Federal Court: Management Body Can Stop Short-term Rentals

• Published date: 27 October 2020
• Subject Matter: Corporate/Commercial Law, Real Estate and Construction, Contracts and Commercial Law, Landlord & Tenant - Leases
• Law Firm: SKRINE
• Author: Ms Jesy Ooi, Oon Hooi Lin and Seen Qin Ying

INTRODUCTION

The Federal Court in the recent case of Innab Salil &amp Ors v Verve Suites Mont' Kiara Management Corporation [2020] 1 LNS 1131 decided two questions of law in relation to the use of commercial service suites for short-term rental namely:

Question 1:

Whether a management corporation established under the relevant statutes to maintain and manage commercial service suites built on a piece of land held under category of "Building" and an express condition of "Commercial Building", may enact and pass House Rules to prohibit the owners of the commercial service suites from commercial usage, in particular, for short-term rental which is consistent with the express land use endorsed in the document of title?

Question 2:

Whether a management corporation established under the relevant statutes to maintain and manage commercial service suites, built on a piece of land held under category of "Building" and an express condition of "Commercial Building", and who has enacted and passed House Rules to prohibit the owners of the commercial service suites from using their property for short-term rental, is in violation of Section 70(5) of the Strata Management Act 2013 ("SMA") when enforcing the said prohibition in the House Rules against the said owners?

("the Questions").

THE FACTS AND THE COURTS' DECISIONS

The Background Facts

The respondent/plaintiff was the management corporation ("MC") of "Verve Suites" located in Mont Kiara which was built on a piece of land where the category of land use is "Building" with the express condition that the land is to be used for commercial building with the purpose of service apartments and commercial only.

The appeal before the Federal Court involved four appellants/defendants, three of whom were parcel owners who leased out their units directly or through the 2^nd defendant which operated a business of leasing units in Verve Suites on short-term and long-term rental. The remaining defendants were not parties to the Federal Court appeal as they had either settled their disputes or chose not to appeal,

On 18 November 2015, the Commissioner of Building Kuala Lumpur issued Circular 2015/2016, instructing all joint management bodies or management corporations to curb the prevailing issue of the use of buildings in and around Kuala Lumpur for short-term rental.

Following the issue of the aforesaid circular, the MC held an extraordinary general meeting and passed, inter alia, a house rule prohibiting the use of the units for business or short-term rentals ("Rule").

The MC duly notified residents of the implementation of the Rule and the defendants, in defiance of the Rule, continued to engage in short-term rental activities and were fined by the MC. Some of the defendants initiated proceedings against the MC before the Strata Management Tribunal to challenge its implementation of the Rule but the...