Under the Strata Management Act 2013, the amount of maintenance charges and sinking fund to be paid is determined “in proportion to the allocated share units of each parcel”.
However, what happens if there are different types of parcels in a development, for example, a development consisting of residential units, retail units and a car park? Could a car park operator, who has no need to use the common facilities such as the swimming pool and gym, regularly used by residential parcel owners, be subjected to the same rate of maintenance charges and sinking fund?
This alert discusses two cases recently decided by the Court of Appeal on this matter.
1. Aikbee Timbers Sdn Bhd & Anor v Yii Sing Chiu & Anor And Another Appeal [2024] 1 MLJ 948 (“Aikbee Timbers”)
In Aikbee Timbers, the question posed to the Court of Appeal was whether the Management Corporation was empowered to require residential parcel owners to pay more maintenance charges and contribute more to the sinking fund than the commercial parcel owners.
Aikbee Timbers Sdn Bhd, was the developer of a mixed development project called Pearl Suria, which comprised of residential units, a shopping mall and a retail/commercial car park. The shopping mall was owned by the plaintiff, the retail/commercial car park was owned and operated by another company, whilst the residential units were sold to individual owners.
An action was brought by one of the parcel owners of the residential unit against the developer (who was managing the joint management body prior to the formation of the management corporation) and management corporation, claiming that the developer and the management corporation had unlawfully imposed a higher rate of maintenance charges and sinking fund against the residential parcel owners.
Before the High Court, it was decided that all parcel owners of residential and commercial parcels were required to pay the same rate of charges for maintenance charges and sinking fund contributions.
Court of Appeal’s decision in Aikbee Timbers
The Court of Appeal unanimously set aside the High Court’s decision and held that Section 60(3) of the Strata Management Act 2013 allows the developer or the management corporation to impose different chargeable rates for maintenance charges and contribution to sinking fund so long that they were used for significantly different purposes in a mixed development. The court further noted that Chapter 4 of the Strata Management Act 2013 read together with Section 17A of the Strata Titles Act 1985 recognises that different chargeable rates can be imposed as there could be common property exclusive for the benefit of certain proprietors and these proprietors were to share and contribute to those expenses to maintain the exclusive common property.
As residential and commercial parcels were used for significantly different purposes, it was not unjust and unreasonable for the developer or the management corporation to require residential parcel owners to pay more towards the maintenance charges and sinking fund. The court further concluded that residential parcel owners exclusively enjoyed the use and benefit of a larger number of common facilities than the commercial parcel owners.
The key takeaway in Aikbee Timbers is that different rates of maintenance charges and sinking fund contribution can only be imposed against parcel owners as long as the parcels are used for substantially different purposes. In Aikbee Timbers, residential parcels and commercial parcels were substantially different parcels. However, what amounted to “substantially different purposes” was not discussed by the court.
2. AUM Capital Sdn Bhd v Menara UOA Bangsar Management Corporation [2024] MLJU 241 (“AUM Capital”)
This case centred around whether the centralised air-conditioning facilities in a building, which only service certain number of units in the development, known as Menara UOA Bangsar, was part of the common property and whether it should be maintained by the management corporation.
Menara UOA Bangsar is a mixed development property made of up 2 office towers (Towers A and B), 1 retail block and 1 car park. The centralised air-conditioning facilities (CACF), which was located at various parts of the building, supplied chilled air to the common property of the building as well as the private parcels located in Tower B and the retail block. The private parcels in Tower A have split individual unit air-conditioning facilities, which were maintained and paid for by individual proprietors.
It was alleged by the unit owners of Tower A that the management corporation should not be maintaining the CACF at its own expense, as the CACF only provided chilled air to a few parcel proprietors, and not the whole of Menara UOA Bangsar’s proprietors. As such, the management corporation had been unlawfully utilising the money in the maintenance account to pay for the maintenance of the CACF.
On the other hand, the management corporation took the view that the CACF should be maintained by them as it formed part of the building’s common property.
Court of Appeal’s decision in AUM Capital
To ascertain whether the CACF was to be maintained by the management corporation or not, the Court of Appeal looked at the duties of the management corporation under Section 43 of the Strata Titles Act 1985 and Section 59 the Strata Management Act 2013, which included “to manage and properly maintain the common property and keep it in a state of good and serviceable repair”.
The court further examined Section 4 of the Strata Titles Act 1985, which defined common property as follows,
“Common property” means so much of the lot as is not comprised in any parcel (including accessory parcel) or any provisional block as shown in an approved building plan.
Hence, whether the CACF was to be maintained by the management corporation depends on whether it was a common property within the definition of the Strata Titles Act 1985.
Based on the plans of the building and photographs of CACF adduced during trial, the court found that the CACF was located OUTSIDE any of the private parcels. Therefore, the CACF should logically be a common property as defined under the Strata Titles Act 1985. As such, under the Strata Management Act 2013, the management corporation was statutorily bound to properly maintain the CACF and keep it in a state of good and serviceable repair. This included the costs and expenses of operating the CACF.
Should the management corporation impose a different rate for parcel owners that enjoy the benefit of the CACF?
The court further agreed with the reasoning of the management corporation that the practice of charging different rates of maintenance charges by taking into account the specific amount of usage of the common property was not in accordance with the legislative intent of the Strata Management Act 2013. As discussed in Aikbee Timbers above, the management corporation could only impose different rate for parcels used for “substantially different purposes”.
Hence, the argument by the parcel owners of Tower A that the CACF did not service parcel owners of Tower A and that it was used “more” by the owners of Tower B, retail and car park parcels was irrelevant to the question whether the CACF was a common property.
To conclude, in AUM Capital, the duty was on the management corporation to maintain the common properties of the building. What amounted to common property was simply those items that were not comprised in any private parcel. Consequentially, the management corporation may be statutorily obliged to maintain facilities that substantially benefits some, but not all parcels, so long as the facilities benefit the common property.
Conclusion
It is worth noting that in the above 2 cases, the Court of Appeal remarked that the Strata Management Act 2013 is a social legislation (Aikbee Timbers) and that the fundamental tenet of strata law is that common property is generally taken as a whole, regardless of each proprietor’s level of use or enjoyment of the common property (AUM Capital).
The Court of Appeal’s decision in these cases are important as it clearly sets out the scope of duty of the developer and the management corporation, which is pivotal in ensuring the smooth operation and upkeep of the building. These cases also set out the extent a developer or a management corporation’s right to impose different rates for maintenance charges and sinking fund contribution to individual parcel owners.
15 July 2024