Legal_Landscape

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What ails the condominium industry in Sri Lanka?

WHAT AILS THE CONDOMINIUM INDUSTRY IN SRI LANKA?
By Ajithaa Edirimane

Is condominium living really the ‘dream’ or is it a ‘nightmare’? Are prospective buyers aware of the restrictive nature of condominium living and rules that need to be complied with as a co-owner of common property? Are buyers dealing with honest developers who are transparent in their dealings? Are the problems of condominium dwellers addressed efficiently by the regulator? Is the current law adequate to address the problems of the condominium industry?

Laws governing condominium properties require more teeth
In one particular condominium property there are complaints from unit owners of serious defects in construction, with floor tiles coming off and cracks appearing on the external wall. The council does not have the funds to attend to repairs and blames the developer for the defects. The developer is not unduly concerned since title deeds were issued to all unit owners. In another mixed development condominium property, the unit owners are prohibited from using the main entrance as the developer has leased part of the common areas and the main entrance to a third party, in spite of having no right or authority to do so.

Legality of the agreements
A common practice of developers in pre-selling units is to offer a section of the building depicted as an apartment on a rough sketch and collect advance payments for the so-called ‘condominiums’ more often priced as high as Rs. 20 million. These are merely illustrations seen only on paper and are not legally divided and defined condominiums registered at a Land Registry or at a Title Registry. Such sales agreements are mostly one sided benefitting the developer. The prospective buyer, yearning to acquire one of the beautiful apartments illustrated on a glossy brochure, accepts the terms offered by the developer not wanting to risk losing the apartment.

The Apartment Ownership Law does not have provisions to safeguard the interests of unwary buyers in similar situations. Neither does the law impose mandatory obligations on developers to disclose issues which impact on the prospective buyer’s ownership, such as; the developer’s background, funding for the project, estimated date of completion, whether the project will be expanded with additional units added to the project, the rights of unit owners if expansion takes place, etc. Many are the instances when unsuspecting buyers have got caught to developers who have defrauded buyers more than once and continue to do so with impunity.

On the other hand, the law does not make it easy for developers to implement major multi-storey projects, whether it is mixed development or residential, due to the cumbersome registration process. Sri Lanka has a unique registration system, where a developer is compelled to register a subdivided building at least twice to bring it into the ambit of the law — firstly, to enable pre-sales of units, registration as a Provisional Condominium Property; secondly, upon completion of construction and issuance of the Certificate of Conformity, registration of the subdivided building as a completed Condominium Property. Not only is this procedure cumbersome, it is also costly when a single registration should be adequate. Consequently, a majority of developers refrain from registering the Provisional Condominium Property. Pre-sales of units thus take place without referring to a registered plan and without a legally recognised subject matter. Even banks tend to disregard this important requirement and register tripartite agreements on the main land on which the building is constructed, encumbering all units of the subdivided building in the process.

Regulations and regulator
That there are no regulations to aid the implementation of the law has made matters worse. The Common Amenities Board (Amendment) Act No. 24 of 2003 vested series of powers on the Condominium Management Authority (CMA) to cover condominium properties under Sec. 5(a) to 5(o), but without regulations to enable the implementation of the said powers.
Another grey area, which necessarily should be clarified by regulations, is the procedure to be followed when changes take place within a registered condominium property. Sometimes unit owners wish to expand a common area or amalgamate two units as one. When such changes are contemplated and an application is made to the municipal authority for approval, the practice is to insist on a costly revised Building Plan of the entire condominium property, when a revised condominium plan with details of the area to be changed should suffice, especially since the subdivided building has already been registered as a condominium property and the changes are within the foot print of the constructed and completed condominium property. It is the duty of the CMA as the Regulator to take an informed decision on these matters and simplify the procedure by gazetting relevant regulations.

If the law is silent on the procedural matters, the regulations should fill the void. That has happened neither under the Common Amenities Board (Amendment) Act No. 24 of 2003 nor under the Apartment Ownership Law No. 11 of 1973 and its amendments. The CMA gives its own interpretations to the law, which is not a function of the regulator nor is it provided under the statute.

Conclusion
The condominium industry is no longer in its infancy. The principle enactment came into being in 1973 with two important amendments in 1982 and 2003. But there are still many areas that the law has not addressed. Added to that, no regulations have been issued to date to implement the provisions of the law which have not only caused confusion to unit owners but also made the task of the regulator difficult.
In the meantime, we see a boom in condominium properties, with many developers taking up construction of new subdivided buildings. Similarly, owners of both small and large multi storey buildings are converting them to condominium properties without being fully aware of legal implications. Revising the law, introducing regulations and making the regulator effective with training for its staff, are all crucial for condominium properties to be a good investment option as well as to make them risk free and safe for prospective buyers.

(The writer is an Attorney-at-Law)
http://www.sundaytimes.lk/150308/sunday-times-2/what-ails-the-condominium-industry-in-sri-lanka-139147.html

This is an article which was published in the Sunday Times in March 2015)

April 23, 2015 Posted by | Condominium properties Sri Lanka | , , , , | 2 Comments