Legalising booking fees collection?

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

The law prohibits collection of ‘booking fees’

Contrary to popular belief, booking fees are prohibited by the Housing Development (Control and Licensing) Regulations 1989 (‘HDR’). As stated in Housing Development Regulation 11(2). “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 sale and purchase agreement provides that the first 10% of the purchase price is only payable immediately upon the signing of the SPA. 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 an SPA, when so requested.

There have been wanton cases of purchasers crying foul when they are denied a refund of booking fees by some unscrupulous housing developers. In many cases, promises made by sale representatives that the booking fee is fully refundable if 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 amount paid. It simply is too bitter and cumbersome for those in such acrimonious situations.

Have wrongdoers even been prosecuted by the authorities?

Nonetheless, there has been no reported prosecution in the Courts (of Law) against those housing developers and sale agents who flout this prohibition. No one has been prosecuted for this blatant disregard for the law, to the best of my knowledge.

This fact has been declared to us by the enforcers (of the laws) ie the Ministry of Housing & Local Government during our frequent meetings with them. Enforcement is lax; if there is any enforcement action taken save and except imposing a meagre ‘compound fines’ and a slap on the wrist. This led us to ponder whether a more systematic approach of regulating booking fees should be adopted in place of this absolute prohibition.

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

Option to purchase ­— Cooling-off period

For starters, a housing developer shall grant an option to purchase to an intending purchaser in exchange for a reasonable deposit of a sum of money referred to as ‘booking fee’. A reasonable duration shall be given to the intending purchasers to freely consider whether to exercise the option to purchase the property or not. No penalty shall be imposed on the intending purchasers if they decide not to exercise the option within the option period.

There shall be at least a duration of thirty (30) days (hereinafter referred to as the ‘option period’) from the date of collection of booking fee for intending purchasers to consider whether if they want to exercise the option to purchase the property. During the option period, a developer shall not accept any other booking from another party in respect of the same property.

An intending purchaser shall be given the full right to either exercise the option before expiry of the option period or decline to exercise the 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 shall be utilised to partially set-off the purchase price.

If an intending purchaser decides not to exercise the option, the booking fee shall be refunded in full to the intending purchaser within 14 days from the communication of the intending purchaser’s decision to the developer, failing which interest at the rate of 10% per annum calculated on a daily basis over the booking fee shall be imposed and payable by the developer to the (intending) purchaser.

There should also be a provision that the developer is not permitted to deduct any form of so called ‘administrative fees’ in attending to the refund and such refund must be made in full.

During the option period, all the relevant available information pertaining to the subject property including the estimated parcel/land area, the layout of the property, specification of the building, details of the common property (for stratified developments), Schedule of Parcel and details of the approved building plans etc. and a copy of the SPA shall be made available to the intending purchaser to enable him/her to make an informed decision whether to exercise the option.

The amount of booking fee should not be excessive and in all cases shall not be more than RM5,000 or 1% of the purchase price, whichever is the lower. After all, a booking fee merely serves as a security for the developer to grant a right of option to the purchasers and also 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 add to the ‘overhang’ statistics.

The booking fees collected from potential buyers shall be placed in a ‘fidelity fund’ under the Housing Development Project Account to facilitate the refund exercise in the event that the option is declined. This is also to prevent unscrupulous developers or their authorised agents from absconding with the booking fee. Housing developers shall be held responsible whether the booking fee is being collected by their appointed authorised agents or lawyers, as stakeholders.

Prescribed option to purchase form – Booking fee

In order to ensure uniformity, a standard booking form shall be prescribed in the relevant law such as the HDR. The rights, entitlement and obligation of respective parties shall be drafted in plain language and set out in the standard booking form with the dateline to exercise option clearly indicated. All the terms and conditions in the standard booking form shall be explained to the intending purchasers before the developer collects any form of booking fee.

This standard approach to a booking fee will legitimise its collection while the refund process will provide certainty and recourse to the treatment of such fees. If the enforcer is unable to effectively prohibit the collection of ‘booking fees’ by housing developers, we might as well outdo them and thereby possibly gain an advantage.

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.

PS: It’s merely a food for thought and more discussion and feedback need to be obtained.

Datuk Chang Kim Loong is the Hon. Secretary-General of the National House Buyers Association (HBA).
HBA can be contacted at: Email: [email protected]
Website: www.hba.org.my
Tel: +6012 334 5676

This story first appeared in the EdgeProp.my e-Pub on Aug 18, 2020. You can access back issues here.

EdgeProp Malaysia Virtual Property Expo 2020 (VPEX 2020) is happening now! Find out more exclusive projects and exciting deals here

Get the latest news @ www.EdgeProp.my

Click here for more property stories.