When it comes to mixed developments, one typically envisions large, stratified developments that seamlessly integrate various facets of modern living, encompassing convenient access to amenities such as shopping malls, restaurants, residential units, workspaces and even transport facilities. It may sound convenient but there are various complications when it comes to reconciling the different purpose of the various parcels within a stratified mixed development. Issues have frequently arisen in relation to the maintenance charges and the contribution to the sinking fund in such developments due to the inherent diversity in the purposes and usage of the parcels and the common facilities.
 
In Muhamad Nazri Bin Muhamad v JMB Menara Rajawali & Anor [2019] 10 CLJ 547 (“Rajawali”), the Court of Appeal held that the Joint Management Body is only entitled to fix one rate applicable to all parcels. Consequently, the owners of different types of parcels are compelled to pay the same rate in proportion to the allocated share units irrespective of whether the parcel is being used for commercial or residential purposes.
 
In a recent case of Aikbee Timbers Sdn Bhd & Anor v Yii Sing Chiu & Anor And Another Appeal [2024] 2 MLRA 196, the Court of Appeal comprising Justices Lee Swee Seng JCA, Mohd Nazlan bin Mohd Ghazali JCA and Choo Kah Sing JCA took a different approach in determining the maintenance charges and the contribution to sinking funds in a mixed development.
 
Brief Facts
 
The dispute revolves around a mixed development comprising residential parcels, a shopping mall and a car park block. The 1^st Appellant is the developer of the development and is also the owner of a commercial parcel, namely the shopping mall. The 2^nd Appellant is also the owner of a commercial parcel, namely the car park. The 3^rd Appellant is the Management Corporation (“MC”) of the development. The Respondent, Yii Sing Chiu, is the owner of one of the residential parcels in the development.
 
Sometime in January 2019, the Respondent discovered that the residential parcel owners and the commercial parcel owners were paying different rates for the maintenance charges and contributions to the sinking fund between 21 April 2016 and 25 January 2019 (“the preliminary management period”). After taking over the management from the developer, the MC also imposed different rates between the residential parcel owners and the commercial parcel owners.
 
Issues
 
Two questions of law were posed before the High Court: 

Decision of the High Court
 
The Learned High Court Judge held that the different chargeable rates imposed by the Developer and the MC were illegal, null and void. The Learned High Court Judge ordered the 1^st Appellant and the 2^nd Appellant to pay the MC back charges for the relevant periods. The Court also ordered the MC to hold an Extraordinary General Meeting to determine a uniform chargeable rate effective from 25 February 2019.
 
Decision of the Court of Appeal
 
The 1^st Appellant and the 2^nd Appellant appealed against the decision of the High Court. On appeal, the Court of Appeal considered the two questions of law that were posed to the High Court.
 
1^st Question of Law
 
The Court of Appeal distinguished Rajawali on the fact that the calculation of the share units in the present case was based on the Sijil Formula Unit Syer (Certificate of Share Unit Formula) (SiFUS) approved by the Director of Land and Mines of the Federal Territory of Kuala Lumpur, unlike in Rajawali where the calculation was based on the formula provided in the First Schedule of Strata Management Act 2013 (“SMA 2013”). The Court stated that the conclusion in Rajawali that there could only be one rate for all parcels has to be confined to its peculiar facts.
 
The Court of Appeal construed the SMA 2013 as 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.” The Court rejected the rigid imposition of only one chargeable rate which would not reflect the true construction of a social legislation.
 
The Court then held that the determination of the charges must be based on the principle of “just and reasonable” under the SMA 2013 and “fair and justifiable” under the Sale and Purchase Agreement (and Deed of Mutual Covenant) dated 12 September 2013 entered into between the relevant parties in the present case, having regard to the right of use of the common facilities of the parcels concerned in a mixed development.
 
According to Justice Choo Kah Sing, JCA who delivered the decision of the Court of Appeal, the term “total expenses” must be understood to be corresponding to the relevant expenses for the relevant parcel owners. Thus, 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.
 
The learned judge added that in a mixed development, if 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.
 
The Court observed that in the present case, the 1^st Appellant and the 2^nd Appellant did not, and still do not, enjoy the use of the common facilities which are exclusively for the use and enjoyment of the owners of the residential parcels. The Court then held that the expenditure for these common facilities should not be included in the chargeable rate for commercial parcel owners who have no right to enjoy such exclusive common facilities.
 
Further, the Court of Appeal referred to sections 52(6) and 52(7) of the SMA 2013 which read together, inter alia, allow any proprietor who is dissatisfied with the “sums chargeable” to request the Commissioner of Buildings (“COB”) to review the sums chargeable. In the Court of Appeal’s opinion, the use of the word “sums” in those provisions “connotes there could be more than one rate of charges for maintenance charges or contribution to the sinking fund.”
 
Based on the above analysis, the Court opined that the 1^st Appellant, i.e. the developer, was entitled in law to impose different chargeable rates during the preliminary management period. Thus, the 1^st Question of Law was answered in the affirmative.
 
2^nd Question of Law
 
The Court of Appeal disagreed with the Learned High Court Judge's findings that under section 60(3)(b) of the SMA 2013, a significant change from its original purpose is required before different rates could be imposed by the MC. Instead, the Court of Appeal held that a plain reading of section 60(3), inter alia, proffers that the MC "may determine different rates of Charges to be paid in respect of parcels which are used for significantly different purposes” and also “in respect of the provisional blocks.” By comparing the group of parcels, the Court found that there are significantly different purposes in the use of the parcels for this development in that there are parcels used for residential purposes and others used commercial (i.e. mall and car park) purposes.
 
The Court of Appeal also noted that arising from a complaint by the Respondent on 11 March 2019, the COB was satisfied that there was nothing irregular or wrong after examining the MC’s written explanation as to how the different chargeable rates were derived and did not object to the imposition of different chargeable rates by the 1st Appellant (the developer) or by the 3^rd Appellant (the MC). The Court interpreted the COB’s decision to mean that different chargeable rates are permitted in a mixed development and the rates imposed by the 1^st Appellant and the 3^rd Appellant were just and reasonable in the opinion of the COB. After considering the items which the 1^st Appellant and the 3^rd Appellant took into consideration to derive the different chargeable rates, the Court of Appeal was satisfied that the different chargeable rates were just and reasonable.
 
The Court of Appeal also opined that the commercial parcels’ owners had not abused their majority voting rights in that they did not arbitrarily pass the resolution for their own advantage to have different chargeable rates. Likewise, the 1^st Appellant did not arbitrarily determine the chargeable rates during the preliminary management period. Hence, the Court of Appeal answered the 2^nd Question of Law in the affirmative.
 
As the Court of Appeal answered both questions of law in the affirmative, the appeal was allowed.
 
Comments
 
Interestingly, the Court of Appeal construed SMA 2013 as social legislation, similar to the Housing Development (Control and Licensing) Act 1966 and Housing Development (Control and Licensing) Regulations 1989. This decision has, in a way addressed some of the long-standing concerns of the stakeholders in the property industry. By adopting a pragmatic approach, the Court of Appeal has allowed different rates to be imposed for maintenance charges and sinking fund contributions in stratified mixed development comprising parcels serving significantly different purposes, thus cementing an equilibrium which the SMA 2013 intended to achieve in the first place. With stratified mixed developments fast becoming an emerging trend in the real estate development, this decision lays down an important marker that the imposition of different chargeable rates for units comprised in a stratified mixed development is to be based on the “just and reasonable” principle under the SMA 2013 and the Courts or the COB could intervene if the basis of apportionment of charges does not satisfy this requirement.
 
Case Note by Ashok Kumar Mahadev Ranai (Partner) and Lim Chin Lun (Associate) of the Construction Litigation, Arbitration and Adjudication Practice of Skrine.