Buyers Take Iskandar Investment Berhad Court Over Spa Related Dispute
A group of 63 individuals have recently filed a lawsuit against Iskandar Investment Berhad (IIB) and property developer Distinctive Resources for alleged misrepresentation concerning the title of property units they purchased in the Medini Iskandar Malaysia (MIM) region, located in the state of Johor, approximately 10 years ago. The plaintiffs, represented by three individuals, are owners or co-owners of the Iskandar Residences development project in MIM.
This is not the first time that Malaysian civilians have taken legal action against state entities in Johor and real estate developers. A similar case in 2020 resulted in plaintiffs being awarded damages for misrepresentation and a breach of terms and conditions in a sales and purchase agreement (SPA).
IIB is a company owned by the federal government of Malaysia and the state government of Johor. It was established in 2006 to oversee investments in Iskandar Malaysia and focuses on developments in the Iskandar Puteri region. Khazanah Nasional and two pension funds in Malaysia are shareholders in the company.
The details of the case are as follows: IIB granted a lease for a term of 99 years, starting on June 26, 2013, over land in Johor state’s Iskandar Malaysia region, to its subsidiary, Medini Land. The lease also has a 30-year extension, ending on June 25, 2142. Medini Land then sold this lease, with the right to develop the land, to Distinctive Resources, the developer. IIB also owned 20% of Distinctive Resources’ shares through Medini Land until December 18, 2013.
Through a joint venture between IIB and Distinctive Resources, the Iskandar Residences development project was launched. Between 2013 and 2014, the 63 plaintiffs entered into separate SPAs with both IIB and Distinctive Resources. At the time, the property was referred to as a “lease” in the SPA.
However, in December 2023, the plaintiffs realized that they had been given a private lease scheme instead of a leasehold title. This was brought to their attention by one of the plaintiffs who noticed that they had not received the strata title for their house. A leasehold agreement would have entitled them to outright ownership of the land and the rights to a strata title. In contrast, holders of units under a private lease scheme do not have ownership rights.
Due to this misunderstanding over the terms of the “lease” stated in the SPA, the case against IIB and Distinctive Resources was initiated.
One of the plaintiffs involved in the ongoing court case stated, “Thousands of us were deceived. We unknowingly paid upfront for a 99-year long-term lease with no protection as owners under the Strata Management Act. How can we sell a property that we don’t even own?”
The claims of the plaintiffs state that the SPA they initially signed does not adhere to the standard terms outlined in Schedule H of the Housing Development (Control and Licensing) Regulations (HDR) 1989, which pertains to leasehold and freehold properties. They claim that the SPA was modified to introduce a private lease scheme, which violates the Housing Development (Control and Licensing) Act (HDA) 1966 and HDR 1989, the key legislations governing housing development in Malaysia.
The plaintiffs further allege that IIB and Distinctive Resources engaged in conduct that constitutes misrepresentation. Through their agents, the two entities represented and induced the plaintiffs to believe that they were purchasing outright ownership of the land, rather than a lease. This was done through various forms of marketing, such as brochures, emails, websites, and online videos.
The plaintiffs argue that IIB and Distinctive Resources continued to engage in other forms of conduct that constitute misrepresentation, even after the completion of the project.
The plaintiffs are seeking a declaration from the court that the SPA should conform to Schedule H of HDR 1989, the issuance of separate strata titles, and registration of the plaintiffs as owners on the strata titles. They also request that Distinctive Resources be removed as the leasee in the strata titles.
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In response to the claims made by the plaintiffs, IIB argues that the claims are time-barred since they were brought more than six years after the SPA was executed. IIB claims that the plaintiffs were aware of the facts and had no objections to the terms and conditions of the SPA prior to taking legal action.
IIB also denies any illegal modifications to the SPA and states that the lease scheme is valid and legitimate. The company received approval for this scheme from various authorities, including the Ministry of Housing & Local Government and Iskandar Regional Development Authority (IRDA).
Distinctive Resources also denies all claims of misrepresentation, stating that the plaintiffs were represented by solicitors and received legal counsel prior to signing the SPA. The company argues that it was explicitly stated in the SPA, including in the preamble, clauses, and annexures, that the agreement was for the purchase of a lease. The company also notes that its marketing materials clearly stated that the purchasers were acquiring a lease, not outright ownership.
Both IIB and Distinctive Resources state that the plaintiffs had full knowledge of the terms and conditions outlined in the SPA at all times. They also claim that the plaintiffs should have known that they were purchasing a lease and not outright ownership based on the terms of the SPA.
This is an ongoing court case, and a decision has not yet been reached.
A similar court case took place in 2020 where 107 buyers of another property development in MIM Johor successfully sued their developer for misrepresentation and breaching housing development legislation. The court ruled that the developer had committed misrepresentation by selling a lease under the SPA, which resulted in the plaintiffs being awarded damages for misrepresentation and a breach of terms and conditions. The developer was also ordered to pay for damages due to late delivery of vacant possession.
When questioned about the claims of different strata titles being sold to retail investors, the CEO of Invest Johor, Natazha Harris, stated that he was unsure of how potential purchasers or purchasers were communicated to regarding the different perceptions or understandings. Harris made these comments while participating in Invest Malaysia, an annual investor conference by Bursa Malaysia in Johor on September 26.
The spokesperson for UEM Sunrise, a major real estate developer in Johor, confirmed that all residential properties sold by the company in Iskandar Puteri are freehold. However, Pulau Indah Ventures, a joint venture between Khazanah and Temasek Holdings, acknowledged that Affiniti Residences is a private lease scheme.
The plaintiff involved in this ongoing court case explains the reasons behind their pursuit to take two big state-related entities to court, stating, “I am concerned that all the invisible forces will prioritize other projects, like Forest City, and ignore the private lease issue, allowing them to continue selling freehold properties within the Johor-Singapore Special Economic Zone.”
He also added, “Our group of plaintiffs are like little Davids fighting multiple Goliaths in the Malaysian court system. We cannot win alone, which is why we are involving the media, politicians, and regulators. Only one Chinese newspaper editor responded to my plea for help and connected us to helpful parties.”
