LAND LAW II
(CHARGE)
Definition of Charge in the
NLC
S. 5 -Charge is
defines as
registered charge
(Statutory Charge)
2
Oth def :
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 and that DEALING IS
REGISTERED at registry or land
office
3
Yee Sin Cheong v UMBC [1992] 2 CLJ
1298
Section242 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.” e.g
annuity
4
So…charge is created when…
registered
proprietor/co-proprietor/lessee
uses a land/undivided share/lease
as a security
for the repayment of loan
advance to him/3rd party
5
Parties to a CHARGE
who offers his land
The person
or lease as security is known as
CHARGOR
The who accept the
lender
land as security is known as
CHARGEE
6
Modus Operandi
Borrower (B)
Lender (L/Chargee)
Chargor (B himself or other person)
Loan
Execution of loan agreement by B & L
Execution of charge documents (16A/B)
Presentation of charge doc for
registration at Registry /LO
7
When will a charge takes
effect?
Upon registration (s.243) – torren system
Upon registration a charge confers the
chargee an indefeasibility of interest
only over that particular property.
the charged property will be utilised to
recover any outstanding amount or any
debt due to the chargee.
remedies available under NLC 1965.
8
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.
9
Bank Bumiputra Malaysia Berhad 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?
1. Section 241(1) NLC
Whole piece of
land
11
Cont...
2. 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
12
Cont...
3. Lease including sub
lease -not a popular form
of security because it is
subjected to forfeiture
(Section 234 & 236 NLC).
So existence of charge is
depending on the existence
of lease
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WHO CAN CHARGE???
RP
CoRP
Lessee
14
Limitation to power to create
charge
Section 241(3) NLC:-
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-
15
Cont…
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.
16
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
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Types of Charge
First
Party Charge (1st party loan):-
when the BORROWER and the
CHARGOR is the SAME person
ThirdParty Charge (3rd party loan):-
when the BORROWER and the
CHARGOR are DIFFERENT persons
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Registering Charge
OR Form 16A/16B
1 Duplicate & 2 copies of
16A/16B duly stamped
OR IDT
Registration fee of 16A/16B
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Custody of issue document of
title or duplicate lease(s. 244)
A first chargee of any land or lease shall be
entitled to the custody of the issue document of
title to the land or, as the case may be, duplicate
lease.
A chargee having the custody of any issue
document of title or duplicate lease shall within a
reasonable time, on the written request of the
proprietor or lessee, produce the same at any
Registry or Land Office so specified for any purpose
for which it is required under any provision of this
Act.
21
Flow chart for creation of Statutory
Charge
Creation of charge
Preparation 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
22
Remedies for REGISTERED
CHARGEE
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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When can there be an 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 (16A/16B) for
registration, the law regards the
chargee as unregistered chargee or
equitable chargee
24
Cont...
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(3) NLC)
25
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.
26
Cont...
(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.
27
Cont...
(3) x supported by an
instrument in statutory
form, existence of loan
agreement (basis of his
interest in contract)
28
Effect of unregistered Charge
Charge is invalid BUT
agreement to create charge
is valid(s 206(3)) and can be
enforced by specific
performance i.e contract
29
Cont...
Mahadevan & anor 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
30
Cont...
Malayan Banking Bhd
v Zahari Ahmad [1988]
2 MLJ 135
Oriental Bank v Chup
Seng [1990] 3 MLJ 493
31
Cont…
StandardChartered Bank v Yap Sing
Yoke [1989] 2 MLJ 49
“Thereis 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)
32
Discharge of Charge (s. 278)
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 16N
2. Duplicate Charge
3. OR IDT
4. Registration fee for 16N
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Difference between Charge &
Mortgage
Charge Mortgage
Security transaction under Security transaction under
NLC (Sec 241) English Common Law
Does not involve the Involve the passing of the
passing of the legal legal ownership by the
ownership from registered mortgagor to the mortgagee
owner to the chargee/ In the event of default in
lender-x transfer of
repayment, the equity of
property to Lender
redemption remain with the
(endorsement on IDT)
mortgagor i.e the right to
In the event of default, redeem was extended
chargee can either apply for beyond the stipulated time
OFS (auction)/ take and would be lost on
possession/ assign the land foreclosure or sale.
to Danaharta.
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