Contributed by Honorary Secretary-General of the National House Buyers Association Datuk Chang Kim Loong

A rebuttal to property valuer Mary Lau's article "What’s In A Rate?"

The National House Buyers Association (HBA) recognises the fact that there is great diversity of mixed-use strata developments in Malaysia where many permutations are possible involving many types of components. This includes condominiums, serviced apartments, medium-cost apartments, low-medium cost apartments, low-cost flats, offices, retail outlets, shop-offices, shopping malls, hotels, carparks, and land parcels.

To further complicate this great diversity in mixed-use strata developments, the components can either be en-bloc parcels (blocks with a single strata title) or multiple parcels (blocks with multiple strata titles).

To compound the above complications, the common property including facilities in such mixed-use strata development may either be shared in use equally by all the parcels or components in a strata development, or not shared in use equally by the components in a strata development (where there is exclusivity of use of certain designated parts of the common property to only one or more components but not all the components).

A simple example is found in JMB’s Central Park, Penang where the high-cost facilities in its condominium are not shared with its low-cost flats.

High rise: The high-end apartment project in Batu Lanchang which consists of five 36-storey blocks with some 300 units.

Another example is in JMB’s Bukit Jambul Kompleks, Penang where the centralised air-conditioning system of its multiple parcel shopping mall is not shared with its condominium and its low-cost flats.

Upon taking into account the great diversity and complications in the mixed-use strata developments in Malaysia, it is clear that one uniform rate of maintenance charges will not be applied equally to all the different types of mixed-use strata developments. The maxim is true here that one size does not fit all.

Our humble opinion is that the writer fails to understand that, being an en bloc parcel to be issued with a strata title, the carpark parcel is essentially a parcel without any common property or exclusive common property inside the parcel – save the building’s structural beams and columns.

The carpark parcel at the Bukit Jambul Complex. Pix by Gary Chen/The Star/2 April 2016.

The same principle applies to the en bloc office tower, which is a parcel to be issued with a strata title and it does not have any common property or exclusive common property in the parcel – save the building structural elements.

The writer is misconceived to state that the different rates of maintenance charges are not allowed during the management period by the management corporation (MC) without subsidiary management corporations (SMCs).

This is erroneous and will cause unnecessary confusion to the public. The fact is that section 60 of the Strata Management Act 2013 (SMA) provides for the MC to determine different rates of charges for parcels of significantly different purposes and for provisional blocks.

The best practice for the determination of maintenance charges in mixed-use strata developments is, in fact, the different rates of maintenance charges subject to the principle that an owner only pays for what he is entitled to use and vice-versa.

The approach is systematic and clinical: that a component (a group of parcels in a block) will bear the direct cost of its own exclusive common facilities and services plus the apportioned shared cost of the shared common property.

Shared property such as the shopping floors in the Bukit Jambul Complex.

The total of the direct cost and shared cost will then be divided by the total share units of the component to give its fair and reasonable rate of maintenance charges.

The concept here is the same as the MC and SMC. The SMC will bear the direct cost of the facilities and services in its own limited common property (LCP), and an LCP rate of maintenance charges will be collected from its members.

The MC will manage and maintain the balance of the common property (CP), and a CP rate of maintenance charges will be collected from all the owners in the mixed-use strata development.

The total of the LCP rate and the CP rate is essentially the different rate for a component as mentioned above.

In Muhamad Nazri Bin Muhamad v. JMB Menara Rajawali & Anor, the dispute can be traced back to the 1st Annual General Meeting of the JMB where it was unanimously resolved that mandate be given to the Joint Management Committee (JMC) to fix the maintenance charges for residential and retails shop parcels at a rate not exceeding RM3.26 per share unit and car park parcels at a rate not exceeding RM1.68 per share unit.

Pursuant thereto, the JMC fixed the maintenance charges for residential and retail shop parcels at a rate of RM2.80 per share unit; and car park parcels at a rate of RM1.68 per share unit.

Decision of High Court

Dissatisfied with the resolution and the subsequent decision of the JMC, the plaintiff, who is an owner of a residential parcel, filed a suit against the JMB and the owner of the car park parcel (whole floor) at the High Court contending that the different rates of maintenance charges discriminated against retail shop and residential parcels and were unlawful.

The High Court disagreed with the plaintiff and found that there is nothing in the SMA which prevents the JMB/JMC from fixing different rates of charges as long as this is approved by the AGM.

As the approval was given by a unanimous resolution at the AGM, it was perfectly valid and legal for the JMB to fix differing rates of charges for the residential/retail parcels and car park parcels.

High Court Decision Reversed

The Court of Appeal disagreed with the High Court.

The Court of Appeal observed that share units are calculated according to the formula under the First Schedule of the SMA which already takes into account three weightage factors.

The three weightage factors make differentiations including different types of parcels, parcels with or without air-conditioning to common areas such as corridors, lobbies, and foyers, and finally, parcels having the benefit or no benefit of common lift/escalator facilities etc.

In addition, sections 21 and 25 of the SMA requires the JMB to determine the maintenance charges ‘in proportion to the allocated share units of each parcel’.

The Court of Appeal ruled that since three weightage factors have been applied in the calculation of share units for car park parcels and which calculation is premised on equitable consideration, JMB is only empowered to fix one rate which is applicable to all types of parcels.

The Court of Appeal further agreed that since the car park unit (whole floor parcel) is already enjoying a 40% discount by way of the calculation of its share units pursuant to the formula in the First Schedule of the SMA, it will enjoy a further 42% discount given the lower rate of maintenance charges for the car park units.

On another issue of delegation of duty by the JMB to the JMC to determine rates of maintenance charges, the Court of Appeal ruled that the duty to make a decision is non-delegable.

Is the Problem Solved?

It is clear that the Court of Appeal has taken the position that as the formula used to calculate share unit has already taken into account various factors such as use of parcels, there can be only one single rate of maintenance charges, otherwise certain group of parcel owners will enjoy unjust discount on the expense of other parcel owners.

We humbly submit that this seemingly equitable decision fails to take into account the reality.

Mixed developments involve issues extending beyond the mere use of parcels and the factors enumerated in the formula contained in the First Schedule of the SMA.

There are situations where even between parcels of the same use and with the same characteristics, the costs of maintaining such common areas could still vary.

This is because certain common property including facilities in such mixed-use strata development may not be shared in use equally by the components in a strata development (that is there is exclusivity of use of certain designated parts of the common property to only one or more components but not all the components).

Furthermore, the Court of Appeal’s decision fails to appreciate the differences between en bloc parcel (a block with a single strata title) and multiple parcels (a block with multiple strata titles).

For example, an en bloc office parcel block could have little or no common area at all within its own block and it may be unfair to require the en bloc parcel block owners to foot the bill for maintaining the common facilities located in residential towers such as swimming pool and gym.

A point to note is that the apartments and offices shared the same weight in computing share units.

Above all, the overriding principle in determining maintenance charges shall be that an owner only pays for what he is entitled to use and vice-versa.

The allowance of different rates during management by the JMB will provide for flexibility, and of course, safeguards must be put in place to ensure that this mechanism is not being abused.

The rates of maintenance charges must be sanctioned by general meetings, and preferably, with the passing of special resolutions.

When the SMA allows for the imposition of different rates of maintenance charges for developments managed by the Management Corporation, the same shall be applicable to developments managed by the JMB unless there are valid justifications not to do so.

After all, the JMB is merely the precursor of the MC and will be succeeded by the MC once the strata titles are issued.

The spirit of the law is to have a smooth transition from the JMB stage to the MC stage and not to create confusion and dire ramifications.

We opined that the Court of Appeal must have adopted the strict and rigid interpretation of the SMA.

Read Mary Lau's response to this article here.

Chang Kim Loong, honorary secretary-general of the National House Buyers Association

National House Buyers Association (HBA)
31, Level 3
Jalan Barat, Off Jalan Imbi
55100, Kuala Lumpur.

Disclaimer

This article is intended to convey general information only. It does not constitute advice for your specific needs. This article cannot disclose all of the risks and other factors necessary to evaluate a particular situation.

Any interested party should study each situation carefully. You should seek and obtain independent professional advice for your specific needs and situation.

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