Class Action Lawsuit on JMC for Persistent Usage of Different Rates In A Mixed Project

Background

If you have read my articles on the usage of different rates of maintenance charges in mixed development projects and the abuses that can happen, please bear with me on this update. A new twist has emerged in the aftermath — pushing a group of owners to pursue a class-action lawsuit.

In a nutshell, the Court of Appeal (COA) unanimously ruled on 4th October 2019 that a Joint Management Body (JMB) is only to use a single rate for all types of parcels in a strata project known as Menara Rajawali. Subsequently, leave to appeal the decision was rejected by the Federal Court on 21st May 2020.

However, the Joint Management Committee (JMC) of one mixed project insists on using those rates. Scroll to the section on What one management is telling owners if you are already familiar with the basis of the judgement and the reactions to it.

Court of Appeal Judgement

The gist of the judgement in overturning the High Court decision, which allowed different rates during the JMB period:

Mixed reactions to COA’s decision

Various professional real estate organisations reacted negatively to the COA decision — calling it unfair and out of touch with reality. Generally, it is concurred that the decision applies across the board. Common sense would tell us that there would be no commotion if the COA’s decision only affected the project that was on trial. I have included links to several articles and websites on the opinions of lawyers and strata associations regarding the COA decision.

Pro Tem Strata Owners Association Malaysia says ” Flat rate is fair.” The Chairman, Datuk Theng Book, revealed two mixed developments (KL Gateway and Summit USJ) where the rates approved at the AGM are wide in disparity.

MahWengKwai & Associates gave a detailed response to the criticisms by professional real estate organizations.

Datuk Joy Appukuttan, legal advisor of Strata Property Owners Association Selangor (SPAOAS) explained in EdgeProp that those with larger share units held by retail and car park owners usually control the voting and decisions of the JMB at the expense of the minority.

Datuk Pretam Singh, President of the Property Real Estate Lawyers Association, said the COA decision was fair and correct as the weightage factors had been applied and “flat” could not be literally construed as such.

Andrew Loh, a lawyer and Conveyancing Practice Committee member of the Bar Council, opined that the weightage factors were insufficient to cater to the complexities of mixed projects and suggested additional factors to be included in the calculation of share units.

These reactions further affirmed that the COA’s decisions were not just for Menara Rajawali. Who would care if the ruling does not affect other mixed projects?

What one management is telling owners

In one mixed project, the Joint Management Committee (JMC) refused to adopt a uniform rate despite protests from owners. They said the COA’s decision in Menara Rajawali was a stand-alone decision and does not apply to other cases and that Menara Rajawali is predominantly a condominium and not a mixed project.

Further confusion ensued when the JMC tried to justify that the rates were valid because the resolutions to grant exclusive common properties to each component and use different rates of charges were approved at the AGM.

The keynotes in para 40 of the grounds of judgment are very clear that JMB and JMC cannot fix and impose different rates that are not sanctioned by statute, and JMB does not have the power to do so even if approval was obtained in a unanimous resolution at the AGM.

I spoke to veterans in the industry to ask if I was missing something in the COA’s decision. They were equally puzzled by what the management was telling owners and affirmed that the decision applies to other mixed projects. Menara Rajawali is also a mixed project, as there are retail parcels with strata titles, and the car park component has its own title, too.

When asked to produce the “legal advice”, the management couldn’t; they said it was verbally given. Management can question and oppose the use of a uniform rate, but they ought to be clear about the facts.

Shield of protection for owners

As I write, a class-action lawsuit is forming on the JMB of a mixed project to adopt a uniform rate following the COA’s decision. Owners are ready to go to the Federal Court and have gotten substantial financial support. The issuing strata titles has also been delayed due to non-compliance with requirements. It has been more than 5 years since the handover. Owners see the usage of uniform rates as a “shield of protection” from the abuses that can happen with using different rates if the titles are not issued anytime soon. Currently, Subsidiary Management Corporations (Sub-MCs) can only be formed in the Management Corporation (MC) period. The appointed legal counsel has advised that the chances of winning are good given that there is already a reference case — COA’s decision in Menara Rajawali.

A new “questionable” resolution

JMC appears to have preempted this move. In the AGM pack, there was a resolution that any owner who brings the JMC to court and loses would need to pay JMC the difference between the legal fees incurred by JMC and the amount of cost awarded by the Court. Legal opinions sought have cast doubt that this resolution would hold. It sounds lawless, to begin with. If JMC goes ahead and uses its big votes to make this a new rule at the AGM, the assistance of the authorities will be needed to set it aside.

Strata Management Tribunal could not rule

After the COA decided in October 2019, an owner in the mixed project filed a case to the Strata Management Tribunal to nullify the resolutions that allowed the usage of different rates and to instruct the JMC to determine a uniform rate of charges effective from the date of establishment of the JMB. He is a small parcel owner. JMC went all out and engaged lawyers, a case of small David vs giant Goliath. Given that one can defend or take action in the Tribunal without engaging lawyers, this move was unnecessary.

During the hearing in December 2019, the President of the Tribunal did not make a decision and set aside the case. The reason put forth was that the Tribunal does not have jurisdiction to rule over these matters as per the Fourth Schedule of the Strata Management Act. The President stated that the Tribunal does not have the power to change or vary the rate of charges for the various components of the project.

A proposed solution to have Sub-MCs

I have written several articles and given a talk on the fact that using different rates without subsidiary management corporations (Sub-Mcs) for each component isn’t the best practice. I recognize the need to use different rates but I believe not every project needs to. There are projects that choose to use uniform rates.

After the Court of Appeal judgement, a solution was proposed in October 2019 by Malaysia Shopping Malls Association and Building Management Association of Malaysia president, Tan Sri Teo Chiang Kok, to have Sub-Mcs determined at the planning stage and approved for formation as each component or phase is completed. This would be ideal. Then, different rates can be used from day one with Sub-MCs in total charge of their components and fixing the rates for their respective components.

Is there hope?

Infighting among owners is a sad thing, but sometimes drastic actions are needed before real change can be achieved. I hope there will be light at the end of the tunnel and the Strata Management Act 2013 will be amended to incorporate Tan Sri Teo Chiang Kok’s suggestions. It would be a disappointment if the amendment allows different rates of charges to be used during the JMB period without any subsidiary bodies. That would only perpetuate the potential abuses of large-share-unit-owners who can easily dominate the JMCs.

Latest update

I wrote this article in February 2021. A class action lawsuit was served on the JMB of a mixed development shortly after.