Building and Common Property (Maintenance and Management) Act 2007 (Act 633) Highlights (Part I)

15/11/2007 By National House Buyers Association Published in Iproperty Magazine Introduction Legally, the common property of a strata development is owned by the developer until the handover of such on or after the first annual general meeting stipulated under the Strata Titles Act, 1985 (Act 318). However, the issuance of individual strata titles, leading to the handover of the common property, takes years and resulted in numerous complaints on maintenance and management issues. It is for this reason that the Building & Common Property (Maintenance and Management) Act, 2007 was passed by Parliament in December, 2006 and in operation from 12th April, 2007. The main aim of the Building and Common Property (Maintenance and Management) Act, 2007 (Act 633) [BCP Act] is to regulate the maintenance and management of common property in strata developments by providing a framework for the establishment of a Joint Management Body (JMB) and the appointment of a Commissioner of Building (COB) to administer the Act. The BCP Act is designed to complement Parts VI and VII of the Strata Act with regards to rights and obligations of owners and management issues. Allocated Share units Sections 8(1)(a) and 23(2) requires that contributions for maintenance and management charges be collected in proportion to the allocated share units. The allocated share units is defined in this Act as share units to be assigned to each parcel by a developers licensed land surveyor. Malaysians are so used to 1

the practice of contributions for common funds & expenses (maintenance charges, sinking fund, insurance premium, quit rent) according to rates like 20 sen per square foot, that it will take a while for these share units allocation to be a common term. Holders of strata titles would be familiar with the term as the share units are stated in the titles. Purchasers of units in strata development after the 1st December, 2002 would also have indication of the allocated share units in Schedule 5 of their Schedule H the regulated sale and purchase agreement under the Housing Development (Control and Licensing) Regulations, 1989. Common Property Section 2 of the BCP Act gives the definition of common property as: in relation to a development area, means so much of the development area as is not comprised in any parcel, such as the structural elements of the building, stairs, stairways, fire escapes, entrances and exits, corridors, lobbies, fixtures and fittings, lifts, refuse chutes, refuse bins, compounds, drains, water tanks, sewers, pipes, wires, cables and ducts that serve more than one parcel, the exterior of all common parts of the building, playing fields and recreational areas, driveways, car parks and parking areas, open spaces, landscape areas, walls and fences, and all other facilities and installations and any part of the land used or capable of being used or enjoyed in common by all the occupiers of the building Of interest is the inclusion of car parks and parking areas. Does this mean that once the developer has assigned car parks intended for use with parcels as accessory parcels and comply with the necessary allocation of visitors bays, those extra car parks are common property? From the definition given in this Act, it would appear so.

Contributions from developer on unsold units Section 12 requires the JMB or the developer to maintain a register of purchasers and unsold units and Section 17(b) requires the developer to contribute equally for the unsold units as if the units have been sold to purchasers. This resolves the problem of owners of the past where there is no transparency on whether developers have contributed their portions or when the units are gradually sold off or if the developer actually intends to hold the units as investment properties. Information Section 13 provides purchasers and intending purchasers the right to information such as:

the amount of charges payable by a purchaser the time and manner of payment of the amount of charges the extent, if any, to which the charges have been paid the amount, if any, then recoverable by the JMB in respect of the parcel the sum standing to the credit of the Building Maintenance Fund and the sum in the account that has been committed or reserved for expenses already incurred by the JMB

the nature of the repairs and estimated expenditure, if any, where the JMB has incurred any expenditure or is about to perform any repairs, work or act in respect of which a liability is likely to be incurred by the purchaser of the parcel under any provision the Act, and

the amount paid and to be paid by the developer for unsold parcels.

This certainly makes it easier for a subsequent purchaser to check on the financial health of the development as a whole and to make informed decisions on their intending purchase.

House Rules In this Act, the governing document for the proper maintenance and management of the building is called the house rules whereas the same is called the by-laws in the Strata Act. This Act does not provide a standard house rule as such the JMB has the power to make and amend the house rules provided in Section 8(2)(f). This document must be lodged with the COB within fourteen (14) days of the passing of the resolution of the JMB.

Like any governing documents, the House Rules must be drafted carefully as it is also the duty and in the power of the JMB to enforce the House Rules. The House Rules would probably be adopted as the By-Laws once the Management Corporation is formed as such for long term used, the JMB would be wise to spend time on the drafting this document.

Building and Common Property (Maintenance and Management) Act 2007 (Act 633) Highlights (Part II)
01/12/2007 By National House Buyers Association Published in Iproperty Magazine Dissolution of a Joint Management Body Once the first general meeting of a Management Corporation, formulated under the Strata Titles Act, 1985, has been convened, the Joint Management Body (JMB) shall be deemed to be dissolved three (3) months from the date of the first general meeting. During the first meeting of the Management Corporation, there is also an election of Council Members. Although it could be almost the same set of owners of the same strata property, Section 15 of Act 633 stipulates that the JMB must transfer within one (01) month from the date of the first general meeting the followings: 1) the house rules; 2) the audited or unaudited accounts of the Building Maintenance Fund of the JMB and if only unaudited accounts have been handed over, the JMB must not later than three (3 )months from the date of the first general meeting of the management corporation; 3) all the assets and liabilities of the JMB; and 4) records related to and necessary for the maintenance of the building and its common property. Section 15(3) stipulates that if the JMB fails to comply with Section 15, every member of the JMB commits an offence and shall on conviction be liable to a fine not exceeding ten thousand ringgit and shall also be liable to a further fine not exceeding one thousand ringgit for every day during which the offence is continued after conviction. 5

It should be noted that the Strata Titles Act, 1985 Schedule 3- By-Laws for the Regulations of Subdivided Building or Land is mandatory and by-laws not inconsistent with Schedule 3 By-Laws, may be added by special resolution. For continuity sake, the House Rules adopted by the JMB should be added to the Schedule 3 By-Laws to be passed at the first general meeting of the management corporation. Building Maintenance Account Under Part IV Section 16, the developer of a strata development must open a Building Maintenance Account (BMA) in the name of the strata development for each development before the delivery of vacant possession. This applies to all newly completed strata development where the vacant possession has not been delivered to the purchasers as of 12th April, 2007. For developments where vacant possession has been given but the management corporation has not been established and the developer has been collecting charges for the maintenance and management, the developer can continue to do but the developer must comply with Section 21, which is to submit to the Commissioner of Buildings (COB) audited accounts of all moneys including sinking fund collected and expended within six (6) months from the commencement of the Act. The BMA is maintained by the developer until the JMB is formed. The duties of the developer as to the BMA includes: a) deposit all collections (eg. deposits, service charges, sinking fund charges, etc) within two working days of receiving the moneys into the BMA account; b) pay all charges for unsold units;

c) cause proper accounts of the BMA to be kept in respect of all sums of money received and payments made out d) appoint a professional auditor to audit the BMA annually or one month before the date transfer to the Building Management Fund set up by the JMB. e) within fourteen days of the accounts being audited, file with the Commissioner of Building (COB) a copy of the statement of accounts certified by the auditors and a copy of the auditors report. The Commissioner of Building has; a) the power to hear any dispute arising in respect of the BMA; b) full and free access to the accounting and other records of the BMA; c) right to appoint an approved company auditor to investigate books, accounts and transactions of a BMA and the developer must pay all the expenses incurred for that purpose; Under Section 17(4), the developer must insure and keep insured the completed building against any loss of the building and against fire and other risks until the JMB is formed. Building Management Fund and Sinking Fund The developer must transfer any surplus moneys in the BMA to the JMB not later than one (1) month from date of establishment of the JMB. Such moneys shall constitute the funds of the JMB which is called the Building Management Fund which shall be administered and controlled by the JMB. The JMB must open and maintain a separate sinking fund, which shall pay such portions to the BMF for the following matters:

a) the painting or repainting of any part of the common property; b) the acquisition of any movable property for use in relation to the common property; c) the renewal or replacement of any fixture or fitting comprised in any common property; or d) any expenditure as the Committee deems necessary. This section gives powers to the Committee elected by the JMB to decide on expenditures deem necessary by the Committee. Managing Agent A managing agent for the strata development is only appointed by the COB, if purchasers entitled to vote do not attend the first meeting or if there are no volunteers to be office bearers of the Committee. Defects on Common Property The developer must deposit in cash or bank guarantee with the COB upon the handing over of vacant possession, such sum as may be prescribed by the State Authority for the purpose of carrying out any work to rectify any defects in the common property of the development area after its completion. Any unexpended deposit is refunded to the developer on the expiry of the defects liability period. This means that the JMB or its Committee should expeditiously do a joint inspection of the common property of the development area for defects, so that the defects can be rectified within the defects liability period.

Purchasers duty to pay charges Purchasers must pay for charges for the maintenance and management of the common property apportioned and determined by the JMB in proportion to the allocated share units. A fourteen-day grace period is allowed for payments after which a late payment interest not exceeding 10 per cent per annum is chargeable. Without any reasonable excuse, any person who fails or refuse to pay the maintenance and management charges commits an offence and on conviction is liable to a fine not exceeding five thousand ringgit and also liable to a further fine not exceeding fifty ringgit for every day the offence is continued after conviction. Conclusion A person who purchases a unit in a strata development enters into a three-fold legal relationship; firstly, he is the individual owner of his unit; secondly, he is a co-owner with all other owners of the common property and the land of the strata development, and thirdly, he is automatically a member of the owners body to whom the management and maintenance of the scheme is entrusted. Harmony can only be achieved if the strata development is managed properly, the common property and facilities maintained adequately and regularly. The proper maintenance, efficient management and ultimately the success of the strata development will depend on a steady flow of payments to the coffers of the common fund of the owners body. Repeated failure to contribute to common expenses may hinder timely maintenance and efficient management and ultimately wreck the whole strata development scheme. Every strata property purchaser or owners should read the BCP Act to understand their duties as an

individual owner firstly, secondly as a co-owner of the common property of the strata development and thirdly as a member of the owners body formed.

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