by Angeline Ang

Gurney Paragon is a mixed development in Penang comprising residential towers, an office tower, a shopping mall, a heritage building and a retail car park.

The Appellant, Badan Pengurusan Bersama Gurney Paragon Residential, was established on 14 October 2014 under the Building and Common Property (Maintenance and Management) Act 2007 [“BCPA 2007”].

At the first annual general meeting, resolutions were passed to separate the management and maintenance of the residential component from the commercial component.

The resolutions provided for a separate Building Maintenance Fund for the serviced condominiums, while the owners of the commercial component were to establish their own separate maintenance funds and subcommittee.

The JMB later commenced an action against the Respondents. Among other reliefs, the JMB claimed outstanding maintenance charges and sinking fund contributions amounting to RM56,930,645.52 for the period from October 2011 to November 2017. The JMB also sought the handing over of common property within Gurney Paragon.

The High Court dismissed the JMB’s claim for the arrears and held that the 1st and 2nd Respondents were not liable to pay the charges and contributions into the accounts managed by the JMB. The High Court also permitted the commercial component to continue being managed separately.

No separate management and no separate accounts

The Court of Appeal allowed the appeal and set aside the High Court’s decision.

The Court held that Gurney Paragon comprised one development area under one lot. During the JMB management period, the BCPA 2007 and the Strata Management Act 2013 [“SMA 2013”] recognised a single JMB managing all common property within the development area.

There was no statutory basis for two separate and independent sets of maintenance accounts and sinking fund accounts during the JMB management period. The JMB had no power to provide for separate management of residential and commercial common property within the same development area.

Although the SMA 2013 provides for subsidiary management corporations, that mechanism applies during the management corporation period, not during the JMB management period.

Illegal resolutions remain invalid

Accordingly, the resolutions passed at the first AGM were ultra vires and void. The Court also held that the sale and purchase agreements could not override the statutory framework. Parties could not contract out of the BCPA 2007 or the SMA 2013, and the fact that the resolutions were passed unanimously did not cure the illegality.

On the issue of payment, the Court drew a distinction between the obligation to pay and the rate to be paid. The obligation to pay maintenance charges and sinking fund contributions arose from statute. It was not extinguished merely because the commercial parcel owners did not attend or vote at the first AGM.

However, as the resolutions were invalid, the rates previously determined could not simply be used against the commercial component. The Court directed the JMB to convene a general meeting attended by all parcel owners, including both the residential and commercial components, to present a proper budget for the common property of the entire development.

Rates imposed retrospectively must be just and reasonable

If different rates are proposed, the resolutions must state the different rates, the reasons for the difference, and the effective date. The rates must also be ascertainable, consistent and uniform, so that parcels of the same type and share units are charged according to the same budget and formula.

Once valid rates are determined, the parcel owners will be liable to pay the charges and contributions retrospectively from October 2011. The Court did not simply order the RM56,930,645.52 claimed by the JMB to be paid. The amount payable must first be regularised through a proper rate-setting process.

The Court also held that residential parcel owners were not entitled to a wholesale refund of payments previously made under the void resolutions. Any overpayments or underpayments are to be adjusted once valid rates are determined.

The Respondents were also ordered to surrender the management and maintenance of the common property within the commercial component to the JMB.