Just by the title of this article alone, you’d probably be wondering what the term "LAD" means (and no, it has nothing to do with a particular gender!).
It’s actually a clause that protects property buyers, in case a developer is not able to deliver their new homes on time.
Read on to find out more about how it works, and the methods you can follow in order to claim for it!
So, what exactly is this LAD?
It stands for ‘Liquidated Ascertained Damages’, which is a genuine pre-estimate of the loss that’ll be caused to one party in a situation where the contract is broken by the other.
LAD will normally be found in a Sale and Purchase Agreement (SPA)
, where the parties involved will usually have a clause to cover what happens, in the event of a delay.
Let’s say that the handover of vacant possession (VP)
by the vendor/developer has been delayed, the purchaser would then be entitled to claim for LAD. This is normally referred as the ‘LAD clause’.
If you’re purchasing a strata property
from a property developer, the LAD can be found in clause 25 of the prescribed SPA under Schedule H, which states that:
“25. (1) Vacant possession of the said Parcel shall be delivered to the Purchaser in the manner stipulated in clause 27 within thirty-six (36) months from the date of this Agreement.
(2) If the Developer fails to deliver vacant possession of the said Parcel in the manner stipulated in clause 27 within the period stipulated in subclause (1), the Developer shall be liable to pay to the Purchaser liquidated damages calculated from day to day at the rate of ten per centum (10%) per annum of the purchase price from the expiry of the period stipulated in subclause (1) until the date the Purchaser takes vacant possession of the said Parcel.”
Essentially, it means that under Schedule H, the developer should deliver vacant possession of the property within 36 months from the SPA date.
Hence, if your SPA date was on 1st July 2016, the developer should have delivered vacant possession of the property to you latest by 30th June 2019. This is also known as the ‘completion date’.
If the developer fails to do so, the LAD can be calculated starting from the completion date, right up until the day when vacant possession of the property is finallyyy delivered to you!
Did you know you can now calculate LAD from the date you pay your booking fee?
In the past, Malaysian judges had different views when it came to deciding the start date for calculating the LAD.
It was always a confusion whether it should be the expiry of 36 months (or any other period) from:
a) the date of signing the SPA.
b) the date of payment of booking fee/earnest deposit
For the purchaser, it was argued that the LAD should begin from expiry of 36 months from the date of payment of booking fee.
This will allow the purchaser to claim a higher amount of LAD, thanks to the longer duration of delay in delivering vacant possession of the property.
Whereas for the developer, they relied on the terms of the SPA, by arguing that it should be calculated from the date that the document is signed.
Although the SPA states that the developer has 36 months (or any other period) from the date of signing to deliver vacant possession, it’s common for developers to collect booking fees in advance to reserve a particular unit.
Now, in the purchaser’s point of view, they have already identified their unit of choice, and bought the property at the time of paying the booking fee.
To them, the signing of the SPA is a mere formality, and will usually happen later on, after the SPA is prepared by a solicitor. Confusing, isn’t it?
Finally, this issue has been settled recently, by a landmark case of PJD Regency Sdn Bhd v Tribunal Tuntutan Pembeli Rumah & Anor and Other Appeals (Appeal No.: 01(f)-29-10/2019(W)).
The Federal Court, i.e. the highest appellate court in Malaysia, decided that the date for calculating the LAD should begin from the date of that the booking fee is paid!
As such, it’s best for you to take note of this so that you keep the receipt of payment for booking fee, in case there’s a need to claim LAD in the future.
But… how do I go about with the LAD calculation?
Don’t start worrying just yet! Here’s a simplified example on the LAD calculation for a property with purchase price of RM100,000:
What To Take Note Of
Booking fee payment date
Completion date (36 months)
29/02/2020 (from date of booking fee payment)
Actual delivery of vacant possession
Duration of delay (number of days)
From 29/02/2020 to 31/01/2021 (306 days)
Deduction under COVID-19 Act (18 March 2020 to 31 August 2020)
306 days – 167 days = 139 days
Purchase price (RM100,000) x interest (10%) x 139 days
Divided by 365 days
Calculating LAD during or after 18 March 2020 (MCO implementation)
Due to the impact of COVID-19 on various industries, the 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”).
Under Section 35 of the COVID-19 Act, it provides that for any agreement between the purchaser and developer, the period 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.”
Therefore, if you receive vacant possession of your property after 18 March 2020, you should take note to deduct the period from 18 March 2020 to 31 August 2020 (i.e. 167 days) when calculating LAD.
Furthermore, under that COVID-19 Act, the developer can also apply to extend the period up to 31 December 2020.
Thus, if the developer obtained such extension, then you will need to deduct the whole period under the extension when calculating LAD.
What happens to the LAD if your property is still under construction?
Most buyers who buy under construction properties will relate when we say that oftentimes, it’s a miracle for developers to complete construction as scheduled.
But let’s put ourselves in the developer’s shoes for a moment. Anything can happen which could delay vacant possession. Case in point: COVID-19. In such scenarios, developers can appeal under the “Extension of Time” clause.
This clause helps the developer extend the completion date given good reason, but doesn’t actually sidestep the LAD payments. All it does is prevent any additional financial payments.
What happens to the LAD if your property has not obtained its CCC?
In other words, the property is ready, but you cannot stay in it yet, because the relevant authority has not certified that it’s safe for occupation!
In such a situation, when would be the cut-off date be for the LAD? Is it the date of the notice of vacant possession, or the date of the CCC?
The simple answer is to refer to the date of the CCC! Hence, your LAD can be calculated up to the date of the CCC, while disregarding the notice of vacant possession that was given to you earlier on.
If there’s a delay in completion by the developer, and you decide to take vacant possession of the property by collecting the keys a few months later, it’s a different case altogether.
It must be noted that you can only claim for LAD until the date of notice of vacant possession (with the CCC already issued), and NOT the date you actually collected your keys.
What can a Purchaser do when the Developer has delayed delivery of Vacant Possession?
In order to claim for LAD from the developer, you may first issue a demand letter to the developer for payment of the LAD. If the developer refuses to pay, you have the following legal options:
1) File a civil action in Court
You may begin a civil action against the developer in court, by filing a Writ and Statement of Claim.
These two are legal tools which need to be utilised when there’s a substantial dispute of facts. This dispute occurs when both parties have their own VERY DIFFERENT versions of what happened.
To put it simply, a Writ is a formal document that’s sent to a defendant, requiring him/her to appear in court if he/she wishes to defend against the plaintiff’s claim.
On the other hand, a Statement of Claim is basically a type of formal endorsement; a short and to-the-point description of the relief or remedy you seek for.
In your Statement of Claim, there needs to be a clear explanation (sufficient information and particulars) provided of what it is you’re actually claiming for.
It’s interesting to note that previously, a purchaser seeking to claim LAD from the developer would have to prove that the purchaser had suffered actual losses.
This situation was changed by a recent case of Cubic Electronics Sdn Bhd (In liquidation) – v – Mars Telecommunications Sdn Bhd  2 CLJ 723.
The Federal Court (which is the highest Court in Malaysia) ruled that when a contract has been breached, the innocent party can recover ‘simpliciter’ the sum fixed in the damages clauses, including LAD!
The Latin word ‘simpliciter‘ here means "absolutely" or "unconditionally". The more you know ;)
Now, the purchaser merely needs to show that there was a delay by the developer in delivering vacant possession of the property, and the SPA has a LAD clause that allows for the purchaser to claim LAD.
The burden will now rest with the property developer to argue that the LAD sum is unreasonable.
If you decide on this course, you should engage a lawyer who will craft the writ and statement of claim based on your facts and documents.
2) File a claim at the Tribunal for Homebuyer Claims
Alternatively, you can choose to file a claim against the developer at the Tribunal for Homebuyer Claims (under the purview of the Ministry of Urban Wellbeing, Housing and Local Government).
The criteria to file a claim at the Tribunal are:
- Your claim is based on matters arising from the SPA entered into, between the homebuyer and the licensed property developer;
- Your claim must not exceed RM50,000, unless agreed by both parties;
- Your claim must be brought no later than 12 months from the date of issuance of the CCC, or from the expiry date of the defect liability period.
What happens if the developer continues to delay or fails to deliver the property at all?
If the developer still delays vacant possession, you as the buyer can choose to file a claim to terminate the SPA and get a full refund back.
However, you will first have to look into your “Termination or Non-Completion” Clause within your SPA. If for instance, the developer has made it clear that you are not to take any action if the vacant possession date has been delayed for X amount of time, then the situation may be a little more complicated.
If such statements were not included, then you will be entitled to exercise your rights under the SPA and take legal action.
In conclusion, the entitlement to claim LAD is a contractual right arising from the SPA. Hence, it’s important to always refer to the LAD clause in your agreement to determine your rights for LAD.
Allen Khor is an advocate & solicitor in Messrs Allen Khor & Partners. His areas of practice include conveyancing, civil litigation, divorce, probate and administration. The telephone number of the firm is 012-283 0656.
*This column is for your information only and does not constitute legal advice for your specific needs. It cannot disclose all of the risks and other factors necessary to evaluate a particular situation. You should seek and obtain independent legal or professional advice for your specific needs and situation.