WHAT IS LIQUIDATED ASCERTAINED DAMAGES (LAD)?
LAD is a pre-agreed sum of money that parties to a contract agree to pay in case of a breach of contract. This pre-agreed sum is meant to compensate the non-breaching party for losses that would be difficult to calculate and prove if the breach occurred.
LAD clauses are primarily used in construction contracts and sale and purchase agreements (SPA) where time is of the essence and delays can have significant financial implications.
In Malaysia, LAD is enforceable if it is a genuine pre-estimate of loss and not a penalty. To be a genuine pre-estimate of loss, the LAD clause must be based on a reasonable calculation of damages that are likely to result from the breach of contract.
The initial burden is on the claimant to show a breach of contract and that the contract contains a clause specifying a sum to be paid upon breach. Once these two elements have been established, the claimant is entitled to receive a sum not exceeding the amount stipulated in the contract irrespective of whether actual damage or loss is proven. Malaysian courts have held that the LAD should not be excessive or unconscionable in comparison to the actual loss suffered by the non-breaching party. The courts have also emphasized that the LAD must not be a penalty intended to punish the breaching party.
The calculation of LAD is usually based on a daily or weekly rate of damages that the non-breaching party is likely to suffer due to the breach. The rate of LAD is often specified in the contract, but it can also be calculated based on industry standards or past experiences.
LAD CLAIMS PURSUANT TO BREACH OF SPA
Under Malaysian law, a developer cannot give vacant possession of a property to a buyer without first obtaining a certificate of completion and compliance (CCC) from the local authority. The CCC is a document issued by the local authority that certifies that the building has been completed in accordance with the approved building plans and complies with all relevant laws and regulations.
Section 17A of the Housing Development (Control and Licensing) Act 1966 requires a developer to obtain a CCC before delivering vacant possession of a property to a buyer. The delivery of vacant possession means that the buyer is entitled to occupy the property and the developer is no longer responsible for the maintenance and upkeep of the property.
If a developer delivers vacant possession without CCC, they would be in breach of their statutory obligations. The buyer may face difficulties in obtaining financing or insurance, and the property may not be covered by the relevant building and fire insurance policies until the CCC is obtained.
LAD shall be calculated based on the agreed purchase price as stipulated in the SPA and not based on any rebated price.
The LAD calculation starts from the date of payment of the booking fee and not from the date of that statutory agreement.
Developers are obligated to complete common facilities serving the housing project within 36 months from the date of the SPA and if there is a failure to deliver within the stipulated time, the buyers may claim for LAD to be calculated from the date on which the developer ought to have completed the common facilities up to the date of completion ie. Issuance of the Architect’s Certificate.
SHOULD THE BUYER PAY THE BALANCE PURCHASE PRICE EVEN IF VACANT POSSESION HAS NOT BEEN DELIVERED?
The Buyer must pay the Balance Purchase Price & Late Payment Interest, if any as it is a term of the SPA and is separate and distinct from any LAD claim that the Buyer may have.
DO I CLAIM THROUGH THE CIVIL COURTS OR VIA THE TRIBUNAL FOR HOME BUYERS CLAIMS?
Tribunal for Home Buyers was established pursuant to the Housing Development (Control and Licensing) Act 1966 and is under the purview of Ministry of Housing and Local Government.
It is an effective and cost efficient way for homebuyers to file complaints or lodge claims against errant developers.
That said, a Tribunal claim cannot cover the following:
- Claims above the sum of RM 50,000.00. The Tribunal may still hear the claim where it exceeds RM50,000.00 if parties mutually agree in writing for the Tribunal to hear the claim or where the homebuyer limits his claim to only RM 50,000.00 only.
- Sub-sale property.
- Recovery of land or any other interests in land be it beneficial /equitable in nature.
- Claims pursuant to a contested will, settlement or intestacy.
- Any trade secret or intellectual property right, such as copyrights, trademarks, etc.
- Claims that culminate in personal injury or death.
A claim made to the Homebuyer’s Tribunal must be made within 12 months from either:
- The date of CCC;
- The expiry of the defects liability period as set out in the SPA; or
- The date of termination of the SPA if the agreement was terminated before the date of issuance of the CCC.
Alternatively, one can exercise his right to file a claim under the civil courts and must be filed within 6 years of the breach of contract.
If you have any queries, please feel free to contact us at firstname.lastname@example.org or call us at 03- 6419 0949.