LAND LAW IILAND LAW II(CHARGE)(CHARGE)

Definition & Nature of Charge

• Charge is defines as registered charge (Sec 5 NLC)

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Yee Sin Cheang v UMBC [1992] 2CLJ 1298

• Section 242 of the National Land Code provides that the purpose of a charge is “to secure the repayment of a debt, or the payment of any sum other than a debt.”

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• It is a dealing whereby the registered proprietor of land or registered lessee uses a particular property as a security for the repayment of loan advance to him or any 3rd party

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• The person who offers his land or lease as security is known as chargor

• The lender who accept the land as security is known

as chargee.5

Modus Operandi

• Borrower & Lender• Loan• Both parties entered/executed into a

loan agreement• In the loan agreement:• Borrower offers land as a security• Both parties execute charge documents

(as provided under NLC)• Charge document is presented for

registration and thus Statutory Charge is created

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• Borrower• +

• Lender• +

• Loan Agreement• =

• Loan

• Borrower• -

• Land• +

• Lender• =

• Charge

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• 16 A presented

• =

• Valid charge

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• a “charge” is created upon registration

• A registerd charge confers the chargee an indefeasibility of interest over that particular property

• As security the charged property will be utilised to recover any outstanding amount or any debt due to the chargee. The chargee will be eligible to opt for remedies available under NLC 1965.

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Kimlin Housing Development Sdn Bhd v BBMB [1997] 2MLJ 805

• The judge stated that for a charge, the rights and powers of chargee are provided in NLC.

• Chargee cannot get away from the provision of NLC.

• Eg. In the event of default in payment. Chargee can apply for order for sale but the chargee cannot sell through private treaty.

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BBMB v Doric Development Sdn Bhd [1988] 1MLJ 462

• For a charge, only the interest is transferred to the chargee but the ownership remains with the chargor. In mortgage, both the interest and ownership are shifted to mortgagee with the concept of ‘equity for redemption’, which means that the mortgagor is allowed to redeem back the land upon full payment.

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What can be charged?

• Section 241(1) NLC – Whole piece of land– Whole of an undivided shares -not a

popular subject matter because it is uncertain as to which portion belongs to the chargor and difficult to auction the property

– Lease including sub lease -not popular because it is subject to forfeiture (Section 234 & 236 NLC). Existence of charge is depending on the existence of lease

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Power to create charge Section 241(3) NLC, subjected to:-1) Any limitation imposed by NLC or any

other written law Examples:

Under Malay Reservation Land Enactment Cannot charge MR land to non Malay- Ho Giok Choy v Nik

Aishah (1961) 1MLJ 49-

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Power to create charge• Companies Act, 1965- director cannot use

the company’s property as a security for his own loan (Sec 133CA)– Harta Empat Sdn Bhd v Koperasi Rakyat

Berhad (1997) 2 CLJ 94– The charge is not valid when the director charged

the company’s property for his own loan

• Section 43, NLC- minors are unable to own land or deal with alienated land.

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2) Any limitation imposed by restriction in interest of the land

for eg: “Tanah tidak boleh dipindahmilik, dicagar melainkan dgn kebenaran pihak berkuasa”

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3) In relation to lease, must comply with the express condition stipulated in the lease agreement as well as implied condition under NLC• UMBC v Syarikat Perumahan

Luas [1998] 3MLJ 352

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Types of Charge

• First Party Charge:- when the BORROWER and the CHARGOR is the same person

• Third Party Charge:- when the BORROWER and the CHARGOR are different persons

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Statutory Charge

Creation of chargePreparation of charge document (Form 16A)-must

comply with provisions in section 207-208 NLC↓

Execution of documents (Section 210 NLC)↓

Stamping of documents i.e stamp duty(Stamp Act 1949)↓

Presentation/ registration of documents (Section 294-306 NLC)

↓The charge is valid

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Effect of Registered Charge

• Every charge shall take effect upon registration, SO THAT Chargee can rely to all the remedial provisions of NLC in case of default by the Chargor:– Remedies of sale (Sec 253 NLC)– Taking possession (Sec 271 NLC)-– Chargee acquired an interest in the land

that is capable of assignment. He can transfer the charge- Sec 214(1)(d) NLC

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Equitable Charge /Unregistered charge

• where the Lender takes possession of the IDT as a security or assurance for the repayment of loan by Borrower but fails to present the instrument for registration, the law regards the chargee as unregistered chargee or equitable chargee

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Gen rule: not valid because registration is a mandatory procedure (section 206(1)(a) and (b) NLC

However, if the parties have entered into a loan agreement, the transaction is valid as a contract (see Section 206(30 NLC)

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Equitable Charge (instances where equitable charge may exist)

• (1) Lender holds an instrument of charge in statutory form & IDT has been deposited by the Borrower with him but he failed / neglected to register the charge at the appropriate Land Office.

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• (2) Lender holds IDT which has been deposited by the Borrower with him but he failed / neglected to enter LHC at the appropriate Land Office.

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• (3) x supported by an instrument in statutory form, existence of loan agreement (basis of his interest in contract)

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Effect of unregistered Charge

Charge is invalid BUT

agreement to create charge is valid and can be enforced by specific performance i.e contract

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• Mahadevan s/o Mahalingam v Manilai & Sons (M) Sdn Bhd (1984) 1MLJ 266

• It was held that agreement to secure a debt in favour of the creditor in respect of the debtor’s land could create an equitable charge giving rise to an equitable right in favour of the creditor although no charge within the provision of NLC had been executed/ created

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– Malayan Banking Bhd v Zahari Ahmad [1950] MLJ 255

– Oriental Bank v Chup Seng [1953] 19 MLJ 12– Standard Chartered Bank v Yap Sing Yoke [1972] 2

MLJ 166• “There is no doubt in my mind as to the

position of the law that by virtue of the of the unregistered charge…the P had acquired a title in equity over the said land. As IDT was all the time in the custody of P it had acquired a lien in equity over the land…The depositee, i.e P bank in the present case, has the right to lodge a caveat and may do so at any time under the provisions of the…Code” (Lamin J)

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Discharge of Charge

Upon full settlement of the loan the lender may release the charge by way of Form 16N i,.e known as discharge of charge

Documents for discharge of charge:1.A duly stamped Form 16N2.Duplicate Charge3.Original IDT4.Prescribed fee

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Difference between Charge & Mortgage

• Charge – Security transaction under

NLC (Sec 241)– Does not involve the

passing of the legal ownership from registered owner to the chargee/ lender-x transfer of property to Lender (endorsement on IDT)

– In the event of default, chargee can either apply for OFS (auction)/ take possession/ assign the land to Danaharta.

• Mortgage– Security transaction under

English Common Law– Involve the passing of the

legal ownership by the mortgagor to the mortgagee

– In the event of default in repayment, the equity of redemption remain with the mortgagor i.e the right to redeem was extended beyond the stipulated time and would be lost on foreclosure or sale.

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