Understanding Liquidated Damages in Malaysian Real Estate
Liquidated damages (LD) are a common clause in real estate contracts in Malaysia. They serve as pre-agreed compensation for breaches, such as delays in property delivery. While LD aims to provide certainty, disputes frequently arise over its calculation, enforcement, and fairness.
Key Reasons for Disputes Over Liquidated Damages
1. Delay in Property Delivery
The Housing Development (Control and Licensing) Act 1966 (HDA) regulates property transactions in Malaysia, requiring developers to deliver properties within the stipulated timeframe. When delays occur, purchasers often claim LD. Developers, on the other hand, may argue for justifications to reduce or avoid payment.
2. Ambiguity in Contract Terms
Disagreements often stem from unclear contract clauses regarding LD. Some contracts do not explicitly define when LD starts accruing, leading to differing interpretations between developers and purchasers.
3. Unenforceability of LD Clauses
Some developers challenge LD clauses by arguing they are punitive rather than compensatory, rendering them unenforceable. The Malaysian courts typically uphold liquidated damages unless proven excessive or unreasonable.
4. Late Completion vs. Late Vacant Possession
There is often confusion between the completion date and the vacant possession date. Developers might claim a project is completed, but delays in obtaining Certificates of Completion and Compliance (CCC) lead to delayed handover. Purchasers claim LD for these delays, fueling disputes.
5. Interpretation of Extensions of Time (EOT)
Developers sometimes seek extensions of time (EOT) from the housing ministry due to unforeseen construction delays. Purchasers may contest these EOT approvals, arguing they are unfair and delay their rightful compensation.
How Courts in Malaysia Handle Liquidated Damages Disputes
Malaysian courts generally uphold the right of purchasers to claim LD unless developers provide valid justifications for the delay. The Federal Court has ruled that EOT approvals must follow strict conditions to avoid purchasers being unfairly deprived of compensation.
Resolving Disputes Over LD in Malaysian Real Estate
1. Negotiation and Settlement
Both developers and purchasers are encouraged to resolve disputes amicably through negotiations to avoid prolonged legal battles.
2. Tribunal for Homebuyer Claims
Malaysia’s Tribunal for Homebuyer Claims provides an accessible forum for purchasers to seek LD compensation without incurring high legal costs.
3. Seeking Legal Action
If disputes remain unresolved, legal proceedings may be necessary. Property purchasers must gather evidence such as sale and purchase agreements (SPA) and correspondence with developers to strengthen their case.
Conclusion
Liquidated damages remain a contentious issue in Malaysian real estate. Developers and purchasers must be aware of their rights and obligations to avoid protracted disputes. Seeking legal advice when disagreements arise ensures fair resolutions in real estate transactions.
