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Controversy Over Handover of Liabilities by Developer to JMB After the Developer Management Period

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Of late the dispute over developers handing over their debts and liabilities mainly in the form of water and electricity arrears to JMB has become a serious concern which will evidently jeopardize the continuation of proper maintenance by the JMB.

There are numerous dilemmas currently faced by JMB and one of the genuine examples is whereby a developer has charged the BONUSES of its staff to the maintenance account and have handed over the account to the JMB leaving it in the red as a result of it. This is a clear misconduct by the developer.

Taking a step back, one should look closely at the Strata Management Act 2013 (SMA 2013) or Act 757 which lay-out procedures to proper maintenance and management of buildings and common property.

Section 9 of the act states that during the developer's management period (prior to the formation of JMB), they are duty-bound to properly care and maintain the buildings and common property by-way of imposing a change to be paid by purchasers/developer (for unsold units), collection of those changes as well as executing proper maintenance of the building and common property using the available collected charges. It is the norm that developer will impose an advance collection of the charges (4 months) upon vacant possession of the units to the purchasers. This is to ensure that the building and common property are maintained effectively within the next 12 months until it is handed over to JMB.

Should the developer fail to execute its duty govern under this Section, a monetary fine or imprisonment or both shall be exercised if convicted.

Two types of accounts shall be established by the developer during the developer's management period i.e a maintenance account and sinking fund account. The maintenance account is basically for regular expenditures such as maintenance of the common property on a day-to-day basis, payments for insurance and other related services for the common property e.g cleaning, security etc.

As for the sinking fund, it is generally for the use for capital expenditure such as painting and repainting works, acquisitions of any moveable property and renewal/replacement of fixtures and fittings all in relation to the common property. Sinking fund charges collected (should not be less than 10% of the maintenance charge) may not be used within the period of 12 months from the date of vacant possession and shall be deemed as unutilized money and not profit. An example on the misuse of the sinking fund account is where the developer uses the allocation to purchase an expensive software which may not be necessary to the managing of the common property and charged it to the account. This action has resulted in depletion of the funding fund account and gave left the unhealthy state of the account.

Hence, the importance of the proper management of both accounts by the developer is crucial until the formation of JMB. The developer is required to convene its first AGM and to form the JMB not later than 12 months from the date of vacant possession and shall hand over the management of the common property (which include both the maintenance and sinking fund accounts) to the JMB within a month from the date of the AGM.

Handling over by developer to the JMB

Extracts from Section 15 and 16 of Strata Management Act 2013:

15. Handling over by developer to the joint management body
1. A developer shall, before the developer's management expires:
a. Transfer all balances of money in the maintenance account and the sinking fund account, after payment of all the expenditure which have been properly charged to the accounts, to the JMB.
b. Hand over to the JMB:
i. The administration office set up by the developer under paragraph 9(4)(a).
ii. The audited accounts of the maintenance account and the sinking fund account or, if such accounts have not been audited, the unaudited accounts.

Balances not transferred shall vest in JMB

16. (1) If any balance of moneys in the maintenance account and in the sinking fund account has not been transferred by the developer under paragraph 15(1)(a), the moneys shall vest in the JMB on the date of the expiry of the developer's management period.

The balance or surplus of moneys in both accounts are deemed as unutilized sun and not profit. Therefore, the developer is required to transfer all the laces to JMB and shall not keep it or treat it as profit during its developer's management period.

With the above, it is clear that JMB's should not inherit the debts and liabilities of the developer due to its mismanagement of the assets prior to the JMB came into being, but only the surplus of unutilised sums. Any liability during this period is to be borne by developer.

Moving forward, JMBs are advised to undertake due diligence exercise to examine all of the accounts, and documents to ensure there are no such liabilities prior to the hand over by the developers This way, JMBs can safeguard their interest and ensure effective management of the buildings and common property.

Press statement by Sarkunan Subramaniam, President of the Malaysian Institute of Professional Property Managers (MIPPM)




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