In Malaysia today, there are several schools of thought on the position of LAD thus leading to the million-dollar question as to when a contract is breached by the developer, should the purchasers bear the burden of proving actual loss and damages to justify their entitlement claim to LAD or on face-value?
According to a news report by The Edge Market, The Federal Court has ruled that the payment due from housing developers to purchasers for late delivery of houses should be calculated from the date the booking fee is paid, and not the date the Sales and Purchase Agreement (SPA) is signed. However, this does not apply to Sabah as Sabah has its own Housing Development Enactment.
So, What Exactly is LAD?
It stands for 'Liquidated Ascertained Damages’, which is treated as a genuine pre-estimate of loss and damages wherein purchasers would be entitled to claim for LAD should the developer delay its handover of vacant possession. This is normally referred to as the 'LAD clause'.
If you're purchasing a strata property from a property developer, the LAD can be found in clause 25 of the prescribed SPA under Schedule H, which states that:
“(1) Vacant possession of the said Parcel shall be delivered to the Purchaser in the manner stipulated in clause 27 within thirty-six (36) months from the date of this Agreement.
(2) If the Developer fails to deliver vacant possession of the said Parcel in the manner stipulated in clause 27 within the period stipulated in subclause (1), the Developer shall be liable to pay to the Purchaser liquidated damages calculated from day to day at the rate of ten per centum (10%) per annum of the purchase price from the expiry of the period stipulated in subclause (1) until the date the Purchaser takes vacant possession of the said Parcel.”
To put it simply, it means a developer must deliver vacant possession within 36 months, or face paying compensation for the delay.
How Is LAD Calculated?
The standard clause stipulates that the developer shall owe compensation equivalent to 10% per annum of the property purchase price. Here’s a simplified example on a LAD calculation for a property with purchase price of RM300,000:
SPA date = 01/05/2016
Completion date = 31/08/2019
Actual delivery of vacant possession = 31/10/2019
Days of delay (from 31/08/2019 to 31/08/2019) = 64 days
(Purchase price (RM300,000) x interest (10%) x 64 days) / Divided by 365 = RM5,260.27
Most buyers who buy under construction properties will be able to relate when we say it’s a miracle for developers to complete construction as per scheduled. Having said that, anything can happen which could delay completion of construction and delivering of vacant possession. In this case, Covid-19.
A Bill of Temporary Measures for Reducing the Impact of Covid-19 Enactment 2020 has been passed by the Legislative Assembly on 23rd December 2020. From the period of 18th March 2020 to 31st December 2020, notwithstanding any agreement entered between the purchaser and the developer, the aforesaid period is excluded from the calculation of: -
- The time for delivery of vacant possession of a housing accommodation; and
- LAD for the failure of the developer to deliver vacant possession of a housing accommodation.
Moreover, the developer may apply to the Minister for an Extension of Time. Upon application, the Minister may grant the developer an extension of up to 31 March 2021 to deliver vacant possession and such extension shall have the same effect as the period excluded mentioned above.
As for the buyers, one can only hope that the developer will still be able to complete the project and deliver vacant possession within a certain period. A continuous Extension of Time to complete project(s) may well lead to sick, incomplete project(s) which eventually will crumble into an eyesore.
Have you ever thought of what would happen if you get a house in a different condition than what the developer promised you to? Read: Homebuyer Tribunal Guide | What You Can Claim and the Filing Process
The views and opinions expressed in this article are those of the authors and not intended to malign any company, individual or necessarily reflect the official policy or position of any agency or organization. Focal Times is a subsidiary of Maxworld Consulting Sdn Bhd, a regional organization founded by a mixture of agile and experienced corporate finance, venture capital and industrial experts. This establishment focuses on sharing current banking affairs, latest property developments and updates and more.