The Water And Electricity Conundrum For Housing Developers
Clause 27(1)(c) of the standard sale and purchase agreement (SPA) prescribed under the Housing Development (Control and Licensing) Act 1966 (HDA) stipulates that for a housing developer to deliver vacant possession of the property to the purchaser, water and electricity supplies must be “ready for connection” to the said property.
In the past, it has been uncertain whether “ready for connection” includes the housing developer’s obligation to deliver vacant possession of the property with water and electricity supplies connected to it as there had been conflicting case law.
The Federal Court in Remeggious Krishnan v SKS Southern Sdn Bhd (formerly known as MB Builders Sdn Bhd) [2023] 3 MLJ 1 has finally put this issue to rest by deciding that there was a non-compliance by the developer in delivering vacant possession of parcels to its purchasers with no electricity connection to the property. It was held that pursuant to the terms of the SPA, it was the developer’s obligation to provide actual supply of water and electricity to the property.
This article discusses the Federal Court’s decision and its implications.
Facts
Under the SPA signed between the purchaser and the developer, clause 25 of the SPA provided that vacant possession of the property shall be 36 months from the date of the SPA. Meanwhile, in relation to the delivery of vacant possession, clause 27 of the SPA states that vacant possession shall be delivered when, water and electricity supply were ready for connection to the property.
The appellant argued that vacant possession of the property was delivered on 24.4.2018 with no electricity connection to the property. The application to Tenaga Nasional Berhad (TNB) for electricity supply was sent only 2 months later, i.e. 29.06.2018, whilst the electricity deposit to TNB was paid by the purchaser on 26.06.2018. Ultimately, there was a delay of 63 days by the developer in making the application for electricity supply to TNB.
The legal question here was whether the property was ready for delivery of vacant possession by the developer when it issued its notice informing the purchaser of its readiness to deliver vacant possession, notwithstanding that the application to TNB for electricity supply had not been done?
Federal Court’s Decision
The Federal Court found that there was a delay by the housing developer in delivering vacant possession of the property by failure to provide a parcel with electricity supply connected to it. The court referred to clauses 1(k) and 27(1)(c) of the SPA, which provided:
Clause 1
(k) “ready for connection” means electrical points and water fittings and fixtures have been installed by the Vendor and tested and commissioned by the Appropriate Authority or its authorised agent and supply is ready for tapping into individual parcel units”.
Clause 27 – Manner of delivery of vacant possession
(1) The Developer shall let the Purchaser into possession of the said parcel upon the following:
(a) …
(b) …
(c) water and electricity supply are ready for connection to the said Parcel.
Reading both clauses together, the Federal Court took the view that there was an obligation of the developer to provide actual water and electricity supplies to the property. It would be unfair to the purchaser if they were delivered a property that had no water and electricity supplies as the purchaser was deprived of the opportunity to utilise and enjoy the property as there was no water and electricity on the property.
Additionally, the Federal Court disagreed with the Court of Appeal’s view that no losses could have been suffered by the purchaser as vacant possession of the property was delivered within the timeframe of the SPA. Although the property was delivered within the 36 months, the developer had not complied with the conditions to delivering vacant possession of the property. As such, damages were ordered for the delay of 63 days for the breach of clause 27 of the SPA.
Commentary
The Federal Court’s decision provides for a definitive interpretation to delivery of vacant possession with water and electricity supply. This ruling sets a new obligation on the housing developers. This is in line with the recent cases delivered by the Federal Court relating to housing development, which promote the HDA as a social legislation to protect purchasers.
In Khoo Soon Lee Realty Sdn Bhd v Tribunal Tuntutan Pembeli Rumah & Anor [2020] MLJU 983, which was a case of similar facts and issues, the High Court held that the housing developer owed a statutory duty and duty of care to its purchasers to ensure that water and electricity supplies were connected. Upon taking vacant possession, a purchaser was entitled to “expect that if he switches on the electricity switch, he can have full supply of electricity, and if he opens the tap, the water should flow”. If it was interpreted that the housing developer’s duty stops short at ensuring water and electricity supply “is available for tapping into individual parcels”, the purchasers, which was a weaker party to the agreement, would be expected to make their own applications to the water and electricity suppliers for connection to their properties.
It is interesting to note that in an earlier case of Eco Green City Sdn Bhd v Tribunal Tuntutan Pembeli Rumah & Anor [2020] MLJU 1670 (Eco Green), where the High Court held that the housing developer’s duty to deliver vacant possession was met by merely obtaining TNB’s approval to the issuance of the certificate of completion and that electricity and water supplies do not need to be connected. The High Court further held that a different interpretation would be stretching the interpretation of the clauses in the SPA and rewriting the SPA by allowing the purchasers to decide when their electricity meters to be installed and take advantage of the “extended” period, amounting to unjust enrichment. The issuance of the certificate of completion indicated that all requirements pursuant to the SPA and the government laws have been complied with. However, it must be noted that clause 22(2) of the SPA states that the purchaser is liable to pay the necessary deposits for the installation of water, electricity and gas meters (if any) within 30 days from the date of receipt of the request from the developer. Thus, there is no issue that the purchasers may take advantage of the “extended” period as the purchasers have a duty to make payment within the stipulated timeframe.
Based on the recent Federal Court ruling, the duty rests with the housing developer to ensure that water and electricity applications to the relevant suppliers have been submitted before vacant possession of the property is delivered. Developers need to be wary with this new development in case law and ensure that water and electricity applications to the relevant suppliers have been made prior to delivery of vacant possession. Additionally, these applications must be performed within the stipulated time in the SPA.
25 July 2023