking fund from proprietor unless

1. MTA & SFA have been opened in the name of MC;

2. Vacant possession delivered to proprietors.

Developer Duties on Accts During PMP

1. Prepare & record the MTA & SFA from the commencement of PMP that can sufficiently explain & reflect

i. account transactions

ii. true & fair balance sheet

iii. income & expenditure statement

iv. profit & loss statement

2. Appoint an approved company auditor to audit acct annually, in case of:

i. transfer balance of money in MTA & SFA

ii. acct to be presented in the 1st AGM of MC, updated not earlier than 3 months before meeting.

Developer Duties on Accts During PMP

3. File a certified true copy of audited acct & auditor’s report within 14 days of acct being audited.

4. Allow Building Commissioner & relevant authorized personnel to have full access to accts & records.

* Commissioner can at any time appoint approved company auditor, at the Developer’s expense, to investigate the accts & records, including returns, reports, accts & relevant information on acct.

Developer Hand-over to MC• Developer shall, not later than expiry of PMP, hand over:

i. transfer the control of all balance of money in MTA & SFA to management committee of MC;

ii. admin office;

iii. audited or unaudited accts of MTA & SFA;

iv. all assets of MC;

v. all records related to & necessary for the maintenance & management of subdivided building, land & common property.

* Developer must ensure audited acct up to date of transfer of control of all balance of money in MTA & SFA not later than 3 months after expiry of PMP.

Handover Documents

1. All approved plans for subdivided building or land;

2. All documents of actual location of piping, ducting & facilities for passage & provision of systems or services;

3. All contracts entered into by the Developer related to the maintenance & management of subdivided building, land or common property;

4. Schedule of parcels original or amended filed with Commissioner;

5. Certified strata plan filed by Director of Survey

6. Contracts of all contractors, sub-contractors of construction;

7. All warranty, manuals, schematic drawings, operating instructions, service guides, manufacturer’s documentation on installation, operation, maintenance, repair & service.

Developer’s Duty to Convene 1st AGM

Developer shall

• convene the 1st AGM of MC within 1 month after expiry of initial period;

• give notice of 1st AGM of MC to all proprietors no later than 14 days before meeting;

• Display a copy of notice at obvious part of development;

• Prepare annual budget for expected 7 estimated expenditure for consideration before 1st AGM for 12 months, starting on 1st day of the month following the date of 1st AGM.

* If Developer fails to convene the meeting on time, Commissioner may, on the request of a proprietor, appoint a person to convene the 1st AGM of MC within such time, at the Developer’s expense.

Agenda of 1st AGM of MC

1. Determine the number of members of management committee. Elect management committee where there are more than 3 proprietors;

2. Consider budget prepared by the Developer;

3. Decide on amount of charges & sinking fund;

4. Interest rate for late payment of charges;

5. Consider audited acct of MC;

6. Decide on insurance effected by Developer

7. Make additional by-laws;

8. Consider issues related to maintenance & management of common property of subdivided building & land.

Duty of MC1. Properly maintain & manage the subdivided building, land &

common property in the state of good & serviceable repair;

2. Determine & impose charges to be deposited into MTA & contribution of sinking fund into SFA;

3. Effect insurance & insure other risks approved by special resolution;

4. Comply with notice or order by local authority to reduce nuisance, repair & improve on common property;

5. Prepare & maintain strata roll for the subdivided building & land;

6. Ensure accts are audited & provide audited financial statement to its members.

7. Enforce by-laws

8. Expedite action for proper maintenance & management.

Power of MC

1. Collect charges from the proprietor in proportion to the share units or provisional share units;

2. Collect contribution of sinking fund equivalent to 10% of charge;

3. Authorize expenditure of maintenance & management of subdivided building, land & common property;

4. Recover from any proprietor any sum expended by MC in complying with order & notice of local authority;

5. Purchase, hire & acquire moveable property for the use & enjoyment of common property;

6. Employ, secure & arrange service or agents to undertake maintenance & management of common property;

Power of MC

7. Make additional by-laws;

8. Borrow money required by MC in exercise of its power & performing its duties;

9. Secure repayment of money borrowed by MC;

10. Secure payment of interest by

i. Negotiable instrument;

ii. Charge of unpaid Charges to MTA;

iii. Charge of any property vested in it;

iv. Combination of above.

11. Collect expenditure for repair due to willful, negligent act or breach of by-laws by tenants, lessee, licensee or invitee of proprietor;

12. Perform duties with all necessary action.

Recovery of Debt for Repair

• MC can recover any money in performing repairs as a debt in court or before the Tribunal from the relevant proprietors at the time when the repairs were performed and commenced.

• Amount payable by proprietors shall not be more than the proportion of the debt according to the share unit of parcel.

• “Proprietor-to-be”, who is not a proprietor yet at the time when the repair is performed or commenced, shall not be liable to pay the amount of repair.

• But these proprietor shall, at any time or within 21 days before acquiring title or interest, write in requisition to MC to inquire about the amount. In this case, MC either

i. must certify this proprietor has no outstanding amount;

ii. did not reply the requisition within 14 days of the service date of requisition.