Know Your Stuff: Understanding defect liability period and latent defects

This article first appeared in City & Country, The Edge Malaysia Weekly, on December 7, 2020 - December 13, 2020.
Know Your Stuff: Understanding defect liability period and latent defects
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Congratulations! After waiting for three to four years, you finally get the keys to your brand-new house. You are excited and brimming with ideas on how to decorate your new home.

If you are a first-time homebuyer, the emotions will be 100 times more intense and you cannot wait to get things done and move into your new home.

But as much as you want to start decorating and possibly renovating your home, there is one very important thing you have to do first: Check for defects.

There is a warranty period for your house. During this time frame, known as the defect liability period, you as a homeowner have the obligation to check for defects in your property.

Instead of getting a new house in exchange if a problem is found in your property, you can file a report with the developer and it will fix the problem at no cost.

According to Chur Associates founder and managing partner Chris Tan, the defect liability period is mainly for contractual obligations found in the sale and purchase agreement (SPA), depending on the type of property purchased. The standard SPA, governed by the Housing Development Act (HDA), has a defect liability period clause.

“For residential property under construction, the SPA is regulated by the HDA. The defect liability period is 24 months from the delivery of vacant possession,” says Tan.

He adds that to ensure the developer rectifies the defects, a stakeholder sum, which is 5% of the purchase price, will be retained by the purchaser’s lawyer.

Nawawi Tie Leung Sdn Bhd managing director Eddy Wong notes that commercial developments that are not governed by the HDA may also incorporate a defect liability clause in the SPA. “But since this is not a standard agreement, purchasers need to read the SPA carefully before signing,” he cautions.

Looking for defects and filing the report

Now that you know the defect liability period is 24 months, you should not delay the inspection of your property. But what kind of defects should you look out for?

Wong advises homeowners to inspect the property carefully upon taking vacant possession of the property. Make a list of all the defects, if there are any, and submit it to the developer for rectification work.

“Defects may include defective workmanship or materials, incomplete construction work, or work not conforming to the plans or specifications [as stated in the SPA],” he says.

When you are inspecting your house, bring along the SPA, original floor plan and measuring tape as well as masking tape,  label stickers and marker pen.

The floor plan will tell you the built-up area of each room in your house. So, go ahead — measure every room and check against the floor plan.

The SPA has a list of finishes and specifications such as lighting and electrical points, ceiling hooks for fans or lightings, and appliances and fixtures in the bathrooms, toilets and kitchen. Check that whatever is stated in the SPA is installed and provided in your house.

Next, check the property for defects. See a crack on the wall? Stick a piece of masking tape/label sticker next to it and use a marker pen to write a number and make a note of the shortcoming.

After that, compile all the defects in a list and fill up a report to send to the developer. The report is actually a form supplied by the developer for you to complete. You should also consider taking photos with your mobile phone camera, writing down the details and keeping them in your phone.

“There are also apps in the market that some developers may adopt. Typically, such apps have to be downloaded into the homeowners’ mobile phones, and they will have to take photos of the defects and submit the list using the app,” says Wong.

Homeowner’s and developer’s rights

Wong advises homeowners to allow the developer to complete rectification work before commencing any renovation work. Why is that so?

“The developer can refuse to rectify defects that were not caused by it, for example, damage caused during renovation work carried out by the purchaser after delivery of vacant possession,” says Chur Associates’ Tan.

After the defects report has been submitted to the developer, it has 30 days to rectify them. But what if the developer does not respond within that time period?

Tan says the homeowner can bring a civil action for a claim during the contractual defect ­liability period.

The process for making a claim for defects in residential properties is stated in the contracts regulated by the HDA. This involves the submission of quotations, timeline for rectification and the possibility of homeowners fixing the defects and claiming the money from the 5% retention sum.

“Besides the civil court, a residential property purchaser can actually seek remedy in the Homebuyer’s Tribunal and even complain to the Ministry of Housing and Local Government, which issues licences to housing developers,” says Tan.

Wong says before homeowners repair the defects themselves, they have to notify the developer of the cost of repairs and making good the defects. “Homeowners should allow the developer another 30 days from the date of notification for it to carry out the repair works before they do the rectification works themselves.”

Latent defects

Finally, everything is done and you move into your house. You live there for a number of years and huge cracks suddenly appear on a wall of the property. You suspect this defect was probably caused by the developer’s negligence. But the defect liability period is over. What should you do?

According to Wong, latent defects are defects that are not apparent or obvious and they may not be spotted by the homeowner during the inspection at the time of handover.

“These defects could be hidden behind the visible surface, covered up or dressed up with finishes. They only become obvious after years of wear and tear, as a result of non-compliance with the prescribed industrial and safety standards,” says Tan.

There is no single law that deals with the issue of latent defects, but there is case law over the years, also known as common law, he adds.

In other words, if you want to sue the developer for damages, the civil court will be the best forum for that. The court will judge the case based on past cases. But do keep in mind that there is a time limit to seeking recourse against the developer, which is stated under the Limitation Act 1953. It is advisable to ask your lawyer for more information.

To lodge a complaint with the civil court, you will have to consult a contractor or consultant on the defect and cost of repair.

Tan says homeowners can first make a claim and concurrently get the consultant or contractor to check on the defect and cost. “It is for the developer to form its opinion and rectify the defect. Always make a complaint first.”

He also advises homeowners to obtain a third party’s quotation for the rectification works. If the developer refuses to acknowledge your claim, it will need to provide evidence to support its claim, such as a quality or compliance certification from the relevant authorities or professional opinions, he adds.

So, now that you understand the defect liability period and latent defects, there is one last bit of advice from Wong.

“First-time homebuyers should inspect their property carefully upon getting their keys, so that any defects are properly recorded and rectified by the developer as soon as possible, prior to the commencement of any renovation work.”