For many people, buying a home is one of the biggest decisions they will ever make due to the costs involved. It can be even more daunting for those who buy a home off-plan as they do not know what to expect when they get the house keys upon vacant possession (VP).
This article looks at VP of a property in a stratified housing development in Malaysia, where the sale and purchase agreement (SPA) is regulated under the Housing Development (Control and Licensing) Act 1966 (Act 118). For commercial properties, the SPAs are not regulated by the government, so the conditions and provisions for VP of these properties may vary.
Understanding Vacant Possession
Vacant Possession ('VP') of a property in a stratified housing development is the delivery of a brand-new property based on a promise made within the statutory period for delivery of completed residential units stated in the SPA.
“The time for delivery of VP is regulated under the Housing Development Act 1966 (Act 118), which is 24 months for landed properties and 36 months for stratified developments. The delivery of VP will only take place with a notice of vacant possession issued by the developer to the purchaser upon completion of the building with a Certificate of Completion and Compliance (CCC), built based on the approved drawings and specifications annexed in the SPA,” he explains.
Managing Expectations and Preparing for VP
As you approach the VP date, it’s natural to feel a mix of excitement and anxiety. After years of waiting, your expectations may be high, and the experience of finally seeing your new home can be overwhelming. Since you couldn’t inspect the property beforehand, it’s important to be well-informed and prepared.
Expenses Related to Vacant Possession
There are several expenses to be aware of at the time of VP, including:
Memorandum of Transfer: For the strata title issued along with VP.
Bank Loan Repayments: Revisions and adjustments.
Quit Rent and Assessments: Apportionment based on the date of VP or deemed VP.
Mandatory Insurance Contribution: For common property.
Utility Connections and Deposits: With the utility company.
Renovations and Fit-Out Works: Relevant deposits with the management.
Service Charge and Sinking Fund Payment: Initial payments that may not represent true costs after the developer’s maintenance period expires.
After the developer's maintenance period ends, buyers should expect an increase in the service charge and sinking fund payment. It is important to verify the start date for making these payments.
Checking the SPA and Claiming Liquidated Damages
Checking the SPA for the anticipated VP date is crucial, typically set within 24 months for landed properties and 36 months for stratified developments. Purchasers should be aware of a recent court decision stating that the agreement date commences upon payment of booking fees.
Purchasers may be entitled to claim liquidated damages (LAD) if VP is delayed, calculated based on the rate stipulated in the SPA. However, if the delay is due to COVID-19-related reasons, check if the developer has legitimately obtained an extension of time for delivery of VP based on the COVID-19 Act.
Differentiating Between VP and Legal Possession
VP means the property is ready to be occupied, and the purchaser gets the keys. Legal possession means the purchaser legally owns the property, even if they don’t have the keys yet.
Is the purchaser aware of the COVID-19 Act provisions and the extension granted to the developer for delivering VP? Moreover, if the purchaser is unable to be in the country due to travel restrictions, can they legally take possession of the property?
If the purchaser assigns a third party to collect the keys, what is the authorisation process? Upon the expiry of the 30-day notice of VP by the developer, whether or not the purchaser has actually entered into possession of the property, they shall be deemed to have taken delivery of VP. If unsure, the purchaser should seek clarifications from their lawyer to ensure they are legally represented and their interests are protected.
The Defect Liability Period
It is crucial for the purchaser to collect the keys and check the property as soon as possible. Inspecting common areas is also important. The local authority’s standard operating procedure on restricted usage should not prohibit the buyer from conducting an inspection.
VP triggers the defect liability period of the parcel, accessory parcel, and common property, which is 24 months as stated in the SPA. This also marks the beginning of the developer’s maintenance period of up to 12 months and the countdown towards the formation of the joint management body (JMB) and/or management committee (MC).
As a parcel owner, you are now obligated to assume the risks, liabilities, and obligations of your unit. Once you have inspected your property, you should be ready to return the keys to the developer for any necessary repairs or defect rectifications.
Check repairs before moving in or finalizing a tenancy agreement to avoid issues close to the end of the defect liability period.
Inspecting Common Areas
Purchasers need to consider three main elements of common defects in common areas: architectural, civil and structural engineering, and mechanical, electrical, and plumbing engineering.
Often overlooked areas during inspections include plant and equipment rooms (such as lift motor rooms, electrical switchboards, and pumps); functionality of fire-fighting systems, sewerage and rainwater pipes concealed in boxed-up risers; water tanks, submersible equipment, embedded cables, and in-ceiling installations; high-level wall façades, windows, skylights, and roofs; escape staircases; basement walls; and concealed services, especially areas covered with ceilings and interior design finishes.
Desk studies on the adequate, accurate, endorsed, approved, and as-built drawings, documents, and warranties provided to the JMB or property manager for maintenance and management are also important.
Conclusion
Effective defect management is essential for ensuring the quality and safety of a new home, especially for properties purchased off-plan. By understanding your rights under the HDA 1966, preparing for VP, and conducting thorough inspections, you can navigate the process with greater confidence and satisfaction.
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