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Determinants of Share Unit & Its Significance in Strata Development

Owning a strata property comes with the entitlement of share units which entails varying rights and liabilities depending on the value of the share unit owned. The Court of Appeal in the case of Muhamad Nazri Muhamad v. JMB Menara Rajawali & Anor [2020] 4 MLRA 288 (“JMB Rajawali case”) provides a comprehensive explanation of the concept of share unit and the extent of the power of a management committee of a Joint Management Body (“JMB”) or Management Corporation (“MC“) concerning share units.

According to Section 4 of the Strata Title Act 1985 (“STA”), “share unit” in respect of a parcel means the share units determined for that parcel as shown in the schedule of share units. Section 18 of the STA further provides that every parcel shall have a share value as approved by the Director and expressed in whole numbers to be known as share units.

Vernon Ong, one of the panel of judges of the Court of Appeal (“JCA”) (as he then was), explained in the judgment the concept of share unit which is a feature peculiar to strata development. Share unit is an essential method in determining each parcel owner’s: (i) voting rights, (ii) share in the common property, (iii) contribution to maintenance and administrative expenses, and (iv) proportional liability for the debts of the JMB or MC.

Concerning voting rights, a matter to be decided in a general meeting is generally on a show of hands, unless a poll is demanded by a proprietor or the proxy, as provided in Section 17(1) of the Second Schedule of Strata Management Act 2013 (“SMA”). In this sense, different amounts of share units determined the extent of voting power in the general meeting, depending on the mode of decision-making. To illustrate, each parcel owner shall have one vote on a show of hands at a general meeting of the JMB or MC. But, on a poll, each parcel owner shall have such number of votes, corresponding to the number of share units, as provided in Section 22(2) of the Second Schedule of SMA. This means parcel owners with higher share value will enjoy more voting power on voting on a poll. Vernon Ong JCA further clarifies that on the flip side, the higher share value translates into a liability to pay higher aggregate maintenance charges and contributions to the sinking fund.

Another question begs to be asked is how the share units are determined. Vernon Ong JCA put simply that the share units of a parcel are the area of that parcel multiplied by the weightage factor for that type of parcel, and the weightage factor for the entire floor parcel. If there is any accessory parcel, the area of the accessory parcel is multiplied by a weightage factor for that accessory parcel. If there is more than one accessory parcel, the calculation formula shall apply to each accessory parcel, and it shall then be added accordingly. Both the value of the parcel and accessory parcel are then added to determine the total share units for each parcel.

Furthermore, as to how the share unit is calculated, it shall be per the formula under the First Schedule of the SMA, as provided in Section 8(1) of the SMA. The calculation takes into account the area of the parcel and accessory parcel and three weightage factors namely WF1, WF2 and WF3. The formula for the computation of allocated share units can be clearly described as follows:

The allocated weightage factors are based on different sets of criteria. In weightage factor WF1, there are 3 main differentiations including (i) type of parcels; (ii) between parcels with or without air-conditioning to the common areas or corridors, lobbies and foyers; and (iii) between parcels having benefit or no benefit of common lift/escalator facility. Weightage factor WF2 is related to the whole floor parcel with differentiation between parcel inclusive or exclusive of lifts or escalator, while weightage factor WF3 is related to an accessory parcel with differentiations between the accessory parcel outside or within buildings. These different weightage factors are taken into account in determining the value of the share unit.

In short, this confirmation of share unit, in turn, determines the amount of, among others, the contribution to the management fund by each parcel, which is to be determined by the JMB as required under Sections 21, and 25 of SMA. These provisions mandated that contributions to the management fund be determined on a share-unit basis. On the other hand, as mentioned by Vernon Ong JCA in the JMB Rajawali case, flexibility is conferred on an MC where it can fix different rates for different types of parcel, not necessarily on a share unit basis, as provided in Section 60(3)(b) of SMA, in 2 specific situations including, (i) parcels which are used for significantly different purposes, and (ii) provisional blocks.


About the author

Muhammad Aiman Anuar bin Mohd Ali Azhar
Associate
Real Estate
Halim Hong & Quek
muhammad.aiman@hhq.com.my


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