It's A Crime Not To Pay - The Srata Management Act 2013 (Act 757)

THE Strata Management Act 2013 (Act 757) that came into force in June last year unifies all previous laws governing the management and maintenance of common properties in stratified – condos and high-rise – buildings, explains Wong Kok Soo.

Wong is an adviser to the Association of Valuers, Property Managers, Estate Agents and Property Consultants in the Private Sector of Malaysia and consultant to the National House Buyers Association.

He explains that service or maintenance fees, known as “charges”, must now be kept in a “maintenance account” for the general maintenance, management and administration of the common property and building. Contributions to a separate “sinking fund” account are used only for capital expenditure, he explains.

He highlights the Act’s new measures to address the perennial problem of collecting these monies:

> Failure to pay within 14 days from date of service of billing incurs interest not exceeding 10% a year on daily rest until payment is made.

> Any restriction or action against a defaulter shall include his family or any chargee, assignee, successor-in-title, lessee, tenant or occupier of his unit.

> A defaulters’ list showing the amounts owed can be displayed on notice boards.

> A managing body can deactivate the defaulter’s electro­magnetic access device without prior notice. The defaulter can be asked to sign a register upon every entry/exit. A fee not exceeding RM50 can be charged for reactivation of the device upon settlement of arrears.

> Use of common facilities/services, including car park bays, can be suspended.

> A managing body can demand payment of arrears by issuing the prescribed regulation Form 11 (used by developers and joint management bodies) or Form 20 (used by management corporations).

> A defaulter who fails to comply with such a notice of demand commits a criminal offence, and upon conviction, without reasonable excuse, can be fined up to RM5,000 or jailed for not more than three years, or both.

> The defaulter can be further fined up to RM50 for every day the offence continues after conviction.

> If the debt due is not settled within the stated 14-day period in the notice of demand, the managing body can file a claim in the Strata Management Tribunal to recover the sum. Failure to comply with an award made by the tribunal is a criminal offence and, upon conviction, the defaulter can be fined up to RM250,000 or jailed for not more than three years, or both. The defaulter can also be further fined up to RM5,000 for every day the offence continues after conviction.

Chang Kim Loong, for one, lauds the provisions under the Act.

Chang Kim Loong

As the National House Buyers Association (HBA) honorary secretary-general points out, proper maintenance and efficient management depends on a steady flow of payments to the common fund, so repeated failure to make those payments can wreck the whole strata development scheme.

However, he feels that there is room for improvement. The HBA, he adds, has proposed some 20 amendments to the Act and its ­regulations to “plug the loopholes” and address inconsistencies.

“We’ve seen the practical application of the Act’s laws. There are teething problems so we’ve made our recommendations to the Urban Wellbeing, Housing and Local Government Ministry,” he says, though he declines to elaborate on those recommendations. But no matter how sound the law, it won’t solve anything unless strictly enforced, he stresses.

Real Estate and Housing Developers’ Association president Datuk Seri F.D. Iskandar agrees. “Regardless of the provisions provided in the law, problems will persist without proper monitoring and enforcement,” he says.

He does feel, though, that the penalties imposed under the Act will go a long way towards encouraging unit owners to pay their fees. “The penalties will nudge many to settle their dues and address the ‘why should I pay’ attitude,” he says.

He adds that the provisions in the new Act have given much needed recourse to developers, joint management bodies and ­management corporations, as they will be able to file claims with the Strata Management Tribunal.

“With further provisions to recover sums owed, including the option to auction off defaulters’ movable property, it is likely that the long-standing non-payment issue will be reduced.”

Wong actually thinks the provisions don’t go far enough. Instead of just moveable property, he says the law should provide for the seizure and public auction of the ­actual unit belonging to a defaulter if arrears reach a set limit.

Such a measure will have a strong deterrent effect. Singapore does this and high-rises there are free from the problem of fee defaulters, he says.

While Building Managers Association of Malaysia (BMAM) deputy president Tan Sri Teo Chiang Kok agrees – “There must be an effective process of recovery. Once the property is auctioned off, the balance can go back to the owner,” he says – the HBA’s Chang does not, saying that giving the tribunal powers of public auction would be “too drastic”.

Wong Kok Soo

Doing so, he feels, would be unfair and cause too much hardship, as there would be legal and technical complications that a layperson wouldn’t be able to undertake.

“Ordering an auction is a complex and serious matter that should only be dealt with by a full-fledged court. If a defaulter only owes RM25,000 and his unit is worth RM500,000, a tribunal would be ill-equipped to deal with related issues like bank collateral vis-à-vis indebtedness and price of sale,” he points out.

The point of the quasi-legal form of redress offered by the tribunal is to offer easy, cheap and speedy justice while sparing the parties involved from having to go to court, he says.

“Although it doesn’t have the power to order that the stratified property belonging to defaulters be auctioned off, such a remedy is still possible through the normal legal process.

“The tribunal’s award can be enforced by applying to the High Court for foreclosure of the property to recover all arrears,” Chang points out. Sometimes, taking matters into court can help, says senior lawyer Roger Tan.

Although the Act defines defaulting on fees payment as a crime, Tan notes that, to date, nobody has ever been charged in court for this offence. “Management bodies can pressure their residents to pay by ­deactivating their access devices and so on. But this may create more tension.

“So perhaps the most effective way to curb defaulters is to prosecute them,” he suggests. After all, it is unfair on the law-abiding residents who regularly pay the charges when defaulters are not punished, he points out.

Related stories:
Defeating the defaulters
More professionalism needed in managing high-rises
Why some people don't comply

Defeating The Defaulters

HAVING kind and considerate neighbours is a blessing.

For condominium and apartment residents, that blessing also extends to having neighbours who dutifully fork out their share of the maintenance fees required to upkeep the facilities that everyone shares.

The problem is, some neighbours are inconsiderate and don’t pay their share – and this is a common issue that has been around as long as there have been high-rises.

In Singapore, such irresponsible neighbours would be given short shrift because laws there provide for the seizure and public auction of units belonging to defaulters. While some have called for a similar law here in Malaysia, it is not provided for in the Strata Management Act 2013, which has been in force since June 2015.

However, the Act does provide much needed extra “bite” to local ­managing bodies to act against errant residents – and the Government is now taking it a step further even.

An enforcement team, under the Urban Wellbeing, Housing and Local Government Ministry, will be formed this year to make sure that all parties adhere to the provisions in the law.

The ministry’s urban service division undersecretary Mohammad Ridzwan Abidin says the team will engage with state governments and assist the Commissioner of Buildings in local authorities to execute the law.

“We want to start the ball rolling in enforcing the Act, which is still rather new.

Mohammad Ridzwan Abidin

“The team will consist of nine members, including officials from law enforcement agencies and legal experts,” he reveals in an exclusive interview withSunday Star.

Mohammad Ridzwan says the team will look into the 34 offences listed in the new Act, including the failure of unit ­owners to pay maintenance fees and make the required contributions to the sinking fund (a fund used for capital expenditure).

“Residents who default on payment are one of the main sources of problems. I think if we can solve this matter, about 60% of issues faced by residents of stratified buildings can be settled,” he notes.

The flip side of the coin to this are the defaulters who are upset with their property’s joint management bodies or management corporations and refuse to pay out of frustration.

Mohammad Ridzwan says a common complaint by defaulters is that such managing bodies do not use the funds collected properly.

“However, residents who fail to pay the charges will be unable to attend the annual general meetings, denying them the power to elect the members of their management bodies,” he points out.

Whatever the reasons for not paying the fees, residents should be aware that, under the new Act, management bodies can resort to a host of penalties to impose on defaulters, such as imposing interest, publishing their names on notice boards, deactivating access cards or devices and barring offenders from using common facilities like parking lots. Also, failure to pay up is considered a criminal offence under the new Act, which can mean fines and jail time. (Further details in “It’s a crime not to pay”, page 21.)

Other offences the enforcement team will be checking on include failure of the developer to file a “schedule of parcel” to the Commissioner of Buildings before selling property units.

Calling the Act a “game changer” in managing stratified buildings, Mohammad Ridzwan says it comes at an opportune time, as more Malaysians are moving into high-rise residences.

“Currently, about 30% of the Malaysian population is living in stratified buildings.

“This percentage is expected to increase in future with more high-rise properties coming onto the market, coupled with the scarcity of land and expensive houses,” he says.

Because the Act has only been introduced recently, Mohammad Ridzwan acknowledges that not all management bodies and residents are properly aware of the new regulations.

“The ministry is planning to hold 30 seminars this year to educate residents of stratified buildings on the new provisions,” he says.

He says residents need to know more about the new law to avoid misunderstandings and conflict with management bodies.

“For example, some defaulters whose names were published on building notice boards complained to the Malaysian Communications and Multimedia Commission. They accused the management body of infringing on their privacy when in truth the management had acted in line with the new law,” Mohammad Ridzwan says.

He adds that another aspect of the problem is the mindset of residents, especially among those who move from landed homes to condominiums.

“There is a change in culture for such people, and they may not be used to paying the monthly fees,” he says.

Apart from looking into issues with residents, Mohammad Ridzwan notes that there is also a need to improve matters on the management side. For instance, only 11% of the total 15,000 strata schemes in the country submitted the required financial reports.

“The ministry aims to encourage a more civil society, especially with the urbanisation rate on an upward trend,” Mohammad Ridzwan says.

http://www.thestar.com.my/news/nation/2016/03/13/have-you-paid-your-maintenance-fee/

Why Some People Don't Comply

An interesting article appear on today Star Paper :

IT’S not just people earning low incomes who are defaulting on maintenance fees. Even those who can afford it are guilty. Pet groomer Mary Poo, 29, is “absolutely miffed” at her neighbour who has never paid the RM80 monthly security fee for their housing area in Cheras, Kuala Lumpur. 

The neighbourhood’s residents agreed to hire security guards last year due to rampant crime. Before the guardhouses were set up, mat rempit would come in every weekend, Poo says, adding that a pregnant neighbour was robbed at knifepoint in front of her house.

Claiming that the defaulters are a well-off family, she is angry at the “cheapo freeloaders”. “The residents’ committee can’t force the defaulters to pay. Those people want the security but they refuse to pay.”

A dentist who wants to be known only as Singam, 37, lives in Damansara Utama, Selangor. He’s finally settling his arrears after months of not paying for security in his housing area. He was annoyed at having to pay at first because the initial security plan forced him to “go through a maze” to get home. The committee has since taken heed of his grouses.

“They wanted me to pay RM600 a year for a security plan that would inconvenience me. I have a dog. I don’t need the added security but I’ll be a team player. I don’t want to be that one problematic resident,” he shrugs.

Richard Chan, a Building Managers Association of Malaysia (BMAM) committee member, clarifies: Unless it’s a gated community, the residents’ association cannot compel you to pay for security measures implemented by the residents themselves, nor are they allowed to fix boom gates to block road access to the area.

Richard Chan

A public relations executive who declined to be named admits to not having paid her RM77 maintenance fees since September last year. Her access card has been barred so she has to park outside. And when she asked the management body to repair a leak in her wall and ceiling, they said she’d have to settle the arrears first.

But the Penangite living in Sungai Ara, George Town, denies she’s a cheapskate. “I owe RM462 in arrears but I’ll settle it as soon as I can. I feel bad because I always try to pay my bills on time but right now, this is beyond my budget. I could use my credit card but there will be extra charges.”

Another apartment dweller in Tanjung Bungah, Penang, pays almost RM1,000 in charges and sinking fund collections per year. The businessman recently stopped paying because he is unhappy with the condo’s management body.

“It’s not that I cannot afford it but why should I? The common area is dirty. The lifts are constantly out of order. I’ll only pay when things improve.”

In every society, there are bad paymasters, BMAM deputy president Tan Sri Teo Chiang Kok says matter-of-factly. If you own a stratified unit, you have to pay. You can’t argue that the place is not managed properly to escape paying. Serve on the management bodies to make sure your interest is protected and things are done properly, he advises. Or refer problems to the Commissioner of Buildings. There shouldn’t be any resistance to paying, he states, noting that more high-rise dwellers are coming to realise that a well-maintained property preserves value.

Agreeing, Chan – who is also Malaysian Association for Shopping and High-Rise Complex Management past president – warns that rising living costs could lead to more defaulters. When your neighbours don’t pay, and you decide not to also, it starts a vicious circle and maintenance goes downhill, he says.

“Location is important when it comes to property value but good management is even more crucial,” he points out. The failure of some neighbours to fork out maintenance fees has undoubtedly irked residents who pay up regularly like Casey Wong, who lives in an apartment in Petaling Jaya, Selangor.

“Even though I pay my fees, the condition of my apartment’s facilities is unsatisfactory because the management is unable to collect fees from all residents,” laments the 31-year-old bank executive.

Citing the example of frequently faulty lifts in her building, Wong says some amenities currently cannot be fixed or upgraded due to insufficient funds collected.

“Sometimes, I feel that residents like me are being ‘punished’ even though we abide by the requirements. We have done our part by paying our fees but because of uncooperative residents, we have to bear with the problems,” she says.

Wong says many of her neighbours do not pay up and the ­management corporation decided to publish their names on the apartment’s notice board.

“Some even have outstanding amounts of up to five figures!” she remarks, adding that other owners are also upset with the management body for not maintaining the building properly.

However, there are some who are fortunate to have cooperative neighbours.

Bayu Villa's Swimming Pool

Teh Eng Hock, who is the secretary of the management body in a condominium in Petaling Jaya, says only a handful of unit owners have outstanding sums and have not paid over the years.

“We are fortunate to regularly collect in excess of 90% payment from residents,” he says. Teh, 34, says any default in payment affects the joint management body’s (JMB) budget and ability to improve the condominium.

“The JMB has to manage our expenditure very carefully as the surplus we register is marginal. The introduction of the Goods and Services Tax has also impacted the JMB’s operational expenditure,” he adds.

Royal Institution of Surveyors Malaysia fellow Ishak Ismail estimates that there are some 15,000 strata schemes amounting to 1.5 million parcels in Malaysia. And a new scheme is born every day. 

If the collection is poor, the ­management bodies will have problems paying the utilities and maintenance bills, he says. ​Poor maintenance affects rental and sale demand.

Eventually, property value will depreciate, he says, adding that tenants and buyers are reluctant to stay in a poorly maintained area due to safety issues. ​

“When someone buys property, it’s not just about location and accessibility. Building condition, safety, health, a clean environment and sufficient parking are also important.” 

Wong Kok Soo thinks it’s in the best interest of defaulters to pay up. Wong is an adviser to the Association of Valuers, Property Managers, Estate Agents and Property Consultants in the Private Sector Malaysia and consultant to the National House Buyers Association.

He says: “If your unit is on the 20th floor, how can you get a good price when the lifts aren’t functioning well and keep breaking down.”

Although the management and maintenance cost of common properties went up by 4% to 6% due to the Goods and Services Tax (GST), Wong says it doesn’t have much impact on defaulters. Problematic collections are mostly in low, low-to-medium and medium-cost stratified buildings, he observes.

While defaulters aren’t a big problem in high-end properties yet, he cautions that they could become an issue as more foreigners buy such properties for investment. Tracing foreign defaulters around the world to take debt recovery action against them would be an uphill task.

BMAM’s Teo adds that there are lots of high-end condos being sold to “flippers” – people who speculate in property. When these property speculators cannot service their bank loans because there are no buyers, paying maintenance is the last thing on their minds, he says.

He says the GST, however, hasn’t resulted in a rise in charges simply because “it’s not easy asking for more money from residents because any hikes must be justified at the AGM”.

http://www.thestar.com.my/news/nation/2016/03/13/some-pay-some-dont-why-is-that/