Strata management: Operation of car park facility – Tenancy or licence?
11 November 2024
In Target Term Sdn Bhd v Waldorf and Windsor Management Corporation (Civil Appeal No. W-02(NCvC)-1890-10/2021) and Malaysia Land Properties Sdn Bhd v Waldorf and Windsor Management Corporation (Civil Appeal No. W-02(NCvC)-1929-10/2021) the Court of Appeal had to deal with, among others, the issue of whether the sale of car park units (which were shown to be accessory parcels to the main parcel in the strata plan) for commercial usage amounted to a dealing under the Strata Titles Act 1985 and was therefore invalid for being in contravention of the law.
In the case, Malaysia Land Properties Sdn Bhd (“Mayland”) was the developer of a mixed development complex which comprised the Waldorf & Windsor Towers apartments. In 2009, Mayland entered into a sale and purchase agreement with its related company, Target Term Sdn Bhd (“Target Term”) for the sale of a single apartment unit together with 420 car park units (“SPA”). The purpose of the sale was to enable Target Term to undertake a commercial car park business. Ultimately, on 19 March 2018, Target Term obtained the strata title to the said apartment unit, for which 414 car park units were accessorised to the same under the strata plan.
The respondent to both appeals is Waldorf and Windsor Management Corporation (“MC”), which is the management corporation for the Waldorf & Windsor Towers apartments. In 2017, the MC billed Target Term for arrears in management charges and sinking fund charges in excess of RM 850,000.00. Target Term disagreed with the invoice and initiated legal proceedings against the MC for a declaration that the back charges were null and void on the basis that the MC had not provided any maintenance services in respect of the car park accessory panels and that all maintenance and other charges had been borne by Target Term. In response, the MC initiated a counterclaim against Target Term and Mayland on the basis that the SPA contravened the Strata Titles Act 1985 (“STA”), therefore rendering Target Term’s title to the accessory parcels to be invalid.
At first instance, the High Court dismissed Target Term’s claim and allowed the counterclaim declaring among others, that the SPA was null, void and unenforceable, and that the 414 carpark units were not accessory parcel but instead common property. The High Court reached this decision as a result of making the following findings:-
- The use of the 414 carpark parcels by Target Term for its commercial carpark business contravened sections 34(2) and 69 of the STA as the accessory parcels had been dealt with independently of the parcel to which had been made appurtenant as shown on the strata title plan; and
- The STA requires an accessory parcel to be used in conjunction with the parcel to which they have been accessorised. Since this was not done here, the illegality defeated the title of Target Term to same, and therefore the carpark units were common property within the meaning of the STA.
In coming to this decision, the High Court relied on the Court of Appeal decision in Ideal Advantage v Perbadanan Pengurusan Palm Spring @ Damansara [2020] 4 MLJ 93. In Ideal Advantage, the first defendant had similarly operated a commercial carpark business on 439 carpark parcels which were accessory to condominium units purchased from the second defendant, the developer. The Court of Appeal there had held that the use of the carpark parcels in a commercial enterprise was an independent and separate use from the main parcels. The letting out of the carpark units was therefore a dealing that was prohibited under the STA.
In determining the present appeal, the Court of Appeal first distinguished Ideal Advantage on the basis that it did not have the benefit of considering the subsequent Federal Court decision in Innab Salil v Verve Suites Mont’ Kiara Management Corporation [2020] 12 MLJ 16. In Innab Salil the Federal Court considered whether a house rule passed at a general meeting of the management corporation prohibiting the use of apartment units for business purposes, including short-term rental arrangements, contravened section 70(5) of the Strata Management Act 2013 (“SMA”). In finding that the house rule was valid, the Federal Court held that the said arrangements were mere licences and therefore could not amount to “dealings” under the SMA unlike a tenancy arrangement.
In reaching this decision, the Federal Court set out the applicable test to distinguish whether an arrangement was a tenancy or a licence. The test can be summarised as follows:-
- Whether the occupier had been granted the right to exclusive possession. If exclusive possession had been granted, it is highly likely that the arrangement is a tenancy unless exceptional circumstances can be shown that despite the grant of exclusive possession, parties did not intend to establish a tenancy;
- Where exclusive possession has not been conferred, the Court must determine the nature and quality of the occupancy. This would include analysing the terms of the agreement between the parties to determine whether the parties intended the occupancy to be one in the form of a tenancy. In determining the same, the Court would ascertain whether parties intended the occupier to have certain rights and obligations which are consistent with that of a tenant under tenancy laws;
- Where there is no proof of exclusive possession and there is not manifest any intention that the nature and quality of the occupation is one of a tenancy, it would be appropriate for the Court to conclude that the arrangement was intended to merely be a licence; and
- In making this assessment, the labels used by parties to describe the arrangement or the occupancy is relevant to the determination of the intention, nature and quality of the same but is neither decisive nor conclusive. Ultimately, the Court must be mindful of the peculiar facts and circumstances of each case with emphasis being paid to the substantive obligations the parties have under the agreement, and not so much the language or labels ascribed to the same.
Having considered the above test in
Innab Salib, the Court of Appeal found that there was no doubt that the permission granted to the driver of a vehicle to enter and park into the area designated as a carpark area for visitors would constitute no more than a licence. The driver would not have exclusive possession of any parking lot upon his entry, unlike that of a condominium tenant who may have a fixed parking lot. Similarly, while no other vehicle may park in the visitor parking lot ultimately chosen by the initial driver, they are not prohibited by any means from entering the said lot for other reasons. Therefore, it is clear that the contractual relationship between Target Term, as the carpark operator, and its customers were not intended to confer upon the latter the rights and obligations of a tenant.
Accordingly, the Court of Appeal held that the act of operating a commercial carpark business on the accessory parcels did not constitute dealing in the same, pursuant to sections 34(2) and 69 of the STA, as the said provisions do not encompass the act of granting licences for temporary occupation to carpark customers.
The Court of Appeal further deliberated on whether the said carpark units could be considered to be common property given the High Court’s finding that the said accessory parcels were not used or intended to be used with the parcel to which it is appurtenant. The Court of Appeal disagreed with the High Court’s conclusion on the basis that the STA did not provide for such a legal consequence that the accessory parcels would be deemed common property merely because of its manner of usage. The Court of Appeal emphasised that it is a fundamental rule of drafting that if rights and obligations are intended to be created or annulled by a provision of law, the same must be set out in the body of the legislation, and not merely postulated based on the definition of a phrase.
Accordingly, the Court of Appeal found that the SPA was not illegal or void, and consequently Target Term’s title to the accessory parcels remained unaffected.
Case Note by Nimalan Devaraja (Partner) of the Dispute Resolution Practice of Skrine.
This article was originally published in the Malaysian Bar Council’s Circular No. 357/2024 and is republished with the kind permission of the Malaysian Bar Publications Committee.