Wawasan Raya (M) Sdn Bhd & Anor v Marc Service Residence Management Corporation - When Do House Rules Break The Rules?

Download

Short term rental (STR) services such as Airbnb.com and Booking.com have long presented a conundrum to strata communities. Generally speaking, property owners are free to deal with their property as they see fit, reflecting the adage that 'a man’s home is his castle.' However, in the context of strata developments, STR operations by select parcel owners may impose an undue burden on the development’s local community ranging from an increase in maintenance costs to private nuisance. In such circumstances, what is a management corporation’s role in regulating STR? 

The recent Court of Appeal decision in Wawasan Raya (M) Sdn Bhd & Anor v Marc Service Residence Management Corporation examined the validity of a management corporation’s (MC) by-laws prohibiting parcel owners from conducting “short term rentals” (STR) in the development.

Background

Marc Service Residence Management Corporation (Marc MC) was the MC of a service apartment development named Marc Service Residence (Marc). The express condition of land use on Marc’s land title stated that the land on which Marc has been erected should only be used for “a high-rise commercial building for the purpose of serviced apartments”(Express Land Condition). 

Marc MC had passed its own set of additional by-laws pursuant to Section 70 of the Strata Management Act 2013 (SMA), dubbed the “House Rules”. Among the House Rules enacted was Rule 2.1(a), which read: 

The units are constructed for private residential dwellings and shall be used exclusively for private residential purpose only. 

Relying on Rule 2.1(a), on 20.12.2019, Marc MC obtained a perpetual ex-parte interim injunction to, among others, prohibit the operation of STR in Marc against 202 parcel owners including the Appellants. On 21.2.2020, the High Court granted an inter-partes interlocutory injunction on the same terms. The main thrust of the High Court’s findings was that Marc was “purely a private residential accommodation” and as such “cannot be utilised as a hotel or motel or for any such commercial purpose and cannot be advertised as such”.

The Court of Appeal’s Judgment

The Court of Appeal disagreed and subsequently reversed the High Court’s decision, stating, among others, that Marc MC had no powers to regulate STR in Marc.

The Court of Appeal highlighted that “STR” was not a legal term and was absent from the text of the SMA. Accordingly, there is no prohibition on STR under the SMA. To this end, the Court of Appeal affirmed the de facto legality of STRs, stating that “what the law does not specifically prohibit, it permits”. 

Predicated on the above, in order for Marc MC to validly injunct any STR operations from Marc, there must first be a legal basis to do so. The Court of Appeal held that, in this instance, there was no legal basis for Marc MC’s prohibition of STRs in Marc, stating among others that: 

a) the SMA did not confer any statutory powers to MCs to regulate the use and occupation of individual parcels;

b) Rule 2.1(a) also does not confer any right or power on the MC to prohibit STR; and

c) in any event, Rule 2.1(a) was invalid for contravening the Express Land Condition. 

Further to the above, the Court of Appeal concluded that where instances of private nuisance or damage to common property occur, the appropriate course of action to be taken by a MC (or the affected parcel owners) would be to: 

a) file a civil suit based on the tort of private nuisance; and/or 

b) lodge a police report. 

Commentary

At first glance, the Court of Appeal’s decision appears impactful and likely to significantly alter the strata management landscape. However, it ought to be highlighted that the Court of Appeal’s decision and rationale are seemingly in direct conflict with an earlier decision of the Federal Court in Innab Salil & Ors v Verve Suites Mont’ Kiara Management Corp [2020] 12 MLJ 16. Innab Salil related to identical facts wherein a MC had passed a by-law prohibiting the use of parcels for STR in commercial service apartments built upon land held under the category of “Building” and the express condition of “Commercial Building”. 

The central issue in Innab Salil was whether the by-law would invalid for being contrary to the express land condition for the relevant property. The Federal Court upheld the validity of the by-law, stating: 

“[33]​ To resolve the apparent conflict between s 120 of the NLC and s 70 of the SMA 2013, the provisions must be read harmoniously such that they do not diametrically contradict each other. The effect of harmonious construction of these two provisions is this: the grant of powers or rights by one particular provision in a law does not mean that such rights may not at the same time be restricted by other provisions of the law. Hence, simply because the state authority has issued conditions and restrictions of use in the title of the land, that does not preclude the management corporation from promulgating further rules, regulations or by-laws for the purposes provided for by law, in particular the purposes stipulated in s 70(2) of the SMA 2013…

[43]​By-laws passed pursuant to s 70 of the SMA 2013 for the reasons stipulated in sub-s (2) thereof are similarly justifiable on the basis that they exist for the good of the strata community. In other words, in the present appeal, even if the state authority permits the use of the land for commercial purposes, such use is still subject to other laws in force, in particular to s 70 of the SMA 2013. Hence, the passing of House Rule No 3 is not unlawful.”

Thus, it may be distilled from the Federal Court’s decision that: 

a) the correct approach to resolving conflicts between conditions for use and strata by-laws is to read the conflicting provisions harmoniously; and

b) a MC is within its powers to regulate the use of private parcels (including the operation of STRs).

Conclusion

In that regard, the Court of Appeal’s decision in Wawasan Raya (M) Sdn Bhd ought to be read having regard to the Federal Court’s decision in Innab Salil, especially considering that Wawasan Raya (M) Sdn Bhd cited Innab Salil favourably in its judgment. In light of the conflict between these two decisions, the ruling of the Federal Court ought to prevail against the guidance of the Court of Appeal. 

For the time being, it is recommended that, as a precautionary step, MCs intending to pass any proposed by-laws seeking to regulate the use of private parcels must ensure that the proposed by-laws are clear, prescriptive and plainly outline the proposed consequences or penalty.  

16 May 2025