The Case Of Too Many Car Park Lots?

Can the developer of a development accessorise the whole of the development’s car park to one individual parcel to operate a car park business? The Court of Appeal in 3 Two Square Sdn Bhd v Perbadanan Pengurusan 3 Two Square found that the operation of a car park business by the developer out of the car park lots “accessorised” to the developer’s parcel is a usage that is contrary to the meaning of “accessory parcels” under the Strata Titles Act 1985.


This alert, prepared by the firm’s associate, Khoo Jia Hui, discusses the Court of Appeal’s decision.




In 3 Two Square Sdn Bhd v Perbadanan Pengurusan 3 Two Square [2021] 3 MLJ 280, the Court of Appeal held that the two levels of basement car park belonging to the developer were not accessory parcels to the penthouse. Accordingly, the court ruled that the Joint Management Body (JMB) was entitled to charge management fees and sinking fund for the said car parks.


Facts


3 Two Square (3TS) is a commercial development comprising five boutique retail shops and offices as well as a corporate tower with two basement car parks. The developer of 3TS was the registered proprietor of 13 shop lots, all 17 office lots in the Corporate Tower and car parks in 3TS which have been accessorised to the penthouse unit in the corporate tower. The developer was also operating a car park business in 3TS.


The JMB (now known as the Management Corporation) had commenced a suit against the developer for several issues including a RM 1,739,712 claim from the developer as management fees and sinking fund charges for the car parks owned by the developer which were accessorised to its penthouse unit.


On the other hand, the developer had counterclaimed for the refund of maintenance fees and sinking fund charges that were imposed on the car park lots, which the developer claimed to be the accessory parcels to the penthouse.


Findings Of The High Court


The High Court dismissed the JMB’s claim and held that the JMB could not levy additional charges on the developer for the car parks, which are accessories to the developer’s penthouse. Relying on Sections 34(2) and 69 of the Strata Titles Act 1985 (STA), the High Court held that the STA “expressly prohibit any accessory parcel or any share or interest therein from being dealt with independently of the parcel”. Charging management fees and sinking fund on the basis of the area of the car parks is prohibited as it amounts to treating the developer’s accessory parcels and its interest therein independently of the parcel to which it was made appurtenant.


Findings Of The Court Of Appeal


On appeal, the Court of Appeal opined that the High Court Judge had made an error in his interpretation of the application of Sections 34(2) and 36 of the STA to the factual matrix of the case. The Court of Appeal held that the car park was not an accessory to the penthouse and thus, the JMB was entitled to charge management fees and sinking fund for the said car parks.


Interpretation Of “Accessory Parcel”


Section 4 of the STA defines “accessory parcel” to be “a parcel shown in a strata plan as an accessory parcel which is used or intended to be used in conjunction with a parcel”.


Relying on Section 4 of the STA, the Court of Appeal held that “accessory” means the usage of the accessory car park is attached to, connected or dependent on and/or used or intended to be used with the main parcel, the penthouse. An accessory parcel is not independent on its own.


It is not disputed that the developer is renting out the car park parcels on the two levels of basement car park. By virtue of that, the Court of Appeal found that the operation of a car park business by the developer is a usage that is “not used or intended to be used in conjunction with the penthouse”. Therefore, the car parks are not “accessory parcels” to the penthouse unit pursuant to Section 4 of the STA.


Since the JMB was not prohibited from claiming management fees and sinking fund for the car parks owned by the developer, the JMB’s claim for RM 1,739,712 against the developer was allowed.


Commentary


The Court of Appeal’s decision in finding that the car park parcels are not accessory parcels of the penthouse unit and accordingly, management fees and sinking fund charges should be imposed on the additional car park units is a welcomed relief to the JMB of 3TS.

Indeed, it would seem unfair that the car parks servicing the whole of the 3TS development (which includes five blocks and one corporate tower) be accessorised to the penthouse unit belonging to the developer, allowing the developer to continue generating income from the occupants of 3TS by operating a car park business, without contributing management fees and sinking fund charges to JMB.


Status Of Car Parks Which Are Not Accessory Parcels To The Penthouse Unit


However, the Court of Appeal’s decision above posed bigger questions. What is the status of car park parcels in 3TS if they are not accessory parcels? Does the Court of Appeal’s decision result in the creation of a separate strata title for the car park parcels in 3TS?


This is because once the strata title for each individual parcels are issued, the strata title for the penthouse unit will indicate that the two levels of basement car parks are accessory parcels of the penthouse unit. This is in accordance with the requirements under the STA. Thus, the Court of Appeal’s decision fell short by not determining the true status of the car parks, i.e. whether separate strata titles for these car parks are to be issued.


To avoid confusion and uncertainty on the status of the car park parcels, perhaps a better approach would be to declare the car parks as a common property of 3TS and thus, owned by the JMB. This was the approach taken in the case of Ideal Advantage Sdn Bhd v Perbadanan Pengurusan Palm Spring @ Damansara and another appeal [2020] 4 MLJ 93. In Ideal Advantage, the Court of Appeal found that the defendant’s act of renting out 394 car park parcels that were accessorised to its 40 condominium units was contrary to the intention of the STA. The Court went further and declared that the 394 car park parcels were no longer attached to the 40 condominium units and be returned to the management corporation as common properties. In doing so, the Court ordered the relevant land authorities to cancel the entry of the 394 accessory parcels from the strata title plan and allocate them as common properties owned and managed by the management corporation).


Commentary


Nevertheless, the decision made by the Court of Appeal in the 3TS case is important as it reiterates that accessory parcels belonging to a parcel should be used or intended to be used in conjunction with the main parcel. It is improper to accessorise the whole of the car park facility of the development to one parcel.




Authored by Khoo Jia Hui, an associate with the firm’s Corporate and Commercial practice and Tax, SST & Customs practice at our Penang office.


19 MAY 2022

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