DISPUTES AND ISSUES RELATING TO SALE AND PURCHASE OF LAND IN MALAYSIA by: Sharifah Zubaidah Syed Abdul Kader

(shzubaidah@yahoo.com) Associate Professor Ahmad Ibrahim Kulliyyah of Laws International Islamic University Malaysia

Note: This is a chapter in the book LAW AND COMMERCE: THE MALAYSIAN PERSPECTIVE (Assoc. Prof. Dr. Mohd Naqib Ishak Jan, ed., IIUM Press, 2011)

1.0 - Introduction This chapter deals with the sale of land or building or parcel in a sub-divided building or land parcel in Malaysia.1 Realising that it is quite impossible to give a complete treatment of such sale and purchase transaction in just a few pages of this chapter, it is proposed that the approach taken in this writing will be to introduce such transaction to the general reader and to only elaborate the salient features, issues and disputes of a general sale and purchase of land in Malaysia. The discussion begins with explanation of the features of land ownership and the laws governing the sale and purchase transaction. It highlights that Malaysia applies the Torrens system of title by registration and describes the contractual and statutory dimensions in which the sale and purchase of land operates. The chapter goes on to identify the types of land or property that becomes the subject matter of sale as the conveyancing procedures will differ depending on each type of land or property. There are many practical steps to be done by a solicitor who is handling a sale and purchase of land including due diligence like conducting a land search, a bankruptcy search; dealing with the vendors financier to discharge a charge, making sure that the vendor is duly represented by his own solicitor and the requisite consent, if any, of the State Authority is obtained, obtaining the consent of the developer, if any, and many more. It is not the intention of this chapter to delve into these conveyancing procedures. Suffice for purposes of this chapter to note that the vendor and purchaser should be represented by their own respective solicitors2 and that unless agreed otherwise, it is the vendors solicitor that is to prepare and supply the sale and purchase agreement.3
1

For the sake of convenience, in this chapter, land or building will be termed land and parcel or land parcel will just be referred to as parcel. Generally, the word land will be used in reference to the transaction relating to sale and purchase of all the categories mentioned unless an express exception is made in the discussion. 2 See Rule 1 under the 1st Schedule of the Solicitors Renumeration Order 2005 (SRO 2005). A solicitor may, however, in the absence of conflict of interest, prepare, file or witness the miscellaneous documents relating to the sale and purchase transaction for the other party in the transaction , see Order 7(2) of the SRO 2005. 3 Paragraph 16 of the Conveyancing Practice Rulings issued by the Bar Council.

The types of issues and disputes that can arise out of the sale and purchase of land are many. This chapter will highlight selected issues and disputes arising out of land as the subject matter of sale.4 Issues relate to matters that need to be considered and dealt with by the solicitor in ensuring the success of the transaction whilst disputes relate to differences between the vendor and the purchaser that may lead to the seeking of remedies arising from the breach of obligations under the contract. Some of the issues that will be discussed in this chapter are the conditional nature of the sale due to preliminary applications to be made either to the State Authority or the land office or third parties in respect of restrictions on the title, or the rights of third parties having interests on the land, purchase subject to an existing tenancy, purchase of land subject to a charge action and the effect of a pending land acquisition on the land. Disputes include a discussion on late delivery of vacant possession by the vendor, abandonment of the project by a developer and poor workmanship or quality of the completed building. 2.0 - The Nature of Land Ownership and Governing Laws One common and prevailing type of transaction in Malaysian commerce is the sale and purchase of land or property built on land.5 By its very nature, land is a much sought after asset due to its nature of being durable and permanent6 and generally appreciating in value over the years as well as being the most credible type of security for loan and financing transactions. One who owns land has the right to possession of the land- including the right to enjoy and use the land and the right to exclude others, the right to enter into dealings on the land (including to dispose of the land by transferring the land to another and thus, ending his ownership rights) and the right to control the land. Land ownership is such that it has been described as a bundle of rights, an abstract notion referring to these collections of rights.7

Hence, issues and disputes touching purely on contract law are excluded e.g. formation of contract, options. 5 The typical legal term used to refer to such property is immoveable property, as opposed to moveable property (referring to goods or chattels). The term real property is also used to refer to land. For the sake of convenience, this chapter refers to land to also include buildings on land. 6 This may no longer hold true having regard to the many natural and man-made disasters involving land in the 21st century like landslides, earthquakes and tsunamis. 7 See Denise R. Johnson, Reflections on the Bundle of Rights, Vermont Law Review Volume 32:247 at 250. The writer terms this as the physicalist definition and attributes this notion to William Blackstone, the 18th century, English legal writer. Today however, one acknowledges the bundle of rights AND obligations of a land owner as the rights and interests created by a land owner over his land must take into account the obligations arising out of the relationships created. Thus, under the National Land Code 1965, for example, the registered proprietor who charges his land to a bank is also the chargor and the bank is the chargee, both having rights and interests recited both, in their contractual agreement, the Charge Annexure, as well as the National Land Code provisions. This similarly applies to the lessor-lessee relationship in respect of a lease agreement and a registered lease and the grantor-grantee relationship arising out of an agreement to grant an easement over the land through a registered easement.

Laws that govern the sale and purchase of land in Malaysia are primarily, the Contracts Act 1950 and the National Land Code 1965 (NLC).8 Where the vendor is a housing developer, provisions of the Housing Development Act 19669, particularly the statutory standard sale and purchase agreements in Schedules G and H, are applicable. A host of other statutes also come into play within the sale and purchase transaction process and these include the Stamp Act 1949 and the Real Property Gains Tax Act 1976. If the property is a parcel in a multi-storey building, or land parcel in a housing development (i.e. a condominium or apartment), the Strata Titles Act 1985 also applies. Malaysia applies the Torrens system of land registration, so a land owner is properly termed as a registered proprietor as registration of land dealings is the cornerstone of the Torrens system.10 Consequently, another feature of land ownership in Malaysia is that the legal owner of land must have a document of title issued under his name.11 Like other Torrens jurisdictions12, both, the law of contract and statute law applies to the sale and purchase of land in Malaysia. The moment that the vendor agrees to sell the land to the purchaser and the purchaser agrees to buy the land and a deposit is paid towards the purchase price, an enforceable contract is formed for the sale of the land. In Malaysian conveyancing practice, the parties will sign a Sale and Purchase Agreement (SPA) and at the same time would also execute the Memorandum of Transfer (MOT).13 The SPA is governed by the Contracts Act 1950 until completion of the sale. The sale is taken to be completed upon registration of the transfer at the land office whereby title will be issued under the name of the purchaser. The execution of the MOT signals the transaction also involving statutory obligations as the parties are then to ensure that the MOT is attested14 and then duly stamped15 before presenting it for registration at the land office. Upon registration of the transfer, the title of the transferor (vendor) passes to the transferee (purchaser) together with the benefit of any registered interests then enjoyed with the land.16
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The states of Sabah and Sarawak have their own land laws respectively, namely, the Sabah Land Ordinance and the Sarawak Land Code. This chapter deals with the land law in Peninsular Malaysia only. 9 Act 118. 10 Dr.Ti Teow Siew & Ors v Pendaftar Geran- Geran Tanah Selangor [1982] 1 MLJ 38. 11 Unless title has still not yet been issued by the land office although application had been made. In such cases, the bare trust concept applies in respect of sale and purchase of lands, i.e. the vendor holds the title as a bare trustee in favour of the purchaser pending issuance of title in the purchasers name. Two conditions must be fulfilled: 1) The vendor must have received the full purchase price; 2) the vendor must have surrendered to the purchaser, possession of the land. See cases on the bare trust concept Fung Sui Jin v Borneo Housing Mortgage Finance Bhd & 3 Ors [2001] 1 MR 1104, Goh Heng Kow v Raja Zainal Abidin bin Raja Hussin & Anor [1995] 3 MLJ 6, Ong Chat Pang v Valliapa Chettiar [1971] 1 MLJ 224. 12 Australia, New Zealand, Canada, Fiji, Singapore, Saudi Arabia, Philippines, Thailand, Kenya and Sudan are examples of countries that have adopted the Torrens system. 13 The MOT needs to executed at the beginning of the transaction as it needs to sent to the stamp office for adjudication of stamp duty payable on the MOT. This may take a month or longer. 14 Section 211 NLC 15 Section 294(1)(a) NLC 16 Section 215 (2) NLC. This is further clarified in section 215(3), namely, the land is transferred inclusive of any registered charge or lease or easement existing on the land.

2.0 Type of Land or Parcel In Malaysia, land or property that becomes the subject matter of a sale and purchase transaction comes within two broad categories: 1. Land or parcel owned by a developer.17 2. Land or parcel owned by an individual or company. 18 Even within these two categories, each can be further sub-divided into with individual title or without individual title. Generally, all land and parcel should have been registered at the land office where such registration of ownership is evidenced by a document of title. In such a case, the sale and purchase transaction is relatively straightforward with standard terms relating to registration of the transfer in the name of the purchaser to complete the sale. There is however, a certain period in time, where no title has yet been issued in respect of the land or parcel.19 Pending issuance of individual title to such land or parcel, and to enable the original purchaser to resell the land or property, the conveyancing practice in Malaysia is for the vendor to assign to the purchaser, all his rights and interests in the land or parcel arising from the previous sale and purchase agreement. 3. The Sale and Purchase Agreement In a sale transaction of land or parcel that does not constitute a housing accommodation (e.g. sale of shop-lots in a shopping complex, sale of industrial land or agricultural land), the terms of the sale and purchase agreement is struck by negotiation of the parties and is drafted by the solicitors. The sale of housing accommodation through a sub-sale is also not statutorily prescribed and depends on the agreement of the the vendor and purchaser through advice of their solicitors. The sale and purchase agreement (SPA) for land or parcel to be sold by a developer which is considered as a housing accommodation20 is prescribed by the Housing Development Act 1966. The standard sale and purchase agreement in respect of landed property constructed under the sell-then-build concept (STB)21 appears in Schedule G while that of parcels appears in Schedule H.22 In
17

Most properties transacted in the open market were originally purchased from property developers, observation made by Ng Kok Wai (2010), above n. 2 at 107. 18 The subsequent sale transaction of which is referred to as a sub-sale. 19 This is particularly due to the land being held under a Master title which is in the process of being sub-divided and consequently issued with separate titles according to the layout plan in respect of the said development. 20 According to Housing Development Act 1966, a housing accommodation is a building constructed or adapted for human habitation or for both, human habitation and business purposes. Buildings constructed for human habitation on land designated for commercial purposes (like service apartments) may also come within the term housing accommodation and thus subject to the Act. See sections 3 and 3A. 21 Housing developers in Malaysia have long been using the STB concept where the purchaser pays 10% of the purchase price upon signing the SPA and then seeks end financing from a financial institution for the remaining 90% of the balance purchase price which will then be paid progressively in accordance with the stages of construction of the house. In this way, the purchaser in actual fact part finances the developers costs of construction. However, under this concept, purchasers had to also share the business risks of the developer and this became evident with the increasing number of abandoned housing projects in Malaysia. This prompted the Ministry of Housing and Local Government to introduce a variant of the BTS concept of housing delivery in 2007 in the hope of

respect of a development constructed under the build-then-sell concept (BTS), the standard sale and purchase agreement appears in Schedule I for land and building and Schedule J for parcels.23 A conventional SPA that is not subject to the Housing Development Act 1966 in respect of land or parcel with title would have some standard provisions relating to the following:24 i) ii) iii) 10% of the purchase price is to be paid upon signing the SPA; That the balance purchase price is to be paid within three (3) months of signing the SPA; If the balance purchase price is not paid within the three months, then the vendor would grant the purchaser an additional one (1) month to pay the balance subject to interest at the rate of 1% per annum on any balance outstanding;25 ( grace period) That vacant possession of the property is to be delivered upon full payment of the balance purchase price; That quit rent, assessments and other outgoings will be apportioned as at the delivery of vacant possession.

iv) v)

As the SPA for housing accommodation is statutorily prescribed in Schedules G,H, I and J respectively, it is not proposed to analyse the provisions of such agreement in this Chapter.26 Where the property has not yet been issued with a separate individual title, the recitals section to the SPA will recite the first sale and purchase agreement27 and the chain of transactions, the agreement with which the vendor bought the parcel and the fact that the parcel has been assigned to a financial institution as security for a loan. Other than the standard provisions in a SPA, some of the main terms of the agreement will include the vendors obligations in respect of seeking consent from the State Authority where there are restrictions on the Master Title, the vendors obligation to obtain consent from the developer, and the parties obligation to execute a Deed of Assignment of the parcel in favour of the purchaser. The Deed of Assignment is necessary in this type of transaction as evidence of the transfer of ownership of the beneficial rights and title to the property in the absence of a registered individual title.28

insulating purchasers from risks and uncertainties that may face the housing developer in completing the project. Under the current 10:90 BTS concept, the purchaser pays 10% of the purchase price first and the remaining 90% upon completion of the house. The developer is required to seek financing from financial institutions to finance the project until completion and the success of obtaining such finance will depend very much on the track record of such developer and its financial standing. 22 See rule 11(1) of the Housing Development (Control and Licensing) Regulations 1989. 23 See rule 11(1A) of the Housing Development (Control and Licensing) Regulations 1989. 24 Adapted from Lainah Yow Oi Lin, Conveyancing Practice and Procedure in West Malaysia, Malayan Law Journal (2003) at 89. 25 Muslim parties may exclude the imposition of interest in such provision. 26 Such can be the subject of another research and writing! 27 Also referred to as the Principal Agreement. 28 The Deed of Assignment may only be executed after the vendors financier has executed a Deed of Receipt and Reassignment to re-assign the rights, titles and interests under the principal Agreement back to the vendor.

4. Issues Relating to Sale and Purchase of Land 4.1 SPA Conditional upon Compliance with Restriction in Interest In a sale and purchase of land, one must carefully examine the document of title and look out for Restrictions in Interest. A restriction in interest restricts the right of the land owner to deal with his land by way of, for example, requiring him to first seek the consent of the State Authority before transferring the land to another. The restriction may also restrict the right of the owner to apply for subdivision, partition or amalgamation of his land. An example of a restriction in interest is as follows: This land cannot be transferred, charged or leased without the express consent of the State Authority The rationale for such restriction in interest is for the State Authority to keep track of the types of land dealings and land applications in respect of such land. The downside for conveyancing is that it adds onto the timeline for completion of the sale, adding an estimated 3-6 months on top of the normal completion period of 3+1 months as discussed previously. Such restriction in interest will make the contract conditional in nature. The SPA must therefore include provisions relating to the obligation of the vendor29 to apply to the State Authority for consent to transfer by specifying a certain period of time for the approval to be obtained after which the balance purchase price would then be due from the purchaser. In Perwira Habib Bank (M) Bhd lwn Loo & Sons Realty Sdn Bhd & Satu Lagi (No. 1)30, the SPA contained a provision stating that the land cannot be transferred, leased or charged except with the consent of the State Authority, which also appeared on the document of title to the land. The vendor was to obtain the consent of the State Authority for transfer of the land to the purchaser within a period of 4 months from the date of signing the SPA with a grace period of a further 2 months. Payment of the balance purchase was within 4 months of the date of signing the SPA. The agreement also provided that it would come to an end if the consent of the State Authority was not obtained. In this case, even though the consent was not obtained by the end of the grace period, the purchaser still paid the balance purchase price and then sought to raise finance by depositing the document of title to the appellant. It was contended by the purchaser that with the payment of the balance purchase price, the parties had dispensed with the condition. The Court of Appeal in this case disagreed and held that the SPA was subject to the approval of the State Authority and the failure
29

In Kok Kon Sang v Siti Zaliha bte Mohd. & Anor. [1993] 1 CLJ 53, the court held that the consent to transfer should be applied for by the vendor. 30 [1996] 3 MLJ 409

of the vendor to obtain such approval thus entitled the purchaser to treat the contract as at an end.31 It should be noted that the Land Administrator or Registrar of Titles should not register the transfer of any land subject to a restriction in interest as it would be deemed to be unfit for registration under section 297 NLC. Should the Land Administrator or Registrar of Titles register such transfer, it can be set aside under the exception insufficient instrument under section 340(2)(b) of the indefeasibility of title provision of the NLC.32 4.2 Other Conditions Attached to the SPA Sometimes the SPA is made conditional upon the obligation of one or more parties to the contract obtaining some requisite approval (other than a restriction in interest) for the transaction to proceed. In National Land Finance Co-operative Society Ltd v Sharidal Sdn. Bhd.33, it was held that where an agreement was made subject to the approval of the Foreign Investment Committee (FIC)34 and the FIC refused to grant the approval, there was no agreement capable of enforcement. In Silver Concept Sdn. Bhd. v Brisdale Rasa Development Sdn Bhd,35 the Appellant was the landowner and the Respondent was a property developer. The parties entered into a SPA whereby the Appellant agreed to sell a piece of land to the Respondent for RM75, 468,000. There were three conditions precedent where the third condition was that the Respondent would obtain the approval of the shareholders of Brisdale Holdings Bhd. in respect of the purchase of the land. This was further provided as an undertaking on the part of the Respondent in the SPA. The shareholders of Brisdale Holdings Bhd however refused to approve the purchase. The Court of Appeal in this case decided that the respondent was bound by its undertaking given in the SPA to obtain the approval of the shareholders of Brisdale Holdings Bhd. There was a breach of undertaking and therefore a breach of contract. The contract was held not frustrated.36 From this case, it is observed that even where the conditions could not be fulfilled, the contract is not taken to be frustrated. Where there is an express undertaking included in the SPA relating to an obligation on the part of the vendor to fulfil the condition, the court may look into
31 32

Lamin, Abu Mansor and Ahmad Fairuz, Judges of the Court of Appeal. This was the decision of the court in UMBC v Syarikat Perumahan Luas Sdn Bhd [1988] 3 MLJ 352 where a registered charge was set aside for being registered in breach of a restriction in interest. 33 [1983] 2 MLJ 211 34 The NLC restricts disposal and dealings on land by non-citizens and foreign companies in Part 33A. FIC approval is generally required for purchase of land by non-citizens except for land subject to the category industry and residential property where the purchase price is more than RM500,000. 35 [2005] 4 MLJ 101 36 COA (Putrajaya) consisting of Abdul Kadir Sulaiman (delivering judgment), Azmel (concurring), Baharudin Shah JJCA (dissenting).

whether such party had done everything in its power to fulfil such condition. If not, then the party could be subject to action for breach of contract. 4.3 Purchase Subject to an Existing Tenancy A tenancy is a transaction where the land owner (landlord) grants to the tenant, possession of his land or building or parcel, in consideration for the payment of rent. The NLC provides that a tenancy is for a maximum duration of three years whilst a lease is for a period exceeding three years.37 If the landlord decides to sell the land or building or parcel, what will be the position of the existing tenant? Must the tenancy end automatically or does the purchaser take the land or building or parcel together with the tenancy? Where there is an existing tenant on the property, the solicitor for the purchaser should conduct a search on the register document of title and find out whether the tenant has endorsed the tenancy on the land register. If the register document of title has been endorsed with the words Exempt Tenancy Claimed by the said tenant, then the purchaser must be aware that the property comes with the existing tenant. If the tenant had not endorsed his tenancy on the register document of title, then the purchaser is not bound by the tenancy and may, once he becomes the registered owner, evict the tenant. Where the purchaser wishes to or is obliged to carry on with the tenancy, then an assignment of the rental proceeds for the remaining term through a tripartite Novation Agreement must be entered into between the vendor, purchaser and the tenant.38 4.4 Purchase of Property Subject to a Charge Action There may be cases where the purchaser has agreed to purchase land or parcel that is subject to a charge action.39 These are mostly cases where the vendor (who is also the chargor) wishes to avoid having his land sold in a public auction, which is the consequence of a charge action. There is no need for the vendor to apply for the leave of court to sell the land by private treaty for in most cases the court will hold that the court has no power to order the sale of the land by private treaty as a charge action contemplates a sale by public auction. Courts have however allowed a sale by private treaty as long as the sale by public
37

See ss. 213 and 221 NLC. The tenancy is referred to as a tenancy exempt from registration as there is no requirement for it to be registered. It is therefore not a dealing under the NLC but a mere contractual transaction. Nevertheless, the tenant may be able to protect the tenancy from a successor in title by endorsing the register document of title with the words Tenancy Exempt Claimed. This is made possible by section 316 NLC. 38 Ng Kok Wai (2010), above n.2 at 342 para 11.9.1 39 A charge action is an action commenced by the chargor in the High Court (for Registry Title) or the Land Office (for Land Office Title) for an order to sell the property by public auction.

auction has not been concluded and the consent of the chargee has been obtained.40 The chargor must ensure the chargor that the purchase price is not less than the amounts owing under the chargor and the charge will be duly paid in full out of the proceeds41. In such cases, and in accordance with the terms of the Charge Annexure, the vendor (chargor) must first seek the consent of the chargee bank for the intended sale by private treaty. Most chargee banks will make it a condition that the 10% deposit paid by the purchaser towards the purchase of the land should be forwarded to the chargee bank. The terms of the SPA in such cases, should therefore include a condition precedent requiring the vendor to seek the consent of the chargee bank to the sale as without such a provision it is feared that the charge bank will refuse to acknowledge the sale and proceed with the charge action until the land is then sold at a public auction. There will then arise a situation of competing equities between the purchaser under the SPA and the purchaser at the public auction, a situation that can well be avoided with the suggested condition precedent incorporated into the SPA. 4.5 Effect of Pending Land Acquisition In Malaysia, private land may be acquired by the State Authority under the Land Acquisition Act 1960. The Act provides a wide variety of purposes for compulsory acquisition42 and case law has shown that it may be very difficult to challenge such acquisition except on the basis of the land acquisition proceedings being taken contrary to the statutory procedure or on the quantum of compensation. It is therefore prudent to prepare for the case of a land acquisition that may happen during the sale transaction. A land acquisition does not frustrate the SPA unless it was signed at or after the date of the acquisition for on this date, the land is taken to have reverted to the State Authority as state land and the vendor would therefore be in no position to sell the said land. If the SPA was executed before the date of acquisition, two issues may arise out of a pending land acquisition. Firstly, whether the contract is still capable of being performed? Secondly, who is entitled to the compensation from the State Authority, the vendor or the purchaser? On the first matter, the parties may opt to make the contract conditional upon the vendor applying to the State Authority to release the land from the acquisition. In Loo Choo Teng & Anor. v Cheok Swee Lee & Ors. & Anor. Appeal,43 the SPA was subject to release of
40 41

UMBC v Chong Bun Sun & Anor. [1994] 2 MLJ 221. Chung Khiaw Bank Ltd v Lau Ah Yen & Anor. [1989] 2 MLJ 247. 42 See section 3(1)(a),(b), and (c) Land Acquisition Act 1960. 43 [2000] 2 MLJ 257

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the property from land acquisition. Letters from the land office show that there was no refusal to release. The contract was held to be enforceable. The parties may also include a provision in the SPA to give the purchaser the option to elect either to proceed or to terminate the SPA if the land acquisition is discovered pending completion.44 The provision may contain a mutual agreement by the parties with regards to who is entitled to compensation in the land acquisition should the purchaser elect to continue with the SPA.45 The next issue is whether the purchaser is entitled to be notified concerning the inquiry to determine compensation under section 11 of the Land Acquisition Act and whether he is considered an interested person to claim compensation. In Pengarah Tanah dan Galian Negeri Kedah & Anor. v Emico Development Sdn. Bhd.46, the respondent entered into a sale and purchase of land in Sungei Petani on 8th May 1995. On 3rd August 1995, the Appellant published a declaration that the land was compulsorily acquired. On 9th September 1995, the respondent entered a caveat on the land and on 18th October 1995, the first inquiry was held. The respondent, amongst others, applied to challenge the land acquisition and claimed that the inquiry was not valid as the Respondent had not been served with Form E, the notice of inquiry to hear claims for compensation. The Court of Appeal held that the Respondent, being a purchaser, and not the registered proprietor or occupier at the time the land was acquired, has no locus standi to challenge the acquisition. This case can be distinguished from the case of Wong Siew Choong Sdn. Bhd. v Anvest Corporation Sdn. Bhd.47, where the purchaser in this case signed the agreement before the acquisition of the land but the vendor in this case, showed unwillingness to proceed with the SPA by claiming that the contract was frustrated due to the pending land acquisition. The purchaser then sued for specific performance and the Federal Court held that there was an enforceable contract and remitted the case back to the High Court to decide on the issue of which party was entitled to the compensation arising out of the acquisition. The High Court decided that upon signing of the SPA and the purchaser is able and willing to pay the purchase price to the vendor, the vendor became in law a trustee for the purchaser and therefore the purchaser had beneficial interest in the land at the time of acquisition. Therefore the court held that the vendor held the compensation money for the purchaser and this amount could be deducted from the purchase price of the land.

44

Ng Kok Wai (2010), above n.2 at 360. Ng Kok Wai also observes that a land acquisition may not be discoverable by the normal land searches and this poses some difficulty on the purchaser of land, see 359. 45 Above. 46 [2000] 1 MLJ 257 47 [2002] 3 MLJ 143

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The law that can be extracted from both these cases is that a purchaser under a SPA of land subject to land acquisition proceedings who has not paid the purchase price in full may not be able to include itself in the inquiry as a person interested under the Land Acquisition Act 1960 for purposes of claiming compensation. A purchaser may however bring a claim against the vendor to seek a review of the amount of the purchase price arising out of the diminution of the value of the land due to the acquisition (if only a portion of the land is acquired) and based on this, the amount of compensation received by the vendor on the part of the acquired land that forms the subject matter of the sale may be taken into account. 5 Disputes Relating to Sale and Purchase of Land 5.1 Late Delivery of Vacant Possession The vendor is to deliver vacant possession of the land or parcel to the purchaser upon completion of the SPA. Delivery of vacant possession means the handing over of lawful and complete possession of the land or parcel to the purchaser, in a vacant condition and so being capable of occupation and free from any claim of right of possession either from the vendor or any other party.48 With regards to residential property, the law is clear as to to when and how vacant possession must be delivered by the vendor as clauses 22 and 23 of Schedule G and H has clearly provided for this. For landed property (Schedule G), vacant possession is to be delivered within 24 months from the date of the SPA whilst for parcels in a sub-divided building, the period is 36 months from the date of the SPA. Since April 2007, the delivery of vacant possession by the vendor must be supported by a Certificate of Compliance and Completion (CCC)49 and includes the handing over of the keys of the said building to the purchaser. Disputes, if any, will relate to the damages to be paid by the vendor/ developer upon delay in delivering vacant possession. Although Clause 22(2) of Schedules G and H have clearly spelt out the liability of the vendor to pay the purchaser liquidated damages at the rate of 10% per annum of the purchase price calculated from day to day from the expiry of the date for delivery of vacant possession until the date the purchaser takes up vacant possession, there have been many cases where the vendor/ developer have tried to avoid paying up the requisite sum. In such cases, if the amount claimed by the purchaser does not exceed RM50,000, the purchaser may put in a claim against the developer at the Tribunal for Homebuyer Claims.50 If
48 49

See Boo Kak Ngeak & Anor. v Lim Kian Hoe & Anor [1998] 6 MLJ 727. The CCC replaces the Certificate of Fitness for Occupation (CFO) previously issued by thelocal authority. The CCC is issued by the projects Principal Submitting Person (PSP) who is either a professional architect or professional engineer. The issuance of the CCC ensures that the purchaser is able to occupy the building upon delivery of vacant possession. 50 Set up under section 16B of the Housing Development Act 1966, introduced by the 2002 amendment to the Act. See the jurisdiction of this tribunal in section 16M of the Act.

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the claim is above RM50,000, the purchaser may bring an action in court. Where the land or parcel is commercial or industrial property and the vendor is a developer, it is usual to find a clause that vacant possession is delivered upon the issuance of a certificate of completion and compliance, or the occurrence of other events that is termed as the unconditional date.51 In a sub-sale of land or parcel, vacant possession is given within a reasonable period of payment of the balance purchase price52 and the handing over of the keys to the purchaser or his solicitor. The general remedy of the purchaser in the face of a delay in delivery of vacant possession by the vendor is to terminate the contract, either, under terms specified in the SPA, if any or under section 56 of the Contracts Act 1950. Section 56 of the Contract Act applies to a contract where time is of essence and one party to the contract has failed to perform an obligation within a specified time. The contract that becomes voidable at the option of the other party.53 It is clear therefore that if the SPA uses the term unconditional date such as the one used in the SPA for commercial and industrial property sold by a developer, the purchaser may not have the right to terminate the contract upon failure to deliver vacant possession as time may not be of essence of the contract. Other than terminating the SPA, the purchaser is also entitled to claim the refund of all moneys which he has paid under the agreement and all other damages according to section 76 of the Contracts Act 1950. It must be noted however that in respect of the SPA in Schedules G and H, 54 the purchaser who terminates a SPA may not be able to claim further damages in court as the SPA has expressly provided for the claim for liquidated damages that can only be claimed when the purchaser takes vacant possession and not before that. 5.2 Abandoned Housing Projects by Developers

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Thus it may be difficult to actually calculate the period of completion. See Tan Kim Soons article Purchasing a New Property in The Sun, Law and Realty section, 2/2/2007. 52 After the cheque has cleared. 53 Schedule G and H contracts do not contain a clause that allows the purchaser to terminate the contract upon failure to deliver vacant possession. It has however been held in a number of decided cases that the purchaser, nevertheless may proceed under section 56 of the Contracts Act 1950. See Kang Yoon Mook Xavier v Insun Development Sdn Bhd [1995] 2 MLJ 91; Thomas a/l Iruthiyam and Anor v LSSC Development Sdn Bhd [2005] 4 MLJ 262; Tan Yang Long and Anor. v Newacres Sdn Bhd [1992] 1 MLJ 289; Chye Fook and Anor. v Teh Teng Seng Realty Sdn Bhd [1989] 1 MLJ 308. 54 For a good discussion on the right of the purchaser to terminate the SPA for delay in delivery of vacant possession in respect of Schedules G and H SPAs, see Chan Wai Meng and Usharani Balasingam; Delay in the Completion of a New Residential Property: Rights of the Purchaser in [2007] 1 MLJ xix.

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The Sell Then Build type of housing delivery system in Malaysia has seen a fair number of delayed, sick or abandoned housing projects.55 A housing project is deemed abandoned in 4 circumstances:56 i) where the project is not completed within or upon expiry of the completion period in the SPA and no significant activity is carried out at the construction site for 6 months or more consecutively; or a winding-up petition has been filed at the High Court against the developer company under section 218 of the Companies Act 1966; or The developer company has been put under the Official Receiver; or The developer acknowledges in writing that it is unable to complete the project and the Minister certifies that the project is an abandoned project under section11(1)(c) of the Housing Development Act 1966.

ii) iii) iv)

A purchaser who is faced with an abandoned housing project suffers irreparable damages, injuries and losses. Other than having to service the housing loan repayments, the purchaser will also have to pay rental. Often, he is left with no legal recourse as even if he terminates the agreement and sues for refund of all moneys paid and damages, in most cases, the developer (defendant) is unable to pay up as the main reason for the abandonment is that the developer has run out of funds and may have been wound up. Other than hoping that the project will be revived through the various methods of rehabilitating abandoned projects57, the purchaser may only apply for given a letter of confirmation from the Ministry of Housing and Local Government concerning the abandonment of the project and with this letter, the purchaser is expected to approach the financial institution granting the housing loan to reschedule the loan repayments and to revise or defer the interest rates. There are, at the moment, no legal means to protect purchasers against the risks of abandoned projects except the preventive measure on the part of would be purchasers of only purchasing houses under the Build Then Sell concept as well as a sub-sale of existing land or parcel. 5.3 Poor Workmanship or Quality Some completed buildings suffer from poor workmanship thus affecting the quality of the building. In the course of constructing the building, there may be cases of the contractor using sub-standard material to reduce costs. What is the recourse for the purchaser in such cases?

55

Acording to the Ministry of Housing and Local Government, a delayed project is one where the project is delayed by 10-30% from the completion date and a sick project is where the project is delayed by 30% of the completion date. See http://www.kpkt.gov.my/kpkt/index.php/pages/view/181 56 Above. See also Nuarrual Hilal Md. Dahlan, The Need to Define Abandoned Housing Project in Peninsular Malaysia: An Analysis [2008] 16:1 IIUM Law Journal 85. 57 A good discussion appears in Md. Dahlan, Nuarrual Hilal (2010), Rehabilitation of Abandoned Housing Projects: A Comparative Analysis between the Law and Practice in Peninsular Malaysia and the Republic of Singapore Commonwealth Law Bulletin 37(1) at 145-173.

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If the purchaser discovers the defects within the defect liability period58 stipulated in the SPA, the purchaser may list down the defects in writing (taking photos will also help) and give notice to the vendor about the defects accompanied by the list and photos. In a standard SPA, the vendor is given 30 days from the date of receiving the notice, to rectify the defects. If the vendor does not rectify the defect, the purchaser may pay first the costs of repairs and then claim from the vendor. If the vendor still refuses to pay for the defects, the purchaser has the option to bring a claim to the Tribunal for Homebuyer Claims (if the land or parcel is a housing accommodation)59 or to claim damages for breach of contract in a court of law. The action for breach of contract may arise from the failure of the vendor to comply with a standard term in a SPA for land or parcel, namely, that the building shall be constructed in a good and workmanlike manner. In such a case, the court will determine whether the workmanship and materials conform to the description in the SPA.60 6.0 Conclusion One may discern a few points from the above general discussion on issues relating to the sale and purchase of land in Malaysia. The first is that the nature of the transaction will be determined by the type of land or building that forms the subject matter of the sale and purchase. The second point is that Malaysian conveyancing still grapples with the need to accommodate the sale or other transactions relating to property without title and in this respect, provisions of the Contract Act 1950 and the Civil Law Act 1950 in relation to absolute assignments is applicable in preponderance to the NLC provisions. The third is that issues will normally arise in relation to restrictions imposed on the vendor either by the NLC or by government agencies such as the Foreign Investment Committee or other related laws. The fourth point relates to the land subject to land acquisition where a purchaser is not clearly stipulated in section 11 of the Land Acquisition Act 1960 as a person interested during the inquiry to hear claims for compensation thus necessitating conveyancers to put in place clauses in the SPA to protect purchasers in this regard. With regard to disputes arising between the vendor and purchaser in a sale and purchase of land in Malaysia highlighted in this chapter, one can make the following observations. Firstly, a purchaser under a SPA that is statutorily prescribed has relatively more protection compared to a purchaser under a SPA that is not statutorily prescribed. In this respect, the solicitor for the purchaser in the latter type of transaction, should be more cautious in perusing
58

This is the period within which the vendor is liable to rectify or pay for th rectification of defects found in the building. For Schedule G and H agreements under the Housing Development Act 1966, the defect liability period is 24 months. See Clause 25. 59 It seems that the majority of cases brought to the tribunal relates to defects found in the houses. This was mentioned in Azlinor Sufian, Rozanah Ab. Rahman, Quality Housing: Regulatory and Administrative Framework in Malaysia International Journal of Economics and Management 2(1): 145-156. 60 See Hwa Chea Lin v Malim Jaya (Malacca) Sdn Bhd [1996] 4 MLJ 549; Teh Khem On & Anor v Yeoh & Wu Development Sdn Bhd & Ors [1995] 2 MLJ 663; and KC Chan Brothers Development Sdn Bhd v Tan Kon Seng [2001] 6 MLJ 641.

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and advising on the consequences arising from the contract and if possible, should ensure that the SPA adequately protects his client. Secondly, the law has been significantly improved to lessen cases relating to late delivery of vacant possession by providing for the issuance of certification, not any longer by the local authority, but by the principal submitting person in the project. Nevertheless, the purchaser under a SPA not prescribed by statute may still face uncertainty in respect of the delivery of vacant possession where the vendor uses the term unconditional period when referring to its obligation to deliver vacant possession. Thirdly, it is important to incorporate a defect liability period in SPAs to lessen disputes relating to poor workmanship and quality in buildings, even more so in respect of SPAs not prescribed by statute.

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