Best Practices in Strata Property Management

Last year, I wrote extensively about the issue of using different rates of maintenance charges during the Joint Management Body (JMB) period and the potential for abuse. My main point was that these rates should not be implemented without subcommittees.

As an owner of a few mixed developments, I can affirm that two are using different rates. One is in the Joint Management Body (JMB) period. I have personally witnessed how this has led to fragmentation among the component owners and the negative impact of unequal voting rights during the Annual General Meeting (AGM). In my article Big Fish and Ikan Bilis, I share my frustrations regarding using these rates and the power dynamics of dominant groups within the project.

On 12th September 2019, I gave a talk at the Strata Planning and Management event hosted by Rehda Institute. During my presentation, I provided a broad overview of the topic and highlighted the limitations of the system.

Some property owners may not be aware that these rates could be set to the advantage of dominant parties without every component having a representative in the joint management committee (JMC). The control extends to who gets to be on the committee.

The issue concerns the fair distribution of expenses and allocation of resources. If owners disagree with the rates that are approved at the Annual General Meeting (AGM), and the matter cannot be resolved with the Joint Management Committee (JMC), then they may have to resort to legal action. During our meeting with the authorities in 2019, we discovered that many other mixed projects have had similar complaints. Some have requested the use of different rates, while others have suggested a single rate.

On October 4th, 2019, the Court of Appeal decided on the Menara Rajawali case. The High Court had previously allowed different usage rates during the Joint Management Body (JMB) if they were approved at the Annual General Meeting (AGM). However, the Court of Appeal ruled that the JMB must only use a single rate. This decision received mixed reactions, with some organizations supporting it and others not. Shortly after, we heard that the opposing party planned to appeal the decision to the Federal Court.

I shared the Court of Appeal’s judgement with legal friends. They said it was unlikely to be reversed due to its strength.

Their predictions were correct. The case was brought before the Federal Court for leave to appeal on May 21st, 2020. However, the application was dismissed with costs, meaning the Court of Appeal decision still stands.

In a report published in 2020, JMCs were advised to adopt certain rates by passing by-laws using the “back door” approach. However, I don’t see how by-laws, which must align with the main body of the Act, can carry more weight than a court ruling, let alone a decision supported by the Federal Court.

I don’t oppose their use, but when you have a few dominant parties whose combined number of share units can outvote hundreds of owners using voting by poll, many owners see no point in attending the Annual General Meeting.

There are some mixed developments that choose to use a single rate during both the Joint Management Body (JMB) and Management Corporation (MC) period. My other mixed development is one of them. They give and take within a tolerable variance, allowing the components to complement and create value for each other. I disagree with the notion that every mixed development is better off using differential rates, although I understand that some do.

Investing in a mixed project at a single rate is safer than using multiple rates without subsidiary management corporations, creating an even playing field for all.

Tan Sri Teo Chiang Kok, president of the Malaysia Shopping Mall Association, proposed a solution to have the subsidiary management corporations determined at the planning stage of the development and approved for formation as each component or phase is completed.

If the Strata Management Act (SMA) is amended, I hope lawmakers will create a fair and equitable situation for all.

Date: June 2020

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References:

1. Strata Planning and Management 2019 Brochure
2. StarProperty (Strata Planning and Management Event 2019 coverage)
3. https://mahwengkwai.com/federal-court-dismisses-jmb-menara-rajawali-leave-appeal/
4. https://www.theedgemarkets.com/article/residential-and-commercial-lots-mixed-developments-without-strata-title-must-be-charged-same