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What Is Liquidated Ascertained Damages (LAD) ?

Liquidated Ascertained Damages (LAD) refers to a predetermined amount of compensation that one party agrees to pay to another in the event of a breach of contract. It is a genuine pre-estimate of the losses that might be incurred due to the breach, typically included as a clause in contracts such as the Sale and Purchase Agreement (SPA) for property transactions.


 

LAD in Property Transactions


In Malaysia, LAD is particularly relevant in property development and is most often associated with delays in delivering vacant possession (VP) of a property.


LAD Clause in Schedule H SPA (Strata Properties)

Under Schedule H of the Housing Development (Control and Licensing) Regulations 1989, Clause 25 states:

  1. Vacant Possession Timeline

    • The developer is required to deliver vacant possession of the property within 36 months from the SPA date (the date the agreement is signed).

  2. Compensation for Delay

    • If the developer fails to deliver vacant possession within this timeline, they must compensate the purchaser with LAD, calculated at 10% per annum of the purchase price, from the completion date until the actual date of vacant possession.

 

LAD Calculation Example


Scenario:

  • SPA Date: 1st July 2016

  • Completion Date (36 months): 30th June 2019

  • Vacant Possession Delivered: 30th December 2019

  • Purchase Price: RM500,000


LAD Formula:

\text{LAD Amount} = \frac{\text{Purchase Price} \times \text{10%}}{365} \times \text{Number of Late Days}






 

Key Points About LAD


  1. Legally Binding:

    • The LAD clause is enforceable under the SPA, and developers are legally obligated to compensate purchasers for delays.

  2. Scope of LAD:

    • LAD is specifically for delays in delivering vacant possession. It does not cover other losses or defects unless explicitly stated in the agreement.

  3. Protecting Purchasers:

    • LAD clauses protect buyers by holding developers accountable for delays, ensuring timely delivery of properties.

  4. Claims Process:

    • Purchasers must typically submit a written claim for LAD with supporting documents, such as a copy of the SPA and evidence of delay.

 

Practical Advice


  1. Know Your Rights:

    • Familiarize yourself with the terms of your SPA, particularly the LAD clause.

  2. Keep Documentation:

    • Retain all relevant documents (SPA, correspondence with the developer, etc.) to support your LAD claim.

  3. Consult Legal Experts:

    • If a developer disputes or delays payment of LAD, seek advice from a qualified property lawyer.


LAD ensures a level of accountability in property transactions, helping purchasers mitigate financial losses caused by project delays.

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