Contributed by property valuer Mary Lau
In my previous articles, I wrote about the controversy of using differential rates in stratified mixed developments during the JMB period. Many mixed schemes adopt a uniform rate throughout when JMB and MC are in charge.
Read parts 1 and 2 of Maintenance charges for stratified mixed development projects.
One argument suggests that the share units formula has already accounted for common property exclusively meant for different category parcel owners. Therefore, there isn’t a need to use differential rates.
The formula for the calculation of share units and the tables of the 3 weightage factors can be found in the First Schedule ( Section 8) of the Strata Management Act 2013 (SMA).
The first weightage factor (WF1), which reflects the frequency of usage and general maintenance of the common property is the heavyweight in the formula.
Share units of each parcel = (area of parcel × WF1 × WF2) + (area of accessory parcel × WF3)
Every parcel owner has a number of shares units assigned to his property based on the formula above. Those with higher shares would need to pay more maintenance charges and contributions to the sinking fund. They would have more voting power by poll at the AGM.
Schedule of Parcels
The Strata Management Act 2013 requires every developer to file the schedule of parcels (SOP) with the Commissioner of Bulidings (COB) before they can sell.
The SOP shows the proposed share units of each parcel and in the case of a phased development, the proposed quantum of share units for each provisional block (Sec 6(1)).
The SOP includes all common properties and accessory parcels (Sec 6(3b)) and there must be a certificate from licensed land surveyor and architect that the property is capable of being subdivided under the provisions of the Strata Titles Act 1985 (Sec 6(3c,3d)).
The SOP must be exhibited prominently at the sales office and submitted to the Director of Land and Mines (Sec 6(5a,5b)) for the application to subdivide the building.
The schedule of parcels (SOP) cannot be amended unless every purchaser agrees to it or the local authority requires it.
In a recent seminar, “Creativity vs Sustainability: Buyers don’t be fooled” by Datuk K.L Chang of National House Buyers Association, it was highlighted that in some cases, common facilities belong to the developer which could be sold in the future. Additionally, if there are provisional blocks and if these are delayed or abandoned, buyers could end up paying for the maintenance of the common facilities to be shared with them.
Weightage Factors
In the First Schedule, Table 1 refers to the weightage factor (WF1) as described above. If your parcel is in a retail complex with air-conditioning to common areas and having the benefit of common lift or escalator facility, it would have the highest WF1 of 3.2 – whereas an apartment unit would have a WF1 of 1.3.
Table 1. Weightage Factors (WF1) for the types of parcels reflecting the frequency of usage and general maintenance of the common property
A higher WF1 means more usage of the general common areas and facilities and therefore the need for more maintenance. A whole floor parcel of car park without air-conditioning to common areas and having no benefit of common lift/escalator facility has the lowest WF1 of 0.65.
In Singapore, as put forward by the Building and Construction Authority, the computation of weight factors for each user group is based on the share of the maintenance costs proportionate to the expected use or benefit each user group will derive from or the risk it will contribute to the common property. Shops, which incur a higher percentage of maintenance expenses because they use more air-conditioning and other facilities like escalators, are allotted a proportionately larger share value.
Table 2 shows the weightage factors (WF2) variance for the whole floor parcel which includes or excludes lifts or escalators and less than whole floor parcels. The factors are 0.80, 0.85, and 1.00 respectively.
Table 2. Weightage Factors (WF2) for whole floor parcels
The weightage factors (WF3) for an accessory parcel is in the last table (Table 3). The WF3 for an accessory parcel outside the building is 0.25 and within the building 0.5.
Table 3. Weightage factors (WF3) for an accessory parcel
This basic formula does not account for common areas/facilities exclusively for the benefit of different category parcel owners in a mixed development scheme. If it has and therefore a uniform rate should be used, the SMA would not have allowed a 2 tier management after the MC is formed. In this structure, owners pay one rate to the main MC for common property common to all and another rate to their respective Sub-MC for common property exclusive to them only. In accordance with the provisions in Sec 64 and 65 of the SMA, the formula for the rates can be deduced as follows:
Main rate = Costs to maintain general common property ÷ Total share units of all categories
Second rate = Costs to maintain exclusive common property ÷ Total share units of each category
Buyers should not be misguided by representations that the share units formula is all-encompassing and the promise of a uniform rate in a mixed scheme. It is not possible for one formula to fit in all the variables. The Joint Management Body (JMB) can impose differential rates by passing a resolution at the AGM and have enough votes to get it through. Every stratified property governed by SMA 2013 has to follow the formula. If a development is able to use a different formula, it must show approval from relevant authorities.
What is fair?
Some have touted this formula as lacking fairness due to the high weightage factor, WF1, for the retail category. A higher WF1 would result in a larger share units allocation since the variance in the higher and lower factors for WF2 and WF3 is small. Therefore, it would be adding salt to the wound to use a uniform rate in a mixed development where unequal exclusive common property exists.
For example, if a residential component has more exclusive areas/facilities than its retail counterpart, then it would have a higher rate of maintenance charge if the scheme uses differential rates. The main rate for the maintenance of general common property would be the same for all categories. The second rate depends on the exclusive common property for each category. Therefore, given the same size, a retail owner would pay more for general common property maintenance, due to the higher weightage factors and hence a larger number of share units, than a residential owner. But could incur less for the maintenance of exclusive common property if the second rate is low as a result of minimal exclusive common areas/facilities for that component.
If there are intentions to challenge the decision of the High Court in the Menara Rajawali case in the Court of Appeal on the basis that the formula has accounted for all, I doubt it will succeed.
Read part 1 of the Maintenance charges for stratified mixed development projects.
About the contributor
Mary Lau graduated from the University of Reading, England, with a BSc Land Management (Valuation Specialisation) in 1991. In 2002, she was appointed High Court Assessor in Sarawak for compulsory acquisition and compensation cases and sat on the bench with the judge. She began her training with CH Williams and later held senior positions in valuation firms such as Henry Butcher, City Valuers and was a Director at Hasmi and Associates in 1999. She began her own setups in real estate investment and other ventures by 2007. She is a licenced valuer with the Board of Valuers in Malaysia.
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