BSC (HONS) Quantity Surveying

UEBE 2623 - CONSTRUCTION LAW

An Introduction to Law of Property and Land Law 1 An Introduction to Law of Property and Land Law ................................................................1

1.1 What is Property? ............................................................................................................. 1

1.2 Possession and Ownership of Property..................................................................... 1

1.3 Land Law in Malaysia ......................................................................................................1

1.4 Definition of Land ............................................................................................................. 2

1.4.1 Degree of Annexation Test ........................................................................................... 3

1.4.2 Purpose or Object of Annexation Test.......................................................................... 3 1.5 Land Registration ............................................................................................................. 4

1.5.1 The Effect and Importance of Registration................................................................... 4

1.5.2 Exceptions to Indefeasibility......................................................................................... 4

1.5.3 The Effect of Non-Registration .................................................................................... 6

1.5.4 Procedure for Registration ............................................................................................ 7

1.6 Alienation of Land and How They are Called ............................................................ 7

1.6.1 Freehold Land ............................................................................................................... 7

1.6.2 Leasehold land .............................................................................................................. 7

1.6.3 Tenancies ...................................................................................................................... 7

1.7 Forms of Title and Its Significance .............................................................................. 8

1.7.1 Final Title and Qualified Title – Definitions ................................................................8

1.7.2 Register Document of Title and Issue Document of Title ..........................................10

1.7.3 What are the conditions and restrictions that may be attached to titles? ....................10

1.8 Subdivision, Partitioning and Amalgamation .........................................................11

1.9 Dealings in Land Related to Construction Industry. .............................................12

1.9.1 Transfers .....................................................................................................................12

1.9.2 Leases..........................................................................................................................13

1.9.3 Tenancies ....................................................................................................................14

1.9.4 Charges .......................................................................................................................15 1.9.5 Liens ...........................................................................................................................16

1.9.6 Easements ...................................................................................................................17

1.10 Restraint on Dealings................................................................................................18

1.10.1 Caveats ...................................................................................................................18

1.10.2 Prohibitory Order....................................................................................................20

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1 An Introduction to Law of Property and Land Law

1.1 What is Property? Property in law is anything capable of ownership. It can be categorized as:

• Tangible property (i.e. it can be touched or is physical) and intangible property (such as

copyright, patents, goodwill or shares in a company); or

• Real and Personal property

a. Real property – Freehold interest in land (e.g. freehold land)

b. Personal property – Leasehold interest in land, and anything other than REAL

property (e.g. car, watch, mobile phone)

1.2 Possession and Ownership of Property Property can be possessed or owned. A person in possession of property has a better right to

it than anyone else except for the true owner. Ownership is the concept covering all the legal

rights that can attaché to property, so that the owner can do with the property he wishes,

including giving up possession. Ownership is therefore better than mere possession as the

owner is entitled to possession as well and can claim any property back that has been wrongly

taken out of his possession. Generally, it is common that the owner may not be in possession

of the property as he may have lease it to another party or part possession temporarily.

1.3 Land Law in Malaysia For the purpose of this module, property is divided into two areas, land and all other property.

We shall concentrate on land and related laws of Malaysia affecting it.

The land laws of Malaysia are contained in four main legislation, namely:

• The National Land Code 1965 applicable to Peninsula Malaysia;

• The National Land Code (Penang and Malacca) Act 1963 applicable only to Penang and

Malacca,

• The Sarawak Land Code, and

• The Sabah Land Ordinance applicable to Sarawak and Sabah respectively.

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National Land Code and Other State Land Laws

In the absence of any express provision to the contrary, if any provision in the NLC 1965 is

inconsistent with any provision of any of the following laws, the NLC 1965 provisions shall

to the extent of the inconsistency be void:

1. Any law for the time being in force relating to customary tenure, Malay reservations or

Malay holdings, mining, sultanate lands, wakaf or baitul-mal;

2. The Trengganu Settlement Enactment 1356;

3. The Padi Cultivators (Control of Rent and Security of Tenure) Ordinance 1955;

4. The Kelantan Land Settlement Ordinance 1955;

5. The Land (Group Settlement Areas) Act 1960 or

6. Any law for the time being in force relating to exemptions from the payment of land

revenue.

Land in Malaysia is vested in the ruler or governor of the state (Under the Constitution

legislative List II). Although land is a State matter upon only the State Legislation may make

laws in respect thereto, the Federal Government may make laws in respect of land matters in a

State if such laws are enacted to ensure uniformity of laws and policy in respect of land

matters in all the States of Peninsula Malaysia except Sarawak and Sabah.

1.4 Definition of Land According to the NLC 1965, Land includes:

a) The surface of the earth and all substances forming that surface;

b) The earth below the surface and all substances therein;

c) All vegetation and other natural products, whether or not requiring the periodic

application of labour to their production, and whether on or below the surface;

d) All things attached to the earth or permanently fastened to anything attached to the earth,

whether on or below the surface; and

e) Land covered by water.

Issues with the Definition of Land

It is easy to determine whether a particular item forms part of the land under item (a), (b), (c)

and (e) above but it is difficult to do so in relation to item d) as it depends on ownership of a

particular item. If the item is a fixture (real property), then it will form part of the land under

NLC 1965. If it is a personal property (chattel) then it is not. Unfortunately, NLC 1965 does

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not provide any definition of the word fixture, reference must be made to English law on this

subject, see Goh Chong Hin & Anor v. The consolidated Malay Rubber Estates Ltd.

The English law on fixtures provides two tests for establishing whether an item is a fixture or

a chattel – Holland v. Hodgson (1872):

i) Degree of annexation test; and

ii) Purpose or object of annexation test.

1.4.1 Degree of Annexation Test

Under the degree of annexation test, an article which is affixed to land even slightly gives

rise to a rebuttal presumption that it is part to a land. An article attached to the land by its

own weight is not to be considered part of the land but remains a chattel. If an article is

affixed to land, whether it becomes a fixture and forms part of the land depends on the

intention of the person who affixes the item. (Continue to the “Purpose or Object of

Annexation Test”)

1.4.2 Purpose or Object of Annexation Test

If the purpose or object of the annexation is for the better enjoyment of the land as a whole,

this would strengthen the finding that the item is a fixture. If the purpose or object of

annexation is merely for the more complete enjoyment and use of the item as a chattel

itself, then the item would remain a chattel not forming part of the land. The object or

purpose of annexation is to be inferred not from the motive or intention of the person who

affixed the item but from consideration of the circumstances of the case – Re De Falbe

(1901).

In Goh Chong Hin & Anor v. The Consolidated Malay Rubber Estates Ltd., it was

held that the machinery affixed to earth becomes a fixture and part of the land even if the

machinery was set up after the date of the charge. In The Shell Company v. Commissioner of

the Federal Capital of Kuala Lumpur (1964), it was held that underground tanks are land. In

Socfin Co. Ltd v. Chairman, Klang Town Council (1964), the storage tanks were buildings

and not machinery used for industrial purposes.

Both tests are important and both have to be applied when determining whether an item is a

fixture or a chattel. In Malaysia, these approaches were applied to local cases.

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GOH CHONG HIN & ANOR. v. THE CONSOLIDATED MALAY RUBBER ESTATES LTD. 5 F.M.S.L.R. 86

(Court of AppeaL Negeri Sembilan)

Facts: On 26 April 1921 Goh Chong Hin executed a charge in favour of S.R.M.S. Lechmanan

Chetty (the chargee) secured by a few pieces of rubber estate land. Then on 25 June 1921,

Goh Chong Hin executed a bill of sale assigning to the respondent certain machinery in

one of Mr Goh's factories which was charged.

On 25 October 1923, the chargee took possession of the rubber estate. On 31

December 1923, the respondent applied for an order to seize and sell the machinery by

virtue of his bill of sale. The chargee in possession opposed the application.

Reay J. (the trial judge) decided in the respondent's favour and the chargee appealed.

Held:

• 1. The ordinary English law of fixtures applies in this country.

• It is well settled by that law that prima facie machinery affixed to earth becomes a

fixture and part of the land.

• Even if the machinery was set up after the date of the charge, it nevertheless accrued

to the land and became part of the chargee's security.

1.5 Land Registration Definition: Under NLC 1965, registration of an instrument of dealing (land) is effected by

making of a memorial of dealing on the register document of title under the hand and seal of

the registering authority (i.e. the Registrar or Land Administrator) concerned. In short, it

means making a statement on copy of Grant (geran) kept in land Office to confirm the owner

i.e. the official copy.

1.5.1 The Effect and Importance of Registration

The effect of registration of a dealing in land is to establish an *indefeasible* title to or

interest in land, i.e. a title or interest which is free of all adverse claims or encumbrances not

noted on the register. In other words, the effect of registration is to defeat all prior

unregistered claims.

1.5.2 Exceptions to Indefeasibility

Unfortunately, indefeasibility is not absolute. There are specific circumstances where a

registered title or interest may be set aside or defeated by one with a better claim. These

circumstances are spelt out under NLC 1965 and also by case law.

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A) Fraud

A title or interest in land, once registered, is indefeasible except if there is fraud or

misrepresentation or forgery or interest was unlawfully acquired.

Fraud means actual fraud, dishonesty of some sort, not what is called constructive or equitable

fraud (mere knowledge of the existence of an unregistered interest shall not of itself be

imputed as fraud). – See Lian Keow Sdn. Bhd. v. Overseas Credit Finance (M) Sdn. Bhd.,

(1988).

Fraud may be established if the designed object of a transaction is to cheat a man of a known

existing right or where by a deliberate and dishonest act a person loses an existing right.

However, negligence or bona fide mistake is not fraud. (See Loi Hieng Chiong v. Kon Tek

Shin (1983))

LOI HIENG CHIONGv. KONTEK SHIN [1983] 1 M.L.I. 31 (Federal Court)

Facts: The appellant appealed against the decision of the High Court that the

exchange of lands between the parties was void by reason of fraud. The lands

originally comprised a piece held by the respondent at Kuching, measuring 8.56

acres and which he had wanted to sell for RM115 000, and the other at Sibu,

measuring 9.40 acres and claimed to have been bought by the appellant for RM55

000. The appellant exchanged his Sibu land for the respondent's Kuching land. It was

found that the Kuching land was of course more valuable than the Sibu land. The

learned trial judge found that the appellant had perpetrated fraud in the exchange of

the land titles. The appellant appealed.

Held: The evidence clearly showed that the appellant was not honest as to the true

value of the Sibu land when he persuaded the respondent to exchange the lands.

Even if his evidence, which purported to show that the value of the Kuching land

was RM55 000 and not RM115 000 as stated by the respondent, could be accepted,

the exchange was still not fair, just and reasonable, having regard to the accepted

value of the Sibu land.

B) Misrepresentation

Misrepresentation would mean fraudulent misrepresentation and instances of fraudulent

misrepresentation include the following:

i) The suggestion as to a fact of that which is not true by one who does not believe it to

be true;

ii) The active concealment of a fact by one having knowledge or belief of the fact;

iii) A promise made without any intention of performing it;

iv) Any act fitted to deceive; and

v) Any such act or omission as the law specifically declares to be fraudulent.

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C) Forgery

When registration was obtained by forgery, the registered title or interest of that person or

body having that title or interest is defeasible. Even where such person or body is not a party

or privy to the forgery, his title or interest is still defeasible. In other words, it affects the

immediate proprietor even if he is an innocent purchaser for value. However, subsequent

purchasers are protected by NLC 1965 and Doshi v. Yeoh Tiong Lay (1975) which states that

indefeasibility will attach to the title or interest once it is acquired by a subsequent purchaser

in good faith and for value or by any person or body claiming through or under such purchase.

Please take note that in Sarawak, where Sarawak Land Code provides that a purchaser in good

faith and for value, provided that he is not guilty of any fraud, will acquire an indefeasible

title or interest upon registration even if the registration has been obtained by way of forgery

or a void instrument.

D) Insufficient or void instrument

Where registration was obtained by means of an insufficient or void instrument, the title or

interest of that person or body having the title or interest is defeasible.

For example, an instrument of dealing may be considered to be insufficient if the instrument

of dealing has failed to comply with certain procedures or formalities as laid down by the

NLC or an instrument of dealing signed by an attorney pursuant to an invalid or insufficient

power of attorney.

Examples of void instrument would include one which is forged or which is contrary to any

restriction in interest to which the land is subject or to any prohibition imposed by the Code or

any written law such as dealing effected in favour of or by minor, transaction made in

contravention of the Moneylender Ordinance 1951 and transaction made in contravention of

Malay Reservation Enactments.

1.5.3 The Effect of Non-Registration

The effect of non-registration of a title or interest in land are ineffective in vesting title or

interest but it is still good as a contract so long as it does not purport to attempt to transfer,

charge or otherwise deal with the land itself – Haji Abdul Rahman v. Mohamed Hassan

(1917). Put simply, an agreement to deal in land alone is insufficient to vest title to or an

interest in land. To be effective, the dealing must be registered at the registry or land office.

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1.5.4 Procedure for Registration

• Each instrument presented for registration must be executed by each of the parties and the

parties consenting, and must also be duly attested.

• This document may then be presented for registration at the Registry or Land Office

accompanied by payment of the prescribed registration fees in the Presentation Book first.

• Upon registration, the dealing is recorded on the register document of title (RDT) and the

issue document of title (IDT). Register or Collector will sign and seal against such

indorsement.

• Then a duplicate copy of the instrument of dealing will be returned together with the issue

document of title. The date of registration will be the date of presentation. Any instrument

of dealing presented for registration which stamp duty must be duly stamped so as to be fit

for registration.

1.6 Alienation of Land and How They are Called

Definition: All State land belongs to the State. Any person interested in acquiring and owning

land may apply to the State Authority for State land in compliance with certain formalities

and regulations. The State Authority may grant to the successful applicant the land applied

for. This is commonly referred to as alienation of land. The state land alienated may be

disposed to individuals in perpetuity (freehold) or for a term not exceeding 99 years

(leasehold).

1.6.1 Freehold Land

Freehold land is State land disposed of by the State Authority to an individual in perpetuity.

The land vests in such individual and his successors in title for an indefinite period. This is

commonly referred to as a freehold title.

1.6.2 Leasehold land

Leasehold land is disposed by the State Authority to an individual for a term of years. The

land vests in such individual and its successors in title for that period of years as originally

granted. This is commonly called a leasehold title. The duration of the lease cannot exceed 99

years and upon its expiry of the lease, the land should revert to the State.

1.6.3 Tenancies

A tenancy cannot exceed 3 years unless renewed. A tenancy need not be registered and it

may be created by word of mouth or in writing. A tenancy is not a right capable of registration

and therefore is not a title as such. It may only be indorsed on a title.

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1.7 Forms of Title and Its Significance (Draw classification of land, Forms of title and RDT &IDT Pages 277,278 & 279)

State land can be classified as town, village or country and those state lands that have been

alienated to individual or body is called private lands and can be in the form of freehold or

leasehold. Those unalienated state land can still be given to individual or body for mining,

temporary occupation licence and the rest are kept by the state as forest, reserved land and

squatter rights under adverse possession.

1.7.1 Final Title and Qualified Title – Definitions

There are two forms of title available in this country and they are called Final Title and

Qualified Title. Final Titles are the final forms under which lands are alienated after they

have been surveyed and Qualified Title are land that are alienated but not yet surveyed.

Final Titles

Final Titles can be further be grouped under metropolitan administration or local

administration. Those under metropolitan control are called Registry titles and may take the

form of Grants (Perpetuity) or of State Leases (for a term of years). They are registered in two

series of books kept in the Land Registry and known as ‘Register of Grants’ and ‘Register of

State Leases’.

Land Office titles may take the form of Mukim grant (perpetuity) or Mukim leases (for a term

of years) under local administration. They are registered at the Mukim within the district in

two series of books known collectively as Mukim Register. One of them is used for

registration of Mukim Grant and another for Mukim Leases.

After coming into force of the NLC (Amendment) Act 1984, the titles under which State land

may be alienated will confined to Land Office title (being the only form of final title) and

qualified title.

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Qualified Titles

The NLC 1965 permit alienation of land under Qualified Titles (QT). The purposes of a QT

are to enable land to be alienated and enable titles to be issued in the case of subdivision,

partition or amalgamation of alienated lands in advance of completion of survey on the land in

question.

A QT confers upon its holder similar rights in every respect as those conferred by a final title,

save and except that:

i) The boundaries of the land shown on the document of title shall be provisional only

except in so far as any of them have been established by any earlier survey;

ii) The land shall not be capable of being subdivided, partitioned or included in any

amalgamation nor any building thereon be capable of subdivision.

Qualified Titles are referred to as ‘Hakmilik Sementara’ in Malay. The abbreviations QT or

HS in Malay are commonly used to identify qualified titles.

The forms of QT correspond to those of FT and are also divided into two classes, one

corresponding to Registry titles and the other to Land Office titles. They are subject to the

same administrative division but for them a separate register is used in the Registry in respect

of each district within the State and in the case of Land Office title, a separate register is used

in the Land Office in respect of each Mukim within its district. When any land held under a

QT has been surveyed, a final title will then be issued in continuation of the QT.

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1.7.2 Register Document of Title and Issue Document of Title

What is the Main Purpose of Register Document of Title and Issue Document of Title

Irrespective of whether the title is a Land Registry title or a Land Office title, the original

copy of the grant or lease constitutes a separate folio in the appropriate book or register in the

Land Registry or the Land Office respectively. It is not taken out or removed from the Land

Registry of the Land Office and this is known as the ‘Register Document of Title’ (RDT). A

duplicated copy of the original grant or lease kept in the Land Registry or Land Office is

issued to the alienee or the landowner. The duplicated copy is referred to as the ‘Issue

Document of Title’ (IDT).

NLC 1965 provides that every duly registered register document of title (RDT) shall be

conclusive evidence that the title to the land described therein is vested in the person or body

for the time being named therein as proprietor. This does not extent to issue document of title

(IDT). But IDT are important and indispensable for purposes of carrying out dealings in land.

They are documents of title which may be deposited for the purpose of (i) creation of

statutory liens, (ii) registration of any registrable dealing by a proprietor of the land. The IDT

must accompany the instrument of dealing when the latter is presented for registration.

1.7.3 What are the conditions and restrictions that may be attached to titles?

The NLC 1965 contained elaborate provisions which prescribe the main terms or conditions

to be attached to a grant of land by the state.

The state may impose certain restrictions on the registered owner’s right to enjoy the land

upon alienation. These are referred to as ‘restrictions in interest’ such as (i) prohibition against

landowner’s transfer or charge or lease the land alienated save and except with the consent of

the Ruler in council, the Collector or the relevant State Authority, (ii) designation of land as

Malay Reservation Land, such land cannot be transferred or charged to any person other than

a Malay and is subject to the provision of the Malay Reservation Enactment.

Any Instrument of dealing registered in contravention of the restriction in interest would be a

void instrument. By virtue of NLC 1965, the title or interest of any person or body shall not

be indefeasible where registration was obtained by an insufficient or void document.

Alienated land whether in perpetuity or for a term of years is subject to (i) payment of a

premium except when specially exempted by the State in particular cases and (ii) payment of

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an annual rent which is normally a nominal sum and is referred to as ‘quit rent’. Quit rents

payable in respect of alienated lands are subject to periodic revision by the State. In the event

that quit rent is in arrears, the State may serve a notice on the landowner and if applicable to

any person having a registrable interest, lien holders, tenants or claimant-caveators and

demand for payment of the arrears within a specified period of time and failing which, the

land may be forfeited to the State. The landowner may appeal to the court against the order

for forfeiture or may petition to the State Authority for an annulment of the forfeiture. In the

event the land is forfeited by the State, any charge registered against it will extinguish.

Note: A breach of a restriction in interest does not result in the land liable to forfeiture by the

State but failure to pay quit rent may result in the forfeiture of the land to the State.

Conditions of Use - When land is alienated by State, it will specify Conditions of use ie1)

agriculture, 2) building or 3) industry and will generally follow zoning areas defined by the

State Planning Department. In urban areas there is frequent change of land usage and when

owners want to upgrade from say agriculture to building, they will need to apply for Planning

permission and change also the conditions of land use on their titles i.e. conversion of land

use.

1.8 Subdivision, Partitioning and Amalgamation Private or Alienated Land to be developed may need to undergo changes at request of owner:

1) Subdivision- divide land into several parcels for sale or transfer to others with proceeds

from each parcel going to original owner. Involves some surrender for public use.

2) Partitioning-Several joint owners ask Land Office to separate land into independent

pieces/lots proportionate to the % of shares of joint owners.

3) Amalgamation- Owner combines several adjoining small parcels into one – e.g. to reduce

set-back requirements.

In process of subdivision or conversion some parts of land may need to be surrendered back

to State for public use.

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1.9 Dealings in Land Related to Construction Industry.

There are six forms of dealings with land under the NLC that can be effected:

(i) Transfers

(ii) Leases

(iii) Tenancies

(iv) Charges

(v) Liens, and

(vi) Easements

Only tenancies and liens do not require registration under NLC as they are short term.

Who can benefit from the dealings in land?

(i) Natural persons other than minors;

(ii) Corporations having power under their constitutions to hold land;

(iii) Sovereigns, governments and organizations; and

(iv) Other persons authorized to hold land under diplomatic and consular privileges

ordinance 1957 or any other written law.

1.9.1 Transfers

Only the whole of any alienated land, the whole of any undivided share in alienated land, any

lease of alienated land, any charge and any tenancy exempt from registration, are transferable.

Every transfer (except tenancies) must be effected by an instrument which complies with the

requirements of NLC. Failure to register a transfer will not affect the contractual operation of

the transaction between the buyer and seller of the land. The aggrieved party may still be

allowed to sue for damages or specific performance.

The transferee takes the land subject to any registered lease, charge, easement or tenancies

protected by indorsements. The transferee will take the land subject to all conditions and

restrictions in interest and encumbrances then existing in respect of the land such as caveats,

prohibitory orders and any expressed or implied conditions as indorsed in the title or as

provided under the NLC 1965. Where any land is transferred subject to any lease, charge or

tenancy exempt from registration, it shall be enforceable by or against the transferee as if he

were a party to that lease, charge or tenancy.

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1.9.2 Leases

Definition: A lease is the letting of land for a term exceeding 3 years. It is a registrable

interest. In Sabah and Sarawak, a lease, which is referred to a sublease, is one exceeding one

year. Only registrable sublease are valid. A lease is also defined as an interest in land

granted by the lessor whether he is the owner of the land or not to a lessee for a certain

period.

The three main characteristics of a lease are as follows:

(i) The lessee is given right to exclusive possession of the demised premises.

- I.e. the lessee can stop everyone including the lessor from entering the leased

property

(ii) The parties must have intended to create a lease and not a licence.

(iii) A lease must be granted for a definite period or for a period which is capable of being

ascertained.

How a Lease can be Granted?

A lease may be granted by way of an oral or a written agreement and only has legal effect

upon registration of an instrument (i.e. in Form 15A and in the case of a sublease, Form

15B). Where a land is subject to a charge, the written consent of the chargee must be

obtained before the lease can be granted.

A lease in perpetuity cannot be granted and the maximum is 99 years for whole of the land

and 30 years for part of the land.

Differences between a Lease and a Licence

a. The difference between a licence and a lease is that the lease is a form of "ownership" of

the property for a period of time, and the lessee is entitled to remain in occupation for the

period of the lease. The licence, on the other hand, can be revoked at any time. If the

licence is revoked, the occupier must leave the property and rely on whatever remedies are

provided for in the licence. (http://www.australianrealestateblog.com.au/reference.asp)

b. Lease can be transferred but a licence/permit to use land is different in that it is only a

right based on a contract, not registerable interest. A licence cannot be transmitted and

only binding on parties to the agreement only.

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How to End a Lease?

A lease is determined in any of the following circumstances:

(i) The term of the lease has expired;

(ii) The lease is surrendered;

(iii) A valid notice to quit is served;

(iv) The lease is forfeited by the lessor where there has been a breach of any provision of

the lease, or where the lessee is bankrupt, or in the case of a company it has gone into

liquidation.

1.9.3 Tenancies

Definition: A tenancy may be defined as letting of land for a term not exceeding 3 years. A

tenancy is not a registrable interest and is called a ‘tenancy exempt from registration’ in the

NLC 1965. In Sabah and Sarawak, a tenancy is a sublease not exceeding 1 year which need

not be registered in order to be valid.

The Three Main Characteristics of a Tenancy are as follows:

(i) The tenant is given right to exclusive possession of the demised premises.

(ii) The parties must have intended to create a tenancy and not a licence.

(iii) A tenancy must be granted for a definite period or for a period which is capable of

being ascertained.

How to End a Tenancy? (Note: Similar to that of a Lease)

A tenancy is determined in any of the following circumstances:

(i) The term of the tenancy has expired;

(ii) The tenancy is surrendered;

(iii) A valid notice to quit is served;

(iv) The tenancy is forfeited by the landlord where there has been a breach of any

provision of the tenancy or where the tenant has been adjudicated a bankrupt or in the

case of company gone into liquidation.

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1.9.4 Charges

Definition: When developers need to raise bridging finance for their projects they may

borrow from a bank and allow bank to register an interest in the land (with title) called

charge until debt repaid.

The charge is a statutory creation and under the NLC 1965 it does not require the transfer

of the land to the chargee to create security over it. This distinguishes it from the concept

of mortgages where the legal estate is transferred subject to mortgagee’s (note: mortgagee is

the lender or the finance company) equity of redemption. In a charge, the legal estate in the

land and ownership continues to be vested in the chargor who continues to be the

registered proprietor of the land or the holder of a lease subject to the interest of the chargee.

Furthermore, the chargor is also entitled to possession of the property under charge. The

chargor has the power to deal with the land or the lease. The chargor also retains the right

of possession subject to certain qualifications (such as payment of loan and interest, rent,

taxes, etc.).

Security for loans is secured either by register-able charges or liens by depositing titles and

entering lien holder’s caveat. (See page 292 and 293).

A charge is not a transfer; it only gives chargee a power of foreclosure on loan default. Once a

charge is registered further transfer of land cannot be made without chargee’s consent. A

charge must be executed in accordance to the NLC and stamped for registration in order to be

effective.

If property without title e.g. subdivided property is sold before land titles are ready,

banks lending end finance to home purchasers can create a charge using a document called a

deed or contract of assignment together with a loan agreement, and Sales and Purchase

Agreement and caveat on Main Title (register-able restraint on dealings in main title).

Rights and duties of chargor /chargee

• Rights of chargor

i) Express rights as contained in the charge annexure.

ii) Implied rights under NLC 1965 such as right to sell and transfer land (purchaser

bound by charge), to grant lease, sublease or tenancy (with consent of chargee) and to

create second and subsequent charges.

iii) Entitled to a discharge if all sums secured under the charge have been repaid.

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• Duties of chargor

i) Express duties as contained in the charge annexure.

ii) Implied duties under NLC 1965 such as payment of loan and interest, pay rents, rates,

taxes, etc., observe all conditions of land use, observe provisions of lease (if leasehold)

+ pay rent, keep building in proper repair, insure buildings and give chargee right of

entry for inspection and remedy any breach.

• Rights of chargee

(i) To sell land when:

a) Default in payment and

b) Breach of agreements, express or implied.

(ii) To take possession,

(iii) To transfer charge,

(iv) To have custody of I.D.T. or duplicate lease (creates a lien),

(v) Right to consolidate.

• Duties of chargee.

(i) To discharge the charge after full payment of the loan, interest and all other monies

secured by the charge.

1.9.5 Liens

Definition: A lien is created when the IDT to the land is deposited with the lender as a

security for a loan and for no other purpose.

The Main Purposes of a Lien

A lien is suitable to act as security for short term borrowing or where the lender required

additional security despite having a first legal charge on a piece of land. A lien is not

registered in the IDT but it is indorsed in the registered document of title (RDT) at the Land

Office or Registry by entry of a lien holder’s caveat. This is a further restraint on the

dealings with the land. The mere possession of the title gives the holder a strong right to keep

it when money has been lent and he has an interest in that lien. Alternatively, the deposit of

issue document of title is accompanied by a Memorandum of Deposit of Title to create a lien.

The main advantage of this security is that, it is easy and quick to create and discharge. The

only remedy given to lien-holder is that of a judicial sale even when the debt is statute-

barred.

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How a Lien can be Terminated?

A lien is terminated by a written withdrawal of the caveat and the return of the IDT on

payment of the debt and interest of under NLC 1965, the Registrar may cancel the caveat

upon proof of satisfaction of the debt (settlement of debt) secured by the lien.

1.9.6 Easements

Definition: An easement is a legal interest which one landowner has over another’s land, such

as right of way, a right of light, a right to take water or a right of support. These are very

important because without easements some land would be virtually useless and has no value

(Owen, 1998, p.97). An easement is also defined as a right granted by a proprietor of the

servient land to the proprietor of the dominant land for the beneficial enjoyment of the

servient’s land. An easement can only arise by way of express grant under NLC 1965.

The essential characteristics of an easement at common law as laid down in Re

Ellenborough Park (1955) are as follows:

(i) There must be a dominant and a servient tenement;

(ii) An easement must accommodate the dominant tenement;

(iii) Dominant and servient owners must be different persons ; and

(iv) A right over land cannot amount to an easement unless it is capable of forming the

subject-matter of a grant.

The above characteristics were reiterated in the Malaysian case. Tan Kam Cheong v. Stephen

Leong Kon Sang (1980).

The Examples of Easements

The rights capable of being granted as easement may be negative (e.g. not to build on a

certain part of the land or to preserve the right of access) or positive (e.g. to allow proprietor

of the dominant land to do something such as lay pipes or the right to advertise over servient’s

land) in nature. Easements do not require acquisition or transfers, only creates a

registered right over part of another person’s land (legal interest in land).

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1.10 Restraint on Dealings

The NLC 1965 provides for two kinds of restraints on dealings:

• Caveats, and

• Prohibitory orders

Generally all dealings and interests in lands should be registered. However, there may some

interests in land which are not capable of being registered. These non-registrable interests

are protected under the NLC 1965 which allows them to be noted on the register in some

manner short of registration. This is illustrated by the caveat system.

1.10.1 Caveats

Definition: Caveat is a statement in Land Title that prohibits further dealings in the land

until caveat removed or with written consent of person lodging caveat.

Four Types of Caveats

There are four types of caveats, namely:

a. Private caveats

b. Trust caveats

c. Lien-holder’s caveats

d. Registrar’s caveats

How to Lodge a Caveat?

The NLC permit a person who claims he is entitled to a caveatable interest (private, trust,

lien-holder’s or Registrar’s caveats) in the land to lodge a caveat against the land in question

(allow them to be noted on the register in some manner short of registration). The right to

lodge a caveat is not dependent on the validity of the particular interest (e.g. a person

claiming title to the land – registrable interest) claimed. It is the claim of an interest (“right”)

within the category of caveatable interests per se which matters. The issue of the validity of

the interest (registrable interest) sought to be protected will only be relevant if and when some

other person challenges the caveat and seeks to have it removed.

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A) Private Caveats

The Purpose of Private Caveat

The purpose of the caveat is to prevent any other person from subsequently acquiring a

registrable title or interest adverse to the interest or right claimed by a caveator. A private

caveat also prohibits the creation of a subsequent lien and the subsequent indorsement of

a tenancy exempt from registration. The effect of a private caveat is merely prohibitive.

Private caveat does not give the caveator the power to apply for an order of sale to sell the

land.

Who Can Lodge a Private Caveat?

Any person claiming title to the land or a registrable interest or a claim to such registrable

interest may apply to lodge a private caveat against the land. It must be related to the

particular land to be caveated.

(See Niffira Pertama Sdn. Bhd. v. Lembaga Kemajuan Johor Tenggara & 2 Ors (1990)).

How to Withdraw a Private Caveat?

A private caveat may be withdrawn by the caveator by an application to the Registrar for its

removal. Alternatively, by any person aggrieved by its existence to the court for its removal.

Private caveat expires in 6 years unless renewed. It is done by submitting relevant form and

accompanied by a statutory declaration. It is normally handled by legal firms.

B) Lien holder’s caveat

It is lodged by a person with whom the document of title has been deposit as security for a

loan. The continuance of the lien-holder caveat will not be possible if the lien ceases to exist,

e.g. caveator ceases to have the custody of the title.

A lien-holder caveat may be withdrawn by the caveator or cancelled by the Registrar when

all sums are paid or by court’s action if its entry or continuance is not authorized. A lien-

holder’s caveat subsists until it is withdrawn.

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C) Registrar’s caveat

It may be entered by the Registrar on any land based upon the following instances:

(i) For the prevention of fraud or improper dealing;

(ii) For protecting the interests of:

• Federation or state authority, or

• Any person who is in his opinion under the disability of minority, mental

disorder or unsoundness of mind or is shown to his satisfaction to be absent

from the federation; or

(iii) By reason of some error appearing to him to have been made in the register or

issue document of title to the land or any other instrument relating to it.

D) Trust caveats

Another means of protecting the interest of beneficiaries under a trust. Not a form of security

acceptable to lenders.

1.10.2 Prohibitory Order

Definition: It is a court order preventing the person whose land is under forced sale on

order of court to effect further dealings. A prohibitory order has a life span of 6 months from

the date the order was granted by the court.

Some of the effects of the prohibitory orders are:

(i) They prohibit the registration, indorsement or entry thereon of any instrument of

dealing except the certificates of sales.

(ii) Any claim to the benefit of any tenancy exempt from registration.

(iii) Any lien-holder’s caveat.

Appendices

TEH BEE v. K. MARUTHAMUTHU (1977] 2 M.L.J. 727 (Federal Court)

Facts: Teh Bee (the appellant) applied for alienation of a piece of land which was

then under temporary occupation licence. Her application was approved by the State

Authority subject to payment of a premium and land revenue to be made by her within three

months. She failed to pay on time. However, she was later registered as proprietress of the

land and the register document of title was in her name. The respondent had been in

occupation of the land.

Teh Bee claimed possession of the land alleging trespass. The respondent resisted the

claim, the principal ground being that the qualified title registered in the name of the

appellant was null and void.

The Magistrate entered judgment in favour of the appellant. When the respondent appealed

to the High Court, Ajaib Singh J. allowed the appeal and held that when the appellant was

registered as proprietress, the approval of alienation of the land to her had already lapsed

and therefore it was ultra vires of the State Authority to alienate the land to her.

The appellant appealed to the Federal Court.

Held: Allowing the appeal:

• the fact that the appellant was registered as proprietress necessarily raised the

inference that the State Authority on payment of the premium had given fresh approval for

the alienation of the land to her;

• the fact that the register document of title was in the name of the appellant was

conclusive evidence that the title to the land was vested in the appellant;

• Under the Torrens system, the register is everything and it would be wrong to allow

an investigation as to the right of the person to appear upon the register when he holds the

certificate of title.

IN NIFFIRA PERTAMA SDN. BHD. V. LEMBAGA KEMAJUAN LAHAR

TENGGARA

The High Court allowed an application for the removal of private caveats as the

plaintiffs (the caveators) no longer had caveatable interests in the subject lands. In this

case, the plaintiffs and the first defendant entered into a Sale and Purchase Agreement

of oil palm and rubber plantations belonging to the other defendants. This agreement

was contingent upon the defendants obtaining the approval of the Johore State

Government. The State Government refused to approve the same and the agreement

was therefore held to be put to an end. The court held that since the agreement was put

to an end, the plaintiffs can no longer claim any right to such title or interest in the said

land; and therefore, the plaintiffs did not have any caveatable interest in the lands any

longer.