Understanding defect liability claims

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Real Legal by Chris Tan

Given a choice and taking full advantage of Malaysia still a developing economy, homebuyers and property investors are pampered all along with a preference to buy a brand new property under construction as compared to venturing into the ready to use secondary market with a higher barrier of entry in costs. If you are buying residential property under construction, there is also additional protection under the Housing Development Act 1966 (HDA) over and above the many subsidies and perks commonly offered by the Housing Developers these days. Furthermore, if you are buying strata property, there are further protections under both the Strata Title Act as well as the Strata Management Act.

One of the most distinctive motivations in that brand new property acquired from the primary market comes with a “product warranty” to enable the purchasers to claim for defects in the property during the defect liability period while property acquisition from the secondary market is normally transacted on an “as is where is” basis after the site inspection by the purchaser unless of course, if the property is still under the defect liability period. This is especially so if the purchase is regulated under the HDA where the 24 months defect liability period after the delivery of vacant possession is secured against a 5% purchase price retention sum in the stakeholding of the attending lawyer. The process of making a defect claim is spelt out clearly in the prescribed agreements under the HDA. Any dispute in this regard can also be referred to the claim friendly Homebuyer Tribunal set up under the HDA.

If the property so acquired is in a strata development scheme, defects for a common property is also claimable under the said retention sum under HDA as well as another addition retention sum with the Commissioner of the Buildings under the strata regime specifically for the common property in a strata development.

If the property purchase is not a residential property regulated under the HDA, purchasers are advised to look into the terms and conditions of the sale and purchase agreement executed to find out the prescribed unique processes in the defects claim and act accordingly. Not every property purchased from the primary market necessarily comes with a defect liability period and obviously need not be 24 months as offered under the HDA purchase.

While it might sound straightforward in making a claim, there are many practical challenges. First of all, it is the difference of expectation between the purchaser and the developer. The materiality of defects and the subjective variances of acceptable quality is always an issue. The attending architects are often put on the spot to certify whether the applicable building standards have been complied with. Suffice to say that not all buildings are expected to last forever; homebuyers must be realistic to adjust expectation with allowance for wear and tear as a result of usage and occupation of the building.

Aside from the differences in the expectation in the finished product, rectification of defects also means waiting time and inconvenience as well as disruptions to the homebuyer’s enjoyment of the property so purchased. Given that it is home, there are many sentimental considerations over and above monetary compensation. The speeds, as well as the standard of the defect rectification, are always in contention between the homebuyers and the developer.

The fondness of Malaysian homebuyers in personalising their new home with renovation and refurbishment is also another challenge in making defects claimed. The well-intended renovation work might be a contributory factor to the resulting defects thus a matter of disputes or even concealing the detectability of defects beyond the defect liability period. Not many homeowners are willing to wait for the lapse of the defect liability period only to carry out the intended renovation.

Another common issue is the sale and purchase of a property still within the defect liability period, it is essential that a conscious effort must be taken by the attending lawyers to ensure that the subsequent buyer can continue to make any defect claim for the balance of the defect liability period just like the first purchaser who have purchased from the developer.

Perhaps a good practice by the developers in this matter would be to manage the expectation of the property purchasers in making the defect claim as soon as the delivery of the vacant possession. Be transparent enough to educate the property purchasers on what is a defect and what is the process in making a claim can go a long way in ensuring this after sale experience offered would sustain continuous loyalty from the property purchaser.

While the developer is a professed builder supported by professionals of many different trades, there is no professional property purchaser guided adequately by standards. Governed by this basis, all the stakeholders should collaborate to make this defect liability period a meaningful exercise for all.

>> Chris Tan is the founder and managing partner of Chur Associates

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