18 Apr Rebuilding Housing Industry – Post Covid-19
On 16th March 2020, the Government of Malaysia issued a nationwide Movement Control Order (MCO) until 31 March 2020, and thereafter extended the said order until 28th April 2020 pursuant to the Prevention and Control of Infectious Diseases Act 1988. Whilst several regulations and guidelines have been issued by the relevant ministries, the impact of the MCO on the housing industry remains uncertain.
The outbreak of the Covid-19 has significantly reduced the average sales of properties. With daily updates and new information long term effects of Covid-19 are simply unknown. Compounded, with the increase in COVID-19 cases in Malaysia (as well as globally), the possibility of the MCO being extended further should not be discounted. As COVID -19, can or maybe classified as a force majeure, event, it is only fair that extensions be given to developers to protect their interests. The International Monetary Fund, projected a GDP growth 4.8% in year 20201 by this sector.
Many are of the view that extensions should be given in exceptional cases or unavoidable circumstances of a special nature. Therefore, the question now is IS COVID-19 AN UNAVOIDABLE CIRCUMSTANCES OF SPECIAL IN NATURE??
[FT MINISTRY EXEMPTS CONSTRUCTIONS PROJECTS FROM MCO]
Interestingly on 9th April 2020, the Federal Territories Minister Annuar Musa had announced that construction projects in Kuala Lumpur have been granted exemptions to work during the MCO period. From this announcement, it might shed some light and hope for the housing industry. Three types of works namely deep excavation, tunneling and long span construction are identified as critical works
It is known that many developers are currently struggling to keep their heads above water as current buyers have shunned away from purchasing properties particularly in the luxury category. Earlier this year there was a neutral outlook for property prospects in 2020, with glimmers of opportunity amid the challenging market environment. Additionally, measures were introduced in the 2020 Budget to address specific issues in Malaysia’s property landscape. Property developers and home buyers, including investors breathe a sigh of relief in January 2020 following Bank Negara Malaysia (BNM) decision to reduce the Overnight Policy Rate (OPR) to 2.75 percent – the lowest since 2011. The OPR is a rate a borrower bank has to pay to a leading bank for the funds borrowed.
THE IMPACT OF ANG MING LEE & ORS V MENTERI KESEJAHTERAAN BANDAR, PERUMAHAN DAN KERAJAAN TEMPATAN & ANOR AND OTHER  1 MLJ 281
The landmark decision by the Federal Court (popularly known as the BHL judgment) which prohibits the Housing Controller to give developers extension of time to complete their project had caused major ramifications for the property development. Developers now face uncertainties on whether they are permitted to apply for extension of time to complete their projects.
There seems to be a misconception that the prohibition is to be applied over the board to all extensions of time (EOT) applications i.e. all EOT obtained by developers are null and void. However, if one were to peruse and examine BHL’s judgment in detail, the EOT was declared void on the grounds inter alia that it was sanctioned by the Housing Controller2 . EOT’s granted by the Minister we say must be held valid.
p/s: It is our concerted opinion that the Local Government and Housing Minister can exercise her powers under section 2 (2) of the of the Housing Development (Control and Licensing) Act 1966 to consider and approve application extension of time (EOT).
2 Regulation 11 (3) Housing Development (Control and Licensing) Regulations 1989 Pu(A) 58/1989
According the statistics by the Ministry of Housing and Local Government, 75.4% of EOT applications by developers from January – July 2019 had been approved by the Housing Controller. In 2018, 78.15% applications were approved and 67.8% were allowed in 20173 . Does this mean that all EOT’s approved by the Housing Controller between the years 2017 to 2019 are null and void? It is uncertain whether the decision is applicable retrospectively.
Is a Developer required to fulfill their contractual obligations with the contractor/purchaser during Covid-19?
Q: What is Force Majeure?
A. Force Majeure exists as a creature of contract as opposed to a creature of statute and/or common law. It is a contractual term agreed by parties to a contract to deal with extraordinary situations that may arise over which, the said parties have little or no control and thus would prevent the performance of the contract 4 .
Q: In the absence of a force majeure clause, can the developer rely on the defence of impossibility to perform obligations under the contract?
A. The Supreme Court in the Finmark Consultants case5 , gave effect to express provisions of the agreement. Thus, the sentiments as expressed by our Malaysian Courts can be summarised as follows:
a. A Force Majeure clause shall not be implied in a contract.
b. If the Force Majeure clause is not a term of contract, then the common business owner cannot rely on such a clause.
c. A Force Majeure clause cannot be used as a shield where a contract makes no provision for it.
Q: What are the available options to the parties ?
A. The word “frustration” is uncommon and the Malaysian position on this doctrine in relation to non-performance due to an act becoming impossible is that the event must have been one for which no provision is made in the contract, it cannot be a selfinduced event and the contractual obligation must be such that renders it radically different from which it was agreed upon vide contract6 . It is also embedded in the Contracts Act 1950 vide Section 57 (2).
Q: Would COVID -19 or Movement Control Order ( MCO) give rise to frustration?
A. The answer would be in the affirmative on the assumption that the contract in question does not specify for an event such as MCO. In RIH Management Sdn Bhd 7 , an employer sought a temporary deferment of the payment of contractual increments on the basis that its occupancy rates were severely affected by JE virus outbreak.
The Court ruled that the JE epidemic outbreak was not foreseeable by anyone and therefore constituted a special reason for the deferment of contractual increments. Therefore, in applying this principle it would be reasonable for the developer to defer its contractual obligations as the MCO or COV-19 constitutes an unforeseeable event.
4  3 SLR 62- Magenta Resources (S) Pte Ltd v. China Resources (S) Pte Ltd
5 Finmark Consultants Ptd Ltd v. Development & Commercial Bank Berhad  1 MLRA 235
Are developers required to pay liquidated ascertained damages (LAD) to the purchasers during COV-19? we have prepared the following FAQ’s which we believe will provide some insight on the on going contracts in which may be relevant to your business.
Q: What is Liquidated Ascertained Damages (LAD)?
A. Simplistically, LAD would mean amount of monies which are to paid by the developer to the purchase upon failure to hand over vacant possession within the stipulated time frame contracted between the parties
Q: When is LAD payable by the developer to the purchaser?
A. LAD is payable by the developer to the employer from the expiry of the period of handing over vacant possession to the actual notice of vacant possession given to the purchaser. For the sale & purchase agreement it is embedded in schedule H and schedule G8 respectively.
Q: What are the basic duties of a developer should they require more time to complete a project?
a. Developer is required to apply for an extension of time (EOT) from the relevant Ministry 9
b. A prudent developer would notify the purchaser in writing of its decision to apply for extension of time.
c. Ensure the EOT is approved by the Minister and NOT Housing Controller
Q: What are the factors taken into account by the Ministry in granting an EOT?
A. Below are some listed of factors taken into account;-
• Construction time limitations by the local council or proximity to schools that would disallow the developer to increase construction hours.
• A need to build other infrastructure such as integrated water supply scheme before the housing development begins.
• The height of a building.
• The development comprises construction of a podium or basement.
• The condition of the building site requires additional ground work to be made to ensure its suitability for high-rise developments.
• Multi-phased development that requires the overall infrastructure to be completed prior to the construction of the housing phases.
• Environmental factors
Q: As MCO or COVID 19 is an unforeseeable event, developers are unable to apply for EOT. Is LAD payable by developers during this period?
A. It is undeniable that LAD is payable as soon as a delay occurs. Due to the contractual obligation between the parties, developers are required to take into account of the MCO or COV-19 period in computing LAD. However, as COV-19 or MCO may or can be classified as an unforeseeable event therefore the period during the enforceability of the MCO should be discounted in computing the LAD. This we believe would safeguard the interests of both parties.
6 2007 3 CLJ 695
7 RIH Management Sdn Bhd v National Union of Hotel, Bar & Restaurant Workers, Peninsular Malaysia  2 ILR 549
8 Housing Development (Control & Licensing) Regulations 1989
9 Ministry of Urban Wellbeing Housing and Local Government
Please note the FAQ’s above do not constitute legal advice. Should you require legal advice, please contact any of our lawyers in our Housing & Construction Practice Group as listed below. The Jeeva Partnership Housing & Construction Practice Group is monitoring the relevant developments and will time to time issue updated FAQ’s
If you have any queries, please contact our via e-mail, we are available for a scheduled conference call.