Freehold conversion prospect revived

SOON after the northern states of Perak and Penang were won by the Pakatan Rakyat coalition in March 2008, the two new governments caused immediate
ripples in the property sector by announcing highly popular plans to award freehold land titles to residents.
In the case of Perak, all houses in planned and new villages would be eligible for freehold status something their dwellers had been craving for umpteen
decades. The move would impact some 149,000 people living in 349 planned and 134 new villages in the state.
In Penang, with the stroke of a pen, all residential landed properties were eligible to be made freehold; while strata title holders who owned apartments and
flats would need to wait as the state liaised with federal authorities as strata titles come under the National Land Code.
The federal government then stepped in. In December 2008, Prime Minister Datuk Seri Najib Abdul Razak, as the chairman of the National Land Council
(NLC), asserted that Perak could not unilaterally award freehold titles and needed the councils approval. He also reasoned that such titles can only be issued
for land meant for federal and public use.
Perak has since been removed from Pakatans grasp by Barisan Nasional in a highly-publicised constitutional skirmish, and the new state authority that
emerged from this episode has been only too happy to toe the line of the BN-dominated council. But Penangs intent has remained resolute.
Now exactly three years later, the ghost of this issue was stirred once again when MCA president Datuk Seri Dr Chua Soi Lek criticised the Pakatan-led
Penang government for failing to fulfil its promise to convert leasehold land to freehold for low-cost homes.
Penang Chief Minister Lim Guan Eng has countered that only the NLC has the authority to decide if leasehold titles can be converted for such units. We have
brought it up with the council, but it was not supported by BN representatives sitting on the panel, he said. If Chua is sincere, he would try to persuade other
members of the NLC to support the proposal in an effort to empower the people.
Chua may have politically shot himself in the foot in once again exposing an old wound for the prospect of freehold conversions was eagerly anticipated by
thousands of voters who are now reminded that it was the BN that put a spanner in the works of the highly awaited plan.
In fact, Lim had hailed the freehold move as part of the PR governments land reformation and renewal policy. The state, he said, wanted to return ownership
of land to Penangites. For residential house owners, these houses will be theirs forever, he had said.
Interestingly, the plan also included a move to allow industrial and commercial property owners on state land to have their leasehold converted to the
maximum 99 years. As an example, owners who have 40 or 50 years left on their individual leases could have them renewed to 99 years.
This was intended to have a significant impact on the industrial and commercial sectors as well as residential property owners, especially in their ability to
obtain financing. It is not hard to see how this turn of events has in the eyes of many people raised popular support in favour of Pakatan.
Mind you, the issue of leasehold land being made freehold did draw criticism from non-political quarters. Land experts questioned the wisdom of taking
ownership out of state hands, making land more expensive and difficult for any necessary public acquisition later. Some questioned the impact it would have
on already soaring property prices in Penang, expressing concern that it would put houses beyond the reach of the lower-income group.
But for now, the public gaze is very likely cast on the fate of the freehold conversion plan, as people seek to gauge which side stands for giving them freehold
ownership.
Chuas raising this spectre now, may just backfire on the BN. And it is almost certain to become a hot issue as the clock ticks towards a general election that
seems to be just around the corner.

What is the difference between leasehold and freehold tenures?

THE land laws of Malaysia are governed by the National Land Code, 1965 (Act 56 of 1965). Section 40 of the National Land Code, 1965 states that all state land
belongs to the state authority.
When state land is disposed off by the state authority to an individual in perpetuity for an indefinite period, this land is now granted as freehold title.
When the state land is disposed of by the state authority to an individual for a term of years, by virtual of law, not exceeding 99 years, this land is now granted
as leasehold title. Upon expiry of the period of the lease, the land should be reverted to the state authority.
The owner will then have to either apply for a renewal of the lease before its expiry or apply for a fresh alienation if the lease has expired. These will involve the
payment of a hefty premium which would be close to buying the land all over again with perhaps some discount
Summary
Issue

Leasehold

Freehold

Comment

Land uses

- Lease duration usually 30, 60, 99 or 999 years.

- Limited by purpose of lease and land legislation.
- Stocking levels, cultivation, etc may be restricted by
lease conditions.
- Limited by environmental and town planning
controls.

Limited by environmental and town

planning controls

Leases are subject to a higher level of

control.

Duty of care

- High level of duty of care defined in land legislation.

- May be responsible for developing and maintaining
improvements.
- May be required to engage in property planning.

- Duty of care following common law and

as required by some Environment
Protection Acts or its equivalent.

Leases are subject to a higher level of

control.

Transferability,
aggregation and
subdivision

Lease transfers require State or its equivalent's

approval.

- Few limitations on transfer.

- Unlimited right to subdivide and
aggregate subject to town planning
controls.

Leases are subject to a higher level of

control.

Retrieval/resumption

Powers to acquire leasehold interest or withhold land

when lease expires.

Some powers to acquire land for public

works.

Leases are subject to a higher level of

control.

Security of tenure

Varies according to lease type but forfeiture for nonperformance may be possible.

Very high level of security.

- In general, leases are less secure

than freehold.
- Perpetual leases approach the level
of security of free hold

Changing from Leasehold to Freehold land?

This is one of the most popular question asked by my client or anyone who know my profession.
Can we as a owner of a piece of land apply to land office for changing the status of land from leasehold to freehold land ?
By rule of book, there is NO provision for that. There aren't any section in any land law that allow that too. However there is some loopholes that is worth a try
to change your land status from leasehold land to freehold land.
1. Amalgamation your leasehold land with a freehold land (Section 148, National Land Code).
2. Surrender and Realienation your leasehold land with a freehold land (Section 204, National Land Code)
Both the situation above must fullfill the condition as below :1. With condition that your leasehold land is smaller in size compare to freehold land. You will be slap with a further premium payment once approved.
2. Both land must have at lease a shared boundary.

Why you can get a freehold land this way ?

In theory :- Because when you amalgamate or surrender and realienation of land, the result of the this process is that you can't get less than what you
originally have. If you have a part of land is freehold, you can't get something less than that. I had heard from a speaker in a land seminar courses some
years ago, based on the Federal Constitution, a person's property right cannot be taken away without proper compensation (Refer Article 13, Federal
Constitution). So when you submit a freehold land you shall get back a freehold land in return (Irregardless of size of land whether the freehold or leasehold is
larger than the other). Links to Federal Constitution :- http://www.megaupload.com/?d=VMB1KSP5

In practical :- Land office will take the larger size of land as the benchmark, if your leasehold land is smaller than the freehold then they will grant you the
freehold land once you get approval.

Further premium after you get approval maybe something like this :1/2 x value of land (based on balance of land which is not freehold) - Residential
3/4 x value of land (based on balance of land which is not freehold) - Commercial & Industry

BAR COUNCIL REPORT

This unprecedented invitation from the Penang government to change the status of land titles, quickly earned it a legion of supporters. And there's little
surprise why, said National House Buyers Association secretary-general Chang Kim Loong. Unlike leasehold land, freehold could be inherited, and owners
would not need to worry about the lease expiring.

"When a leasehold property is nearing expiry, for instance, when there are only 30 years left, the lessee can't even use it to get a bank loan." So the move is
welcomed and leasehold landowners are happy. But it'll be a while yet before this happens, say experts. Time during which Penang folk will have to wade
through the legal mire, cough up a likely hefty premium while the state surmounts hurdles and a niggling sense of doubt on whether this is a good idea or
even an achievable one.
For what the Penang government has in mind, the procedure that landowners will likely go through is "surrender and re-alienation". This is governed by
sections 204A to 204 E of the National Land Code. Here, the landowner "surrenders" back his leasehold land to the state authority, with the assured
expectation that it will re-alienate back to him, the same land, but as freehold. The procedure isn't complicated but can be time-consuming, said land law
expert Salleh Buang. Chief Minister Lim Guan Eng spoke of having to first overcome some "legal hurdle" when he first announced the plan. This could
possibly come in the form of section 76 (AA) of the Code.

Under the law, freehold land can be alienated to the federal government or a public authority or where the land is to be used for public purpose. It can also be
alienated when the state authority "is satisfied that there are special circumstances which render it appropriate to do so". The question is, does the present
situation fall under those "special circumstances"?
"I think it is a mixed question of law, politics and good governance," said Salleh, who is visiting professor at Universiti Teknologi Malaysia in Johor Baru. "In
the long run, the public is the best judge of that."
A potentially massive problem the government might face in alienating residential land was when landowners surrendered their leasehold titles and the
charge would not be carried forward to the banks, said senior lawyer Roger Tan. This means the bank loses the title and has to re-execute or reapply for the
right to hold the title.
"The banks will have to re-execute the charge when the new title comes out." And, land with caveats on them, like when a property is pending completion of
sale, or when it is involved in a contested will, cannot be converted. "There are a lot of administrative matters to consider," said Tan, who is the Bar Council's
former Conveyancing Committee chairman. "It's a very clever political move. However, I wonder if the state has thought through the implications in terms of
land management?" said urban governance and planning columnist Dr Goh Ban Lee.
There was probably a very good reason why the National Land Council and state representatives on this council decided to adopt the alienation of land in
leasehold. And this should be studied before changes are made. Salleh said the state had to realise that it had limited land. It needed a sufficient bank for
future development. He cited, as an example, the Malacca government that was now facing difficulties because there wasn't any more state land for its future

needs.
"It either has to reclaim land from the sea or acquire under the Land Acquisition Act and pay a heavy price for it."
To that, Chang added that the proposed move should only apply to residential land and on a case-by-case basis. If industries were given freehold titles, he
argued, there might come a time, when there would be a need for them to move away. But if they owned the land outright, the government might be unable to
force them out.
"This move might appease the people, but when it comes time to get the land for public purposes like roads and schools, the compensation that has to be
paid will be very high," Chang said.
"Land is a state matter, and the state authority is the one that decides on what the special circumstances may be," said Tan. "Even if they are wrong, nobody
can sue them. The federal government can't step in. "But, the moment the government decides to alienate a huge block of land, there will be no more
meaning to 'special circumstances'."
Questions have been raised about whether the state can actually make this decision without the "ok" from the National Land Council. Article 91(5) of the
Constitution states that the "National Land Council could set up a national policy "for the promotion and control of the utilisation of land throughout the
Federation for mining, agriculture, forestry and for any other purpose... and the federal and state governments shall follow the policy as formulated".
In addition to the National Land Council, under Article 95A(5) there were also national councils for local governments, with powers to set up national policy for
local government.
"But, if the state refuses to comply with the policy, there's nothing the federal government can do, as there is no punishment in place," said Tan.
"The most they can do to express disapproval is to refuse to award grants to the state whenever it needs money for projects."
"If Penang follows through on this, leasehold landowners in other states may put pressure on their states to do the same," said Goh.
And in Penang, he added, landowners would be happy as long as the premium they would have to pay to convert the status of their land wasn't too high. But
if the initiative went through without a hitch, said Salleh, it would be a feather in the state government's cap. If it doesn't, due to legal or other restrictions, it still
wins. "It can tell its people: There, you see. We have tried but the law does not allow us at the moment. But we are not giving up."
Freehold and Leasehold Titles
According to the National Land Code, 1965 (Act 56 of 1965), Section 40 asserts that all State land belongs to the State authority.
When a plot of land is disposed by the authority to an individual indefinitely it becomes freehold. This is seen when developers purchase land to build freehold
bungalows, private housing and condominiums.

Leasehold on the other hand, is when State land is released to an individual for a definite number of years not exceeding 999. Once the term expires, the land
ownership reverts to the State authority. In order to extend the leasehold, the current owner must apply for a renewal before the expiry date. A significant sum
of money is usually expected one that is close to the original sum paid for albeit with minor discounts.

As freehold land is owned by the developer, the property that is built on it facilitates the transfer of the land to the buyer of the property if it is of a
bungalow/terraced house type. In the case of a condominium, the buyer owns a stake in the condo by way of the apartment but the land is still owned by the
land purchaser.
For potential investors, heres a quick guide in understanding the pros and cons of the two titles;
Leasehold
Leasehold tenures usually last 30, 60, 99 or in some cases, 999 years. There are obviously restrictions to a leasehold land as things like land cultivation may
be effectively barred by environmental and town planers. Also, what is detailed in the lease conditions will limit the type of activity that can be performed on
the land.
The owner of the land has a duty to care for the land as defined by the land legislation and may be responsible for developing some property and maintaining
it. Thus, the security of the tenure may be jeopardized should the State deem the tenant unfit to govern the land. Forfeiture for non-performance can be
exacted.
During the period of ownership, only the State or an equivalent can grant approval for a transfer of lease. Leaseholds are always subjected to a much higher
level of control and are less secure than freeholds.
However, when the lease goes through multiple rounds of renewals, it will eventually reach a level of security similar to a freehold.
Freehold
Development on freehold land is only limited by environmental and town planning controllers.
The owner is expected to follow common law and where relevant, laws laid down by the Environment Protection Acts or equivalent in the governing of the
land.
Should the owner wish to transfer ownership, there are much fewer and less stringent limitations. Furthermore, the owner has the unlimited right to subdivide
and allocate the land, although it is still subjected to town planning controls. The owner also has some means to use the land for public works.

As there is a high level of security here, meaning that the State cannot claim the land from the owner if no development is takes place, the owner is not
beholden to stick to a specific time table.
Freeholds are indisputably the title that allows the most control and offers the highest level of security.