BEYOND THE LEASEHOLD MISSAPREHENSION : CLARIFYING THE NEED FOR STATE AUTHORITY’S CONSENT IN PROPERTY TRANSANCTIONS

ARC News   •  Nov 28, 2024

Introduction

In Malaysia, it is often misunderstood that state authority’s consent is exclusively a requirement for leasehold properties. This oversimplification neglects to acknowledge that certain freehold properties may also necessitate such approval, particularly when express restrictions are imposed on the title of the property. This article aims to elucidate the legal framework surrounding the necessity for state authority’s consent in property transactions, drawing insights from relevant case law and statutory provisions. Understanding these intricacies is vital for property buyers, sellers and practitioners navigating the complex Malaysian land law system.

Freehold properties are generally perceived as more advantageous due to their perpetual ownership rights, granting the owners greater control over the properties. However, it is essential to recognize that freehold properties can still be subject to specific conditions and restrictions in interest imposed by the state authority. Conversely, leasehold properties inherently involve state authority’s oversight due to their limited tenure and are always under the purview of state authority’s regulations. Despite these distinctions, both freehold and leasehold properties may face situations where state authority’s consent is indispensable.

Legal Framework

The National Land Code (“NLC”) serves as the primary legal framework governing land transactions in Malaysia. Section 120 of the NLC explicitly empowers the state authority to impose express conditions and restrictions in interest upon the alienation of land. This provision applies equally to both freehold and leasehold properties, ensuring that any transfer, lease or other dealings with the property adhere to the stipulated conditions. It is crucial for stakeholders in the property market to familiarize themselves with these legal requirements, as failure to comply can lead to significant legal repercussions, including the invalidation of the transaction itself.

A pertinent example illustrating this issue is the case of Tanasekharan a/l Autherapady & Anor v Pengarah Tanah dan Galian Negeri Perak & Ors [2024] CLJU 805. In this case, despite the property being categorized as freehold, the title of the property contained a specific restriction in interest that mandated the Menteri Besar’s consent for any transfer or lease of ownership. The applicants, seeking to transfer the property, faced rejection from the state authority, which did not provide any reasons for its decision. This scenario highlights the broad discretion granted to the state authority under Malaysian land law, emphasizing that even freehold properties can be subject to conditions that require state authority’s consent. Such a case reinforces the notion that potential buyers and sellers must remain vigilant about the restrictions applicable to the properties they are dealing with.

Importance of Due Diligence

The key takeaway for property buyers and sellers is the critical importance of thorough due diligence in property transactions. This involves not only verifying the ownership status but also meticulously examining any restrictions in interest that may exist on the title of the property. Buyers must ensure that they seek the necessary approvals from state authorities to prevent any legal complications that may arise during or after the transaction. Additionally, engaging legal counsel experienced in land law can provide invaluable guidance in navigating these complexities, helping to safeguard the interests of both parties involved in the transaction.

In conclusion, while freehold properties are typically regarded as more secure forms of ownership, they are not exempt from the necessity of obtaining state authority’s consent under certain circumstances. The legal framework established by the NLC ensures that even freehold properties may have specific conditions and restrictions attached to the title of the property that requires approval for any transactions involving transfer, charge, leasing and/or any significant alterations.

This Article is written by Lee Pui Yee (Partner) and Humaira Ardini Binti Hizamel (Legal Executive) of Messrs Afif Rahman & Chong.

Disclaimer: Every attempt to ensure the accuracy and reliability of the information provided in this publication has been made. This publication does not constitute legal advice and is not intended to be used as a substitute for specific legal advice or opinions. Please contact the authors for specific technical or legal advice on the information provided and related topics.