Court Of Appeal’s Ruling Brings Long Awaited Clarity To Malaysia’s Short Term Rental Debate

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Malaysia’s long-running tensions over short-term rental (STR) activity in strata developments have taken a significant turn, following a Court of Appeal ruling that clarifies the limits of management corporations’ powers and the status of private covenants seeking to restrict such use. The decision in Wawasan Raya Sdn Bhd v MARC Service Residence Management Corporation [2025] 4 MLRA 1 provides some of the clearest judicial guidance yet in a sector where rapid growth of platforms such as Airbnb has often outpaced legal consensus.

Over the past decade, STR has become a defining feature of the urban property economy, offering lucrative revenue streams to unit owners but raising familiar anxieties among residents and building managers: security lapses, transience, nuisance and excessive noise. Developers have responded by embedding prohibitions or restrictions in Deeds of Mutual Covenant (DMCs), which function as house rules before a management corporation is formed. But these privately drafted covenants have always sat uneasily alongside the statutory scheme under the Strata Management Act 2013 (SMA) prompting persistent questions about their enforceability.

The Court of Appeal’s judgment attempts to resolve this tension by examining both the statutory framework and the internal governance of the MARC Service Residence, a serviced apartment development in Kuala Lumpur.

The Dispute

At its sixth annual general meeting (6th AGM) on 26 June 2019, the MARC Management Corporation (Plaintiff) adopted Resolution No. 3. This resolution required unit owners and tenants to comply with the federal guidelines on short-term accommodation issued by the Commissioner of Buildings (COB KL), imposed a RM200 penalty for each breach of the house rules (HR) and stipulated that such penalties would constitute a debt owed to the Management Corporation.

MARC Service Residence subsequently initiated proceedings against approximately 203 parcel owners (Defendants) seeking injunctions both compelling adherence to the HR and the statutory by-laws, and restraining owners from conducting STR. The core provision relied upon was Rule 2.1(a) of the HR, which stated that units “shall be used exclusively for private residential purposes”.

Only two defendants, Wawasan Raya and Acappella Suite Hotel Sdn Bhd, actively contested the proceedings. They argued that their STR operations were lawful: neither the SMA nor the by-laws, they said, prohibited such activity.

The High Court’s View: STR As Commercial Misuse

The High Court sided with the Management Corporation. It found that extensive short-term letting amounted to commercial activity akin to hotel operations and therefore fell outside the permitted “private residential purposes” use. In the High Court’s reading, the DMC and HR constituted a blanket prohibition on such commercial use and resolutions passed at the 6th AGM could not override those instruments. The RM200 penalty, the judge said, could not cure an underlying contravention.

Wawasan Raya took the matter to the Court of Appeal.

The Issues Before The Court Of Appeal

The appellate court considered two central questions:

(a)        whether STR breached any express or implied terms within the statutory by-laws under the SMA 2013; and

(b)        whether a management corporation has the power to prohibit STR.

These questions required the court to navigate the overlapping terrain of statutory duties, private covenants and land-use designations which is a recurring point of friction in Malaysian strata disputes.

The Court Of Appeal’s Reasoning

STR not prohibited by statute

The Court began by examining the SMA and the Strata Management Regulations 2015 (SMR). Neither, it noted, contains any explicit prohibition on STR. Drawing on the 1997 authority of YK Fung Securities Sdn Bhd v James Capel (Far East) Ltd [1997] 2 MLJ 621 which stands for the principle that what the law does not forbid, it allows the Court held that STR is not, by itself, unlawful under the statutory scheme.

Management corporations: powers and limits

The Court then turned to Section 59 of the SMA, which outlines the duties and powers of management corporations. It held that these statutory powers do not extend to regulating the use or occupation of individual parcels. On this basis alone, the Management Corporation lacked authority to impose a blanket prohibition on STR.

The HR provision relied on by the MARC Service Residence, Rule 2.1(a), was therefore insufficient to impose such a ban. Moreover, the Court noted that this provision was inconsistent with the land title’s express conditions: the development was designated as a high-rise commercial building intended for serviced apartments. Even if STR were characterised as commercial use, the land title authorised such activity. The Court made clear that land-use conditions take precedence over house rules that purport to restrict usage further.

Special resolutions must govern

The Court also faulted the High Court for failing to consider the effect of Resolution No. 3, which was passed by special resolution under Section 70(2) of the SMA. A related provision, i.e. Rule 2.1(e) of the HR expressly permitted STR in accordance with COB KL’s guidelines on Aktiviti Penginapan Sementara Jangkamasa Pendek. As a special-resolution provision adopted later in time, Rule 2.1(e) superseded Rule 2.1(a).

This aligns with a well-established interpretive rule: subsequent provisions prevail over earlier ones where there is conflict.

Contractual bans rendered void by statute

The Court observed that neither the SPA nor the DMC in the case expressly prohibited STR. But even if they had, Section 148 of the SMA renders void any contractual provisions relating to building management or maintenance that conflict with the Act. Any attempt to impose additional restrictions whether by developers or management bodies must therefore withstand scrutiny under the SMA.

Remedies lie elsewhere

Importantly, the Court did not dismiss the concerns raised by residents. It emphasised that if STR operations cause disturbance, nuisance or other harms, aggrieved parties have recourse through conventional means: police reports where appropriate, or legal action based on the tort of private nuisance.

Commentary

This ruling is likely to reverberate across Malaysia’s rapidly growing strata sector. For years, the legality of STR in residential towers has been shaped less by statute than by a patchwork of DMC clauses, house rules and informal building policies, many of which have struggled to withstand legal scrutiny. The Court of Appeal has now clarified that STR is not automatically unlawful, and that any restrictions must be imposed through the proper statutory mechanism: a validly passed special resolution.

The judgment reasserts the primacy of the SMA. Any clause in a DMC, HR or private agreement that conflicts with the Act is rendered ineffective under Section 148. Developers and management corporations will need to revisit long-standing assumptions about the enforceability of pre-MC covenants, particularly where they attempt to manage land use rather than maintenance and common property.

For owners, the decision provides a more predictable framework albeit one that still permits management corporations, with sufficient support, to regulate STR if they wish. For residents concerned about noise, nuisance or safety, the Court’s message is clear: the remedy lies not in blanket contractual bans but in tort-based claims or regulatory action.

Above all, the ruling underscores a principle often obscured in the proliferation of house rules and DMCs: management corporations must act within the four corners of the statute. Their powers flow from legislation, not corporate assumption. And where rights and restrictions compete, it is the statutory architecture, not private covenants that ultimately governs.

24 November 2025