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STRATA TITLES ACT – DEVELOPER MUST ACCOUNT FOR COMMON PROPERTY COMPENSATION: HIGH COURT IMPOSES CONSTRUCTIVE TRUST

1. Summary and Facts:
JMB Kelana Square v Perantara Properties Sdn Bhd & Ors” [2025] 12 MLJ 51 concerned a dispute over entitlement to compensation monies paid following the compulsory acquisition part of a strata development before the issuance of strata titles. The defendant was the developer and registered proprietor of Kelana Square Business Centre, while the plaintiff was the Joint Management Body (“JMB”) established to manage the common property. When 2,284.582 square meters of the development was acquired by the Selangor State Authority for the LRT 3 project under the Land Acquisition Act 1960, the entire compensation sum of RM13,562,092 was paid to the developer as registered owner. The JMB disputed the developer’s entitlement to the whole sum, contending that 1,121 square meters of the acquired land constituted common property including the vacant land or rubbish chambers and that the developer therefore held RM6,053,400 of the compensation on constructive trust for the JMB and also for exemplary damages.

2. Legal Issues:
• Whether part of the acquired land is common property;
• Whether the Plaintiff is now estopped from claiming a portion of the compensation monies for its failure to participate in the inquiry to determine compensation;
• Whether the acquired land belonged only to the defendant in that it comprised of car parks only; or
• Whether the plaintiff’s claim can be computed based on market value determined by the Land Administration at the inquiry.

3. Court’s Findings:
• The court ruled in favour of the plaintiff.
On the issue of estoppel, the JMB was never served with statutory notices under the Land Acquisition Act. Section 37 proceedings were therefore inapplicable. The JMB’s claim was not a land reference, but an equitable claim that the developer held part of the compensation as constructive trustee.
• Relying on expert evidence from licensed surveyors and corroborating documentary records (including meeting minutes chaired by the developer’s representative), the Court found that the acquired land comprised:
• 1,163 sq metres of car parks (belonging to the developer); and
• 1,121 sq metres of common property.
• Although a management corporation had not yet been formed, the JMB had a proprietary interest in common property and was the predecessor to the future management corporation under the Strata Titles Act 1985. As the developer had received compensation for land that did not belong to it, it would be unconscionable to retain the entire sum. The Court therefore held that RM6,053,400 was held on constructive trust for the JMB.

4. Practical Implications:
This judgment reinforces the principle that statutory land acquisition compensation does not conclusively determine beneficial entitlement, particularly within the context of strata developments, whereby:
• Developers who receive compensation for compulsorily acquired land must account for common property interests, even before strata titles are issued.
• JMB’s have standing to assert proprietary and equitable claims over common property compensation.
• Failure to involve a JMB in land acquisition proceedings does not bar later equitable claims.
• Courts will readily impose a constructive trust to prevent unjust enrichment in strata developments.

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