The curious case of Premier Model (M) Sdn. Bhd. v. Phileo Promenade Sdn. Bhd. [2001] 1 LNS 173 – clause in SPA allowing suspension of utilities.

In my previous article, I wrote about the woes of landlords facing an uncertain post-MCO period and the Covid-19 pandemic. If you have a difficult tenant who doesn’t pay rent and refuses to leave, that’s a double whammy. Under the current law, a landlord needs to get a court order to evict the tenant or to recover the rent arrears. The legal process could cost Rm7,000 to Rm 25,000, and getting an eviction notice takes 3 to 6 months. This doesn’t sound practical at all, given that the landlord is already in distress.

Is a suspension clause valid?

It has been reported that there is a way around the eviction notice based on the case of Premier Model (M) v. Philepromenade Sdn Bhd [2001] 1 LNS 173. The gist of the report is that if the tenancy agreement states that the landlord can suspend the water supply if the tenant doesn’t pay rent, then the landlord can do it without the court’s consent. Here’s the catch: to do this, the water bill must be under the landlord’s name. It is common practice that tenants bear utility bills (water, electricity and sewerage charges) and these bills are registered in their names; landlords can’t terminate supply, and they could get into trouble if they meddle.

Using tough measures should be the last resort, but for curiosity’s sake, let’s dive into the case to learn more. It concerned a purchaser, the vendor (developer) and its managing agent in a strata development (Megan Phileo Promenade).

Facts of the Premier Model case

The purchaser bought 16 units of shop lots in the development and owed the vendor outstanding maintenance charges of about RM106,816. After several notices were sent, the vendor notified that they would suspend the water supply if the charges were not paid and proceeded to do so when the purchaser did not respond. Subsequently, both parties had a meeting, and water was restored to 12 of the units. Not long after, the purchaser filed an action in court. 

Basically, the purchaser’s stance was that the vendor and agent had no right to interfere with the water and or electricity meters of their 16 parcels as those belonged to the government, and since the supply came from the Water Supply Department of Selangor and Tenaga Nasional Bhd., only the authorities could terminate. They sought to restore the water supply and an injunction against the vendor and agent to prevent them from interfering with the meters to cut off supply to their parcels.

All these happened way back in 1999. The titles were not out, and the developer was in charge of the common areas of the strata development. The issue rested on the terms and conditions of the sale and purchase agreement (SPA). Before the Building and Common Property (Maintenance and Management) Act 2007 (BCPA), there was no Joint Management Body (JMB). It was straight from the developer handing over to the Management Corporation (MC). BCPA has been replaced by the Strata Management Act 2013 (SMA), effective June 2015.

In the SPA, a clause clearly stated that the vendor was entitled to withdraw or suspend any services, utilities, amenities or facilities they had to provide if the purchaser defaulted or delayed in the payment of any dues. The Selangor State Water Department supplied water to the bulk meters and not to the individual parcels. The developer was responsible for supplying the bulk meters to the individual parcels. In the agreement, this responsibility was included in the definition of the maintenance charges. 

Decision of the Court

The court held that the vendor was not wrong to suspend the water supply since that entitlement was clearly stated in the SPA. (The vendor would not be able to terminate the supply if the water supply came from the water department directly to the parcels and there were no arrears in the water bills. Only the water department could do that.) 

NOTE: Today, under the SMA 2013, the by-laws in the third schedule state the measures that can be taken on defaulters, and suspension of utilities is not stated (Regulation 6). Management can deactivate electromagnetic access devices and stop them from using common facilities and services. Other stringent actions are stated in Form 11 and 20 (notice to demand payment). Even if the water supply comes from bulk meters and is billed separately, the developer or management cannot suspend it.

Going back to whether a tenancy agreement can allow a landlord to suspend water supply if the tenant defaults in paying rent, I have sought the opinion of a legal counsel who says that it can if there is a provision for that in the agreement. Currently, tenancy agreements are not regulated. The landlord and tenant agree upon the terms and conditions, following standard practice. 

Suspension leading to a suit in nuisance

However, you might want to consult your own legal counsel if suspending your tenant’s utilities would not get you a suit on nuisance, as in the case of Ho Siew Choong v. On-Kward Realty Sdn. Bhd. & Anor. [2000] 8 CLJ 175. This is yet another strata development (Bayu Beach Resort). The court held that the act of disconnecting the water supply was a nuisance and awarded damages to the plaintiff. 

The facts of this case are similar to Premier Model — it involved a purchaser, the developer and its agent, and water was supplied to bulk meters. 

The purchaser sought to restore the water supply and an injunction to prevent such from happening again as long as he paid for his portion of the water charges.  What is not clear in the law report is whether the SPA contained a clause allowing the vendor (developer) to suspend water supply like in the Premier Model. Ho’s case was decided in 2000 and Premier Model in 2001. 

Where do you stand?

Be aware of such clauses if they have found their way into your tenancy agreements. In the absence of statutory regulations, sign with eyes open wide as different agreements would have their own terms and conditions. 

For stratified properties, if your SPA allows suspension of water if you don’t pay the maintenance charges, it appears that such a clause would not hold due to the statutory mechanism to recover charges under the SMA 2013 — which binds the developer, JMB and MC (SMA, Third Schedule, Regulation 1). Furthermore, the standard SPA for residential properties, as prescribed in Schedule H of the Housing Development Act, does not have such provisions.

Any new house rules allowing suspension of utilities to recover charges can be challenged. In some strata developments, payment of water bills (not under maintenance charges) is to the management office and not the state water department. You could check with the Commissioner of Buildings in your local authority area if in doubt.