A forced marriage within a stratified mixed development

My StarProperty article published on 18th November 2020: https://www.starproperty.my/news/a-forced-marriage-within-a-stratified-mixed-development/115878

Commentary

This was my last article on the different rates issue and I wanted to tie up the loose ends and bring it to a close. The lady of the manor and I met up last year. We had so much to share. She had spent countless hours communicating with owners to ensure that enough voters turn up at the AGM to achieve their goals. I resonate with her struggles.

Text of the article

The year was 2005. A file on a property landed on my desk, and going by the information in it, there was a high-value asset that demanded my attention and I was to meet the owner at her residence.

Her home was far more impressive than the scant details initially suggested. On a sprawling compound of more than three acres sat a resort-style mansion hidden in an inconspicuous enclave within an ordinary neighbourhood of terraced homes. The lady of the manor and I met there and we never saw each other again after that.

In the course of my work earlier this year, a chance encounter with a member of her family would set into motion a series of events that would have our paths to cross again. Recently, she called to seek my advice regarding a twist on the much-discussed problem of fair maintenance charges.

Various component owners of one particular mixed development were at odds over the issue of using a single rate or different rates. But the twist here was that these developments, while separated by space and time, were forced by circumstances to merge under one management body.

The owners of the older low-rise apartments (LRA) are for different rates whereas the newer high-rise apartment owners (HRA) and retail owners (RO) prefer to use a uniform rate.

In an Extraordinary Meeting (EGM) held recently, upon the instruction of the Commissioner of Buildings (COB), one component won majority seats in the committee.

However, the three components need to work together to solve the many issues caused mainly by a poor handover process. Previously, they were functioning separately and they now have to unite as one main committee.

The owners of LRA do not need this distraction as they have their own load of maintenance issues to handle. Nevertheless, they are willing to merge with the HRA and RO.

If different rates were to be used, they could work towards forming Subsidiary Management Corporations (SMCs). Every component would have adequate protection regardless of which component has more seats in the main committee.

I have written several articles about the usage of different rates under one committee and the abuses that can happen.

Safeguards in place

Let us take a look at the powers conferred upon the SMCs by the Strata Management Act 2013 (SMA) after the Management Corporation (MC) is formed.

1. Same authority as main committee

The proprietors of the SMCs can hold meetings and pass resolutions in the same manner as those constituting a MC (Section 63(3)). The SMCs have the same powers and duties as the MC to manage their own limited common property which is for their exclusive benefit (Section 64(1)).

2. No interference from main committee

The SMCs shall comprise all the proprietors of all parcels in respective components with designated limited common property for their exclusive benefit (Section 63(2)). They can elect their own subsidiary management committee and be in charge of their own components (Section 63(1)).

3. Representation in the main committee

At least one seat in the main committee will be allocated to one member of each subsidiary management committee (Section 63(4)). It is no longer up to dominant groups to fill all seats with their chosen members or to limit the number of members to exclude other component owners by using their large unit votes at the AGM on a voting by poll.

4. Own maintenance and sinking fund account

The provisions of Section 64(3a) allow SMCs to have their own accounts for expenses of their limited common property. This is added protection for their funds and to be in full control.

5. Enforce own By-Laws

This affords flexibility to set own rules instead of being subject to one rule that fits all by the main committee Section 64(3c).

6. Standard according to each SMCs

A higher-end component may afford higher standards of management whereas a lower-end component may not see that as a necessity. Each component can set the standards for themselves.

Tough requirements to fulfil

The process to form SMCs is not an easy route. But the creation of the term exclusive common property (ECP) and granting of ECP to respective components in my mixed development via an additional by-law approved at the AGM during the JMB period is very different from what is statutorily provided for after the MC is formed.

Under the SMA, ECP is termed Limited Common Property (LCP). There is no express provision for LCP during the JMB period.

Section 17A of the Strata Titles Act (Amendment 2013, effective 1st June 2015) provides two key requirements in the formation of SMCs as follows:

1. The boundaries and area of the LCP has to be clearly defined and marked on a special plan by a land surveyor.

2. After the special plan is completed, it needs the consent of proprietors. This is done via a comprehensive resolution conducted under the SMA giving 30 days notice to all owners and a voting by poll over 60 days after the extraordinary general meeting (EGM).The number of share units for which valid votes are counted has to be at least  2/3 of the aggregate number of share units of the parcels of all proprietors who constitute the MC.

SMCs come forward

In the aftermath of the recent Court of Appeal decision overturning the High Court ruling in allowing different rates to be used during the JMB period, several organisations have voiced their concerns and proposed solutions.

One proposed solution by Building Management Association of Malaysia (BMAM) and Malaysia Shopping Malls Association (PPK) president Tan Sri Teo Chiang Kok is to have the SMCs determined at the planning stage of the development and approved for formation as each component or phase is completed.

In his statement, this proposal would do away with impracticalities caused by 2 main factors.

1. The main MC can only be formed after the strata titles for the entire project have been issued and the time frame between completion of the first component and ability to form the MC could take years.

2. The unlikely possibility in the foreseeable future of strata titles, as envisaged in the SMA, to be issued concurrently at the time of handing over vacant possession.

Weightage factors to step up

One of the main considerations the Court of Appeal decided that the Joint Management Body (JMB) is only to use one rate is that the weightage factors had been applied in calculating the share units. Going by that inference, I had pondered if the usage of different rates during the MC period would be challenged, although the SMA allows this during the MC period. Some have argued that the weightage factors might need to be treated first.

Then I read part 2 of the article “Significance of share units in strata development” by a lawyer Andrew Wong. In his opinion the Court of Appeal in JMB Menara Rajawali did not err and it is the law that needs amendment for not looking after the divergent interests of strata owners in complex mixed developments.

One of his proposals is that if the weightage factors in the First Schedule of the SMA or formula in the STR are not equitable for developments where the common facilities in a particular component requires more maintenance than another component, then additional weightage factors should be taken into consideration when assigning share units.

I wonder if another solution could lie in amending the weightage factors without having to use different rates. There are possibilities that could be explored.

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About Me

Mary Lau graduated from the University of Reading, England, with a BSc Land Management (Valuation Specialisation) in 1991. In 2002, she was appointed High Court Assessor in Sarawak for compulsory acquisition and compensation cases and sat on the bench with the judge. She began her training with CH Williams and later held senior positions in valuation firms such as Henry Butcher, City Valuers and was a Director at Hasmi and Associates in 1999. She began her own setups in real estate investment and other ventures by 2007. She is a licenced valuer with the Board of Valuers in Malaysia.