Recently, the High Court of Kuala Lumpur has allowed Sekolah Menengah Convent Bukit Nanas (“CBN”) to challenge the non-extension of its land lease after the school’s application to the Federal Territory Land and Mines office to extend its land lease has not been granted[1].
 
Due to the said non-extension, CBN through its corporate entity has filed a judicial review application to challenge the government’s decision of not extending the school’s land lease[2] and more than 20,000 people have signed the online petition to save CBN[3]. Although the government has thereafter announced that the land lease of CBN will be extended for another 60 years[4], the land lease issue has again raised concern among the society on the impact of acquiring leasehold properties.
 
To understand the impact of acquiring ownership of real estate with a leasehold status, it is pertinent to understand the legal overview of leasehold land.
 
Leasehold land under the National Land Code 1965
 
In Malaysia, the land laws are governed by the National Land Code, 1965 (“NLC”). Section 40 of the NLC states that all state land shall be vested solely in the State Authority. The State Authority has the power to dispose of the state land by alienating the state land (“Alienated Land”) for terms not exceeding 99 years (“Leasehold land”) or in perpetuity (“Freehold land”)[5].
 
Reversion of the Alienated Land
 
As Alienated Land, be it Freehold land or Leasehold land, originally belongs to the State Authority, the land may revert to the State Authority and becomes the property of the State Authority again.
 
The land may revert to the State Authority upon the expiry of the term specified in the issued document of title of the land[6]. This usually happens to the Leasehold land where the land is alienated for a certain number of years not exceeding 99 years. The recent CBN case falls within this category where the tenure of the land lease stipulated in the issued document of title of the land where CBN is located is expiring and the land has to be surrendered to the State Authority. For Freehold land, as the land is alienated in perpetuity, reversion due to expiry of tenure will not occur.
 
It is important to note that the NLC has provided a provision stipulating that upon reversion of land to the State Authority due to the reasons stated above, all buildings on the said land (which are not temporary and not capable of being removed) shall vest in the State Authority with no compensation payable by the State Authority[7].
 
Is Private Lease Scheme similar to Leasehold status?
 
Private lease scheme is a scheme that allows private corporations to privately lease out freehold land alienated to them[8]. The land usually alienated to the private corporation for purposes of development and thereafter the corporation will sell the property by selling the lease right instead of the proprietorship right.
 
Such arrangement usually will be done contractually between the private corporation who is the proprietor of the land, the developer and the end purchaser.  Iskandar Investment Bhd (“IIB”), the strategic developer of Medini development in Johor was the first developer that introduced the idea of private lease scheme in Malaysia in 2012[9] adopting the practice in England where IIB, being the registered proprietor of the land, will sell the master lease right to the master lease concessioner who will develop the land and thereafter sell the lease to the end purchaser[10].
 
As the concept of the scheme is relatively new and as the private lease scheme also offers a long-term lease period by virtue of Section 221 of the NLC, the private lease scheme can easily be mistaken with the Leasehold status granted by the State Authority.
 
The easiest way to distinguish whether the lease of the property is granted through the private lease scheme or via State Authority alienation is by looking at the issued document of title of the property. The Leasehold status granted by the State Authority will be reflected in the issued document of title of the property together with the expiry date of the lease tenure where the purchaser will be the registered proprietor of the said Leasehold land during the lease tenure. For the private lease scheme, as the land is originally alienated as a Freehold land, the end purchaser will not be able to be registered as a registered proprietor of the land but a registered leaseholder instead[11].
 
One of the main concerns of the private lease scheme would be the issue of non-renewal of the lease term. As the private lease scheme is created for commercial purposes, the possibility that the lease term offered by the private corporation will not be renewed is higher than the non-renewal of the Leasehold tenure by the State Authority. The reason being that the private corporation will prioritise the commercial value of the land as compared to the State Authority where they are accountable to the people.
 
Extension of Leasehold Tenure
 
In the 2016 amendments, the NLC has expressly provides for the extension of land alienated for a term of years where the proprietor of a Leasehold land may apply to the State Authority for the tenure of the lease term to be extended prior to the expiry of the term specified in the issued document of title[12]. The approval for any extension of Leasehold term may be subject to payment of premium as may be determined by the State Authority and any other charges as may be prescribed[13].
 
Although the NLC provides a provision for extension of the term for Leasehold properties, the extension of the terms is always subject to the discretion of the State Authority as the land may be needed by the state government for public usage such as for building hospitals, highways or public transport. On this basis, the issued document of title of Leasehold land is usually subjected to restriction in interest where a consent of State Authority is required for any dealings pertaining to such land by the proprietor.
 
In the recent CBN issue, the Director of the Federal Territories Land and Mines Office has issued a statement that the non-renewal of CBN’s lease tenure would allow the school to be gazetted as an educational institution that is fully government aided[14]. The statement brings to question as to whether the Federal Territories Land and Mines Office, being the land authority has a power to decide on the status of the school.
 
Although the educational sector in Malaysia falls under the purview of the Education Ministry, under Rules 4 of the Federal Territories of Kuala Lumpur Land Rules 1995, the Federal Territories Land and Mines Office has a power to reject any application for land (which includes renewal of the Leasehold tenure upon expiring of the same) in the event the land has been reserved for public purposes or as generally directed from time to time by the Government[15].
 
However, it is relevant to discuss that the term of ‘public purpose’ connotes wide meaning. The Federal Court in the case of Tenaga Nasional Bhd v Ong See Teong & Anor[16] said that “where a purpose serves the general interest of the community, it is a public purpose”. As such, it cannot be denied that should the CBN land lease tenure is not extended and the land reverts to the State Authority, the future of the school may be impacted in the event the authority decides that the said land is to be used for another public purpose instead. 

 


 
Protection over Iconic Landmark
 
The issue on CBN has raised a question on whether significant and iconic landmarks built on a Leasehold land can be protected from reverting to the State Authority upon expiry of the lease tenure.
 
Under the National Heritage Act 2005 (“NHA”), the Commissioner of Heritage appointed by the Minister charged with the responsibility for heritage (“the Commissioner”) can designate any site that has natural heritage or cultural heritage significance to be a heritage site[17]. Heritage buildings are well protected by the law and by being awarded and recognised as a heritage site, iconic landmark may be well preserved and protected. Where a heritage site is situated on Alienated Land, Section 38 of the NHA stipulates that the Commissioner may after consultation with the State Authority do the following:-
 

  1. make arrangements with the owner or occupier for the inspection, maintenance, conservation and preservation of the heritage site;
  2. purchase or lease the heritage site;
  3. acquire the heritage site in accordance with the provisions of any written law relating to the acquisition of land for a public purpose; or
  4. remove the whole or any part of a building or monument on the heritage site.

 
It is interesting to see the next chapter for CBN now that the lease has been extended. Will CBN be awarded with a national heritage status and be well preserved or will the same chapter be repeated in the next 60 years.
 
Advantages of Leasehold Properties
 
Although a Leasehold properties would require application for renewal of the terms prior to the expiring of the lease tenure, which can be inconvenient and worrisome, the Leasehold properties also come with their own advantages as follows:-
 

  1. Cheaper price[18] – As the property is erected on a Leasehold land, more often than not, the Leasehold properties offer a cheaper price as compared to Freehold properties. Taking into account the current market value of real estate which become increasing expensive, a lower price tag could be an advantage to the real estate seeker;

 

  1. Location – The leasehold properties are usually located at the prime and highly developed area with a lot of facilities which is more convenient[19];

 

  1. Higher rental yields[20] – It has been discussed amongst the property experts that the rental yield of leasehold properties is generally higher due to the location of the property and its lower entry cost.

 
Conclusion
 
For a person who is looking or considering of purchasing a property, it is important to know that there are many types of property status in Malaysia which are fundamentally different from each other. However, the status of the land and the land tenure itself should not be the sole reason in considering the purchase of a property. Being equipped with sufficient knowledge, legally and commercially, would be of advantage as to not be caught off guard in the future.

Mohamed Ridza & Co

Unit No 50-10-9, Level 10

Wisma Uoa Damansara

Damansara Heights 50490

Kuala Lumpur

MALAYSIA

T: +60 3 2092 4822

F: +60 3 2092 5822

ridza@ridzalaw.com.my 

Mohamed Ridza Abdullah

hafidah@ridzalaw.com.my 

Hafidah Aman Hashim

www.ridzalaw.com.my

 

[1] Yatim, H. (2021, April 19). Kuala Lumpur. Retrieved from The Edge: https://www.theedgemarkets.com/article/high-court-allows-convent-bukit-nanas-challenge-nonextension-land-lease-stay-will-only-be

[2] Ibid.

[3] Retrieved from The Malaysian Reserve, 21st April 2021
https://themalaysianreserve.com/2021/04/21/more-than-20000-have-signed-petition-to-save-convent-bukit-nanas/

[4] Babulal, V. (2021, April 22). Kuala Lumpur. Retrieved from The Star: https://www.nst.com.my/news/nation/2021/04/684523/govt-agrees-give-convent-bukit-nanas-60-year-lease-extension

[5] Section 42 and Section 76 of the NLC

[6] Maidin, A. J., Zubaidah, S., Kader, S. A., Begum, B., Ali, H. M., Mohamad, N. A., . . . Ratna Azah Rosli, F. M. (2008). Principles of Malaysian Land Law. Kuala Lumpur: LexisNexis.

[7] Section 47 of the NLC

[8] Loong, C.K (2020, December 2020). Retrieved from PUON Tribune:
https://puontribune.com/2020/12/08/private-lease-scheme-offers-no-proprietary-rights-for-the-buyers/

[9] C.K, Loong (2020, November 06). Kuala Lumpur. Retrieved from EdgeProp.My:
https://www.edgeprop.my/content/1759245/end-private-lease-tenure-%E2%80%94-what-happens-then

[10] Retrieved from Iskandarinvestment.com: https://iskandarinvestment.com/incentives/

[11] Section 221(4) of the NLC

[12] Section 90A(2) of the NLC

[13] Section 90A(5) of the NLC

[14] Noorshahrizam, S.A (2021, April 2021). Kuala Lumpur. Retrieved from the Malaymail.com:
https://www.malaymail.com/news/malaysia/2021/04/21/land-office-convent-bukit-nanas-not-going-anywhere-will-be-fully-govt-aided/1968182

[15] Rule 4 (d) and (i) of the Federal Territory of Kuala Lumpur Land Rules 1995.

[16] [2010] 2 CLJ 1

[17] Section 24 of the National Heritage Act 2005

[18] Kay, L.K (2017, August 15). Kuala Lumpur. Retrieved from The Edge Market:
https://www.theedgemarkets.com/article/i-bought-leasehold-property-should-it-matter

[19] PropertyGuru (2020, 5 October 2020). Retrieved from:
https://www.propertyguru.com.my/property-guides/leasehold-property-lease-renewal-and-reselling-lease-34288

[20] Wong, E (2017, August 15). Kuala Lumpur. Retrieved from The Edge Market: https://www.theedgemarkets.com/article/i-bought-leasehold-property-should-it-matter

Mohamed Ridza & Co

Main tel:+60 3 209 24822
Main fax:+60 3 209 25822

Offices

Kuala Lumpur Office
Unit No 50-10-9, Level 10
Wisma Uoa Damansara
Damansara Heights 50490
Kuala Lumpur
Malaysia
+60 3 209 24822
+60 3 209 25822
ridza@ridzalaw.com.my