Deed Of Mutual Covenants: Learn Everything You Need To Know

Perkongsian bermakna!

In 2013, the Strata Management Act (SMA) 2013 was formed in Malaysia, setting a set of brand new rules for the nation’s real estate industry and establishing an all-new revamped legal framework to oversee the administration of stratified properties in the country. So with the enactment of the SMA, where does the Deed of Mutual Covenants stand? It will be discussed throughout the article. 

Stratified properties make up more than several sole units or properties established as part of a much larger development – for example, high-rise developments such as condo developments or apartment complexes. 

What consists of a Strata Title and Individual Title?

These property types consisted of more than several owners with joint responsibilities and accountabilities for upkeeping a much larger development. 

Many stratified properties are common residential disputes. Imagine minor conflicts such as the next-door neighbor’s cat accidentally peeing and causing a mess on your front porch to even worse, their unruly kids playing a game of football or two and smashing your windows as a result, if you live on landed property. It seems simple but the situation could lead to something worse. The outcome of the settlement is usually monetary compensation or an apology for a less complicated situation.

Under the Strata Management Act, the management bodies are divided into three sections:

Badan Pengurusan Bersama (JMB)

It happens between two or more parties, like the developer and owners of the strata property. Thus, this partnership gave existence to the interim body before the property belonged to the owner. 

Management Corporation (MC)

This is between unit owners who are voted in by other residential dwellers who participate in the Annual General Meeting (AGM) of a strata development. It is legalized after strata titles have been put into effect, and at a minimum of a quarter (25%) of the aggregate shared units have been shifted to unit owners.

Subsidiary Management Corporation (Sub-MC/SMC)

This is established when there is a necessity for divided management such as when there are minimal public properties. The SMC has its maintenance duties especially served for only this niche area of development.

What are the Primary Responsibilities of these Management Bodies?

The three management bodies spoken above are accountable for these few things:

• Registering all owners in a suitable manner.
• Adhering to building rules and notices made compulsory by local enforcers.
• Maintaining and overseeing public spaces.
• Make sure the property is fittingly insured and protected.
• Deciding, billing, and authorizing the payment of maintenance fees.
• Making certain financial impartiality of upkeeping accounts.
• Authorizing related by-laws or regulations.

What are the Fees that Owners Need to Pay?

To ensure the upkeep of the building and public properties, each unit holder is compulsory to make payment for the maintenance fees. Specifically, there are two types of fees incurred: 

Service Charge

Monthly payments for upkeeping public infrastructures and public property in the development such as gyms, elevators and security patrols. Also more commonly known as maintenance fees.

Sinking Fund

A reserve fund is taken from the strata owner for future expenditure. Examples include the touching up of the facade, renovation works, or substitution of fixtures.

Venturing Into the Deed Of Mutual Covenant (DMC)

By definition, a covenant is normally a prestige legal term for explaining what is an ‘agreement’. So, if you’ve probably figured it out by now, the Deed Of Mutual Covenant in the country is an agreement that everyone legally signs up to.

The DMC (at times referred to as the ‘house rules’) was a standard utilized, before the existence of the Strata Management Act.

It shows the understood rules that oversee all use and upkeep of divided compartments in a stratified property. 

A DMC could create rules and regulations like who can use the pool, what were the laws in entering and using a public gym, and how much money was divided for the property’s upkeep, roles, and responsibilities of the maintenance management, gardening, security etc.

While the Strata Management Act gives a fixed framework governing all strata-titled properties, a DMC may give a slight edge or advantage to one certain property development.

As a result, that could pose certain problems because some dishonest and unethical developers could likely include clauses that will be misleading to the homeowners. 

In general, however, a DMC was only a method of setting responsibilities and obligations in a stratified property.

How Does the Strata Management Act Affect DMCs?

The Strata Management Act (SMA) 2013 gives a new and revised legal framework to every stratified property in Malaysia, disregarding whether a previously in place DMC was used. 

In Malaysia, stratified property management is governed by this legislation. So what is the relevance to the DMCs that have been currently around, and the DMCs in universal speaking? In section 148 of the SMA, it is stated that:

“On the possible implementation of this Act, in a local enforcer location or part of a local enforcer location or in any other location, the supply of any written law, contracts and deeds in connection to the upkeep and overseeing of developments and public property in as far as they are opposite to the provisions of this Act shall stop to have impact within the jurisdiction of the local authority or that other area.”

What the above statement possibly means is that any jurisdiction or ruling consented to in a DMC before the SMA 2013 was enacted, differs from any of the explained by-laws of the SAM itself, by effect is ruled invalid from now onwards. 

Under the Third Schedule of the Strata Management (Maintenance and Management) Regulations, 2015, defined by-laws were also made further known so that the regulations around stratified properties were stated even clearer and more detailed.

Can A DMC Still Be Applied?

Even though the SMA is still the official law of highest credibility when it regards stratified property management regulation, you can still implement a DMC to accept further laws for a property.

One thing to keep in mind is that the DMC does not go against the ruling and jurisdiction of the SMA itself in either way.

Another possible advantage of a DMC, that’s not explained specifically in the SMA, is around subjects such as rearing and placing pets in the shared development.

A developer could seek the same legal agreement from both parties from a Deed of Mutual Covenant to make the keeping of pets illegal on a property, or either just implement certain rules around their stature, breed, and the conditions they are being kept.

Since legal documentation is certainly kind of complicated, you’ll have to be extremely cautious about how any such consensus is being implemented, to make sure they adhere to the current laws.

The Commissioner of Buildings (COB) can give consent to further laws formally asked by the developer or owner under section 32(2) of the SMA.

Once a Joint Management Body or Management Corporation has been implemented, they can also implement further laws to be inserted through a special decision.

Section 32(3) and Section 70(2) of the Strata Management Act are responsible for this.

Other uses of the DMC

One of the advantages of DMC can also include provisions besides house rules. 

In certain cases, the DMC was justified as a contract that was entered into the agreement freely by the property owners and the developers of the land.

For example, in the situation of Prestaharta Sdn Bhd vs Ahmad Kamal Md Alif & Ors, 2016, a clause in the DMC implemented the ruling that some facilities in the development were not public property but were owned by the developer. 

In this particular case, the buyers of development assumed 13 infrastructures to be public property. Part of these infrastructures is the restaurant, hotel arcade, coffee house, reception, lobby lounge, and health center. However, the developer disagreed with this and revoked that they were extra infrastructures and not public property.

To prove their legal validity, the developer came out with a DMC saying that all the 13 infrastructures were extra infrastructures than can be used by the parcel owners but that the developer continued to be the proprietor. Nevertheless, the Court of Appeal gave its seal of approval. 

However, under current jurisdiction, the public property will be delegated before the developer is given the right to market any parcel. Speaking about this, let’s talk about the case of Prestaharta Sdn Bhd vs Ahmad Kamal Md Alif & Ors, 2016 once more. Should the DMC in the Prestaharta case be implemented after the SMA came into effect, the results are possibly distinct. However, the case shows clearly that the DMC may still be important in implicating contractual law.

What Are the Advantages of A DMC?

Since the establishment of the SMA, a DMC has become more of a supplementary agreement to frame mutual understanding, instead of a staunch legal foundation of a stratified property.

Additional rules can be made through the DMC as we have explained above, but must not go against the by-laws as undertaken under the SMA.

There are a few other sectors of reasonably complicated law where a Deed of Mutual Covenant can be of good advantage.

For example, there is a case from 2016 where a buyer tried to get holding of public property adverse to a developer for locations of the shared development.

The developer went and made his claim that these locations were made up of ‘additional facilities’ outside the public property. 

Since a DMC had been made legally binding through an agreement signed between the property buyer and the developer, showing this was indeed the case, the court gave the developer the upper hand. 

The SMA could not be used in this case, as no parcels of land had been marketed off, thus meaning the SMA was not yet put in action.

The giveaway point here for DMCs is that they’re still rendered as a legally binding document before it is replaced by the Strata Management Act, when units are marketed and the property becomes ‘stratified’. 

If all that property terminology is causing you confusion, what you need to know is that as the holder of a single parcel in property development, you’re not likely to be impacted by the type of legal conflicts as said in the example above. 

It’s far more possible that any DMC you take up will mostly cover extra rules for your development.

The Strata Management Act 2013 is the guideline for stratified property management at present. While DMCs can, in some situations, give further rules and laws for property, the basis of regulation around these property types depends on the SMA.

In A Nutshell

In conclusion, the DMC has its pros and cons, but it is something that should not be taken lightly. It’s important to note that DMCs are still enforced as legal documents when units are sold and properties become stratified, before the Strata Management Act replaces them. Strata Management Acts are the foundation of regulation around these kinds of properties, while DMCs can, in some circumstances, provide more regulations and laws for the property.