The present pandemic has caused a decline in the local housing market. The Department of Statistics recently reported a 6.3% contraction in the construction sector in the first quarter of the year.
These conditions may prompt developers to employ innovative and even aggressive marketing strategies to amplify sales. Developers would be well within their rights to do so.
However, the Court of Appeal recently issued a reminder that: “Generally nothing is done by a developer without benefitting itself where promoting sales of its development is concerned. Nothing wrong with promoting sales but then all marketing and sales gimmicks must comply with the requirements of the HDA and the Regulations” (Sri Damansara Sdn Bhd vs Voon Kuan Chien 2020).
This Court of Appeal statement arose from a challenge against an award of the Tribunal for Homebuyer Claims.
A purchaser of a condominium unit filed a claim for damages for late delivery of the unit. The purchaser alleged a delay in delivery from the date of the payment of the booking fee. The developer denied the allegation and argued that the unit had been delivered within the time period. The developer further argued that the purchase price to calculate the damages payable should be the discounted price that was given in a credit note (which docked 10% from the purchase price) issued at the point of execution of the SPA and not the purchase price stated in the SPA.
The Tribunal upheld the purchaser’s claim of late delivery from the date of the booking fee and awarded damages premised on the purchase price stated in the SPA. The developer then challenged the Tribunal’s award at the High Court and failed. The Court of Appeal then dismissed the appeal of the developer and upheld the findings of the Tribunal.
In the stated case, the developer “employed a clever device to attract sales of the housing accommodation in that upon the signing of the SPA, a credit note is given to the purchaser for the sum equivalent to the balance 10% of the purchase price… The developer argued that there was an effective discount via the credit note of RM63,108.00 from the purchase price stated of RM731,080.00 and so the actual and real purchase price is RM667,972.00”.
However, the Court of Appeal ruled that the issuance of the credit note was contrary to the purpose of the Housing Development (Control and Licensing) Act 1966 and the related Regulations, which were “designed to protect the purchasers who are more vulnerable against developers”.
It was decided that “The device of stating a higher purchase price in the SPA when the developer knows that it would be giving a credit note to the purchaser at the opportune time determined by them has the debilitating effect of the banks giving a higher margin of loan to the purchaser who may other not qualify for the loan to purchase the property”.
It was also held that “The whole landscape of the Schedule H SPA and the HDA, as well as the Regulations, does not countenance a different category or classification of ‘purchase price’ be it a ‘discounted purchase price’ or a ‘reduced purchase price’ or ‘actual purchase price’”.
The remarks of the Court of Appeal serve as a reminder to developers that its marketing measures must conform with the Act and the Regulations.
Apart from the provision of discounts (as the featured case shows), the following are other items that developers should be conscious of in its marketing strategies:
- Any advertisements of housing developments are only to be issued with an advertisement and sale permit issued by the Housing Controller, and the content of such advertisements are to include the particulars in Regulation 6(1) (see Regulations 5 and 6 of the Regulations);
- The use of names and emblems for a housing development must be with the written permission of the Housing Controller (see Regulation 7 of the Regulations); and
- Only payments prescribed under the Act, Regulations and the SPA are permitted to be collected by developers from purchasers (see Regulation 11(2) of the Regulations). The Court of Appeal decision ruled that the collection of booking fees prior to the execution of the SPA was prohibited under the Act and Regulations.
Although the present market conditions may warrant inventive commercial steps, developers would be well advised to ensure that its measures are within the law.
To do otherwise may expose developers to further costs in the form of unnecessary litigation. Therefore, developers that have doubts on the propriety of its marketing measures should consult the provisions of the Act and Regulations before going public.
Gregory Das is a practising dispute resolution lawyer in Kuala Lumpur and is familiar with housing development disputes.
This article is intended to convey general information only. It does not constitute legal or other advice or the provision of legal or other professional services, and shall not be relied upon as such.
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.