STRATA MANAGEMENT: DIFFERENT RATES FOR DIFFERENT FOLKS?

A. Overview

1. One of the most apparent benefits strata properties such as condominiums, apartments, flats, serviced apartments have to offer is the common facilities that are available to the owners. This ranges from swimming pools, gyms to security and common halls, all of which require proper management and maintenance, and of course, with the attendant costs.  Hence, owners of strata properties are no strangers to maintenance fees and sinking funds.

2. Maintenance fees and sinking funds are collected and managed by the management body of the strata property; a joint management body (“JMB”) prior to the issuance of strata title, or a management corporation (“MC”) after.  The amount of maintenance fees payable by each parcel owner is determined by share units, figures which are assigned to each parcel by the developer’s licensed land surveyor. The sinking fund is thereafter calculated at 10% of the maintenance fee.¹

3. Prior to any sale, developers are required to file a schedule of parcels, showing the proposed share units of each parcel. This is computed based on the area, usage, size and location of the accessory parcel using a prescribed formula, so that purchasers would know their portion of payment and their voting rights at a general meeting.² Different weightage factors are applied in the calculation of share units for different parcel types. For instance, residential parcels would have a different weightage factor than retail complexes and car parks. For some properties which do not have share units assigned to it at the time of sale (prior to the enactment of the Strata Management Act 2013 (“SMA 2013”), their share units will be calculated using the formula prescribed in the First Schedule of the SMA 2013.³

4. In Amity One Sdn Bhd v. Binjai Residency Management Corporation⁴ the High Court analysed and answered some of the common legal questions in respect of the imposition of maintenance fees and sinking funds. This article will discuss these questions, as follows:
   
   
   1. whether different rates of maintenance fees and sinking fund can be levied in respect of different parcels;
      
   2. whether parties can mutually agree to contract out of SMA 2013 for a different rate of the maintenance fees and sinking fund to be charged; and
      
   3. if not, whether the undercharged maintenance fees are recovereable.

5. In this case, the parcel owner brought an action against the MC for breach of an informal arrangement between the MC and the said parcel owner to reduce the maintenance charges payable by discounting the rate of maintenance charges, but the effect of which was to vary the share units allocated to its parcel based on a different weightage factor.

6. The MC (now helmed by different people) in turn counterclaimed for the underpaid maintenance charges and sinking fund in accordance with the rate applied to all parcels.  The High Court was asked to construe the relevant provisions of SMA 2013 and Strata Titles Act 1985 (“STA 1985”) (and their related or subsidiary legislations) through a summary determination under Order 14A of the Rules of Court 2012 since it involved matters of statutory interpretation and construction.

B. Fixed Rate Per Share Unit for All

7. The High Court confirmed that the SMA 2013 imposes express legal duties on management bodies to collect/charge⁵, and for the proprietors⁶ and/or parcel owners⁷ to pay maintenance charges in proportion to the share units assigned to each parcel.

8. The High Court noted that in interpreting Section 45 of the STA 1985 (now repealed) which is equivalent to the provisions under the SMA 2013, the Court of Appeal had in Perbadanan Pengurusan Endah Parade v Magnificent Diagraph Sdn. Bhd.⁸ held that a management corporation would be acting beyond its powers (ultra vires) to levy payments which are not sanctioned by statute.

9. Therefore, management bodies are only empowered to impose a fixed rate per share unit and to levy charges in proportion to the share unit.⁹

C. No Exceptions Even with Mutual Agreement or Resolution

10. The High Court was of the view that even if it was mutually agreed by parties or if a resolution is passed at a general meeting, the legislative frameworks of both STA 1985 and SMA 2013 disallowed anyone to ignore the share units assigned and endorsed on the strata register and title.

11. Although Section 60(3) SMA 2013 allows a MC to determine different rates of maintenance fees to be charged, it is only limited to situations where parcels are used for a ‘significantly different purpose’. For example, if a parcel type or the usage of a parcel is changed from commercial to residential.¹⁰

12. The parcel owner argued that the MC has the power to enter into such arrangement, as Section 59(2)(j) SMA 2013 empowers the MC to do all things reasonably necessary for the performance of its duties. However, the High Court held that Section 59(2)(j) is a general provision¹¹ and cannot override the specific provisions of Sections 59(1)(b) and 59(2)(a) to collect charges “in proportion to the share units”.

13. The arrangement between the MC and the parcel owner in the case essentially calls for implementation of a lower share unit for the parcel owner’s parcels in exchange of a transfer of car park lots independently of its parcel from the parcel owner to the MC.

14. In this regard, the High Court held that Sections 34(2) and 69 of the STA 1985 expressly prohibit independent dealings of accessory parcels. Therefore, the subsisting arrangement to impose different rates of maintenance charges in exchange of car park lots is illegal.¹²

15. The parcel owner also suggested that the MC had approved the arrangement through a resolution passed at the annual general meeting and relied on the indoor management rule (Turquand’s rule) to argue that the parcel owner was entitled to assume that rules have been complied with when the transacting with the MC.

16. However, the High Court stated that a resolution passed to charge a different rate for maintenance fees would not change the position and the indoor management rule would not apply in the circumstances.¹³

17. The parcel owner also contended that the MC is estopped from taking the position that it has no power to enter the arrangement as the parcel owner has acted on the arrangement and provided the car parks and laundry room as agreed. However, the High Court stated that the rule of estoppel does not apply even if parties have mutually agreed for a different rate to be charged as estoppel cannot prevail against statute.¹⁴

18. Since an arrangement has been illegally entered to charge a different rate for maintenance charges, the High Court held that management bodies are entitled to recover the underpaid charges from the parcel owner or proprietor.¹⁵

D. Summing Up

19. All in all, it is an important reminder that management bodies have a statutory role to preserve and upkeep assets in the common interests of all proprietors.  In carrying out its role the management bodies must apply and follow the statutory provisions to ensure fairness to all proprietors.

20. For any legal advice in relation to the matters discussed in this article or any other strata management-related matters, please do not hesitate to contact the following Senior Partner or Associate:

• Tharminder Singh (tharminder@izralpartnership.com);

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• Joycelyn Goh (joycelyn.goh@izralpartnership.com);

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or any of our other Partners, Senior Associates, or Associates whom you usually deal with.

Co-authored by:
Tharminder Singh (Senior Partner);
Joycelyn Goh (Associate).

NOTE: © Izral Partnership. The contents herein is intended to be for general information and reference only, and it does not, and is not intended to, constitute or substitute for legal advice. As the facts and circumstances of the various matters will differ from case to case, specific legal advice for each of such matters will invariably be required.