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In Icon City Development Sdn Bhd v K-Shin Corporation Sdn Bhd [2022] MLJU 2227, the Court of Appeal was asked to decide whether one can be deemed to have handed over vacant possession of a property – in this case, a shop office; was not “fit for occupation” where even basic amenities like water and electricity have not been connected.
Relevant Facts
1. K-Shin Corporation Sdn Bhd (“K-Shin”) purchased a shop office from Icon City Development Sdn Bhd (“Icon City”).
2. Based on the terms under the Sale and Purchase Agreement (“SPA”), the vacant possession shall be delivered on or before 4.6.2015.
3. Clauses 13.2.1 and 13.2.2 of the SPA provide the manner in which vacant possession is delivered:
“13.2 Manner of vacant possession
13.2.1 Upon issuance of a certificate by the Developer’s architect certifying that the construction of the Said Parcel has been duly completed and the Purchaser having paid all monies payable under this Agreement and having performed and observed all terms and conditions on the Purchaser’s part under this Agreement, the Developer shall let the Purchaser into possession of the said Parcel PROVIDED ALWAYS THAT such possession shall not give the Purchaser the right to occupy and the Purchaser shall not occupy the said Parcel or to make any alterations additions or otherwise to the said Parcel until such time as the Certificate of Completion and Compliance for the said Parcel is issued.
13.2.2 Upon the expiry of fourteen (14) days from the date of notice from the Developer requesting the Purchaser to take possession of the said Parcel … the Purchaser shall be deemed to have taken delivery of vacant possession of the said Parcel...”
4. On 30.12.2015, Icon City issued a letter to K-Shin informing K-Shin that vacant possession of the shop office was ready to be delivered, enclosing a certificate of completion from the Architect and that the requirements for vacant possession under Clause 13.2.1 of the SPA have been met.
5. Pursuant to Clause 13.2.2 of the SPA, K-Shin would be deemed to have taken possession of the Shop Office within 14 days from the date of the letter, which would be 13.1.2016.
6. The problem was this: at the time of the letter, the electricity supply, water supply and the permanent access road to the shop office (collectively referred to as “Essential Amenities”) were not made ready or available. The Certificate of Completion and Compliance (“CCC”) has also not been issued for the Project and remains outstanding.
7. On 25.2.2016, Icon City purportedly delivered the actual vacant possession of the shop office to K-Shin.
8. K-Shin filed a suit against Icon City claiming among others RM 1,052,739.73 being the sum of Liquidated Ascertained Damages (“LAD”) for the late delivery of the shop office from 4.6.2015 to 25.2.2016.
(Note: This is despite K-Shin taking the position that the delivery of vacant possession on 25.2.2016 was invalid as the water and electricity mains were not connected and the CCC for the project has not been issued and remains outstanding)
The High Court’s Decision
In allowing K-Shin’s claim for liquidated damages from 4.6.2015 to 25.2.2016, the High Court ruled as follows:
(a) Icon City has the obligation to ensure the availability of the Essential Amenities to the shop office and the CCC was issued to K-Shin before Icon City can deliver vacant possession of the Shop Office.
(b) The words “delivery of vacant possession” under Clauses 13.1.1 and 13.2.1 of the SPA must be construed to mean delivery of a vacant constructed property that can be occupied either by the plaintiff as the purchaser or the plaintiff’s tenant or licensees.
(c) As such, vacant possession can only be lawfully and validly delivered under the SPA if on the date of the delivery of vacant possession:
Icon City made available the Essential Amenities to the shop office; and
The CCC was issued to certify that all the Essential Amenities have been completed by Icon City as the developer of the Project.
The Court of Appeal’s Decision
Deciding that the High Court’s finding is erroneous, the Court of Appeal held as follows:
(a) The Court of Appeal made a distinction between “occupation” and “possession”. It was observed that vacant possession is not synonymous with the right of occupation.
(b) The definition of the manner of vacant possession was clearly defined in Clause 13.2 of the SPA, which has been duly complied with by Icon City. The clause expressly states that “…such possession shall not give the Purchaser the right to occupy and the Purchaser shall not occupy the said Parcel until such time as the Certificate of Fitness for Occupation for the said Building is issued.”
(c) The manner of vacant possession and the issuance of the CCC are completely separate events. As there is no statutory prohibition against the segregation of the 2 events, the sanctity of the contract entered between parties should be preserved.
(d) As K-Shin was not given a right of occupation when vacant possession was delivered, the issue of actual electricity and water supply is not relevant.
(e) The granting of “vacant possession” of the Shop Office without the right to occupation is nothing novel where the previous Schedule H of the Housing Development (Control and Licensing) Regulations 1989 (before the amendments vide PU(A) 106/15 which came into force on 1/2/2011) also contained a clause for vacant possession without according a right to occupation.
Based on the above findings, the Court of Appeal held that the delivery of vacant possession to K-Shin was on 30.12.2015 as per Icon City’s letter. The Court of Appeal reduced the LAD amount awarded by the High Court to K-Shin from RM 1,052,739.73 to RM 834,246.00 calculated from 4.6.2015 until 30.12.2015.
(Note: The court however did not include the 14 days period under Clause 13.2.2 of the SPA for the computation of LAD. Neither did the court state the reason for this omission in its decision)
Comments
Unlike the properties which fall under the Housing Development (Control and Licensing) Act 1966 (where the delivery of vacant possession by the Developer shall be supported by a CCC and water and electricity supply shall be ready for connection to the said Building), there is no statutory provision governing the delivery and manner of vacant possession of other properties, such as a commercial property as in the present case.
The Court of Appeal’s decision above clearly shows its inclination and the necessity to uphold the principle of freedom of contract. The Court of Appeal gave a literal interpretation of the expressions used in the SPA, albeit it may be deemed harsh on any of the parties to the same.
Understandably, purchasers will be disappointed with the outcome.
To them, the implication is not limited to when LAD stops. It would likely mean that they now have to service more of their loans, make payments for maintenance fees, etc. And they bear all this even when their unit is not “fit for occupation”.
The effect is compounded when the property is part of a larger ongoing project. Say, the developer may have completed the office tower and vacant possession is deemed to have been delivered. Yet, the adjoining mall or hotel tower which are part of the same project might still be halfway through construction. The same might be true for the access roads. CCC is usually issued when the entire project is completed. That may be years ahead, much to the detriment of the purchasers. Sadly, these are real case scenarios.
This case is a sounding reminder to purchasers of non-residential properties to take note of the terms of delivery of vacant possession. The terms in your sale and purchase agreement may not necessarily reflect your presumption that the property will be ready and fit for occupation when the developer is deemed to have handed over vacant possession. That may be the case, for many months, if not years to come.
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