The Strata Management Act 2013 (Act 757) strictly provides that a joint management body during its management period shall only impose and collect maintenance charges and sinking fund contributions from the parcel owners in proportion to the share units of each parcel. In other words, a joint management body must determine one single and consistent maintenance charges rate for all parcels. This principle of law similarly applies to developers and management corporations during their respective management periods as well. While Section 60(3) of the Strata Management Act provides two untested exceptions to this rule, it does not give a management corporation absolute discretion to determine multiple/different rates of maintenance charges for different parcels.
Single rate applies to Joint Management Bodies
In 2019, the Court of Appeal in the case of Muhamad Nazri Bin Muhamad v JMB Menara Rajawali & Anor delivered a landmark decision on the laws of strata management. The Court of Appeal held, amongst others, that Sections 21 and 25 of the Strata Management Act require a joint management body to determine one single and consistent maintenance charges rate for all parcels in a strata scheme or project.
In 2020, the Federal Court when dismissing JMB Menara Rajawali’s application for leave to appeal effectively affirmed the Court of Appeal’s decision. Our Raymond Mah acted as lead counsel for the successful parcel owner above in the Court of Appeal and Federal Court.
- Read our article on the Court of Appeal’s decision here and the Court of Appeal’s full grounds of judgment here.
- Read our article responding to various criticisms against the Court of Appeal’s decision here.
- Read our article on the Federal Court’s decision here.
The Court of Appeal’s judgment is clear that the words “in proportion” found in Sections 21 and 25 of the Strata Management Act mean that a joint management body is required to determine and fix only one single and consistent maintenance charges rate to be applied to all categories of parcels.
Single rate similarly applies to Management Corporations
However, certain industry stakeholders have argued that the Court of Appeal’s decision only applies to a joint management body’s management period and is not applicable during a management corporation’s management period. This argument is made even though Sections 52 and 59 of the Strata Management Act, which regulates maintenance charges during the management corporation’s management period, similarly contain the words “in proportion”.
In 2021, there were a number of High Court cases which decided that a management corporation shall determine and impose only one single and consistent rate of maintenance charges for all parcels. In some, express reference was made to Section 60(3) of the Strata Management Act. Below, we set out a brief summary of these recent High Court decisions.
Amity One Sdn Bhd v Binjai Residency MC
In the case of Amity One Sdn Bhd v Binjai Residency Management Corporation, the plaintiff claimed for an order that its parcels be levied lower rates of charges. The plaintiff posed, amongst others, the following questions for the High Court to determine:
“Whether the Defendant (Management Corporation) is obliged to impose and collect maintenance charges in proportionate to the Plaintiff’s share unit based on a fixed rate per unit?”
In answering the question above, Justice Quay Chew Soon held that:
“[29] Sections 21 and 25 of SMA 2013 impose duties and powers upon a JMB which are similar to duties and powers imposed upon a management corporation under sections 52 and 59 of SMA 2013. Accordingly the ratio decidendi of Muhamad Nazri should equally apply to a management corporation as well.”
The defendant appealed to the Court of Appeal against the decision of the High Court. In February 2022, the Court of Appeal dismissed the defendant’s appeals and effectively upheld the decision of the High Court.
SCP Assets Sdn Bhd v Perbadanan Pengurusan PD2
The dispute in the case of SCP Assets Sdn Bhd v Perbadanan Pengurusan PD2 was similarly on the issue of imposition of different rates of service charges on different parcels. The question of law considered by the High Court was:
“Whether under the laws the management corporation of a strata development is allowed to impose or levy service charges or sinking fund contributions in a manner or formula which is not proportionate to the share units of the parcels in the strata development?”
Justice Tee Geok Hock held that:
“[55] Considering the plain and clear wording of sections 59(2)(a) and 60(3)(b) of the Strata Management Act as well as section 36(c) of the STA, the management corporation shall impose on the proprietors the service charges in proportion to the share units of the parcels in the strata development.”
Sodalite Sdn Bhd v 1 Mont Kiara dan Kiara 2 MC
The case of Sodalite Sdn Bhd v 1 Mont Kiara dan Kiara 2 MC concerned the dispute on the amount of maintenance charges and sinking fund sums chargeable on the proprietors in Wisma Mont Kiara and 1 Mont Kiara. One of the questions to be answered by the High Court was as follows:
“Whether the 1st Defendant (Management Corporation) has the power to apply different unit rates to calculate and to impose charges in relation to the maintenance charges and sinking fund contributions on the parcel owners.”
Justice Mohd Arief Emran Arifin held that:
“[7] I agree with the Plaintiff that a body corporate created by statute may only exercise the powers conferred on it by statute. One could see this position being proclaimed in the plethora of cases referred by the Plaintiffs in their written submissions. (Please refer to among others Muhamad Nazri bin Muhamad v JMB Menara Rajawali [2020] 3 MLJ 645 and Sungei Wang Plaza Management Corporation v Leong Soo Nyean [2019] MLJU 158.)
[9] The MC is empowered to impose charges for the maintenance of the common property based on the following factors:-
(i) The proportion of the share units or provisional share units of the parcels or provisional blocks; and
(ii) The MC may determine different rates of charges for the parcels if they are used for significantly different purposes.
[10] Based on the plain reading of section 60(3) of the Strata Management Act 2015, I am of the view that the said provision indicate that the MC has powers to differentiate the different type of charges to be imposed on proprietors subject to the condition that the said power must not exceed the two limitations above. The said charges must be proportional to the share units of each parcel and if any different rates are to be applied it must be shown that these parcels are used for significantly different purposes.
[17] This subdivision to allocate the costs of the “Exclusive Common Property” to each component and share the costs of the “Shared Common Property” is unlawful. The charges must be imposed on the requirements laid down under section 60(3) of the said Act. The charges must be raised on the “proprietors in proportion to the share units or provisional share units of their respective parcels”. Therefore, the subdivision of the Common Property into “Shared Common Property” and “Exclusive Common Property” to allocate the share of the maintenance of such “Common Property” is unlawful. The MC must strictly adhere to the requirements of section 60(3) (b) to be read together with sections 51, 52 and 59 of the Strata Management Act.”
The court answered the question in the affirmative, finding that a management corporation “according to Section 60(3), has adequate powers to impose different rates of charges subject to the requirement that this must be based on the “significantly different purposes” test laid down under the Act. This will depend on the facts of each case.” However, the Court held that the different rates imposed in this case were not justified and were unlawful.
KB Loh Sdn Bhd v Perbadanan Pengurusan SOHO
The High Court case of KB Loh Sdn Bhd v Perbadanan Pengurusan SOHO was an appeal by the management corporation against a Sessions Court decision that a clause in the Deed of Mutual Covenants is void and unenforceable as it contravenes Sections 21(2) and 25(3) of the Strata Management Act. That clause provided that the car park owner shall be granted a 90% rebate of the maintenance charges.
Justice Quay Chew Soon made reference to the case of JMB Menara Rajawali and affirmed the Sessions Court’s decision:
“[25] In Muhamad Nazri Muhamad v. JMB Menara Rajawali & Anor [2019] 10 CLJ 547, the Court of Appeal held that a joint management body acted ultra vires under sections 21(2) and 25(3) of the SMA when it fixed different rates of maintenance charges in respect of different parcel owners …
[26] The effect of Clause 10.10 DMC is to accord preferential treatment to D. This is flatly against the principle of ‘one rate is applicable to all parcels’, as enunciated by the Court of Appeal in Muhamad Nazri (supra).”
Understanding Section 60(3) Strata Management Act
Section 60(3) of the Strata Management Act provides two exceptions for a management corporation to determine different rates of maintenance charges. It states that a management corporation may determine different rates of maintenance charges to be paid in respect of:
(i) Parcels which are used for significantly different purposes; and
(ii) The provisional blocks.
To date, there has not been a reported court decision that has endorsed the charging of different rates based on Section 60(3) of the Strata Management Act.
In the case of Sodalite Sdn Bhd v 1 Mont Kiara dan Kiara 2 MC (mentioned above), the High Court held that the differences between “Apartment / Small Office / Home Office, Office, College, Retail Complex, Hotel / Medical Complex, Car Park, Shop Houses, etc.” do not amount to “different purposes” that justify different rates per share unit. The court explained that the First Schedule already provides the mechanism as to how the allocated share units are to be calculated. The factors that go to the weightage in the formula as provided in Item 2 of the First Schedule of the Strata Management Act cannot be used to justify the exception under Section 60(3) of the Strata Management Act. Accordingly, what justifies the exception will “depend on the facts of each case.”
In our view, Section 60(3) of the Strata Management Act may be relied on where there has been a change in the purpose of use of the parcel. An example might be a retail unit that is subsequently used as a residential unit or privately owned car parks that are converted into retail units. In such circumstances, the number of share units for each parcel were allocated according to the First Schedule based on its original purpose. Arguably, that change amounts to a “significantly different purpose” which may justify different rates per share unit for those parcels.
Subsidiary Management Corporations and Limited Common Property
The Strata Management Act provides for the creation of subsidiary management corporations and the designation of limited common property. This is provided for in Sections 63 to 69 of the Strata Management Act and Section 17A of the Strata Titles Act 1985 (Act 318) (STA) respectively.
Once the subsidiary management corporations are formed and limited common property areas are designated respectively, each subsidiary management corporation of the particular strata scheme will be free to determine and impose their own rate of maintenance charges and manage their own limited common property independently.
Conclusion
According to the Strata Management Act, maintenance charges must be charged “in proportion” to each parcel’s share units. The courts have confirmed that this requires a developer, joint management body and management corporation to determine and impose only a single rate of maintenance charges per share unit for all parcels during their respective management periods.
Section 60(3) of the Strata Management Act cannot be used to justify different rates of maintenance charges per share unit, especially when the alleged different purpose” has already been factored into the share unit formula provided in Item 2 of the First Schedule of the Strata Management Act.
Subsidiary management corporations may determine and impose different rates of maintenance charges for their parcels. However, this can only be done after the proper formation of subsidiary management corporations and designation of limited common property pursuant to Sections 63 to 69 of the Strata Management Act and Section 17A of the STA respectively.
It is highly advisable for developers, joint management bodies, management corporations and parcel owners alike to seek legal advice when dealing with the issue of different or multiple rates of maintenance charges for different parcels in their strata schemes to avoid long term and costly repercussions.
By John Chan and Fung Kar Men
Note: This article does not constitute legal advice to any specific case. The facts and circumstances of each and every case will differ and therefore will require specific legal advice. Feel free to contact us for complimentary legal consultation.
