Common Property And Strata Management In Malaysia - Real Estate

What is Common Property?

There is no doubt that common property is an important feature in all strata schemes. Developers build, offer and provide various common facilities and common services in their strata projects to not only attract prospective purchasers but also to increase the market value of the strata properties.

While strata developments continue to mushroom across the country, public awareness of the law regarding strata management and common property remains low. This is particularly a problem for new strata owners and inexperienced management committee members. This article aims to explain the basics of common property.

Statutory Definition of Common Property

Section 4 of the Strata Titles Act 1985 defines "common property" as so much of the lot as is not comprised in any parcel (including accessory parcel), or any provisional block as shown in a certified strata plan.

Section 2 of the Building and Common Property (Maintenance and Management) Act 2007 defined "common property" as so much of the development area as is not comprised in any parcel, such as:

the structural elements of the building;
stairs, stairways and fire escapes;
entrances and exits, corridors and lobbies;
fixtures and fittings;
lifts;
refuse chutes and refuse bins;
compounds;
drains, water tanks, sewers, pipes, wires, cables and ducts that serve more than one parcel;
the exterior of all common parts of the building;
playing fields and recreational areas;
driveways, car parks and parking areas;
open spaces, landscape areas;
walls and fences;
all other facilities and installations; and
any part of the land used or capable of being used or enjoyed in common by all the occupiers of the building.

(Note: The Building and Common Property (Maintenance and Management) Act 2007 was repealed by the Strata Management Act 2013 with effect from 1 June 2015)

Section 2 of the Strata Management Act 2013 defines "common property" as follows:

"(a) in relation to a building or land intended for subdivision into parcels, means so much of the development area —

(i) as is not comprised in any parcel or proposed parcel; and

(ii) used or capable of being used or enjoyed by occupiers of two or more parcels or proposed parcels; or

(b) in relation to a subdivided building or land, means so much of the lot —

(i) as is not comprised in any parcel, including any accessory parcel, or any provisional block as shown in a certified strata plan; and

(ii) used or capable of being used or enjoyed by occupiers of two or more parcels."

Definition of Parcel and Accessory Parcel

To identify what is common property, it is important to understand the definitions of parcel and accessory parcel in a strata development.

In summary, the Strata Titles Act 1985 and Strata Management Act 2013 define a "parcel" as an individual unit that is held or intended to be held under a separate strata title, whereas an "accessory parcel" is defined as any parcel shown in a strata plan as an accessory parcel which is used or intended to be used in conjunction with the parcel.

The High Court in JMB Silverpark Sdn Bhd v Silverpark Sdn Bhd & Anor [2012] 1 LNS 1082 determined that a clubhouse in a strata development was common property as a matter of law based on the construction and interpretation of the relevant provisions of the statutory sale and purchase agreement, the Building and Common Property (Maintenance and Management) Act 2007 (now repealed) and the Strata Titles Act 1985. The High Court held:

"In applying the definition of "common property" in the statutory SPA to the present case, the Court finds that there is no evidence that such part of the land that forms the Clubhouse is comprised in any parcel. It is not any lot or proposed lot for any purchaser or any other person, including the developer i.e., the 1st Defendant.

The Clubhouse is a "common facility" under the Second Schedule to the statutory SPA. The second limb to the definition of "common property" in Clause 31(c) of the same SPA is wide enough to cover the Clubhouse i.e., under the provision, "and all other facilities and installations used or capable of being used or enjoyed in common by all the purchasers". There is ample evidence, and this is not denied by the 1st Defendant, that the purchasers of the parcels in the Housing Development ("the Development") were using and enjoying the common facility of the Clubhouse ...

There is no concrete or documentary evidence adduced by the 1st Defendant to prove that the Clubhouse is comprised in any parcel, or is any provisional block as shown in the approved strata plan, or is a separate plot owned by the 1st Defendant, to prove that the Clubhouse is not a common property. Therefore, going by the above definition in s. 4 of the STA, the Court holds that the Clubhouse is a common property."

The High Court in 3 Two Square Sdn Bhd v Perbadanan Pengurusan 3 Two Square & Ors; Yong Shang Ming (Third Party) [2018] 4 CLJ 458 held that common property is defined "by exclusion":

"... the definition of "common property" in the Strata Titles Act 1985 defines it by exclusion: common property is simply that which is not a parcel. Accordingly, there is no need for there to have been labels affixed to the relevant areas to be designated as common property; all the areas that are not identified as parcels will automatically be regarded as common property."

Duty to Maintain and Manage Common Property

The statutory duty to maintain and manage the common property in a strata development falls firstly on the developer upon delivery of vacant possession. The duty to maintain and manage is then handed over by the developer to the joint management body or management corporation, as the case may be. The office bearers/members of the management committee are voted in at general meetings (usually annual general meetings) by eligible parcel owners accordingly.

You can read our article entitled "Strata Management Hand Over Timeline" to further understand the respective management periods of the developer, joint management body and management corporation in a strata scheme.

Essentially, the funds to maintain and manage common property are collected by the developer, joint management body and management corporation during their respective management periods from the parcel owners in proportion to the share units of each parcel in the form of maintenance charges and sinking fund contributions. The Court of Appeal in Muhamad Nazri Bin Muhamad v JMB Menara Rajawali & Denflow Sdn Bhd (2019) held that the words "in proportion" appearing in the Strata Management Act 2013 mandates that the maintenance charges to be collected shall be determined based on a single rate for all parcels. You can also read our summary of the Court of Appeal's decision.

Pursuant to the Strata Management Act 2013, the maintenance charges account funds shall be used solely for the purpose of meeting the actual or expected general or regular expenditure necessary to maintain and manage the common property (including cleaning and security services, insurance premiums, electrical wiring and water tank repairs and legal fees) while the sinking fund account funds shall be used solely for the purposes of meeting the actual or expected capital expenditure (including painting and refurbishment works).

Ownership of Common Property vests in the MC

While a developer and joint management body each have their respective statutory duties to maintain and manage common property during their respective management periods, the ownership of the common property shall vest in the management corporation only.

Section 17B of the Strata Titles Act 1985 provides that the management corporation shall become the proprietor of the common property and the custodian of the issue document of title.

Disputes over Common Property

The general principle is that areas within a strata development which have been designated as parcels or accessory parcels cannot be common property. Conversely, any areas which are not designated as parcels or accessory parcels are common property by default.

However, this general principle can be challenged in Court as seen in the cases below:

In the case of Malaysia Land Properties Sdn Bhd v Waldorf and Windsor Joint Management Body [2014] 6 CLJ 821, the Court of Appeal affirmed the High Court decision in favour of the joint management body to cancel the developer's strata title of a whole floor parcel on, amongst others, the following grounds:

The disputed whole floor parcel area was initially planned and approved as a floor for common facilities;
The building plans for the disputed whole floor parcel area did not provide for any commercial area;
The developer was unable to produce any accounting records to show that the disputed whole floor parcel area was part of the developer's stock in trade;
The developer had "carved out" the disputed whole floor parcel area and treated it as its own private property;
The developer was bound by the sales brochure read together with the sale and purchase agreements and the law to uphold what had been originally planned and approved, i.e. that the disputed whole floor parcel area ought to be common property; and
The developer had obtained the strata title for the disputed whole floor parcel area through fraud and/or misrepresentation perpetrated on the Land Office and therefore, the developer's right, title and interest over the disputed whole floor parcel area was not indefeasible pursuant to Section 340 of the National Land Code 1965.

In the recent case of Ideal Advantage Sdn Bhd v Perbadanan Pengurusan Palm Spring @ Damansara & Another Appeal [2019] 1 LNS 894, the Court of Appeal affirmed the High Court's decision in favour of the management corporation to cancel the entry of 394 car park accessory parcels on the developer's 45 strata titles respectively on, amongst others, the following grounds:

The developer and the subsequent purchaser's conduct of using the disputed 394 car park accessory parcels for commercial purposes by renting them out to third parties was in breach of Sections 34 and 69 of the Strata Titles Act 1985 which prohibit any dealing with an accessory parcel in such a manner which is independent of the main parcel;
The developer and the subsequent purchaser's conduct in dealing with the disputed 394 car park accessory parcels which were meant to be visitors car parks and common property was in breach of the mandatory conditions stipulated in the development order; and
The developer had acquired the 45 strata titles registering the disputed 394 car park accessory parcels by way of insufficient and void instruments and therefore, the developer's right, title and interest over the disputed 394 car park accessory parcels is not conferred with indefeasibility pursuant to Section 340 of the National Land Code 1965.

Conclusion

Ultimately, the common property in a strata scheme is owned by the management corporation representing all parcel owners of that strata scheme. Developers, parcel owners and management committee members need to be aware of their duties and rights when it comes to managing and maintaining common property. When laws are broken and rights are violated, it is important that legal advice is sought and a claim is filed in the Strata Management Tribunal or in Court in order to fairly resolve the common property dispute.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Malaysia: Common Property And Strata Management In Malaysia