Strata Management Case Update 3: Can we Pre-determined Service Charges and Sinking Fund

Ekuiti Setegap Sdn Bhd v Plaza 393 Management Corporation (Court of Appeal)

Plaza 393 reflects a very common problem plaguing many developers owned parcels in a mixed development intended to be subdivided. When it was reported in the High Court, it attracted quite a bit of attention since a quick glance suggested that it runs contrary to the current statutory regime. Before I go further, the facts were:

MC claimed against Ekuiti Setegap for outstanding service charges and sinking funds based on floor area (square feet basis). This was a claim before the Strata Management Act came into force.  The claim went in as early as 21.4.2008. Ekuti Setegap on the other hand contended that there was no outstanding since:

  • it has entered into an agreement (signed by the director of the company and the previous chairman of the MC) in determining the service charge payable; and
  • it is statute barred.

It was also in evidence that the main reason in entering into an agreement with the MC was because Ekuiti Setegap had maintained the common area at its own costs and expenses and hence there is no need to contribute except for the agreed amount reflected in the agreement, which is a flat RM2,000.00 per month.

The High Court:

  • Granted an order in favour of the MC although invoice was charged based on square feet basis;
  • Opined that the agreement entered into between Ekuiti Setegap and MC is unlawful and runs contrary to Strata Titles Act 1985;
  • Ruled that the maintenance account and sinking funds are running accounts and limitation act does not apply;
  • Entered Judgment against Ekuiti Setegap.

Ekuiti Setegap then appealed to the Court of Appeal and revisited, among others, the issues and ruled:

  • The claim for service charges is not statute barred under Section 6 of the Limitation Act;
  • The agreement entered into between Ekuiti Setegap and MC is unenforceable; and
  • The claim made based on sq feet is illegal

It is also important to note that the Court of Appeal  upheld the High Court judge’s acceptance of the oral evidence that the statement of account as proof of the amounts due and further in the last paragraph suggested that the MC is at liberty to claim the arrears due from the Defendant on a share unit basis since the maintenance charges are on a running account not barred by limitation.

Few takeaways for developers:

  1. Do not enter into any agreement which takes away the right of the management body to determine charges;
  2. If the Developer wishes to manage its own common property of the big parcels, the developer is to seek other alternative methods (in which it involves quite a tedious process)
  3. Multiple rates can be explored to resolve development area with different components and common areas. (Multiple rate was never an issue in this case and was not ventilated in court).

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Lai Chee Hoe Profile Photo
Partner at Chee Hoe & Associates. With 10+ years of experience under his belt, he specializes in civil and corporate litigation. He is also the current Chairperson of various Joint Management Bodies.
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