Unlike housing development projects that are under construction and governed by the Housing Development Act 1965 (HDA) and its subsidiary legislations, non-HDA governed development projects such as commercial or industrial projects are not required to use the statutory template sale and purchase agreement (SPA) set out in Schedules G to J in the Housing Development (Control and Licensing) Regulation 1989.
Therefore, the SPAs for non-HDA governed development projects tend to be drafted in a manner that are more advantageous to property developers. One such clause includes the delivery of vacant possession. Due to complexities and potential delays in obtaining the Certificate of Completion and Compliance (CCC), some SPAs are drafted to state that delivery of vacant possession shall be given upon issuance of the Certificate of Practical Completion (CPC) and such delivery does not grant the purchaser the right to occupy the property. It is only upon issuance of the CCC, then the purchaser is allowed to occupy the property.
In Daniel Ong Beng Chong & Anor v Alpine Return Sdn Bhd [WA-12BNCVC-167-12/2023] the validity of this clause in the SPA was challenged before the High Court. It was held that the SPA for the construction and delivery of a commercial property which stipulated that the delivery of vacant possession without allowing the purchaser to occupy the property was against public policy and contravened Section 24(e) of the Contracts Act 1950. The clause was found to be invalid.
Salient Facts
Pursuant to a SPA dated 7.8.2014, the purchasers purchased a commercial unit from the developer at the purchase price of RM6,759,172.00. Under the SPA, the developer was required to deliver vacant possession within 48 months from the date of the approval of the project development plan, which was on 23.7.2014. The vacant possession was meant to be delivered by 23.7.2018.
On 22.7.2018, the developer issued a notice for delivery of vacant possession, which mentioned that the CPC has been obtained from the project architect. However, as the CCC was yet to be issued, the purchasers could not occupy the property. Additionally, despite the notice for delivery of vacant possession, the purchasers were not given the complete set of keys. Access to the property was made possible only with the presence of a representative of the developer on an appointment basis. The main entrance to the unit was locked with a “no entry” sign conspicuously displayed. Ongoing construction work can be seen around the purchasers’ unit and within the commercial area of the project.
The purchasers sued the developer for the breach of SPA claiming that the delivery of vacant possession on 22.7.2018 was invalid. In defence, the developer maintained that the delivery of vacant possession was valid as it was done in accordance with the terms of the SPA.
The Developer’s Argument: Delivery Of Vacant Possession Was Valid
Clause 39.1 of the SPA described the manner of delivery of vacant possession, which reads as follows,
“Upon issuance of a certificate by the developer’s architect certifying that the construction of the Parcel has been practically completed and the Purchaser having paid all monies payable under this Agreement and having performed and observed all terms and conditions on the Purchaser’s part under this Agreement, the Developer shall let the Purchaser into possession of the Parcel provided always that such possession shall not give the Purchaser the right to occupy and the Purchaser shall not occupy the Parcel until such time as the Certificate of Completion and Compliance for the Parcel is issued (emphasis added).”
The developer relied on clause 39.1 of the SPA to argue that the delivery of vacant possession was valid and in accordance with the SPA since the CPC had been issued and the developer had allowed the purchaser “into possession of the Parcel”. The purchaser, however, was not allowed to occupy the property until the CCC had been issued, which was also in accordance with clause 39.1 of the SPA.
The developer argued that the purchasers should be bound by the clear and unambiguous terms of the SPA as the purchasers signed the SPA with “eyes wide open”. Based on the concept of freedom to contract, the court should not rewrite the terms for the parties. The developer further contended that clause 39, in relation to the issuance of CPC, was consistent with industry practices and thus, cannot be claimed to be against public policy.
The Purchasers’ Argument: Delivery Of Vacant Possession Without The Right To Occupy Was Invalid
The purchasers argued that although clause 39.1 of the SPA clearly does not allow the purchasers possession of their property until CCC was issued, it was against public policy and thus, by virtue of Section 24(e) of the Contracts Act 1950, clause 39.1 of the SPA should be struck down by the court.
Despite the issuance of the notice of delivery of vacant possession and the CPC, without the CCC, the purchasers were unable to occupy their unit. Any occupation of the property was an offence under the Street Drainage and Building Act 1974.
The High Court’s Decision
The court acknowledged that the parties signed the SPA with “eyes wide open” and as such, the court should be slow to rewrite or interfere with the terms which have been agreed voluntarily between the parties and made reference to the Federal Court’s decision in Theresa Chong v Kin Khoon & Co, where it was observed:
“ … the Courts should use extreme reserve in holding such a contract to be void as against public policy, and should only do so when the contract is incontestably and on any view inimical to the public interest…”
Referring to the present case, despite the CPC being issued and vacant possession delivered under clause 39.1 of the SPA, it did not allow the purchasers’ possession of their property as the purchasers were prohibited to access their property and entry to the property was only allowed by making an appointment with the developer.
The court emphasised the importance of the concept of fairness and justice in any contractual relationship and found that the delivery of vacant possession of the property by the should include granting the purchasers the right to occupy the property. Rather, clause 39.1 of the SPA allowed possession but at the same time deprived the purchasers of the immediate use and enjoyment of the property which they have fully paid. The court saw this as an exploitation by the developer as the purchasers were in a weaker bargaining position compared with the developer – which was contrary to public policy. Accordingly, clause 39.1 of the SPA was struck down.
Standard Industry Practice Is For The Delivery Of Vacant Possession Only With CPC
It was raised by the developer that if clause 39.1 of the SPA was found to be invalid, it could potentially disrupt the property development industry as clauses of similar effect were employed by other property developers.
The court observed that it was mindful that such a decision has the effect of disrupting the industry. However, the court highlighted its duty to strike a balance between the potential to disrupt the industry against the need to protect vulnerable purchasers from unfair contractual terms. On that basis, the court found that the need to ensure purchasers could occupy their property upon delivery of vacant possession was more aligned with the public policy goals of fairness and justice.
Accordingly, the court found that the developer’s delivery of vacant possession of the property to the purchasers upon issuance of CPC without CCC was unfair and exploitative of the purchasers, who were placed in a weaker bargaining position.
Commentary
This ruling emphasises the importance of maintaining fairness and justice between contracting parties. The act of delivering vacant possession but without granting purchasers the right to occupy was described by the court as “something was given but it was not there”.
The property development industry, be it housing development or otherwise, have recently come under the limelight of the Courts. The concept of fairness and justice has been oft quoted to protect the rights and interests of purchasers, who are seen to be placed in a weaker bargaining position. Hence, it is crucial for property developer to stay current with the trends and practices of the property development industry and to seek legal advice especially when dealing with such issues.
19 March 2025