Court of Appeal Affirms The Validity Of Car Park Business Using Accessory Car Parks Parcels

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In Target Term Sdn Bhd v Waldorf and Windsor Management Corporation and Another appeal [2024] 6 MLJ 598, the Court of Appeal affirmed the validity of a commercial car park business using the car parks accessorised to an apartment unit.

This decision overruled the earlier Court of Appeal decision in Ideal Advantage v Perbadanan Pengurusan Palm Spring @ Damansara [2020] 4 MLJ 93, which held that the use of such accessory car park parcels constitutes “dealing” which is prohibited by the Strata Titles Act 1985 (STA), resulting in the said car park parcels turning into common property.

Brief Facts Of Target Term

Malaysia Land Properties Sdn Bhd, the developer of a mixed development complex sold an apartment unit with 420 carpark units to Target Term Sdn Bhd (TTSB). The issues arose when the Management Corporation (MC) billed TTSB for arrears in management charges and sinking fund contributions amounting to over RM 850,000.00. This prompted TTSB to seek for a declaration that the charges were null and void as the MC had not provided any maintenance services in respect of the 420 car park accessory parcels.

The MC counterclaimed and sought to defeat the title of TTSB to the 420 car park parcels by relying on the decision in Ideal Advantage. In Ideal Advantage, the proprietor bought 45 condominium units along with 439 accessory car park parcels from the developer and operated a commercial car park business with the 439 accessory car park parcels. The Court of Appeal held that the use of the car park parcels was separate from the main parcels, therefore constituted “dealing” under Sections 34(2) and 69 of the STA.

It was on this basis that the MC in Target Term mounted its challenge against TTSB by contending that TTSB was not using the 420 accessory car park parcels in conjunction with the apartment unit, hence it constituted “dealing” and contravened Sections 34(2) and 69 of. Accordingly, the MC contended that by applying Ideal Advantage, TTSB’s 420 accessory car parks were common property.

The Court Of Appeal’s Decision

In reaching its decision, the Court of Appeal in Target Term relied on the Federal Court’s ruling in Innab Salil v Verve Suits Mont’ Kiara Management Corporation [2020] 12 MLJ 16.

In Innab Salil, the management corporation of Verve Suites Mont’ Kiara condominium sued 20 proprietors of the condominium for letting out their units in short-term rental arrangements through online booking platforms such as Airbnb, booking.com and Agoda. In the general meeting of the management corporation, a resolution was passed to introduce into the house rule a prohibition on proprietors from using their

units for business purposes including for short-term rentals through these online booking platforms.

The proprietors argued before the Federal Court that the house rules restricted their lawful rights to let out their units as the short-term rental constitutes “dealing” under Section 70(5) of the Strata Management Act 2013 (SMA), which provides, among others, that no by-law shall prohibit or restrict the transfer, lease or charge of, or any other dealing with any parcel or unit in a subdivided building.

The Federal Court in Innab Salil dismissed the proprietor’s argument and held that the short-term rentals were mere licences and did not amount to “dealing”. Hence, the house rules did not contravene Section 70(5) of the SMA. In Innab Salil, the Federal Court set out the test to distinguish a tenancy from a licence, ruling that the former constituted “dealing” under the SMA, while the latter did not. The test requires consideration of the following factors:

(a) Where the occupier enjoys exclusive possession of the premises, then it is highly likely that the arrangement is a tenancy.

(b) Where the occupier is not conferred or is unable to establish that he has exclusive possession of the premises, then it is likely that he is a mere licensee.

(c) The court has to examine the intention of the parties, nature of the agreement and quality of the occupancy, to determine whether the parties intended the occupier to have rights and obligations consistent with that of a tenant under tenancy laws.

(d) The labels parties used to describe their relationship is not decisive or conclusive. It must be considered together with the facts and circumstances to determine the intention, nature and quality of the occupancy.

(e) The court has to examine the substantive obligations of the parties to determine the relationship, irrespective of the labels used by the parties to describe their arrangement of the occupancy of the premises.

Applying the test enunciated by the Federal Court in Innab Salil, the Court of Appeal in Target Term held that the permission granted by TTSB to allow visitors to enter and park in the 420 car parks would constitute no more than a licence. Such an arrangement cannot be construed as a tenancy, and as such, TTSB was not “dealing” with its accessory car parks. Hence, it does not contravene the statutory prohibition against independent dealing of accessory parcels under Sections 34(2) and 69 of the STA.

The Court of Appeal in Target Term held that even if the operation of the car park business was in breach of Sections 34(2) and 69, it could not have the effect of invalidating the title of the proprietor to the car park units and the car parks unit do not become common property. This was because such a consequence was not provided in the STA and the definition of “common property” in itself cannot be construed as an operative provision of law conferring rights and obligations.

Commentary

The Court of Appeal in Target Term did not follow its previous decision in Ideal Advantage and held that its previous decision in Ideal Advantage did not have the benefit of considering the subsequent Federal Court decision of Innab Salil.

Hence, the decision of the Court of Appeal in Target Term, which applied the principles expounded by the Federal Court in Innab Salil, has overruled its earlier Court of Appeal decision of Ideal Advantage, in so far as it pertains to the constructions of the contractual relationship between a carpark customer and its operator.

In short, the Court of Appeal in Target Term has affirmed the validity of the operation of a car park business using car parks accessorised to the main parcel in stratified properties. The key is to determine the relationship between the car park operator and its customers, i.e. the car park users, whether it is one of tenancy or licence.

In any case, even if there is a contravention against independent dealing of the car park accessory parcels, it would not have the effect of invalidating the title to the said accessory car park parcels or becoming common property.

2 MAY 2025