By Chang Kim Loong and YS Ng

THE controversy surrounding the compulsory supply of water and electricity upon vacant possession under the sale and purchase agreement (SPA) has been laid to rest.

The Federal Court had on March 6, 2023, ruled in the case of Remeggious Krishnan v SKS Southern Sdn Bhd (formerly known as MB Builders Sdn Bhd) that the phrase ready for connection in Clause 27(1)(c) of the SPA shall be construed to mean the property must have electricity supply during the delivery of vacant possession, thus reversing the decision of the Court of Appeal.

Therefore, the developer is contractually bound under the Housing Development (Control and Licensing) Act (HDA 1966) to ensure that the property must be fitted with electricity and water metres on delivery of vacant possession so that rooms are lit and taps flowing when turned on.

If there was any lingering doubt over the High Court decision in Bandar Eco-Setia Sdn Bhd v. Tribunal Tuntutan Pembeli Rumah & 2 Ors  [2020], it is now exonerated by the Federal Court decision which reinforced the developer’s obligation to provide such utilities (refer to the Water and electricity must be flowing, say courts | StarProperty).

Facts of the case

The purchaser bought an apartment from the developer who delivered vacant possession with no electricity connection to the property. The purchaser filed a claim against the developer with the housing tribunal, which then awarded damages in favour of the purchaser for the delay in the electricity connection.

The developer applied for judicial review against the tribunal. However, the High Court dismissed the developer’s application on the grounds that the developer failed to deliver vacant possession with electricity supply and was clearly in breach of Clause 27 of the SPA.

The developer appealed against the High Court decision. The Court of Appeal held that the High Court had erred in the interpretation of Clause 27(1)(c) of the SPA. The Court of Appeal took the position that the provision of ready for connection as stipulated in the SPA does not necessarily mean the property must be installed with an electricity supply.

The Federal Court ruled that the Court of Appeal’s interpretation could not be accurate since it fails to take into account Clause 27(1)(k), which when read together with Clause 27(1)(c) of the SPA would warrant the supply of water and electricity to the apartment.

Clause 27 — Manner of delivery of vacant possession

The developer shall let the purchaser into possession of the parcel upon the following:

*  water and electricity supplies are ready for connection;

* ready for connection means electrical points and water fittings and fixtures have been installed by the developer and are functional and supply is available for tapping into individual parcels.

As there was no actual electricity supply when delivering vacant possession, the developer was in breach of the SPA. Hence, the purchaser was correctly awarded compensatory damages.

Other salient takeaways

1) The decision reinforces the fact that HDA 1966 is a social legislation designed to protect house buyers and their interests shall outweigh those of the developers, as underscored by the Chief Justice of Malaysia Tun Tengku Maimum Tuan Mat in Ang Ming Lee & Ors v Menteri Kesejahteraan Bandar & others (2020).

2) The ruling for the phrase ready for connection in relation to the supply of water and electricity shall apply to all the SPAs (Schedules G, H, I & J) comprising landed and stratified housing properties prescribed under the Housing Development (Control and Licensing) Regulations 1989 (HDR 1989) and read together with HDA 1966.

3) The Federal Court distinguished the developer’s obligation on the time frame for delivery of vacant possession under Clause 25 from that of the manner of delivery under Clause 27. Hence, the developer is liable for liquidated damages for failing to deliver vacant possession within the time frame under Clause 25, or for compensatory damages in not complying with the manner of delivery of vacant possession in Clause 27.

Consequently, housing developers will still be liable for compensatory damages if there is no actual supply of electricity and water in the units when delivering vacant possession, even if delivered within the time frame specified in the SPAs.

4) To avoid being penalised, now that the law has settled on this issue, it will be wise for developers to make the necessary applications and pay the requisite deposits to the relevant utility providers before delivery of vacant possession to purchasers. This will help to secure the installation of metres to ensure the supply of electricity and water.

It’s just common sense: How can a house be habitable when electricity and water are not supplied at the point of vacant possession? Similarly, how can a CCC (Certificate of Completion and Compliance) be issued by an architect if the utilities are not connected?

National House Buyers Association technical advisor YS Ng is the co-author of the above article.