Rights of homebuyers: Demystifying the interplay between limitation periods and defect liability periods

Reasonable Time 

Uneven tiles, paint cracks, scratched windows, leaking pipes. All such issues are defects commonly faced by homebuyers in the strata property space, causing grief for homebuyers expecting to begin their lives anew in their brand-new living space. The trouble is doubled where the defects are latent – concealed flaws which surface only after living in the property after a certain amount of time. 

When faced with such defects, what protections are afforded to the purchaser? 

Protection afforded to purchasers under legislation 

In Malaysia, homebuyers are protected under the Housing Development (Control and Licensing) Act 1966 (“HDA”) and the Housing Development (Control and Licensing) Regulations 1989 (“HDA Regulations”), which sets out the duties and responsibilities of a property developer selling units within a housing development and protections afforded to purchasers. In particular, Regulation 11(1) of the HDA Regulations specifies the prescribed form of contract for sale and purchase of a housing accommodation in a subdivided building in the form of a parcel of a building or land intended for subdivision into parcels in the form of Schedule H of the HDA Regulations (“Scheduled SPA”), in which Clause 30(1) of the Scheduled SPA provides that any defect, shrinkage or other faults in the property which becomes apparent within twenty-four (24) months after the date the purchaser takes vacant possession and is due to defective workmanship or materials and/or not constructed in accordance with the plans specified in the Scheduled SPA (“DLP”), is to be amended by the developer at its own cost and expense within thirty (30) days of the developer having received written notice thereof from the purchaser. 

The effect of Clause 30(1) of the Scheduled SPA is such that within twenty-four (24) months from receipt of the keys to the property by purchasers, developers are mandated to rectify any defects to the purchaser’s new property. 

As security to ensure developers make good any defects during the DLP, the solicitors appointed by the developer are required under Clause 30(2) and Item 5 of the Scheduled SPA to retain a total of five per centum (5%) of the purchase price. Where the developer does not make good such defects within thirty (30) days of receiving written notice, the purchaser is entitled to make good such defects himself and recover the cost from any sum held by the developer’s solicitors. 

Case law developments – Interplay between limitation and DLP 

To explore how the courts view the interplay between limitation and the DLP under the Scheduled SPA, we analyse the recent case of Badan Pengurusan Bersama Tropicana Bay Residence @ Penang World City v (1) Mutiara Metropolis Sdn Bhd; (2) Dong Yue Construction Sdn Bhd; and (3) GMAC Circle Sdn Bhd (PA-22C-7-11/2022) (“TBR Case”). In this case, the parcel owners of Tropicana Bay Residences @ Penang World City (“TBR”) noticed leaking water tanks and dampness on the walls and ceilings in the buildings of TBR (“Buildings”) as early as 2 years after vacant possession was delivered to them. Upon engaging a qualified building inspector and an engineer (collectively, the “Experts”) to carry out inspections and determine the list and causes of defects, the issues identified were, among others, as follows: 

1. Poor workmanship; 

2. Poor quality control; 

3. Poor quality materials; and 

4. Insufficient degree of supervision by the supervising engineer. 

Subsequently, the joint management body of TBR, representing the parcel owners of TBR, brought a claim for breach of contract and negligence against (1) the developer of TBR; (2) the subcontractor engaged to design, supply and install the waterproofing system in the Buildings; and (3) the subcontractor engaged to supply and install the press steel sectional water tanks and water pumps in the Buildings, with respect to latent defects and patent defects discovered in water storage tanks and in the common property.

Placing our focus on the First Defendant (being developer of TBR) (“D1”), D1 raised a number of defences, which include, among others, (1) asserting that the report made by the Plaintiff’s appointed engineer is a mere site inspection report instead of a defect report which could justify the alleged defects, (2) the 24-month defective liability period has expired and is thus not liable to the Plaintiff for breach of contract and (3) the defects pleaded by the Plaintiff are exaggerations of the maintenance issues and/or wear and tear issues and/or not caused by or in any event the fault of D1. 

While witness and expert testimony were fundamental to the outcome of this case, the legal issue of limitation was brought into focus. In essence, D1 asserted that it was not in breach of contract as the parcel owners are only entitled to enforce their contractual rights against D1 with respect to common property in the buildings if there is any breach of the terms of the sales and purchase agreement (SPA) and provided such rights are not barred upon the expiry of the DLP, and such DLP had expired. 

At trial, the Plaintiff disputed such assertion. The Plaintiff submitted that limitation always applies even when the DLP is in play, whether it be the six (6) year limitation period for contractual claims under Section 6 of the Limitation Act 1953 or the three (3) year limitation period applicable to latent defects under Section 6A of the Limitation Act 1953, as the case may be. 

The Plaintiff further distinguished between defects which appear before and after expiry of the DLP, and the developer’s legal obligations therein. When defects are discovered during the DLP, the developer is contractually required to repair, remedy and pay for the repairs. However, in the event defects appear after the DLP, the developer may nevertheless still be liable to pay for repairs even if he is no longer required to repair the same. In such instance, liability to pay for the repairs would depend entirely on whether such defects are attributable to the developer’s poor workmanship or use of substandard materials. Further, accepting D1’s reasoning would amount to reducing the limitation period for contractual or tortious claims under Section 6 of the Limitation Act 1953 from 6 years to 2 years, which cannot be the position in law. 

In our analysis, the Plaintiff’s argument is sound. Clause 30 of the Scheduled SPA is a prescribed form of agreement under the HDA. Reading Clause 30 of the Scheduled SPA in the manner argued by D1 would contravene Section 6 of the Limitation Act 1953, and such could not have been the intention of Parliament. 

The High Court has ruled in favour of the Plaintiff, ordering, among others, general and special damages against the D1 for cost of repairs and professional fees of architects and engineers engaged by the Plaintiff. 

Implication of this case 

The TBR case provides clarity on the effect of the DLP and its relationship with limitation. Developers are not immune from claims for use of poor quality materials or workmanship merely because the DLP has lapsed. As such, developers should take further care to perform their obligations under the SPA with integrity, using quality materials and exercising good workmanship.