Beyond the Defects Liability Period (DLP): Latent Defects in Housing Developments

Introduction 

When you purchase a new home from a housing developer, you will be afforded a 24-month defects liability period (“DLP”), during which the developer is required to rectify defects at its own cost upon notification.

It is therefore a common misconception that once the DLP ends, that is the end of the developer’s liabilities for any defects that appear thereafter.

This issue was considered in the High Court case of Badan Pengurusan Bersama Tropicana Bay Residence @ Penang World City v Mutiara Metropolis Sdn Bhd & Ors [2024] MLJU 1948 (“Mutiara Metropolis Sdn Bhd”).

Brief Facts

Arising from severe defects in the common property at the Tropicana Bay Residence, Bayan Lepas, Penang, the Plaintiff (“P”), being the joint management body of the condominium development, brought an action against the following parties:

• the 1^st Defendant (“D1”), the developer;

• the 2^nd Defendant (“D2”), the subcontractor engaged to supply and install the waterproofing system at the tower blocks and facilities floor; and

• the 3^rd Defendant (“D3”), the subcontractor engaged to supply and install water tanks with high-density polyethylene (HDPE) lining.

P’s claim against D1 is for breach of contract under the statutory sale and purchase agreement (“SPA”) and negligence, whilst its claim against D2 and D3 is confined to negligence.

The defects complained of fall into two categories:

• failure in the waterproofing system resulting in severe leakages throughout the common properties of the condominium development; and

• reimbursement of expenses incurred by P for rectification and repair works relating to the water tanks and roof repairs to the TNB sub-station.

For the purposes of this article, the discussion is confined to the Plaintiff’s claim against D1.

D1 contended, among others, that:

• the expiry of the DLP operates as a bar to any claims for defects thereafter; and

• the architect’s issuance of the Certificate of Making Good Defects dated 15.1.2020 (“CMGD”) conclusively establishes that any defects had been rectified.

Expiry of the DLP does not operate as a bar to a claim within the applicable limitation period

At the outset, the High Court rejected D1’s contention that the DLP and the CMGD may grant “invincibility” as this would be erroneous in law and would amount to reducing the statutory limitation period:

“[50] In my opinion, this notion of invincibility allegedly accorded by the defect liability period and the CMGD is erroneous. It even amounts to reducing the Limitation Act 1953 for breach of contract from 6 years to 2 years. Such cannot be the position in law.”

The High Court held that there are two divisible obligations of the developer insofar as the DLP is concerned:

“[51] ...The first is that if defects are discovered during the defect liability period, then contractually the developer is liable to repair the defects and pay for the repairs. The second is that in the event of defects appearing after the defect liability period, the developer may still be liable to pay for the repairs even if he is no longer required to repair the same.”

In this regard, the High Court cited the following authorities with approval:

• The English Court of Appeal case of Hancock and others v B W Brazier (Anerley) Ltd  [1966] 2 All ER 901, where it was held that the right to sue for defects in breach of contract subsists even after DLP:

“Moreover, if a builder has done his work badly, and defects afterwards appear, then he is not to be excused from liability except by clear words. I am of opinion that cl 11 is no defence to the builders here. It applies only to defects which the purchaser discovers within six months, not to those which he discovers afterwards. Even with regard to those discovered within six months, it only compels the vendor to make them good. It does not excuse him from liability in damages. There is nothing in cl 11 to take away the right of a man to sue in respect of structural defects which were not discoverable within six months. It does not, therefore, take away the rights of the purchasers here.”

• the Federal Court case of Teh Khem On & Anor v Yeoh & Wu Development Sdn Bhd & Ors  [1995] 2 MLJ 663, where it was held as follows:

“I share the view espoused by Lord Denning in Hancock & Ors v BW Brazier Ltd  [1966] 2 All ER 901; [1966] 1 WLR 1317, to the effect that such clause similar to cl 23 in our instant appeal about making good structural defects discovered within six months, would not take away the right to sue in respect of such defects which were not discoverable within such six months, and that further in regard those defects discovered within the six months, the provision of an express remedy of making good the same defects will not ipso facto take away the rights of any purchaser which normally follow at common law in the case of a breach of contract. It is pertinent to mention that our cl 23 provides for 12 months instead of six months. The same principles would apply.

Thus, the said line of defence also fails.”

• the Court of Appeal case of Raja Lob Sharuddin bin Raja Ahmad Terzali & Ors v Sri Seltra Sendirian Bhd [2008] 2 MLJ 87, affirming the above authorities, it was held that the expiry of DLP does not operate as a bar for making claims thereafter.

Accordingly, it was held that the expiry of the DLP did not constitute a bar for P to bring its action in respect of defects discovered thereafter.

CMGD does not constitute conclusive proof that all defects had been rectified

At the outset, the High Court accepted the expert’s evidence that leakages would take time to manifest and as such the failure of the waterproofing system would take some time to become visible. It was held that these are classic symptoms of latent defects:

“[58] I accept Kuan’s evidence that the leakages would take time to manifest. The failing of the waterproofing system would require some time before they are visible. These are classic symptoms of latent defects. A general definition of defect is found in the case of Dua Residency (supra), which adopted a definition from the “treatise Construction Law by Julian Bailey”:

“What is a Defect?

14.01 There is no precise definition, in law, of what, constitutes a defect. Defects may relate to design, construction or both. The word “defect” may refer to the quality of goods supplied. A defect may be patent, in the sense of being known or detectable upon reasonable observation, or latent, in which case, its existence is unknown or detectable not reasonably discoverable. In everyday parlance, a “defect” is something which is faulty, or not built correctly. This is also true insofar as the law is concerned with building defects ...” 

In holding that D1 has failed to comply with standards of good and workmanlike manner in construction of the condominium development, it was held that the CMGD cannot absolve D1 from its liabilities arising from the failure thereof:

“[60] Having regard to the above, I find that D1 has not complied with the standard of a good and workmanlike manner in its construction of the condominium development. Further, the CMGD does not absolve D1 of blame.”

Accordingly, it is clear that developers cannot solely rely on the CMGD alone to avoid liability for defects arising from poor workmanship or defective materials.

Commentary

Ultimately, the High Court’s decision serves as a reminder that the expiry of the DLP and the issuance of a CMGD are not shields of “invincibility” for developers. The law instead preserves a homeowner’s right to redress within the statutory limitation period, drawing a clear distinction between contractual mechanisms for rectification works and the broader right to claim for defects.

For developers, this underscores that ensuring works are carried out in a good and workmanlike manner in the construction of a housing development is critical, and certifications alone will not suffice.

For homeowners, it affirms that the discovery of defects after the DLP is not the end of the road, but often just the beginning of a viable claim.

This article was written by Polwin Sua Shiang-Nian with contributions from our intern, Maab Daffalla Mohamed Idris. For any inquiries, please contact us.