Niche non-strata title houses without deed of mutual covenant
One of the highlights of my week was discovering a rare gem – an upcoming project for individual title housing developed by one of Malaysia’s top developers. What makes this project truly exceptional is its level of freedom and flexibility. Unlike some non-stratified landed schemes that try to mimic a strata title housing development, this project is free from any deed of mutual covenant. That means buyers can create their own vision for their property if it aligns with local council regulations. The deed of mutual covenant contains all the necessary guidelines for the common areas and rules for each unit. It’s a project that inspires creativity and empowers buyers to build the life that suits their needs.
In Peninsula Malaysia and the Federal Territory of Labuan, the Strata Management Act 2013 and accompanying by-laws are in place to govern common areas of strata title properties.
In this article, I won’t be discussing the legal requirements or drawing comparisons between maintaining a strata and non-strata residential development. Instead, I will offer some useful tips when buying a non-strata house with a deed of mutual covenant attached to the sales and purchase agreement.
Background
What does “individual title’ mean?
Individual title houses are not subject to the same statutory provisions as strata title properties, which require buyers to pay maintenance fees to management or the Deed of Mutual Covenant (DMC). These houses are owned separately and their owners are allowed to renovate, expand, and repaint their homes in different colours, provided they have the council’s and relevant authorities’ approval. This feature is particularly useful for old-fashioned houses that need a revamp, as they can be transformed into modern homes, adding value to the properties and the neighbourhood. Driving around older housing estates, you may notice a new, modern house standing out among the older ones. For those interested, a YouTube channel showcases the transformation of terrace houses in Malaysia.
In housing projects where individual titles are issued, the council takes ownership of the roads, drains, street lighting, garbage collection, and landscape areas once the project is completed. These areas are then considered public and are maintained by the council. Property owners must pay yearly assessment rates to the local council to cover the costs of maintaining the local infrastructure and providing services such as landscaping and garbage collection. This arrangement is more cost-effective than having the owners maintain these areas themselves. Can you imagine property owners of a housing estate having to pay for the repair of worn-out roads?
Owning a house in a neighbourhood where homeowners can modify their houses’ appearance has advantages and disadvantages. On the one hand, homeowners can personalize the look of their homes to match their preferences. However, the lack of uniformity can create an unattractive neighbourhood aesthetic. Furthermore, if a neighbour’s house undergoes significant changes, the surrounding homes may appear out of place. The noise and inconvenience caused by construction may also cause problems for neighbours.
Note: Renovating a house in an undesirable neighbourhood is not recommended as the resale value may be impacted adversely.
Resident Associations for security services
Residents who wish to have security services can establish a Resident Association (RA), apply to the council to build a guard house and collect security fees. This community is often called an informal or self-managed “boom and barrier” community. However, the RA does not have the authority to force residents to join or pay security fees. Moreover, since the roads are not privately owned, they cannot restrict entry to the community.
It’s not uncommon for some RAs to operate without proper approval. In some cases, irresponsible RAs have harassed residents who have refused to pay their monthly fees.
Note: As of April 17th, 2023, the Court of Appeal has made a ruling stating that the Parkville Resident’s Association, which is located under the jurisdiction of Petaling Jaya City Council (MPPJ), now has the right to demand non-paying members to operate the boom gates themselves. Please find the link to the article at the end of this article.
Law and council requirements
Section 46(1) Street Drainage and Building Act 1974 prohibits any attempt to restrict access to a public road, drain or space. It is an offence to do so without the relevant authority’s approval.
As per guidelines set by Majlis Bandaraya Shah Alam, which RAs need to follow, 100% consent from residents is needed to set up automatic gates and access card system. For manual boom gates, 75% consent from residents is needed. Guards cannot restrict residents and the public from entering, exiting or taking away their identification cards.
In Selangor, both the Housing and Property Board and the local authorities mandate that at least 85% of residents must approve the construction of guard houses without barriers.
The Resident Association (RA) is the only party allowed to apply for the construction permit. The guard house cannot be located in a place that would obstruct traffic.
Follow your local council’s requirements, work with the authorities and promote harmonious living among the residents.
Individual title with developers’ DMC
Mimicking strata developments with contractual agreement
If you ever encounter a development where the developer intends to keep the common areas private, asking how they plan to privatize these areas is essential. Unlike strata title schemes, there are no laws regulating these setups. Therefore, if the common areas are not surrendered to the authorities, they become the owners’ responsibility to maintain. This means owners must pay expensive maintenance charges and sinking fund contributions. Essentially, exclusivity comes at a price.
Once the development is completed and the Resident’s Association (RA) is formed, it’s up to the majority, if not all, to decide at the annual general meeting whether they want to proceed with this arrangement. In such a scenario, I am curious about the enforceability of the terms in the Deed of Mutual Covenant (DMC) and how this will play out.
Note: The DMC is a contractual agreement between the developer and purchaser. Usually, it is not enforceable on the sub-purchaser once the individual title is out unless he agrees to sign it.
Please consult your lawyer to ensure all terms in the DMC are legal and your contractual agreement binds the sub-purchaser (Ref no.2).
Passing the responsibilities
In my opinion, owning a non-strata individual title house serves the purpose of not having any man-made rules attached to the property. For instance, multi-generation families needing an extra room can apply to the relevant authorities for approval without seeking permission from the developer or getting into an unpleasant situation with the RA. Also, for resale purposes, the incoming purchaser may prefer flexibility and not be bound by the DMC.
Typically, before the entire estate is completed, the developer will pay for the maintenance costs of the common areas. After completion, if the residents decide to form a Resident Association (RA) and request security services, owners will pay for that only. It is important to note that the maintenance of common areas should be left to the authorities and not made the responsibility of the owners.
Paying charges directly to the developer
Suppose the development is being carried out in phases, and the developer plans to hand over the infrastructure and landscape areas to the council only after all the stages are completed. In that case, seeking a second opinion on this arrangement is advisable. Determining what options owners have if they disagree with the charges is important.
Before signing up, fully understand your commitment and make an informed decision.
References:
(2) LAW & REALTY: Gated and guarded communities (Part 2) – The Malaysian Bar
