Renovation Contracts: Towards a Worry-Free Relationship with Your Contractor

2 February, 2016 by Raymond Mah and Gan Chong Chieh

Most people, at some point in their lives, will deal with renovation contractors. Whether the job is big or small, for the office or
home, we can half expect delays, defects, cost overruns and stress from the renovation process. This is often based on our own
prior experience with renovation contractors, or what we have heard from friends or family. However, many disputes with
contractors can be avoided with an adequate written contract and by managing the process diligently. Here are useful answers to
some commonly asked questions:

What are the indicators of a trustworthy contractor?

Most problems are avoided with the appointment of an honest and reliable contractor. A personal recommendation is a good start,
but ask the recommender specific questions about working with the contractor; ask for examples of both the good and bad. Also
ask the contractor for photographs of sample work and recent referees on similar jobs, and then call those referees for feedback
on the contractor.

You can conduct a company search with the Companies Commission of Malaysia (www.ssm.com.my) to confirm the registration
and status of the contractor. The search may reveal financial information on the contractor, which you will want to consider
especially if the contract value is high. A search will also allow you to confirm whether the person who represents himself as the
owner is in fact a director or shareholder of the company.

Contractors can register with the Lembaga Pembangunan Industri Pembinaan Malaysia (CIDB) (www.cidb.gov.my). A registered
contractor is far less likely to be a fly-by-night outfit.

Lastly, trust your gut feeling. If you are not able to communicate well with a contractor, or if you don’t feel comfortable with
them, keep looking for another. These days many contractors are technologically savvy and are able to communicate quickly over
Whatsapp or email, and you may prefer this convenience. Yet, bear in mind that some old and experienced hands still produce the
best quality work.

What are the issues to be discussed with the contractor prior to the commencement of work?

Three main issues which require clarity and agreement are:

(i) the scope of the works – exactly what you want the contractor to do;

(ii) the contract price – how much the contractor will be paid; and

(iii) the duration of work – when the work will start and finish.

The scope of work is best defined by drawings or sketches along with a description of the method of construction and materials to
be used. These can be prepared by an architect, interior designer, the contractor, or by the owner – the objective here is to ensure
that the contractor knows what needs to be done, and to be able to hold the contractor to it in the event the works are not carried
out accordingly. Any changes made along the way should be confirmed and documented.

The contract price should be agreed upon upfront and confirmed in writing, whether by way of a signed letter of award, invoice,
or purchase order. The contract price could be lump sum or be derived from an itemised bill. Any changes to the original scope of
works are called variations – and could involve omissions (removing items from the original scope) or additions (adding items to
the original scope). Variations will mean changes to your contract price, and it is best to discuss the cost of variations at the time
the instructions are given to the contractor and to confirm the variations in writing. You will have far less bargaining power to
negotiate the price of variations once the works are completed.

The schedule or manner of payment also needs to be agreed upon – whether to pay a portion upfront and the balance on
completion, or whether to pay agreed amounts progressively.

It is always a good idea to retain an agreed portion of the contract price until all works have been completed and all defects have
been rectified. This is usually referred to as the retention sum and is usually 10% of the contract price, although it can be more if
the contract price is small.

For larger jobs, owners should consider engaging an architect or an interior designer to supervise the works. These consultants
will be responsible for checking the progress of the works and certifying payment when the contractor issues his bills.

In order to avoid delays to the project, you need to specify a commencement and completion date for the works. Generally,
contractors perform best when they have a firm deadline to meet. If there are any variations to the works, remember to also
discuss any changes that the variations will have on the completion date. You can try to negotiate a liquidated ascertained
damages (LAD) clause in your renovation contract, which will allow you to deduct an agreed sum for each day of delay caused
by the contractor.

For more complex projects, it is a good idea to seek the advice of a construction lawyer on the terms and conditions of your
contract with the contractor.

Are approvals either from the local authority or developer necessary for renovation works?

Generally, internal renovations do not require approvals from the local authorities. However, external renovations, additions or
expansions to your home or building are likely to require the submission of plans and drawings to the local authorities under the
provisions of the Street, Drainage and Building Act 1974 and the Uniform Building By-Laws 1984. Failing to obtain the
necessary approvals will render you liable to fines and your extensions liable to demolition, especially if complaints are made by
your neighbours. For any significant external renovations, it is best to engage the services of an architect or interior designer who
is familiar with local council submissions.

In gated and guarded communities, house owners are often bound by a Deed of Mutual Covenants. Similarly in landed strata title
properties, house owners are often bound by a set of house rules imposed by the Joint Management Body (JMB) or Management
Corporation (MC). These rules generally impose restrictions on the type of external renovations that can be carried out with the
objective of maintaining uniformity in the facade of the houses in the community.

In residential or office towers, notice may have to be given to the JMB or MC and a deposit may need to be paid to cover any
dirtying of or damage to common property.
How can homeowners minimise disappointments which may result from the renovation works?

Close supervision of the works is likely to produce the best results. Even if you have engaged an architect or interior designer, it
is best that you as the owner or your representative frequently visit the site to check on the progress and quality of the works.
Regular inspections throughout the renovation period will encourage the contractor to keep to the timeline and will allow any
works which are not satisfactory to be addressed and remedied immediately.

Owners are advised to take plenty of photographs of the works to document the progress. All meetings with the contractor should
be noted down, and any correspondence with the contractor should be recorded and kept. This is especially important when
issues such as price or variations are discussed and agreed upon.

Lastly, pay promptly when payments are rightfully due. Non-payment or delayed payment may result in the contractor slowing or
stopping work until receipt of payment. This will also have the unavoidable effect of spoiling your relationship with the
contractor. Treat your contractor with respect and kindness, and you may find him going the extra mile for you.

What action can be taken if the contractor is not performing its works according to the
renovation/building contract?

If the contractor is not performing as agreed and expected, immediately communicate your dissatisfaction to the contractor. Be
professional about the matter – state the shortcomings and agree on a course of action to remedy the problem. You may discuss
your grievances verbally, but always follow up in writing, whether on paper, by email or even over Whatsapp.

If you cannot agree on the problem or the solution, or if the contractor demonstrates that he is unable or unwilling to rectify the
problem, you should consider terminating the engagement. In such circumstances, terminating the contract is likely to save you
more losses and delays in the long run. This would also be a good time to speak to a lawyer on your rights against the contractor
and liabilities that may arise from the termination.

What can the homeowners do in a case of defects in the renovation works?

Once the contractor has completed his works, arrange for a joint inspection of the works and carefully identify all the defects that
you require the contractor to rectify. This is most efficiently done by recording the defects on the construction drawings for the
contractor.

Some contracts will have a defined Defect Liability Period (DLP), which refers to the period during which the contractor remains
liable to rectify all defects found. In the event the contract does not have a specified DLP, the defects need to be identified within
a reasonable period, but better as soon as possible. Practically, it is best to identify the defects and have them rectified before the
final payments are made and before the retention sum is released.

In the event the contractor refuses to rectify the defects after reasonable opportunity is given, the owner can proceed to engage
another contractor (usually called a 3rd party contractor) to finish off and rectify whatever is outstanding. The cost of engaging
the 3rd party contractor for that purpose can be set-off against any balance outstanding due to the original contractor or the
retention sum. In the event that the cost exceeds the unpaid balance, the difference can be demanded and claimed from the
original contractor. (This article was published in the December 2015 issue of Home & Decor magazine.)
Defect Claims against Developers: An update on Limitation
10 August, 2018, By Raymond Mah, John Chan & Pramodhini Jayapragasam

Are you within the time limit to claim for your property damage? If you are a property owner and you recently noticed latent
defects/property damage such as cracks on your walls, floor or ceiling then this article may be relevant to you.

On 3.4.2018, the Dewan Rakyat discussed and passed the Limitation (Amendment) Bill 2018 with a majority voice vote
amending the Limitation Act 1953 (Act 254) to add Sections 6A, 24A and 29(2). The government initiated a review of the
amendments taking into account countries such as Singapore which have implemented similar provisions. But what does this all
mean?

SECTION 6A OF THE LIMITATION ACT 1953

Starting with the basics, Section 6(1) of the Limitation Act 1953 provides a 6 year time limit to commence an action in tort.
Through the recent amendment of section 6A, property owners are now given an extension of up to 3 years from the date of
finding out about the latent defect to commence an action against the developer.

What is a latent defect? A latent defect is a hidden defect in the material and/or workmanship of an item on your property that
may amount to malfunction or failure. However, latent defects are not discoverable through a general inspection, and are
therefore sometimes called a hidden defect.

The addition of Sections 6A(1) and 6A(2) amends the time limit for a person wishing to commence an action to claim damages
for negligence without personal injuries against a developer. This means this provision will apply where you find damage to your
property, eg cracks on the walls, ceiling or floor, uneven slant of flooring etc.

However, Section 6A(3) provides that no action can be commenced 15 years after the occurrence of the latent defect even if
knowledge of the latent defect was obtained during or after the 15 year period. The following scenarios illustrate Section 6A:.

Scenario 1 (based on illustration (c) to Section 6A(2))

Ahmad bought a house from Developer X in the year 2000. In 2010, Ahmad discovered cracks badly
damaging the walls of his home. A building report shows that the cracks appeared in 2003. Ahmad has 3
years from the date of discovery (2010) to initiate an action against the developer. The limitation period
will expire in 2013.

Scenario 2 (based on illustration to Section 6A(3))

Pooja bought a house from Developer X in the year 2000. In 2017, Pooja discovered cracks badly
damaging the walls of her home. A building report shows that the cracks appeared in 2001. Pooja
cannot initiate proceedings against the developer because the 15 year limitation period expired in 2016,
that is, 15 years from the date of purchase in 2001.
SECTION 24A OF THE LIMITATION ACT 1953
Under Section 6A, the three year timer begins when knowledge of the damage is obtained. However, under Section 24A, the
clock begins to tick from the date when the property owner’s disability ceases within the 15 year period of property ownership.
This means that during the 15 years, the law will take into account that you were unable to commence an action due to any
disability. What qualifies as a disability? Section 2 of the Limitation Act 1953 states that any person who is an infant or is of
unsound mind is considered to be disabled. The following scenarios illustrate Section 24A:

Scenario 3 (based on illustrations to Section 24A)

Abby bought a house from Developer X in the year 2000. In 2001, cracks developed damaging the walls
of her home badly. In 2005, the damage to the walls was discovered. Abby fell into a coma in 2004 and
only regained consciousness in 2007. Abby has 3 years from 2007 to initiate an action against the
developer for latent defects.

Scenario 4 (based on illustration to Section 24A)

Adelyn bought a house from Developer X in the year 1999. In 2001, cracks developed damaging the
walls of her home badly. However, Adelyn hit her head and had severe brain injuries in 2000 and only
regained full control of herself and her property in 2017. Adelyn would not be able to initiate an action
against Developer X as the 15 year limitation period lapsed in 2016, that is 15 years from 2001 when
the cracks developed.

SECTION 29(2) OF THE LIMITATION ACT 1953

Section 29(2) provides that Section 6A will not apply to any cause of action concealed by fraud. This would mean where an
action is concealed by fraud, the 15 years period to commence an action against a developer for negligence will not apply. Where
a cause of action is concealed by fraud, Section 6(1) Limitation Act 1953 would apply and an action may commence within 6
years from the discovery of the fraud.

Conclusion
Overall, these amendments better protect the interests of property owners. The amendments take into account the time period of
latent defects appearing in properties and the circumstances surrounding the discovery of such defects. The amendments also
appear to impose a high standard on developers to ensure that latent defects do not occur after 6 years. Property owners should
note that the provisions discussed above will apply regardless of the defect liability period stated in the sale and purchase
agreement. In summary, you can rely on Section 6A and commence an action if the following apply:
 You are a property owner
 Latent defects are discovered in your property
 15 years from the latent defect have not passed
 Your disability (if any) has ceased within the 15 years (Section 24A).