June 25, 2012

What is meant by 'Service Charge' in a strata development?

Service charge is the main point of contention between the owner and the management in a strata development as it does not exist in landed property when one owns a property. It is an additional burden to strata development property owner as it has to be paid monthly. Under clause 18 of Schedule H of the Housing Development (Control and Licensing) Regulations 1989, the payment for maintaining the common facilities or common property provided by the housing developer is known as  ‘service charge’. Payment of service charge is paid to the housing developer before the joint management body for the property is established. The portion of the service charge to be paid by the purchaser is determined by a licensed land surveyor, appointed by the housing developer, who assigns the amount payable each month by the owner according to the allocated share units within the strata development. It means that the purchaser of a strata development pays according to the space that the purchaser owns within the strata development. The more space that the purchaser owns, the more service charge that the purchaser has to pay. An owner of a penthouse or a duplex pays more than a standard unit. In order for the purchaser to take vacant possession of the property that was bought, a four-month service charge has to be paid in advance and then the purchaser pays the service charge monthly in advance.

A Building Maintenance Account is established and maintained by the housing developer where all the collected service charge are deposited. The housing developer will then hand over the account to the Joint Management Body when it is formed and the account will finally be managed by the management corporation upon issuance of individual strata titles. Under the Fifth Schedule of the Sale & Purchase Agreement of Schedule H of the Housing Development (Control and Licensing) Regulations 1989, a sample of service charge statement is set out outlining the itemised billing and payment that the purchaser has to make every month. The Fifth Schedule is known as ‘Form of Service Charge Statement’ and has the descriptions, estimated monthly expenses and estimated annual expenses for the service charges. The listed descriptions for the service charge include the electricity supply, electrical system maintenance, firefighting system maintenance, lift or escalator system maintenance, security maintenance system, water supply, swimming pool maintenance and a few other common properties which need maintenance and upkeep. The list also includes management fee, management office expenses, staff expenses and bank charges for the management of the strata property. The list is not exhaustive as other services can be added on.

Under Section 16 and 17 of the Building and Common Property (Maintenance and Management) Act 2007, when the housing developer transfers the management of the strata property to the joint management body, the housing developer also has to transfer the Building Maintenance Account to the joint management body. The Building Management Account is to be opened before vacant possession is delivered. The housing developer has to deposit all the service charges received from the purchasers and to pay the service charges for the unsold parcels too. The housing developer will need to make sure that the Building Maintenance Account is maintained, audited by professional auditor, file a certified statement of accounts with the Commissioner of Buildings and  permit the Commissioner of Buildings' office to have access to the Building Maintenance Account. A housing developer who fails to do as such can be liable to pay between RM10,000-00 and RM100,000-00 with fine not exceeding RM1,000-00 for each day the offence continues if convicted. When the Building Maintenance Account is transferred by the housing developer within one month of the establishment of the joint management body, the account will be under control of the joint management body called ‘the Building Maintenance Fund’. Even if the housing developer is unfortunate enough to go into composition or arrangement with its creditors or goes into liquidation, the money in the Building Maintenance Account will not form part of the property of the housing developer and be under receivership. The money in the Building Maintenance Account will still have to be transferred to the joint management body by the administrator of the liquidation process. The Building Maintenance Fund will always be under the control of the joint management body. The monies in the Building Maintenance Fund shall include maintenance charges for the building, any money from the sale, disposal, lease or hire of any property, mortgages, charges or debentures which is done by the joint management body, moneys and property payable to the joint management body due to the joint management body’s functions and powers; and any money lawfully received by the joint management body be it interest, donation and trust. 

When the strata development is issued with individual titles, accessory parcels and common property, according to the Strata Tiles Act 1985,  the management of the strata development will pass to the the management corporation. Management corporation is born through the first annual meeting called by the housing developer. Part of the duties and powers of the management corporation are to take over from the joint management body, and then manage, maintain, audit and send report to the Commissioner of Buildings, the management fund. Under Section 45 of the Strata Titles Act 1985, the management fund is where all service charges are paid into when strata titles are issued to a strata development and management corporation manages the common property.  Service charges in the management fund are allowed to be used for nearly the same usage whether it is under the housing developer, joint management body or the management corporation. Management corporation is given additional usage of service charges under Section 45(2) of the Strata Titles Act 1985 in which management corporation is allowed to invest the money in the management fund with approval at general meetings. Service charges can also be raised through the annual general meetings accordingly through votes. 

In my next post, I'll try to tackle the issue of liability to pay the service charge, how far the management can do to collect it and what's the liability of the management to give good service.
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