Property
Brochures that bind developers
Aliff Yusri 
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Given the popularity of property as a form of investment, it is surprising that not many buyers are aware property advertising and brochures are legally binding on developers.

Buyers need to be aware of their rights to ensure that unscrupulous developers do not short-change them by not delivering what is promised in their brochures and advertisements.

These legal requirements have been in place since 1989, when they became part of the Housing Development (Control and Licensing) Regulations.

Housing legislation serves to safeguard the interests of purchasers, not developers, says Pretam

“The legislation acts to protect the interests of consumers, not the interests of developers,” says Tribunal for Home Buyers Claims president Datuk Pretam Singh.

However, there have been few prosecutions under the 1989 Regulations despite the incidence of misleading property advertising materials in the market, due to a lack of awareness on the part of purchasers.

 

Safeguarding consumers

Under the 1989 Regulations, which expand on the earlier Housing Development (Control and Licensing) Act 1966, any developer guilty of contravening its provisions is liable to a fine of not more than RM5,000, imprisonment of up to three years, or both.

“For better or worse, the laws have changed to favour buyers, so developers need to ensure they deliver what they advertise,” says YTL Land & Development Bhd executive director Yeoh Seok Kian.

Legal precedent safeguarding the interests of purchasers was set in the case of City Investment Sdn Bhd v Koperasi Serbaguna Cuepacs Tanggungan Bhd (1985).

In the court ruling, the judge clarified that the Housing Development (Control and Licensing) Act 1966 sought to protect house buyers not just as a private right, but as a matter of public interest.

The requirement for developers to deliver true and accurate particulars of their properties was further reinforced by the Consumer Protection Act 1999 and the Strata Management Act 2013.

These prohibited the “contracting out” of the provisions of the respective Acts by any agreement, including the sale and purchase agreement (SPA).

In effect, this means the two Acts take precedence over any subsequent contract or clause, and that any developer, supplier or manufacturer purporting otherwise is guilty of an offence.

“These provisions do apply to exclusion clauses governing artist impressions as well. However, this hasn’t stopped developers from placing such clauses in their advertising materials,” says Pretam.

“Even if you include a disclaimer in your brochure, the government will still hold you accountable for whatever was promised in those materials, and purchasers have the right to sue you for misrepresentation,” elaborates Yeoh, who is also YTL Corp Bhd deputy managing director.

 

Fine print

However, Pretam notes that the relevant legislation applies only to omissions from the original marketing materials, and not to latent or patent defects in the final product.

Patent defects are defined as reasonably discoverable flaws which render the works or feature unfit for their intended use, while latent defects are not readily apparent and are generally discovered over the course of everyday use.

Omissions, in contrast, relate to discrepancies between advertising materials and the final product, and constitute a failure on the part of the developer to deliver on promised features or elements.

“For example, if the height of a ceiling is 11ft but was advertised as 12ft, that is an omission, and not a defect. The two are governed by distinct provisions in law,” says Pretam.

Under the Uniform Building By-Laws 1984, building plans are required to be submitted to the local authority for approval prior to development.

At this point, the plans are “locked in” and binding, with any subsequent amendment requiring the written consent of purchasers, unless the changes are required by the appropriate authority.

“Landscape plans are rarely drawn up at the time of launch. However, in one case, a developer included water features in its submitted plan,” says Pretam.

“Unfortunately, the proposed water features were located next to a children’s playground, which is prohibited.

“The features were removed, and 78 house purchasers subsequently sued the developer for non-completion of common property, each one claiming about RM7,000.”

Purchasers must be informed of and give their consent to proposed amendments in clear, unambiguous language, with Pretam recommending the drawing up of a new SPA for the purpose.

In Chan Yew Mun & Anor v Faber Union Sdn Bhd (2015), the developer issued a copy of amended floor plans for a property in its Armada Villa project in Taman Danau Desa to the plaintiff and his wife, which detailed a decrease in the unit’s car porch dimensions.

The defendant initialled each page of the amended plans to confirm their receipt. After taking vacant possession of the house, the plaintiff submitted a defect list form which included the shortened car porch length.

The court ruled that the plaintiff’s initial or signature on the amended plans could not be taken as consent to the amendment of the SPA and changes in car porch dimensions. In doing so, he referred to the precedent set by an earlier landmark Court of Appeal decision in Capping Corporation Ltd & Ors v Aquawalk Sdn Bhd (2013).

In the 2013 case, Datuk David Wong Dak Wah CJA opined that “when there is a written agreement, any variation or termination of the same should be in written form and in very clear language”.

Purchasers are not liable for the cost of changes or variations from approved plans under clause 14 of Schedules G and H of the Housing Development (Control and Licensing) Regulations 1989, which form the basis of many SPAs.

In addition, purchasers are entitled to damages or a corresponding reduction in purchase price, should the variations involve omissions or the substitution of cheaper materials in the works.

 

Exceptions

Exceptions arise when changes are required by the appropriate authority, which the legislation defines as any authority authorised under written law to approve the subdivision of land, building plans or issuing of documents of title.

This includes corporations or private agencies licensed by the appropriate authority to provide electricity, telephone, sewerage or related services.

However, cases such as Tan Tien Seng & Anor v Grobina Resorts Sdn Bhd (2005) and Lim Siew Lan v Pembangunan Hysham Sdn Bhd & Anor (1999) demonstrate that the onus remains on developers to prove that such changes were unilaterally imposed by the authorities.

In addition to the requirement for submitted plans, the Housing Development (Control and Licensing) Regulations 1989 specify that no advertising or sale may proceed prior to obtaining a permit from the Housing Controller.

Here, advertising is defined as a notification of development published in any brochure, newspaper, journal and magazine, as well as other media such as public displays, films, oral communications and more.

Obtaining a permit requires submission of the approved plans, as well as two copies of the proposed advertisement, including the brochure detailing the particulars of the property product.

 

Misleading messages

The 1989 Regulations also mandate the complimentary issue of a brochure to purchasers. “In light of recent legislative amendments, property brochures must not include misleading messages,” says National Housing Department assistant director (licensing division) Ong Hui Ling.

Building plans approved by local authorities are binding, says Ong

“This applies to things such as distance to nearby amenities, which should not be given in terms of time, such as ‘a 20-minute drive away,’ but in kilometres or metres.”

While common in the past, developers today have moved away from the practice of measuring distances in terms of driving time due to the unpredictability of traffic patterns on our roads.

Ong also notes that in cases where advertising and brochure materials differ from the draft sent to the local authority for approval, the latter takes precedence in a court of law.

This may occur due to perfunctory developer attitudes towards the approval process, which is sometimes seen as a formality, or as property plans and hence marketing materials evolve with market trends.

Residential, retail and office elements in an integrated development, for example, can change drastically depending on demand for each component in a given area.

Malaysian Institute of Architects president Ezumi Harzani Ismail cites a case involving a shopping mall with three residential towers.

In that project, the developer elected to convert one residential tower to an office block due to slow uptake of the residential component.

“In situations like this, the materials approved by the local authority are the binding documents, and not the final developer version of the brochure or advertisement which the purchaser receives,” says Ong, noting that ideally, the two would be the same.

Other ambiguities arise from advertisements for the purposes of registration, as opposed to sales. As no deposits are collected for such registration events, there is an argument that existing legislation does not apply to them.

“There are cases of major developers placing such ads on the front page of national newspapers, without an advertising permit and developer’s licence,” says Real Estate and Housing Developers’ Association (Rehda) Malaysia deputy president Datuk Soam Heng Choon.

“In my opinion, this constitutes blatant disregard for the law. Rehda does not condone such actions, and we are discussing this issue with the National Housing Department.”

 

Dispute over visuals

Artist impressions are a common point of contention for property developments, due to the balance required between creative expression and veracity.

A major integrated development in Petaling Jaya, for example, had its facade depicted in early promotional materials as being light in colour. However, when completed the facade had a markedly darker hue, drawing some concerns from the property community.

Eco World Development Group Bhd president and CEO Datuk Chang Kim Wah sees the regulations relating to property brochures as a branding opportunity for developers, noting that delivering on promised features is the essence of building a reputation for integrity.

EcoWorld revisited its Red Carpet Bridge in Eco Majestic, Semenyih to ensure its concrete pavers were the desired hue

For instance, its Eco Majestic development in Semenyih prominently features the 118m Red Carpet Bridge, named for the colour of its interlocking concrete pavers, which serves as an entrance statement for the township.

The bridge, reported to be built at a cost of RM24 mil, raised some feedback from purchasers that its colour didn’t quite match that depicted in the artist’s impression visuals.

The developer subsequently replaced the landmark’s pavers to address the colour discrepancy, and is monitoring it for consistency and wear-and-tear, with Chang noting the move underlines EcoWorld’s commitment to its home buyers.

Building townships by the book

From the perspective of developers, the regulations pertaining to property advertising and brochures pose significant challenges in terms of building integrated and township projects.

This is especially so for the latter of which can take up to 15 years to mature and are susceptible to inevitable disruptions to the property landscape.

“Demand changes with time. When we first began developing Bandar Sri Sendayan in Seremban, we never dreamed we’d have something like Malaysia Vision Valley coming in,” says Matrix Concepts Holdings Bhd group managing director Datuk Lee Tian Hock.

“So instead of just a township, Bandar Sri Sendayan became the centre of a much larger project. Naturally, we had to adjust our plans to take into account these developments,” he tells FocusM.

Bandar Sri Sendayan, whose development began in 2006, comprises 2,117ha of freehold land and will offer 18,593 residential and commercial units when completed.

It sits within the larger RM5 bil Malaysia Vision Valley initiative, originally announced in Budget 2016 as a 108,000ha metropolis encompassing Seremban and Port Dickson, among other districts. Today, plans for the project have expanded to 153,000ha and it is anticipated to attract RM290 bil in investments.

Matrix chairman Datuk Mohamad Haslah Mohamad Amin notes that one way to mitigate the risks involved in developing over longer timeframes is to break projects up into phases. “If a developer specifically commits to a feature such as a swimming pool early on, then it must deliver that feature.

“By approaching our developments in phases, it gives us the freedom to change future launches and manage consumer expectations without over-committing ourselves.”



This article first appeared in Focus Malaysia Issue 254.