The day when you officially obtain the keys to a home you’ve just bought is a highly-anticipated event for all homebuyers. In legal parlance, this is known as the delivery of vacant possession. Basically, it means the seller or developer hands over a property that is fit to be occupied to the buyer, along with the furnishings and fittings indicated in the Sale and Purchase Agreement (SPA).
In this article, we listed all the important things a homebuyer needs to know about the delivery of vacant possession, such as its requirements, deadlines, and what you can do if the developer is late in giving you the keys to your property.
Delivery of Vacant Possession in the Primary Market
Before a home builder can deliver vacant possession for an off-plan or new property, they need to ensure that:
A. The local authority has officially granted the Certificate of Completion and Compliance (CCC) for the property or the development. This important document confirms that the property is safe and ready for human habitation.
B. The home or unit is already connected to utilities, such as power and water.
C. The property buyer has already settled the remaining purchase price per the schedule of payments in the SPA.
After all of the above conditions are fulfilled, the developer will issue a notice to the homebuyer to get the keys to the property at the home builder’s office or their attorney’s office. The buyer will need to ink several documents confirming that they have obtained the keys and a copy of the CCC, in addition to the agreed fixtures and fittings in the unit. The date of the signed forms marks the start of the Defect Liability Period (DLP).
Please keep in mind that some home builders issue the notice when the project is about 70 percent finished as the houses could be ready for occupation by that time. Although the remaining 30 percent comprising the shared facilities like swimming pools, playgrounds or gardens are still being constructed, what is crucial is that the project has received its CCC, and the buyers can already make use of the electricity and water connection in their properties.
Another thing to remember is that buyers are provided 14 days since the receipt of the notice to get the keys to their properties. Otherwise, a buyer is considered to have taken vacant possession of the unit after the said period.
Delivery of Vacant Possession for Resale or Subsale Homes
For second hand properties, delivery of vacant possession occurs after the buyer has paid the remaining selling price for the unit and the seller has settled the Agreed Apportionments. This is a list of charges the seller needs to pay, such as utilities, maintenance fees and sinking fund contributions.
The standard practice in the secondary market is to have a vacant possession deadline of 3 + 1 months in the SPA, so that both parties have sufficient time to fulfil their contractual obligations. These include getting financing, as well as moving out and transferring ownership of the property. Vacant possession is delivered when the vendor gives the keys to buyer personally or via the purchaser’s attorney.
Deadline for Seller or Developer to Deliver Vacant Possession
The deadline for delivery of vacant possession depends on two things: Whether the unit was sold in the primary or secondary market, or what kind of property was transacted.
In the primary market, the countdown for delivery of vacant possession commences when the SPA is inked by both parties. The Housing Development (Control and Licensing) Regulations of 1989 also states that developers must deliver vacant possession of a landed house with an individual title within two years. For strata-titled properties, like condos, apartments and serviced residences, the deadline is three years.
For example, Farah goes to a developer’s sales gallery and pays the booking fee for a property on June 1, 2019. She then successfully obtains a housing loan from a financial institution three days later. On June 3 2019, she signs the SPA with the home builder.
If the unit she bought is a landed house with an individual title, the developer must deliver vacant possession by June 3, 2021. If it’s a strata-titled property, the home builder needs to give the keys to her by June 3, 2022.
In the secondary market, buyers can expect to obtain vacant possession of the property in a shorter time frame, or at the end of three months after the SPA has been signed.
For instance, Ismael has expressed interest to buy a residence and pays the earnest deposit on June 25, 2019. He then inks the SPA with the vendor on July 1 of the same year after his loan application was approved. In this scenario, the seller needs to give the keys to Ismael by October 1, 2019 at the earliest, but not later than November 1, 2019.
Read more: The Shortcut A-Z on SPA
Penalty for Late Delivery of Vacant Possession
Each SPA, including the standardised contracts under the law such as Schedule H or Schedule G or a custom agreement penned by an attorney always states a clause stipulating what would happen if the developer or seller is delayed on its delivery of vacant possession. Typically called the clause for liquidated and ascertained damages (LAD), this part of the contract indicates the amount the purchaser will receive from the vendor if the latter is late in giving you the keys to the property.
The penalty fee is computed based on the deadline for delivery of vacant possession and until the date the seller or developer actually fulfils this obligation. The amount should then be paid to the purchaser right away.
Please note that both parties may also sign a settlement agreement if the delay is unreasonable and the calculated LAD is insufficient to indemnify the damages and losses endured by the buyer.
Malaysian courts recognise such contracts between developers and homebuyers. But please bear in mind that while the seller or developer agrees to compensate the purchasers under the agreement, it also contains a clause that the buyer waives his right to sue the developer for the same issue in the future. In many instances, buyers choose this process instead of taking the seller to court as the latter is more expensive.
But if the vendor refuses to pay the LAD or sign a settlement deal, the buyer has the right to sue via the civil courts or the Homebuyers Tribunal.
Seeking LAD Payment Via Homebuyers Tribunal
The advantages of filing a claim at the Homebuyers Tribunal is that it’s inexpensive as you only need to pay a fixed fee of RM10 and there’s no need to hire attorneys. The application process is also not complicated, as you only need to fill in several forms indicating the LAD amount you intend to claim, and then submit it to the tribunal along with your evidences and supporting documents.
Please note that a homebuyer needs to file his or her claim within a year from either the CCC date, or the DLP’s expiry date as stipulated in the SPA. If the tribunal sides with buyer, it will award the LAD.
However, a homebuyer can only claim up to RM50,000 in liquidated damages in the tribunal. If the amount is beyond the cap, the claimant would either have to forgo the excess amount or divide the claimable sum in two. For the second situation, the purchaser needs to file a claim for a particular duration of delay wherein the LAD doesn’t surpass RM50,000. If successful, the buyer can file another claim for another time frame to recover the overall liquidated damages owed.
Resorting to the Civil Courts
Unlike the tribunal, filing a claim in the civil courts is often complicated and costly as claimants are advised to hire an attorney.
According to the Limitation Act of 1953, claims arising from a breach of contract must be filed at the civil courts within six months from the date when the seller or developer has actually delivered vacant possession of a property, or from the date the liquidated damages becomes payable.
The claimant needs to show that the vendor has violated the SPA, and the agreement must have a provision spelling out the LAD to be paid in case of late delivery of vacant possession.
If the court favours the buyer, it will award an amount that doesn’t surpass the LAD specified in the SPA, unless the claimant can prove that the liquidated damages clause and the amount stipulated therein are unreasonable.
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(Written by G. Zizan, 6th December 2019)
