Review of land status

PROPERTY consultants and developers agree it is time to review the country's leasehold land concept to keep up with the changing needs and overhaul Malaysia's land tenure system.

They concur that such an initiative would benefit individual property owners as well the respective state governments through conversion premium income.

“While owners of individual leasehold property face a steady erosion in the value of their property over time, state governments are sitting on essentially a goldmine which could easily be unlocked by returning the freehold rights to the leaseholders,” Regroup Associates executive chairman Christopher Boyd told StarBiz.

He said it was timely for the Federal Government to take the lead to come out with a Leasehold Reform Act that would enable leaseholders to buy the freehold interest based on a certain premium formula.

“Both the Federal and state authorities should realise that there is no point in holding on to their freehold reversions. An orderly and transparent system for selling the freehold rights to the respective leaseholders would be a wise and popular move.

“The whole leasehold concept is an anachronism and has outlived its usefulness. It's a legacy from the old British system and Britain has also went on to review the leasehold concept that resulted in the Leasehold Enfranchisement Act (1963), giving leaseholders the right to buy up their freehold interest. “It is long overdue in Malaysia and a review is certainly in order,” Boyd said.

He said the Penang state government's initiative to encourage residential leasehold landowners to have their land converted to freehold status would have a far-reaching impact on the property market if it was adopted by the other states.

Penang chief minister Lim Guan Eng had recently urged leasehold landowners to apply to the state government to convert government land into freehold status with a premium payment.

The new land policy would allow 30-year, 60-year or 99-year residential leasehold land to be converted into freehold land on a case-by-case basis. The state is also looking at allowing the tenure of leasehold industrial land owned by the state government to be extended from 60 years to 99 years.

“It is a very far-sighted policy that will encourage a long-term mindset in terms of development plans by developers and enhance the attraction of Penang as a real estate investment venue.

“Leaseholders will substantially enhance the value of their properties, and when renovating or improving their properties, they can take a long-term view,” Boyd said.

He said the land premium price to convert leasehold to freehold status had to be based on a fair formula, taking into account the difference between the freehold land price and the property's current market price.

Real Estate and Housing Developers Association (Rehda) president Ng Seing Liong concurred that the initiative was a positive development for the people as well as the property sector and urged other state governments to look into adopting it.

Rehda Penang chairman Datuk Jerry Chan said land and property value could easily appreciate by 25% to 30%, and property projects would be more marketable and attractive to investors.

“The onus is on the state government to disclose the quantum of premium to be paid based on a fair formula for leaseholders,” he said.

Mah Sing Group Bhd president and group chief executive Datuk Sri Leong Hoy Kum said converting leasehold land to freehold status would certainly enhance the value of the development, depending on the location of the property.

If it is in the heart of the city and at a very strategic location, the appreciation in value could reach 100% to 300%.

“There will be a two-fold benefit to the owners – they do not have to face the hassle of renewing the leases, and they may enjoy a windfall should they decide to sell the land or property later. Bank financing for freehold property will also be easier to come by compared with property with less than 40 years’ lease.

“Besides enhancing the appeal of the development for local buyers, this will also encourage foreign buyers to participate more actively in the property market,” Leong said.

He said Penang was a good state to start with the initiative “since there is not much leasehold land there and other states can observe the effects of the initiative before deciding whether this is viable for the individual states.”

“Developers who may have been hesitant to develop land with short lifespan left on their leases will have a new avenue to explore business opportunities. This will be a stimulus to boost the property market as there will be more land transactions,” Leong said.

Difference Between Individual and Strata Title

“In general, an individual title is for a property which has its own land and this usually means that the land itself is owned by the proprietor. Strata titles are generally for properties in a multi-storey building and this usually means that the land belongs to the proprietors from the time of the multi-storey building.

Whilst properties which have their own land will be issued with individual titles, the owner of a unit in a multi-storey building (e.g. apartment, flat, condominium, townhouse, office or even shoplot) will have their right of ownership of the unit they purchased. Every owner will have their share of the land/building which is stated as Unit Share in their Strata Title when issued based on the built-up size of their unit.

It can take years for a strata title to be issued by the relevant authorities. Pending the issuance of the strata title, the owner of a unit can still sell or assign their unit and the non-availability of the strata title does not in any way affect the owner’s right to their unit.

For the sale of a property with individual title the transfer instrument is in Form 14A as prescribed in the Malaysian National Land Code 1965. As for the legal charge of the property with individual title by the owner to his financier Form 16A is applicable. Both the transfer and the charge will involve the land office and the instruments must be presented to the land office for registration.

For property with a strata title still to be issued a deed of assignment is executed to buy a property (if the seller is not the developer, i.e. a sub-sale) or to give security for a loan. A deed of assignment transfers all rights, title, and interests in respect of the property and under the previous sale and purchase agreement to the purchaser. Likewise for an owner to provide the security over the property to his financier, a deed of assignment assigns all rights, title, and interests in respect of the property and under the previous sale and purchase agreement to the owner’s financier. Once the strata title to the unit has been issued, the owner will transfer and/or charge his unit in the same way as a property with individual title.”

Indefeasibility means impossible to be defeated

THE term indefeasibility means that something is impossible to be ‘defeated’ or made void.
Where fraud or forgery is involved in the transfer of land titles, legal systems around the world adopt either one of two principles – “immediate” or “deferred” indefeasibility. Which one is practised depends on the laws of the respective countries.

Immediate indefeasibility is a situation where a transferred title is valid, regardless of any element of fraud or forgery involved. Countries such as Australia or Canada practise this, and their respective governments have in place a fund that compensates victims of such cases.
Deferred indefeasibility, on the other hand, only protects a subsequent purchaser to a title that is defeasible. Therefore, if one party obtains a title where fraud or forgery is involved, this title can be defeated.

However, if this same party sells it to another purchaser who buys it on good faith, that title is considered to be indefeasible. The indefeasibility therefore “defers” across one transfer of title (the one where fraud or forgery is involved) to the next purchaser who buys it in good faith.
Indefeasibility under the National Land Code 1965
The relevant parts that concern the principle of indefeasibility in Malaysia is spelt out in Section 340 of the NLC as follows (omissions made for brevity)

Section 340. Registration to confer indefeasible title or interest, except in certain circumstances.
(1) The title or interest of any person or body ... shall, subject to the following provisions of this section, be indefeasible.
(2) The title or interest ... shall not be indefeasible -
(a) in any case of fraud or
misrepresentation ... or
(b) where registration was
obtained by forgery ... or
(c) ...

(3) Where the title or interest of any person or body is defeasible by ... circumstances specified in sub-section (2)-
(a) it shall be liable to be set
aside ... to whom it may
subsequently be transferred; and
(b) any interest subsequently
granted thereout shall be
liable to be set aside ... :

Provided that nothing in this sub-section shall affect any title or interest acquired by any purchaser in good faith and for valuable consideration....

(4) ... Briefly explained, 340(1) says that all titles are indefeasible, and 340(2) states that fraud or forgery, amongst other things, can render the title defeasible.
340(3) states that if a defeasible title – as explained in the 340(2) – is sold to a subsequent purchaser, it remains defeasible.

However, 340(3) has something known as a proviso (an exception to the rule), and it says that if the subsequent purchaser buys it in good faith, (i.e., thinking that the title was valid and the deal fully legitimate) and paid for it (in money or otherwise), then the title will be indefeasible, and he gets to keep the land – and this essentially spells out the concept of ‘differed indefeasibility'.
The point of contention here is that the proviso appears to limit itself to ‘this sub-section', which might be taken to apply to 340(3) only.

Many legal practitioners and academicians are of the opinion that the Federal Court did not arrive at the correct decision in Adorna Properties Sdn Bhd v Boonsom Boonyanit.
According to assistant professor Dr Sharifah Zubaidah Syed Abdul Kader, there appears to be nothing wrong in the way S340 of the NLC is worded.

“The law is fine, but it is how the judges have interpreted it. If you were to read the Court of Appeal's decision, it appears that the Federal Court made its decision on the wrong premise. There was no reason for it to depart from the practice of differed indefeasibility,” she opines.

Report by the star 23rd Dec 2007