Understanding defect liability claims
GIVEN a choice, home buyers and property investors prefer to buy a brand new property compared to venturing into the ready-to-use secondary market, which undoubtedly, has a higher barrier of entry in costs.
If you are buying residential property under construction, there is also additional protection under the Housing Development Act 1966 (HDA) over and above the many subsidies and perks commonly offered by housing developers these days.
Furthermore, if you are buying strata property, there are further protections under both the Strata Title Act as well as the Strata Management Act.
One of the most distinctive motivations when buying from the primary market is that the house comes with a “product warranty” which gives buyers the right to make a claim for defective workmanship, which is known as the defect liability period. When buying from the secondary market, the transaction is on a “as is where is” basis after the site inspection by the purchaser, unless of course, if the property is still under the defect liability period.
This is especially so if the purchase is regulated under the HDA, where the 24 months defect liability period after the delivery of vacant possession is secured against a 5% purchase price retention sum in the stake holding of the attending lawyer.
The process in making a defect claim is spelled out clearly in the prescribed agreements under the HDA. Any dispute in this regard can also be referred to the claim-friendly Homebuyer Tribunal set up under the HDA.
If the property is in a strata development scheme, defects for common property is also claimable under the said retention sum under HDA, as well as another addition retention sum with the Commissioner of the Buildings, under the strata regime.
In the event that the property purchase is not a residential property regulated under the HDA, purchasers are advised to look into the terms and conditions of the sale and purchase agreement to find the prescribed unique processes in the defects claim, and act accordingly. Not every property purchased from the primary market comes with a defect liability period. Neither will it be for the duration of 24 months as offered under the HDA purchase.
It might sounds straightforward in making a claim but there are many challenges. First of all, there is the different expectations between buyer and developer. The materiality of defects and the subjective variances of acceptable quality is always an issue.
The attending architects are often put on the spot to certify whether the applicable building standards have been complied with.
Suffice to say that not all buildings are expected to last forever; buyers must be realistic to adjust expectation with allowance for wear and tear as a result of usage and occupation of the building.
Aside from the differences in the expectation in the finished product, rectification of defects also means waiting time and inconvenience as well as disruptions to the buyer’s enjoyment of the property. Given that it is to be a home, there are many sentimental considerations over and above monetary compen- sation. The speed as well as the standard of the defect rectification are always a contentious point between buyers and the developer.
The fondness of Malaysian buyers in personalising their new home with renovation and refurbishment is also another challenge in making defects claim. The well-intended renovation work might be a contributory factor to the resulting defects, thus a matter of dispute or even concealing the detectability of defects beyond the defect liability period. Not many homeowners are willing to wait for the lapse of the defect liability period in order to carry out the renovation.
Another common issue is the sale and purchase of a property within the defect liability period. It is important that a conscious effort be taken by attending lawyers to ensure that the subsequent buyer continues to be able to make any defect claim for the balance of the defect liability period, just like the first purchaser.
Perhaps a good practice by developers in this matter would be to manage the expectation of the property purchasers in making the defect claim soon after giving vacant possession.
Be transparent. Educate the property purchasers on what is a defect and what is the process in making a claim. This can go a long way in ensuring good after-sale experience.
While the developer is a professed builder supported by professionals of many different trades, the buyer is not guided with any standard. On this basis, all the stakeholders should collaborate to make this defect liability period a meaningful exercise for all, especially for the buyer. Chris Tan is the founder of Chur Associates, a boutique legal service provider.