©New Straits Times (Used
by permission)
by Derek Fernandez
HOMEOWNERS of properties without individual titles are in limbo. Most of them
are apartment and condominium owners, whose numbers run into hundreds of
thousands.
According to the National House Buyers Association’s website www.hba.org.com,
more than 29 per cent of the approximately 30,000 complaints made each year to
the Ministry of Housing and Local Government against developers relate to their
failure to issue buyers with individual strata titles.
This figure is set to break the 30 per cent barrier this year. Failure to
provide the buyer with the basic document of ownership, the elusive strata
title, has become a disgrace in the administration of land matters, especially
since it has been 22 years since the Strata Title Act 1985 was passed.
Without the strata title, homeowners face substantial problems and added costs
in the use and enjoyment of their property.
For starters, they can be held to ransom by unscrupulous developers who choose
to profiteer from service and maintenance charges and misuse sinking fund money
while providing shoddy services.
Recently, homeowners have complained about this. They also face unjustifiable
increases in charges when trying to sell their property when it does not have a
strata title, as some developers have been known to demand unreasonable
administrative charges and legal fees for "vetting the documents".
More serious, however, are the increased water and electricity rates these
homeowners face because they lack an effective body to negotiate with the
utility providers on the basis for charges.
The overall lack of transparency in many management companies and breaches of
the Housing Developer (Control And Licensing) Act 1966, which requires them to
give owners audited accounts, has made the situation intolerable.
It appears that the promises of the glossy advertising brochures have long since
been forgotten, after the bitterness of the reality of high–rise property
ownership sinks in.
In several cases, the developer’s management company or agent have misused even
the sinking fund money, sold off car parks and spent the money allocated for the
strata titles for other purposes.
Some developers and their management companies have also gone into liquidation,
leaving the homeowners stranded and having to deal with a large number of
creditors.
In the past, even electricity and water supply have been cut to apartments
because the developer’s management company was unable to pay the electricity
bills, even though responsible owners had been promptly paying their charges.
In short, the situation is an absolute mess. Under the present law, until the
strata title has been issued, a homeowner’s management corporation cannot be
formed and so homeowners cannot effectively deal with these problems.
In fairness, there are some responsible developers who have done a good job, but
the present number of complaints suggests the problem is serious.
Despite a 22–year–old law that ma– kes it mandatory for a developer to apply for
strata titles within six months of the sale and purchase agreement, the strata
title remains the elusive holy grail of high–rise ownership. There appears to be
no effective enforcement against offenders of the Strata Titles Act 1985, and
impotence on the part of some to make these errant developers accountable.
In addition to prosecution under the Act by the Ministry of Environment and
Natural Resources and the blacklisting of errant developers and their directors
by the Ministry of Housing and Local Government, money in the housing
developers’ accounts for the project should also be seized to cover the cost of
the strata titles if, after six months, no proper application is made.
Unless there is genuine will to protect the public, the recent 2006 amendment to
the Strata Titles Act 1985, which, among others, increases the penalties against
the developer, will fail and it will just be a case of "all bark and no bite".
No doubt the 2006 amendment to the Housing Developers (Control and Licensing)
Act 1966, which links the final 2.5 per cent of the purchase price to the
issuance of strata title, will help homebuyers of new projects.
But for the rest, the nightmare continues with the hope that the new Building
and Common Property (Maintenance and Management) Act 2006, once implemented,
will lead homeowners to the "promised land".
The management of apartments and condominiums is very profitable, especially if
there is no transparency and accountability. Although Section 21 of the Valuers,
Appraisers and Estate Agents Act 1981 prohibits a developer from charging
property management fees, some developers have resorted to innovative ways to
"milk the cow".
Some of the techniques used are denying access to accounts, charging large
directors’ fees, engaging service providers at inflated prices, selling car
parks allocated for the public and, in some cases, building on, leasing out and
using the common property for private benefit. In cases of commercial property,
the whole issue of income from parking charges needs to be looked at.
Many of these actions may violate the law and some may constitute criminal
offences under the Penal Code, such as cheating and criminal breach of trust.
However, there must be a will to enforce the law.
What homeowners should do, once the new management corporation is formed under
the Strata Titles Act or empowered under the Building and Common Properties Act
2006, is to immediately commission a forensic audit of all accounts inherited
from the previous management, if the accounts warrant such treatment.
They must make sure that when they take over, everything is fully disclosed and
transparent because, in some instances, they end up with a serious cash–flow
deficit.
The simplest solution to the strata titles problem, and a solution to most of
the homeowners’ complaints, is to make mandatory the 10/90 model for the sale of
property governed by the Housing Developers Act 1966.
This means unless the strata title is registered in the name of the buyer, the
developer will not be entitled to the balance purchase price. This is quite
normal when property with an individual title is bought and sold.
However, there are a lot of "lame duck" excuses as to why this cannot be
mandatory, even though most people conduct business on the basis that full
payment is made after the job is completed.
It is a joke that when a person has paid the full purchase price for his
property, he has not got the strata title after 10 years.
It remains to be seen how effective the amendments and new laws will be in
solving this problem. If they don’t work, then the 10/90 model must be made
mandatory. Until then, caveat emptor (buyer beware).