By: Ryan Lee
Management of a strata scheme development is always technically daunting, especially for new developers, building managers, managing agents, and new strata owners in Joint Management Bodies (JMB) and Management Corporations (MC). The Strata Management Act 2013 (SMA), Strata Management (Maintenance & Management) Regulations 2015 and Strata Titles Act 1985 (STA) regulate the management and maintenance of strata scheme developments. With the help of the diagram above, this article aims to simplify the legal provisions pertaining to the management timeline and handover of management between the developer, JMB, and MC.
The SMA clearly provides that only assets and no debts shall be transferred by the developers to the Management Body.
Firstly, Sections 15 and 16 of the SMA make no mention of the transfer of liabilities from the developer to the JMB. The relevant part of the said provision provides as follows:
S 15. Handling over by developer to the joint management body
• A developer shall, before the developer’s management period expires –
• Transfer all balances of moneys in the maintenance account and the sinking fund account, after payment of all the expenditure which have been properly charged to the accounts, to the joint management body;
• Hand over to the joint management body –
• The administration office set up by the developer under paragraph 9(4)(a);
• All the assets of the development area.
S 16. Balances not transferred shall vest in joint management body
(1) If any balance of moneys in the maintenance account and in the sinking fund account has not been transferred by the developer under paragraph 15(1)(a), the moneys shall vest in the joint management body on the date of the expiry of the developer’s management period.
(2) Any right, power or remedy granted to the developer under this Part in respect of the Charges, contribution to the sinking fund, and any other assets of the maintenance account and the sinking fund account, shall vest in the joint management body on the date of the expiry of the developer’s management period…
Secondly, if one compares Section 28 of the SMA (which is applicable when MC takes over from JMB) with Section 16 set out above, one will notice that both provisions are substantially similar except that there the word ‘liability’ in section 28 of the SMA is not found in Section16. Section 28 of the SMA read as follows:
S 28. Balances not transferred shall vest in management corporation
(1) If any balance of moneys in the maintenance account and in the sinking fund account has not been transferred by the joint management body under paragraph 27(2)(a), the moneys shall vest in the management corporation on the date of the expiry of the period specified in subsection 27(2).
(2) Any right, power or remedy granted to, or any liability imposed on, the joint management body under this Part in respect of the development area, including Charges, contribution to the sinking fund, and any other assets of maintenance account and the sinking fund account, shall vest in the management corporation on the date of the expiry of the period specified in subsection 27(2)
The omission of the word ‘liability’ in Section 16 of the SMA is not accidental but deliberate.
It is thus clear that it is the Parliament’s intention that the JMB is not supposed to inherit any debts or liabilities from the Developer whilst an MC (that metamorphosed from a JMB) shall inherit both assets and liabilities from the then dissolved JMB.
This makes sense because JMB is run by and made up of the owners of the stratified development area and, therefore, when a MC is established, logically both assets and liabilities shall be transferred or vested on the MC to ensure continuity. In the case of transition from developer to JMB, it is unfair for the JMB to inherit debts from the developer because the owners have no say during the management period by the developer. Their developer may have incurred debts and liabilities best known to itself.
Thirdly, the Management Body and the Developer are two (2) separate entities in the eyes of the law. According to the SMA, both the JMB and MC are formed pursuant to different provisions. Therefore, in the absence of clear statutory provision to the contrary, the Management Body shall not be made to foot the bills ‘left over’ by the Developer.
Finally, the SMA prohibits the Developer from entering into any contract relating to the maintenance and management of common property and building for any period after the expiration of the developer’s management period. This is to prevent the Developer from entering into contracts with its proxy companies with long effective period (often with unreasonable terms) to maintain the common property and to have the Management Body to carry out the onerous obligations under the contracts after the Developer is not in the picture anymore.
This provision is consistent with the scheme of the SMA that
Developer shall only pass down assets and not liabilities after the expiry of its management period.
Despite the above, the reality is that if the Management Body refuses to settle the outstanding utility charges, they have to face the wrath of having their electricity or water supplies being terminated by the service providers, i.e. TNB, SYABAS etc. Those creditors/suppliers of the Developer will invariably pursue against the Management Body and demand for payment, despite the fact that their contracts were signed by the Developer. The best solution is to ensure that there are no liabilities passing down by the Developer.
The Management Body should conduct a due diligence thoroughly scrutinize the audited or unaudited account and all the nancial records/ contracts handed over by the Developer to ensure that there is no liability when handling over to the Management Body prior to taking over the task from the Developer.
Notably, the developers are given the power at the outset to determine the reasonable rate of contribution to the maintenance and sinking fund accounts after taking into account the estimated expenses that will be incurred in the next 12 months (maximum). There is no reason why liability can be accumulated in such a short period of time unless it is due to mismanagement or irregularities. In the unfortunate event that mismanagement occurs, a proper investigation should be carried out.
The SMA also provides for the situation where individual strata titles are issued, the strata register is opened and the MC comes into existence before the convening of the JMB’s 1st AGM. The SMA defines this situation as the developer’s preliminary management period [Section 46(2) of the SMA]. During the developer’s preliminary management period, the developer will hand over the management of the strata scheme development directly to the MC