All You Need To Know About Liquidated Ascertained Damages (LAD) For Late Delivery Of Property

By: Jency
17th Mar 2022
Buy & Sell

If you purchase a home and the keys are not handed over to you within a stipulated time frame, you will most likely encounter some form of financial loss. This is where a clause called ‘Liquidated Ascertained Damages’ or LAD, in your Sale and Purchase Agreement comes into place. LAD is a contractually predetermined amount of damages that are claimable should the situation above occur.

Purchase of residential property from a developer is governed by the Housing Development (Control and Licensing) Act 1966 (“HDA”). Developer is required to comply with the provisions provided under the HDA and in particular Schedule G (For Subdivided Land and Building) and Schedule H (Building Intended for Subdivision) of the Housing Development (Control and Licensing) Regulations 1989 provide for the format and the terms and conditions in a standard form sale and purchase agreement (“SPA”).

In short, Schedule G is for property that has individual title such as terrace house and Schedule H is for property that will be issued with strata title such as condominium.

The vacant possession of property under Schedule G should be delivered by the developer within 24 months from the date of the SPA, while strata-titled properties under Schedule H should be delivered within 36 months from the date of the SPA.

How is LAD calculated?

The period for delivery to be calculated from has always been a point of confusion, whether it begins from the date of booking fee payment or from the date the SPA is signed. The Federal Court of Malaysia recently decided that the date for calculating LAD should begin from the date of the booking fee payment, and not otherwise as the time of purchase commence on the date when you place the booking fee deposit.

The Malaysian parliament passed the Temporary Measures For Reducing The Impact Of Coronavirus Disease 2019 (COVID-19) Act 2020 (or commonly known as the “COVID-19 Act”) as a result of Covid-19’s impact on various industries.

Under Section 35 of the COVID-19 Act, it states that for any agreement between the buyer and the developer, from 18 March 2020 to 31 August 2020 shall be excluded from the calculation of:

” a) The time for delivery of vacant possession of a housing accommodation; and

  b) The liquidated damages for the failure of the developer to deliver vacant possession of a housing accommodation. “

So, ensure that you deduct the period from 18 March 2020 to 31 August 2020 (167 days) when calculating LAD if you receive the vacant possession of your property after the above-mentioned period.

However, this is an exceptional circumstances because of the lock-down specifically provided under the law.

Here is an example on the LAD calculation with the property purchase price of RM100,000:

Booking fee payment date: 01/03/2017

SPA date: 20/03/2017

Completion date (36 months): 29/02/2020 (from date of booking fee payment)

Actual delivery of vacant possession: 31/12/2020

Duration of delay (number of days): From 29/02/2020 – 31/01/2021 (306 days)

Deduction under COVID-19 Act (18/3/2020 – 31/8/2020):

306 days – 167 days = 139 days

LAD amount:

Price of Purchase (RM100,000) x Interest (10%) x 139 days
Divided by 365 days

= RM3,808.22

What if the property has not obtained CCC?

There may be a situation when the developer would issue a notice for vacant possession and give the keys to the purchasers, before obtaining the certificate for completion and compliance (CCC).

In such situations, LAD can be calculated up to the date of the CCC, while disregarding the notice of vacant possession that was given earlier on.

If there’s a delay in completion by the developer, and the buyer decides to take vacant possession of the property by collecting the keys a few months later, it’s a different case altogether.

Bear in mind that the buyer can only claim for LAD until the date of notice of vacant possession that comes together with the CCC, and NOT the date of collection of keys as this is specifically provided for in the SPA under Schedule G and Schedule H.

When notice to take vacant possession is issued by the developer the purchaser has 14 days to collect the keys or take possession. Upon the expiry of 14 days from the notice, if the purchaser didn’t take vacant possession, it is deemed that the purchaser has taken vacant possession whether or not the purchaser has taken actual vacant possession or not.

How to claim for LAD?

You can first write and claim the LAD from the developer and if the developer refused, failed or ignored your claim you can institute a legal official claim.

There are two options on how buyers can claim for LAD:

  1. File a claim at the Tribunal for Homebuyer Claims

    Buyers can lodge a claim at the Homebuyers’ Tribunal under the circumstances where the total amount of LAD does not exceed RM50,000. This claim must be lodged within 12 months from:

    • The CCC issuance date for the housing accommodation or the common facilities; or
    • The defects liability period’s expiry date as set out in the SPA; or
    • The date of termination of SPA by either party occurred before the date of issuance of the CCC

    To start the LAD claims in the Housing Tribunal, buyers must fill in the Form 1 – Statement of Claim which can be obtained from the Ministry of Housing and Local Government’s website.

  2. File a civil action at the legal courts

Home buyers will have to take legal action in court against the developer to claim for the breach of LAD, SPA and other damages that occurred due to the late delivery of the vacant possession if the total amount exceeds RM50,000. The court action must commence within 6 years from the late delivery.

Buyers would need to engage a lawyer for claim in a court.

In order to start your claim you must prepare the following documents :-

    1. SPA;
    2. Developer’s notice to deliver vacant possession;
    3. CCC (Certificate of Compliance and Completion) issued by the architect;
    4. Loan agreement and documents with bank;
    5. Correspondences and notices from developer; and
    6. Proof of payment of purchase price such as official receipt issued by developer and if there is a loan, the letter from the bank confirming the release of loan.

What happens if the developer continues to delay or does not hand over the property?

Failure to comply on the developer’s end becomes a criminal offence under section 16AD(1) of the HDA which is punishable with a fine not less than RM5,000 and exceeding RM10,000, or imprisonment for not more than two years, or both.

If the developer continues the offence, they will also be liable to an additional fine not exceeding RM1,000 for each day or part of a day during which the offence continues after conviction, in addition to the earlier amount. Buyers who face this situation would have to initiate enforcement proceedings at the civil courts.

In summary, the law in Malaysia has established mechanisms to protect property buyers and as such, all buyers should be aware of their legal rights to prevent any situation where they may be taken advantage of.

The statement and information in the articles are the opinion of the writer and meant only as a guide. Any property purchase, rental or lease involve many legal issues and other complication depending on the individual facts and circumstances. Readers and Users are strongly advised to seek professional advise including from qualified and competent lawyers, bankers and/or real estate agent to verify the information and the statement before embarking on any purchase, rent or lease of any property. To the fullest extent permitted by law, we exclude and disclaim liability for any losses and damages of whatever nature and howsoever cause and arising including without limitation, any direct, indirect, general, special, punitive, incidental or consequential.

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