As Malaysia’s urban landscape becomes increasingly vertical, the question of how maintenance fees and sinking fund contributions are apportioned among strata owners has gained fresh relevance. The Strata Management Act 2013 (“SMA 2013”) sets out a phased transition from developer control to resident-led management and within that transition lie varying degrees of discretion over charging formula. Understanding when and how different rates can be imposed while avoiding potential legal challenges ensures transparency end harmony in high-rise communities.
Whether the developer may impose different rate of charges and sinking fund contributions during the developer management period (“DMP”) and the preliminary management period (“PMP”)”
When a strata project is handed over, it enters the DMP, in which the developer alone collects maintenance and sinking contributions calculated according to each parcel’s share units. This phase continues until one month after the Joint Management Body (“JMB”) is registered, as defined under Section 7 of the SMA 2013.
The developer retains similar authority through the PMP, which is the period commencing from the date of delivery of vacant possession until one month after the first annual general meeting of the management corporation (“MC”) pursuant to Section 46 and 48 of the SMA 2013.
While both the DMP and PMP commences from the date of delivery of vacant possession, they are governed by different statutory provisions under the SMA 2013. However, the developer retains the responsibility of determining the rates payable, which must be proportionate to the allocated share units of each parcel.
Throughout the DMP and PMP, the developer holds near-plenary power over budgeting and rate-setting, absent any statutory prohibition under the SMA 2013. At this stage, the developer may lawfully impose different charges for different types of properties so long as the rates are just and reasonable and reflects the exclusivity of usage, in alignment with the Court of Appeal’s decision in Aikbee Timbers Sdn Bhd & Anor v Yii Sing Chiu & Anor [2024] 1 MLJ 948 (“Aikbee”).
In the Court of Appeal case of Aikbee Timbers Sdn Bhd & Anor v Yii Sing Chiu & Anor [2024] 1 MLJ 948 (“Aikbee”) that remains relevant and applicable as of today, the facts involved a developer of a mixed-use development, Pearl Suria, who imposed higher maintenance and sinking fund rates on residential parcel owners compared to commercial parcel owners during the PMP, i.e. before the formation of the MC.
The Court of Appeal unanimously allowed the appeals by the Developer and the MC, overturning the High Court’s decision. It held that it was lawful for a developer or MC to impose different rates for residential and commercial parcels, provided that the charges were just and reasonable. Since residential parcel owners had exclusive use of certain common facilities such as the swimming pool per se and thereby incurred higher maintenance costs, it was fair for them to be charged more. The Court found that neither the Developer nor the MC acted arbitrarily or abused their powers. A uniform rate, by contrast, would have been unjust to commercial parcel owners who did not benefit from the exclusive use of certain common facilities in a mixed-use development.
Notably, at paragraphs 52 and 53 of the judgment, the Court of Appeal explained:
“…Therefore, in order to formulate a rate to represent a fair and justifiable proportion of the expenses for maintenance and management of the common property, it is important to look at the type of expenses which are relevant and correspond to the type of parcels where there are more than one type of parcels. If a development has only one type of parcel, namely only residential parcels, then all residential parcels’ owners would have common rights. They will have to share the expenses as a whole, and contribute to the expenses based on their proportion to the share units assigned or allocated to them.
In a mixed development, like the one before us, the exclusive common facilities are exclusively for the benefit and enjoyment of the residential parcels’ owners. The expenditure for the maintenance and management of these exclusive common facilities which are exclusively for the benefit of the residential parcels’ owners should not be included in the formula for the chargeable rate for the commercial parcels owners who have no right to enjoy such exclusive common facilities. The rigid imposition of only one chargeable rate for maintenance charges for residential parcels and commercial parcels would not reflect the true construction of a social legislation.”
The Court of Appeal in Aikbee emphasised that the SMA 2013 is a social legislation “intended to achieve a common goal for the common good of the society” and held that the formula “cannot be applied mechanically without giving due consideration of the peculiar facts in a mixed development.”.
Justice Choo Kah Sing, JCA added that where common facilities are exclusively for the benefit and enjoyment of the residential parcels’ owners, the expenditure for the maintenance and management of these common facilities which are exclusively for the benefit of the residential parcels’ owners should not be included in the formula for the chargeable rate for the commercial parcels owners who have no right to enjoy such exclusive common facilities. The rigid imposition of only one chargeable rate for maintenance charges for residential parcels and commercial parcels would not reflect the true construction of a social legislation.
Applying the judgment from Aikbee, it can be implied that the developer can impose different rates of maintenance charges and sinking fund during the DMP, provided such differentiation is justifiable, reasonable, and reflects the actual, expected benefit of common facilities by different parcel types in the mixed development cases.
Whether the Joint Management Body can impose different rate of charges and sinking fund during the JMB period
As soon as the JMB takes over, it must adhere to a single maintenance rate. In the absence of any legislative provision authorising tiered charges, any attempt to segment parcels into rate bands risk an ultra vires challenge, as demonstrated in the Court of Appeal decision of Muhamad Nazri bin Muhamad v JMB Menara Rajawali & Denflow Sdn Bhd in 2019 (“Rajawali”).
In Rajawali, the Court of Appeal held that if the words of a statute are unambiguous, plain and clear, they must be given their natural and ordinary meaning. As a creature of statute, the JMB only has the powers granted to it under the SMA 2013. These powers extend no further than what is expressly provided in the Act, or what is necessarily and properly required to carry out its purposes or may reasonably be regarded as incidental to or consequential upon what the legislature has authorised. In other words, the JMB cannot exercise any powers beyond what the law explicitly or implicitly permits
There is also no provision under the SMA 2013 and the Strata Titles Act 1985 which empowers the JMB to fix different rates for different types of parcels. This power is expressly conferred only on an MC under Section 60(3)(b) of the SMA 2013. Therefore, if Parliament intended for the JMB to have the power to fix different rates of maintenance charges, that intention would have been clearly reflected in the provisions of the SMA 2013; and because there is an absence of such provision, it must have been the Parliament’s presumed intention not to confer such power on the JMB.
The Court of Appeal added that the JMB as a corporate body under statute can only determine charges which are granted under the SMA 2013. It will be ultra vires the SMA 2013 for the JMB and the JMC to fix and impose the different rates which are not sanctioned by statute. Further, the JMB does not have the inherent power, nor can it arrogate to itself such power, even if the approval was obtained in a unanimous resolution at the AGM.
Thus, the JMB is only empowered under the SMA 2013 to impose maintenance charges and sinking fund contributions in proportion to the share units of each parcel. Unlike a MC, the JMB has no express or implied authority to fix different rates for different parcel types.
Alternative approaches the developer may consider for imposing additional or different rates of maintenance charges and sinking fund contributions during the JMB period
a. Before the construction stage of development: The developer may adopt a fair and equitable formula that takes into account of the exclusive use of certain common property for certain parcel owners, for determining share units (e.g. in accordance with the First Schedule of the SMA 2013), which enable the developer or the JMB to impose a single uniform rate applicable to all parcel types, during the DMP, PMP and JMB period; or
b. During the sale and purchase stage, a developer may inform purchasers of their exclusive rights to certain parts of the common property and the corresponding obligation to pay additional maintenance charges and sinking fund contributions. These terms should be formalised in a written agreement, such as a Deed of Mutual Covenants, and supported by additional by-laws under the SMA 2013.
Such by-laws are legally binding on all parties including the developer, JMB, MC, parcel owners, tenants, and occupiers as if each had personally signed them. This is affirmed by section 32(4) of the SMA 2013 and Regulation 1 of the Third Schedule of the Strata Management (Maintenance and Management) Regulations 2015. The term “management corporation” under Regulation 2 includes the developer during both the DMP and PMP. Regulation 4 further allows the management body to grant exclusive use of common property to a proprietor through a written agreement, subject to clearly defined terms and conditions. This legal framework enables developers to structure differentiated contributions transparently and enforceably from the outset.
About the authors
Tan Keen Ling
Associate
Real Estate
Halim Hong & Quek
kltan@hhq.com.my
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