©The Star Online (Used by permission)
by Andrew Wong Fook Hin
Much has been said recently about rates of charges for strata properties. In relation to that, share units of such properties have featured prominently.
This article (part 1) seeks to trace the history and to demystify the concept of share units and how it applies to the management of strata properties.
Purpose of share units
Share units are important to strata property owners for three reasons:
> They determine the amount of charges payable;
> They determine the number of votes on a voting by poll; and
> In respect of an owner of two or more parcels, they determine the number of individuals that may be nominated by him for election as a committee member, subject to a threshold.
The importance of share units is based on the concept that the more share units you have, the more you pay, the more voting rights you have and the more representatives you may nominate to be elected as committee members.
Determining the amount of charges payable by a strata owner for the maintenance and management of the common property is nothing new for housing accommodation. On April 1,1989, when the Housing Developers (Control and Licensing) Regulations 1989 (1989 Regulations) came into force, the sale and purchase agreement for strata properties between a housing developer and a purchaser was regulated by a prescribed contract of sale under Schedule H (Schedule H SPA).
In that first Schedule H SPA, it was provided that from the date the purchaser takes vacant possession of his parcel, he shall pay a fair and justifiable proportion of the costs and expenses for the maintenance and management of the common property, and the amount payable shall be determined according to provisional share units assigned to the parcel by the developer's architect. In a 2007 amendment to the Schedule H SPA, the word "architect" was replaced by "licensed land surveyors".
Commercial strata properties
There are no laws or regulations regulating the sale by a developer of non-housing or commercial strata properties, and in such cases, the determination of charges payable by a commercial strata owner was governed by contractual provisions, until April 12,2007 when the Building and Common Property (Maintenance and Management) Act 2007 (BCPA) came into force.
The BCPA was legislated to provide for proper maintenance of building and common property in respect of strata properties (housing and commercial).
Under the BCPA, the purchaser and the developer (in respect of unsold parcels) are required to pay charges for the maintenance and management of the common property and the apportionment of charges shall be determined in proportion to the share units assigned to each parcel by the developer's licensed land surveyor (the allocated share units).
On June 1,2015, the BCPA was repealed and replaced by the Strata Management Act 2013 (SMA). The SMA continued to provide that the amount of charges payable by a strata owner shall be determined by share units.
Formulas for assigning share units
There are many formulas used for assigning share units. We will look at some of these which are used in Malaysia.
In drafting the provisions of the SMA, appropriate authorities were well aware that in many development areas no share units have been assigned to each parcel by the developer's licensed land surveyor at the time of sale and that is the reason for the SMA to make a provision that in such a case, the share units for each parcel shall be assigned by any person or body who has a duty or is responsible under the SMA to maintain and manage any building and the common property in accordance with the formula set out in the First Schedule of the SMA (First Schedule Formula).
Assigning share units using the First Schedule Formula
The First Schedule Formula is as follows:
Allocated share unit of parcel = (area of parcel x WF1 x WF2) + (area of accessory parcel x WF3).
In calculating the share units, basically three weightage factors have to be taken into consideration:
> the type of parcel (e.g. whether for apartments or office complexes or retail complexes or hotel complexes or industrial complexes or car parks or shop-houses, shop-apartments and shop-offices (WF1);
> whether it is a whole floor parcel (WF2); and whether there are accessory parcels (outside or within the building) (WF3).
In assigning share units for each type of parcel (WF1), additional factors to be taken into consideration are whether or not there is air-conditioning to common areas of corridors, lobbies and foyers and whether or not there is benefit of common lift or escalator facilities.
In general, taking all weightage factors into consideration, an apartment parcel would be assigned fewer share units than a retail parcel or a hotel parcel.
It is pertinent to note that the First Schedule Formula is only to be used or applicable, in a development area where no share units have been assigned to each parcel at the time of sale before June 1 2015.
For any new sale by a developer after June 1 2015, the SMA requires a developer to file with the Commissioner of Buildings, a schedule of parcels showing the proposed share units of each parcel or proposed parcel.
The formula for calculating share units shall be stipulated in a Certificate of Share Unit Formula (SiFUS) issued by the Land and Mines director (PTG) of each state.
All applications for the SiFUS in each state shall follow the formula prescribed in the relevant strata title rules of each state, which came into force on various dates in each state in 2015 and 2016 (STR).
However, the PTG may exempt an applicant from using the prescribed formula in the STR, i.e. an applicant may propose a different formula and it will be for the PTG to determine whether the proposed share units are equitable.
The formula stipulated in the STR is similar to the First Schedule Formula, except that the First Schedule Formula did not provide for assignment of share units in respect of land parcels, presumably because at the material time there were no development areas where vacant possession of land parcels have been delivered by a developer to purchasers where no share units have been assigned to each land parcel.
Calculation of share units before the First Schedule Formula and the STR
Before Oct 31 2008, share units were calculated principally based on the area of the parcel.
On Oct 31, 2008 the Land and Mines director-general issued a "Buku Panduan Permohonan Hakmilik Strata: Akta Hakmilik Strata 1985" (KPTG Guidelines) which provided guidelines for proposing share units to be assigned to a parcel in an application for subdivision of a building into parcels each to be held under a separate strata title.
The KPTG Guidelines provids a common method for calculation of share units, as follows:
> In accordance with the market value of the parcel, in that a parcel with a higher market value will be assigned more share units than a parcel with a lower market value;
> in accordance with the selling price of the parcel, in that a parcel with a higher selling rice will be assigned more share units;
> in accordance with the value of the parcel as determined by the local authority, that is the value of the parcel for the purpose of payment of assessment rates;
> in accordance with the type of parcel, in that a commercial parcel will be assigned more share units that a residential parcel;
> in accordance with the location or position of the parcel, in that a luxury apartment at a higher floor will be assigned more share units than a luxury apartment at a lower floor, or in the case of a low cost apartment, a parcel at a lower floor will be assigned more share units than a low cost apartment at a higher floor.
The KPTG guidelines also provided certain weightage factors to be taken into consideration in the calculation of proposed share units, e.g:
> for a non-mixed development -- share units shall be assigned either based on floor area or on a proportion of the floor area;
> for a normal mixed development (shop-house) -- weightage factors of between 1 to 1.5 will be considered to accommodate the different usage of the parcels;
> for a mixed complex development (comprising residential, office, commercial, vehicle parking area-commercial, or industrial) -- weightage factors of between one to five5 will be considered to accommodate the different usage of the parcels; and
In respect of all the above different types of development, accessory parcels shall be taken into consideration.
The writer is of the view that the First Schedule Formula and the formula in the STR are more equitable formulae to assign share units than the KPTG guidelines as more weightage and other additional factors are taken into consideration.
In Part 2, the writer will examine the impact of the recent Court of Appeal decision in the JMB Menara Rajawali case, on determination of different rate of charges for different types of parcels and whether one common rate should apply.
Andrew Wong Fook Hin, a lawyer practising at Messrs Andrew Wong & Co, is a member of the Conveyancing Practice Committee, Bar Council, Malaysia. This column does not constitute legal advice and the views expressed are solely that of the writer.
Please click here to read part two of the article.