Extension of time vs abandoned projects - fact or fallacy?

The immediate response by former urban well being, housing and local government minister Abdul Rahman Dahlan giving his purported rationale for the granting of extension of time (EOT) in his press statement dated March 3, 2017, is irrational.

That the reason for the granting of an EOT is to ensure that housing developers complete their project does not hold water, because house buyers have no right to pursue liquidated damages (LAD) until and unless the houses have been completed and handed over. The question of LAD does not even arise unless the houses are completed and vacant possession delivered.

This is clearly stated in Clause 25(3) of the Schedule H statutory sale & purchase agreement (Schedule G has a similar provision). It reads inter alia: “For the avoidance of doubt, any cause of action to claim for liquidated damages by the purchaser under this clause shall accrue on the date the purchaser take vacant possession of the said parcel”.

The effect of an EOT is that the developers do not have to pay compensation or LAD to the house buyers after the project is completed and vacant possession delivered. Clearly, the only reason for granting an EOT is to save money for the developers.

Businessmen must be able to accept the risks of doing business and not seek the government’s protection to ensure they continue to make money or do not lose money. And the government must not try to save money for the developers at the expense of the naive and innocent buyers.

Helping developers save money?

By issuing the EOT the minister is effectively allowing the developers to save or keep the money which should have been paid to the house buyers. The minister is effectively taking away money belonging to the house buyers.

Has our country now reached a state of economic crisis that the minister must dish out EOTs to developers who are already in distress (due to bad management) and threatened to abandon their projects? Does it mean the minister will grant extension to every high-end project that asks for extension so that high-end buyers do not lose big money?

Buyers are sensible and not unreasonable people and it should be left to them to negotiate with their developers to come to a fair compromise instead of the minister making a unilateral decision and forcing down their throat by foregoing their lawful entitlement to LAD. After all, they are the covenanting parties to the contract whereas the minister is not a party (to the contract).

There are numerous cases where both parties (developers and buyers) took a haircut and amicably settled. At the very least the views of affected buyers must be considered prior to the minister making a decision - the right to be heard is of utmost importance. Do they not know that buyers too face hardship and commitments i.e. having to pay rent whilst continuing to service their bank? They too bear the burden of additional costs and expenses for the delay. One cannot be confined to hearing the views of just one party vis-a-vis the developer.

No valid reason

The minister has not even offered any reason about why the buyers must forgo their rights and entitlement to LAD claims when granting the EOTs.

The following is an excerpt of the minister’s press statement:

“...if a developer faces delays due to circumstances beyond his control (unexpected weather such as flooding, new regulations by authorities such as stop orders or policies pertaining to supply of construction materials and workers), the developer can apply for EOT from the government.

“Even the banks and construction materials suppliers will face serious trouble if housing projects are abandoned. Other businesses catering for household items such as electronics, electrical and furniture will also be affected which could lead to potential lost of jobs in those businesses,” said Rahman.

These are not ‘special circumstances’ to warrant an EOT. The reasons are self-inflicted and not Act of God. If EOTs are granted for the benefit of developers at the detriment of house buyers, perhaps, the minister should have the effects and costs cascade downwards to all the contractors, subcontractors, suppliers, vendors, etc.

Even banks should waive all interest to make it fair across the board. And perhaps landlords should offer waivers of rental to those tenants affected by the delay. Why must innocent buyers be made to suffer for pains inflicted on them by their developers?

Developers should honour agreements

The recent statement by Real Estate & Housing Developers Association, Malaysia (Rehda) and Rehda Institute augurs well for the housing industry, when they came out to voice support for the court’s fair and right findings. Rehda’s stand was reported as follows:

Rehda: “Developers should honour agreements to deliver project on time”. “Any delay is not the fault of the buyers. It’s our own fault or that of other people”. Rehda went further to state “the law is the law and that developers should plan ahead to ensure homes are delivered on time. “Developers will have to accept and follow the law even if it means a six-month delay will lead to a payout of 5 percent of the gross selling price of the property...”

This would translate into Rehda discouraging its member developers from indulging in seeking EOTs as an easy way out.

These EOTs issues have been happening these last three years. By giving EOTs, has the incidence of abandoned projects been reduced? We have not heard of EOTs being issued under previous housing ministers and their predecessors.

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CHANG KIM LOONG is honorary secretary-general, National House Buyers Association (HBA).- Mkini