Better Bend Than Break

Legalising booking fees collection might be the way forward

Contributed by Chang Kim Loong

It is illegal to collect booking fees despite that it is a common practice.

For many naive and unwary purchasers, signing a booking pro-forma with a housing developer or its agent or lawyer and paying a sum of booking fee before the formal Sale and Purchase Agreement (SPA) is signed are part and parcel of the standard operating procedure to purchase a residential property.

Or so, it seems. Contrary to such popular belief, this is prohibited by the Housing Development (Control and Licensing) Regulations 1989 (HDR). Regulation 11(2) provides inter-alia: “No person, including parties acting as stakeholders, shall collect any payment by whatever name called except as prescribed by the contract of sale.”

The statutory form of the SPA provides that the first 10% of the purchase price is only payable immediately upon the signing of the agreement. The scope of prohibition is wide enough to include estate agents, lawyers and any third parties purportedly acting as stakeholders for the housing developer in respect of collection of the booking fees.

This prohibition, first introduced way back in the early 1980s, is actually a good form of protection designed to prevent an errant developer from treating a booking pro-forma as a binding contract to gain a contractual right to forfeit the booking fee already paid by a purchaser who failed to sign a SPA when so requested.

Stories of fellow purchasers crying foul when they are denied a refund of the booking fee, are abound. There have been wanton cases of such abuse by unscrupulous housing developers. In too many cases, promises by sale representatives that the booking fee is fully refundable if the buyers could not secure a bank loan are not honoured.

Vulnerable buyers are left with no options but to forgo the booking fee simply because they feel that the cost and legal quagmire to pursue the matter does not commensurate with the booking fee. It simply is too bitter and cumbersome for those in such acrimonious situations.

Have wrongdoers been prosecuted?

A cooling-off period should be given to the intending purchasers.

Nonetheless, there has been no reported prosecution in the Courts (of Law) against those housing developers and sale agents who flout this prohibition. Thus far, no one has apparently been prosecuted for this blatant disregard for the law. This fact has been declared to the National House Buyers Association (HBA) by the enforcers, that is, the Ministry of Housing and Local Government during its frequent meetings with them.

Enforcement is lax; if there is any enforcement action taken, it is likely the imposing of a meagre compound fine and a slap on the wrist. This leads us to ponder whether a more systematic approach of regulating booking fees should be adopted in place of this absolute prohibition.

Since enforcement is lacking and lax and no one has been brought to Court to be punished, then why not consider legitimising collection of the booking fees?

Cooling-off period

For starters, a housing developer should grant an option to purchase to an intending purchaser in exchange for a reasonable deposit of a sum of money referred to as the booking fee.

A reasonable duration should be given to the intending purchasers to freely consider whether to exercise the option to purchase the property or not. No penalty should be imposed on the intending purchasers if they decide not to exercise the option within the option period.

There should be at least a duration of 30 days from the date of collection of the booking fee for intending purchasers to consider whether if they want to exercise the option to purchase the property. During this option period, a developer should not accept any other booking from another party in respect of the same unit property.

An intending purchaser should be given the full right to either exercise the option before the expiry of the option period or decline to exercise option without the need to furnish any reasons whatsoever to justify his or her decision.  If a purchaser decides to exercise the option, the booking fee should be utilised to partially set-off the purchase price.

Information about the property should be made available to the intending purchaser to make an informed purchase.

 If an intending purchaser decides not to exercise the option, the booking fee should be refunded in full to the intending purchaser. An interest rate of 10% per annum, calculated daily, should be imposed to ensure prompt payment. There should also be a provision that the developer is not permitted to deduct any form of administrative fees in attending to the refund.  

During the option period, all the relevant available information about the subject property should be made available to the intending purchaser to enable him or her to make an informed decision on whether to exercise the option.

Such information should include data on the estimated land area, the layout of the property, specification of the building, details of the common property, Schedule of Parcel, details of the approved building plans and a copy of the SPA.

The amount of booking fee should not be more than RM5,000 or 1% of the purchase price, whichever is the lower. After all, the booking fee merely serves as a security for the developer to grant a right of option to the purchasers. It is additionally to allow the developer to gauge the marketability and saleability of their project.

It is also intended to convince the bridging financiers that the project has reached a reasonable margin of sales and give credence to the project undertaken by the housing developer. The quantum of bookings reflects the level of demand of the housing project and they are assured that the project will not become an added statistics of an overhang.

The booking fees collected from potential buyers should be placed in a fidelity fund under the Housing Development Project Account to facilitate the refund exercise if the option is declined. This is to prevent unscrupulous developers or their authorised agents from absconding with the booking fee. The developer should also be held responsible whether their appointed authorised agents or lawyers are collecting the booking fee as stakeholders.

A standard booking form

To ensure uniformity, a standard booking form should be prescribed in the relevant law such as the HDR. The rights, entitlement and obligation of respective parties should be drafted in plain language and set out in the standard booking form with the dateline to exercise option clearly indicated. 

Datuk Chang Kim Loong is the honorary secretary-general of the National House Buyers Association:, a non-profit, non-governmental organisation manned by volunteers.

All the terms and conditions in the standard booking form should be explained to the intending purchasers before the developer collects any form of the booking fee. This standard approach will legitimise collection of the booking fee and its refund process and will provide certainty and recourse to the treatment of the fee. Since enforcing the prohibition of the collection of booking fees by housing developers is ineffective, now is perhaps the time to try a new approach to better protect buyers.

There’s an old Scottish proverb: ‘Better bend than break’ carries no connotation of surrender. It is used to indicate that the way to take over the opposition’s strength is to adopt their positions and platform. 

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