Can the management corporation of a building enact house rules to prohibit short-term rentals?

INNAB SALIL & ORS v. VERVE SUITES MONT’ KIARA (CIVIL APPEAL NO: 02(i)-74-10/2019(W)

• Innab Salil and others (“Said Proprietors”) have let out their apartment units (“Premises”) in Verve Suites (“Building”) for short-term rental.

• The Management Corporation of Verve Suites Mont’ Kiara (“MC”) took issue with this.

• On 18 November 2015, the Commissioner of Building Kuala Lumpur (“COB”) issued a circular 2015/2016 (“Circular”) 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 Circular, the MC held an Extraordinary General Meeting proposing a resolution to enact a house rule which stipulates that units in the Building shall not be used for business or any other purpose (illegal or otherwise) which may be detrimental to the credibility of the Building and further prohibited the use of units in the Building for short-term rentals (“Said House Rule”).

• Examples of short-term rental agreements would be bookings through services/applications/websites etc such as Airbnb, booking.com, agoda.com, klsuites.com and other similar services;

• Any breach of the above shall attract a penalty of RM200 for each day the infringement continues.

• The Said House Rule was passed with an overwhelming majority of 96-4 votes.

• Subsequent to the passing of the Said House Rule, the MC notified residents of the Building of the implementation of the Said House Rule on 2 separate occasions.

• Despite the 2 notifications, the Said Proprietors continued to engage in short-term rental activities.

• Vide 2 invoices, the MC fined the Said Proprietors RM200 for every day of their failure to abide by the Said House Rule.

• Eventually, some of the Said Proprietors initiated Strata Management Tribunal proceedings against the MC seeking to challenge its implementation of the Said House Rule and the action failed.

• The MC, in turn, commenced a writ action in the High Court where the MC sought to prevent the Said Proprietors from breaching the Said House Rule and to enforce the same.

• The High Court found in favour of the MC and the Said Proprietors appealed to the Court of Appeal.

• The Court of Appeal upheld the decision of the High Court and the Said Proprietors appealed to the Federal Court.

• The Federal Court dismissed the appeal on the basis that the Said House Rule does not contravene section 70(5) of the Strata Management Act 2013 which prohibits house rules that restrict the ability of parcel owners to transfer or assign ownership and to maintain the marketability of the units in strata living.

• The court found that the Said House Rule was enacted for legitimate purposes of curbing short-term rentals which amount to licences and not tenancies.

• There is nothing from the reading of the Said House Rule that restricts or prohibits the right of parcel owners to deal with their ownership including transfer and/or assignment of the parcel units.