Why you should not take your management corporation lightly

Recent news of service and maintenance fee defaulters having their belongings seized or auctioned off should be a wake-up call to stubborn defaulters.

The management corporation (MC) of Vista Seri Putra in Bandar Seri Putra, Bangi, Selangor had approached the Kajang Municipal Council (MPKJ) in April to get the help of the authorities to act on 10 unit owners who had refused to pay their service charges.

Subsequently, the MPKJ Commissioner of Buildings (COB), together with the police, issued warrants to confiscate the removable properties of the fee dodgers. The unsettled service charges by these defaulters amounted from about RM5,000 to RM9,735, accumulated over a few years.

After the MC had secured all the necessary approvals and due diligence, a 20-people team formed by MPKJ officers and police conducted the seize operation on the defaulters on May 21, with the MC members.

While five of the defaulters decided to settle their debts through instalment plans, the other five saw their valuables confiscated including electrical appliances and mobile devices. Following the operation, three of them decided to settle their outstanding bill in full to redeem their belongings a few days after.

The remaining two unit owners were issued 14-day notices but failed to act on them. In June, the MC decided to auction their belongings via a licensed auctioneer.

For us not in the know, the MC had actually gone through a tedious process to prepare a compelling case in order to convince the COB to issue a warrant that allowed it to confiscate the belongings of the defaulters.

For MCs who are thinking of taking a similar action, here are some things they need to do before they conduct the operation.

In order to get the warrant, certain procedures need to be adhered to, including giving notice to the owners to repay their debts and observing due diligence on the respective owners’ financial status.

“The MC must make sure the defaulter is not a bankrupt and the unit contains removable items [with at least one electrical appliance] before applying for the warrant,” says MPKJ division head of COB Siti Rosemawar Mohd Sahi.

Removable properties that could be confiscated include electrical appliances, mobile devices, furniture sets and jewellery.

Before commencing the confiscation, the MC also needs to ensure that there are allocations for storage space (to store the confiscated items) and security guards to take care of the seized items, insurance and labour cost, as well as the cost to engage the licensed auctioneer if there is an auction event.

The cost needs to be borne by the MC; thus, prior consent from the majority of the owners is required.

Impressive after-effect

The move, a first in the country, has become a case study on the impact of such enforcement action in raising awareness among strata homeowners and residents about their responsibility in fulfilling their obligations.

According to MPKJ, although the auction of the seized goods was insufficient to cover the monies owed, the Vista Seri Putra MC had seen its service fee collection rate increase significantly following the operation.

When the MC first announced that it was taking action against the stubborn owners in April, the service charge collection at the condominium surged by 70% the following month, and after the operation was conducted, the average monthly collection rate saw an overall increase from around 40% to 78%.

“It’s not about the money collected from the auction. The objective is to make the residents aware of their obligations as a member of the community,” stresses Siti.

From her observation, the majority of stubborn defaulters did not pay their service fee not because of their financial condition, but because of their dissatisfaction with the property management or property manager. But Siti says this is not a valid reason for not paying the service charges.

Under the Strata Management Act 2013 (SMA), MCs can take action against service fee defaulters and they can seek the help of the COB to do so.

“However, not every MC has the determination or mandate [from its members] to take action as certain preparations and prior permission from the majority of the residents are needed,” Siti notes.

Although the COB has the right to issue a warrant of attachment (Form A in the Third Schedule of the SMA) for strata owners who fail to pay their service charges on time, following which the COB will hire people to confiscate the defaulters’ removable properties, confiscation action should be the last resort, she counsels.

Other measures include posting the name of the defaulters on the bulletin boards, bringing the case to the Strata Tribunal or engaging lawyers to take legal action.

This story first appeared in EdgeProp.my pullout on Oct 6, 2017. Download EdgeProp.my pullout here for free.