Buyers Take Iskandar Investment Berhad Court Over Spa Related Dispute
A group of 63 individuals have initiated legal proceedings against Iskandar Investment Berhad (IIB) and property developer Distinctive Resources, accusing them of misrepresentation in the sale of property units in the Medini Iskandar Malaysia (MIM) region of Johor about 10 years ago. The plaintiffs, all of whom are owners or co-owners of the Iskandar Residences development project in MIM, are represented in the case by three individuals.
This is not the first time that citizens have taken legal action against state entities in Johor and real estate developers. In a similar case that concluded in 2020, the plaintiffs were awarded damages for misrepresentation and breach of terms and conditions in a sales and purchase agreement (SPA).
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IIB is a company owned by the federal government of Malaysia and the state government of Johor, formed in 2006 to oversee investments in Iskandar Malaysia, Johor. Its focus is on developments in the Iskandar Puteri region, with Khazanah Nasional and two pension funds as shareholders.
The case at hand involves IIB granting a 99-year lease of land in the Iskandar Malaysia region to its wholly-owned subsidiary, Medini Land, starting on June 26, 2013 and with a 30-year extension until June 25, 2142. Medini Land then sold this lease with development rights to Distinctive Resources, in which IIB owned 20% of the shares until December 18, 2013.
Through a joint venture between IIB and Distinctive Resources, the Iskandar Residences property was developed. Between 2013 and 2014, the 63 plaintiffs entered into separate SPAs with IIB and Distinctive Resources. At the time, the property in the SPA was referred to as a “lease”.
However, in December 2023, the plaintiffs discovered that they had been given a private lease scheme instead of a leasehold title when one individual noticed that they had yet to receive a strata title for their house. A leasehold agreement grants outright ownership of the land and entitles property owners to a strata title, while a private lease scheme does not grant ownership rights.
This misunderstanding over the terms of the “lease” stated in the SPA led to the court case against IIB and Distinctive Resources.
One of the plaintiffs involved in the ongoing case explains, “We have been deceived, as thousands of us unknowingly paid for a 99-year long-term lease without the protection of the strata management act as owners. How can we sell a property that we don’t actually own?”
The plaintiffs claim that the SPA they signed did not follow the standard terms of Schedule H of the Housing Development (Control and Licensing) Regulations (HDR) 1989, which governs leasehold and freehold properties. They argue that the SPA was modified to introduce a private lease scheme, which is a violation of the Housing Development (Control and Licensing) Act (HDA) 1966 and HDR 1989, the main laws governing housing development in Malaysia.
In addition, the plaintiffs allege that IIB and Distinctive Resources engaged in misrepresentation through their agents, who represented and persuaded them to believe that they were acquiring outright ownership of the land, when in fact they were only purchasing a lease. This was done through marketing materials such as brochures, emails, websites, and videos.
The plaintiffs further claim that IIB and Distinctive Resources continued to engage in misrepresentation even after the project was completed.
The plaintiffs are requesting the court to declare that the SPA be in accordance with Schedule H of HDR 1989, issue separate strata titles, and register the plaintiffs as the owners of the strata titles. They also request that Distinctive Resources be removed as a leaseholder in the strata titles.
In response, IIB argues that the plaintiffs’ claims are time-barred, as they were brought more than six years after the execution of the SPA. IIB also claims that the plaintiffs were aware of all the facts and did not raise any objections to the terms and conditions before that.
IIB denies making any illegal modifications to the SPA and insists that the private lease scheme is legitimate and approved by the Ministry of Housing & Local Government in September 2011, as well as various other authorities. IIB denies all allegations of misrepresentation, stating that the plaintiffs have failed to prove that their actions led them to believe that they were purchasing outright ownership instead of a lease. IIB also argues that the plaintiffs should have been aware of the terms stated in the SPA.
Similarly, Distinctive Resources denies all allegations of misrepresentation and maintains that the plaintiffs were represented by solicitors and received legal advice before signing the SPA. The developer argues that the SPA clearly stated that the purchase was for a lease, and that the marketing materials clearly indicated that the property was being sold under a leasehold agreement.
The ongoing court case is a testing ground for retail investors who have purchased different strata titles. In a similar case in 2020, 107 buyers of another property development in MIM successfully sued their property developer for misrepresentation and breaching housing development laws. The court ruled that the developer had misrepresented the sale of a leasehold property and awarded damages for this and for late delivery of vacant possession.
When asked about the claims of different strata titles being sold to retail investors, Natazha Harris, CEO of Invest Johor, said that he was unsure how potential purchasers or purchasers were informed, leading to different perceptions or understandings. Harris made these comments during the Invest Malaysia investor conference on September 26. Following this, a spokesperson for UEM Sunrise, a leading developer in Johor, confirmed that all their residential properties in Iskandar Puteri were sold under freehold ownership. However, Pulau Indah Ventures, the developer behind Affiniti Residences, a joint venture between Khazanah and Temasek Holdings, acknowledged that it was a private lease scheme.
The plaintiff involved in the ongoing court case expresses his determination in taking on two large state-related entities in court. He raises concerns that these “invisible forces” may prioritize other projects, such as Forest City, and ignore the issue of private lease schemes, resulting in more freehold properties being sold within the Johor-Singapore Special Economic Zone. The plaintiffs are relying on the media, politicians, and regulators for support in their fight against these “Goliaths”.