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Case Update: Whether a Management Corporation may enact and pass House Rules to prohibit the owners of the commercial service suites from commercial usage?

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LAND LAW
Whether a Management Corporation established under the relevant statutes to maintain and manage commercial service suites built upon a land held under category of “Building” and express condition of “Commercial Building”, may enact and pass House Rules to prohibit the owners of the commercial service suites from commercial usage, in particular, for short-term rental, which is consistent with the express land use found in the document of title? – Section 120 of National Land Code 1965 – Section 70 (5) of the Strata Management Act 2013

Innab Salil & Ors v Verve Suites Mont Kiara Management Corporation
[2020] MLJU 1563, Federal Court
- see the grounds of judgment here

Facts This appeal relates to the appellants’ use of their apartment units for commercial purposes by letting them out for short-term rental. The dispute arose when the respondent took issue with the appellants using their respective premises for such purposes. The respondent is a management corporation of a development known as “Verve Suits” (‘Verve Suites’). The category of land use is ‘Building’ with the express condition that the Land shall be used for a commercial building with the purpose of service apartments and commercial only. In 2015, the Commissioner of Building Kuala Lumpur issued a circular instructing all joint management bodies or management corporations to curb the prevailing issue of the use of buildings in and around Kuala Lumpur for short-term rental. Following the circular, the then enact the ‘House Rule No 3’ (the ‘Rule) which prohibits entirely all forms of short-term rental activities involving Verve Suites’ residential premises, and it was passed by a majority vote. However, despite the implementation of the Rule, the appellants continued to engage in short-term rental activities, and eventually, some of them had initiated Strata Management Tribunal proceedings against the respondent seeking to challenge its implementation of the Rule, but the action failed. The respondent then commenced a writ action in the High Court, where they essentially sought to injunct the appellants from breaching the Rule and to enforce the same. The High Court, in favour of the respondent, held that the enforcement of the Rule did not violate section 70 (5)[1] of the Strata Management Act 2013 (the ‘SMA), thus, it was validly enacted and on the documentary evidence before the Court, the appellants had breached it. Aggrieved, the appellants appealed to the Court of Appeal. The court of Appeal upheld the decision of the High Court. Hence, this appeal.

Issue The main issues in this case were, whether the Rule may override and supersede the express land use on the title imposed by the State Authority under section 120[2] of the National Land Code 1965 (the ‘NLC’) and whether the management corporation’s enforcement of the Rule is in violation of section 70(5) of the SMA.

Held In dismissing the appeal, the Federal Court held that the restrictions imposed by the Rule are additional conditions for purposes of regulation under section 70[3] of the SMA 2013 and not for the purpose of revoking or altering any pre-existing express condition in the title of the Land and hold that that the said arrangements are nothing more than mere licences and therefore do not amount in law to “dealings” within the ambit of section 70(5) of the SMA. Accordingly, the Rule is not ultra vires section 70(5) and, enacted for the many legitimate purposes under section 70(2)[4] of the SMA.

ZUL RAFIQUE & partners
{30 October 2020}
 
[1] No additional by-law shall be capable of operating –
a. to prohibit or restrict the transfer, lease or charge of, or any other dealing with any parcel of a subdivided building or land; and
b. to destroy or modify any easement expressly or impliedly created by or under the Strata Titles Act 1985.
[2] Imposition of express conditions and restrictions in interest on alienation under this Act.
[3] By-laws for regulation of subdivided building or land
[4] A management corporation may, by special resolution, make additional by-laws or make amendments to such additional by-laws, not inconsistent with the by-laws prescribed by the regulations made under section 150, for regulating the control, management, administration, use and enjoyment of the subdivided building or land and the common property, including all or any of the following matters: (a) safety and security measures; (b) details of any common property of which the use is restricted; (c) the keeping of pets; (d) parking; (e) floor coverings; (f) refuse control; (g) behaviour; (h) architectural and landscaping guidelines to be observed by all proprietors; and (i) imposition of fine not exceeding two hundred ringgit against any proprietor, occupant or invitee who is in breach of any of the by-laws.