LAND LAW 2: CHARGES PDF

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LAND LAW IICHAPTER 1: CHARGESWHAT IS CHARGE? Section 5 of NLC: Any transactions with respect to alienated land effected under the powers conferred by Division IV, and any like transaction effected under the provisions of any previous land law, but does not include any caveat or prohibitory order. ...

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LAND LAW II



which is created when a registered proprietor or a lessee

CHAPTER 1: CHARGES

uses his land as a collateral or security in return for loan given to him by the lender.

WHAT IS CHARGE? 

Section 5 of NLC: Any transactions with respect to



provisions of any previous land law, but does not include any caveat or prohibitory order. 

Security dealings are dealings whereby a registered proprietor conveys his land to either a Bank, finance

The borrower can borrow money (loan) from a bank or finance company, which is in business of lending money

alienated land effected under the powers conferred by Division IV, and any like transaction effected under the

A charge is a type of security dealing or transaction,

or even individual (moneylender). 

In return he is required to pledge his land as security to



Charge is a security transaction relating to land created

guarantee the repayment of the loan with interest. under Part 16 of the NLC between the proprietor of land (charger) and the lender (charge)

company or moneylenders to secure the repayment of a loan. 

The security transactions or dealings recognised under the

BORROWS

NLC 1965 are charges and statutory liens. 

The land will be used as collateral or security to assure the

CHARGOR

CHARGEE

Lender that the Borrower will repay the loan within the stipulated time. 

GIVES LOAN

If the borrower fails to repay the loan within the stipulated in the loan agreement, the lender can commence foreclosure proceedings to obtain an order for sale of the land by way of public auction or gain possession of the land.

DEFINITION OF CHARGE 1





HO GIOK CHAY V NIK AISHAH: A charge is an interest in



land especially in view of the fact that it renders the land

the common law deed of mortgage. The Malaysian

liable as a security which the charge could enforce by way

courts have always appreciated the differences between

of the sale of the land in the event of default by the charger.

mortgages and charge. There are various differences

In other words, a charge is a transaction/dealing whereby

between the two dealing. Both are security transactions relating to land.

the registered proprietor of an alienated land or a lease conveys it as a security for the repayment of a loan, an



Charge is a creation of NLC 1965 and is different from



A mortgage is a pledge of the land by the land owner to

annuity or any other periodical payment, to another.

a lender that conveys to the lender the title to the land in

The proprietor of the land or the lease is known as the

consideration

charger and the person to whom the property is conveyed or

mortgagee agree by contract that upon repayment of the

in whose favour the charge has been effected is called the

loan, the mortgagee is to re-transfer the land back to the

chargee.

mortgagor.

CHARGEE’S REMEDIES



for

the

loan.

Both

mortgagor

and

The Torrens charge is a charge on land – there is no passing of the legal ownership of the land from the land owner/borrower to the lender. The effect is just as a

HOW TO ENFORCE THE CHARGE?

security and not a transfer of the land so charged. 

The chargee has 2 statutory remedies to enforce the charge upon default of the chargor: i.

Apply for an order for sale of the land; or

ii.

Apply for an order of possession.

1

CHARGE Charge must be registered

MORTGAGE Mortgage need not

at the relevant land office.

registered, preparing

DIFFERENCES BETWEEN TORRENS CHARGE AND COMMON LAW MOTRGAGE

2

be

merely a

deed

of

Charge is created using

conveyance is sufficient. There is no prescribed

prescribed statutory form

form, there is deed of

i.e

conveyance

created

through

i.e

created 2

3

4

statute. through contract. Chargee takes possession Mortgage takes possession



6

upon creating the deed

the loan. The charge can seek to

The mortgagee cannot sell

The ownership of land remains with the land owner. This

sell the property when

the property and in fact, he

enables the borrower/chargor power to effect as many

chargor

has to hold on the property.

defaults

in

transfer his title over the land, but confers merely interest.

any time. Chargee merely confers

Mortgage confers absolute

interest and not title or

ownership

ownership to the charge. The chargor is entitled to a

mortgagee. Right of the mortgagor to

discharge of charge.

redeem the land is called

can

subsequent

create

charges

on

Section 241(2) NLC: where a person charges his land for the second and third times or any number of times, these

of

to

charges take priority in accordance with the date of

the

redemption”

upon full repayment of the Chargor

subsequent charges as possible. 

“equity

7

A registered proprietor who charges his land does not

after defaults in repaying

repayment of the loan at 5

CHARGE CONFERS INTERESTS

loan. There is no subsequent

registration. 

GAN KHOR V SOAN B PELITA (1935):”It must be remembered that a charge is a very different transaction to a mortgage. There is no such thing as a mortgage of land known to the law of the FMS. Charges alone are recognised…” 

mortgage.

it quite clear that here a charge (we have no

the same land with the consent 8

of

the

PARAMOO V ZENO (1968):”The Land Code makes mortgage in the Malay States) is quite distinct from a

first

lien.”

chargee. Legal title to land remains

Legal

with the chargor.

transferred

 Title

mortgagee.

to

land to

is the

BBMB V DORIC DEVELOPMENT S/B (1988):”In the first place, the premise that a charge under the NLC is the same as an English mortgage at common-law is patently erroneous…” 3



“…In an English mortgage at common-law, the

a) Alienated Land

mortgaged property was transferred to the name of the mortgagee on the creation of the mortgage with a



produce the IDT to Land Office

proviso for redemption.” 



Comply with sections 207-208 of NLC

b) Execution of documents (Section 210 of NLC) c) Stamping of documents i.e stamp duty (Stamp Act 1949) d) Presentation/registration of documents (Section 294-306

To charge part of the land? – may do so by way of unregistered charge.

CREATION OF CHARGE a) Preparation of charge document (Form 16A/16B)

The registered proprietor – section 244(2): charge need to



Protects in by way of private caveat.

b) Undivided Share in Land Co-proprietor may charge the whole of his undivided share in land. c) Lease In A Land

NLC) e) The charge is valid

i) Registered lessee It refers to registered lease. Subject to section 241(3) - any implied



Upon registration, the charge is fully secured. Any further

or express provision in the lease agreement.

dealings are not possible unless with the consent of the first/subsequent chargee. SUBJECT MATTER OF CHARGE

ii) Unregistered lease -

May be used as security on equitable charges (incapable of registration)



What can be charged – section 241(1) a) Whole of alienated land

-

Why? Section 244(2) need to produce duplicate lease rights and remedy in contract.

b) Whole of undivided share in alienated land c) Any lease of alienated land

WHAT CAN BE CHARGED UNDER SECTION 241(1) (B) NLC

4



Charge can be created over whole of land but not on

-

part of any alienated land. Co-proprietor is empowered to charge his entire undivided half share in an alienated land. The rationale for this provision is to avoid



Second charge – Bank B THE PURPOSE OF CHARGE

difficulties in identification of the quantification and on



To secure repayment of money (section 241 (aa), (bb))

default, in the charge enforcing his remedied.



Any sum other than a debt e.g bonds, overdrafts, cheques,



YEE SIN CHEONG V UMBC (1992): “…unless there is a

R RAJU V KWONG YIK BANK BHD (1994): A charge may be created on a part only of land if it were an

payment on demand.

‘equitable charge’. This transaction however, is not

loan existence, no security is required. The charge must be

capable of registration. The statutory remedy is only

to secure the repayment of any debt or the repayment of

available to registered chargee, any charge created over

any sum other than a debt or of any annuity or other periodic

part of the land may only be able to create equitable

sum”

relief. A private caveat could be entered to protect the



unregistered interest in the land as the transaction is not

MAHADEVANS S/O MAHALINGAM & SONS(M) SDN BHD (1984): “An agreement to secure a debt in favour of

registrable.

the creditor in respect of the debtor’s land may create an equitable charge giving rise to an equitable right in favour of

POWER TO CREATE A CHARGE 

E.g: First charge – Bank A

the creditor although no charge within the provision of the NLC has been executed or created.”

Section 241(1) (a) Registered proprietor (b) Co-proprietor of undivided share in land



SAME LAND? – Yes, as accordance with section 241(2)

(c) Registered lessee 

Section 241(2) -

The chargor may create second and subsequent

CAN THERE BE A CREATION OF 2nd CHARGE ON THE



Although not stated in the NLC, usually must get the consent of the 1st charge.

charges on the same land 5



R&I SECURITIES SDN BHD V GOLDEN CASTLE

execution of the charge, rather than payment in full before

FINANCE CORP. (M) BHD (1979): it was held that where

execution as was stated in the charge. In an annexure,

the consent for the creation of a second charge is not

repayment was to made be on demand though unless and

obtained, there cannot arise an instrument of charge in a

until demand was made, the loan was repayable in

registrable form.

instalment. The chargor objected to the order of sale on the basis that the charge should not have been in Form 16A



Form to create charges – section 242 NLC i.

Form 16A – to secure a debt

ii.

Form 16B – to secure payment of annuity or other

because it provided for payment in instalments. 

provides…alternative

periodic sum. 

inaccuracy

was

curable and was cured by the annexure. It does not

Anor. V EQUITY FINANCE CORP. BHD (1911), held that

invalidate the whole charge i.e use of Form16A in this case

monthly payments under a lease of equipment agreement is

was correct as the statutory form is flexible enough. 

with the defendant whereby the company agreed to pay the total rental sum of $127,000.08 payable in advance by 36

LECHUMANAN V CENTRAL MALAYSIAN FINANCE BHD

equal monthly rentals of $3,527.78. The plaintiffs then

(1980): it was held that the Forms are flexible enough,

executed a charge over land as security for the payment of

therefore the use of the wrong form will not invalidate the

the rental under the lease.

charge created. The fact of the case: A charge for a loan of $900k provided that the loan money is to be paid in instalment after

TAN YEN YEE & ANOR V EQUITY FINANCE (1991): The fact of the case is that P entered into a leasing agreement

ISSUE: If wrong form is used, does it invalidate the charge agreement? This can be seen in the case of V



provisions…the

As to ‘other periodic sum’, the case of TAN YEN YEE &

a ‘periodic sum’. Charge is in Form 16B.



FC Held: the statutory form is flexible enough and it



The charge was in Form 16B of the schedule to the NLC 1965. P defaulted on the instalments and the defendant

6

applied to the LA for an order of sale of the land. P applied



Section 243 – charges takes effect upon registration. The

for a declaration that the charge is null and void because the

land/lease is liable for security of the repayment of

charge should not be in Form 16B but in Form 16A of the

debt/annuiy/periodic payment.

schedule to the Code.



Conditions in the charge agreement are that it must be in express or implied.



High Court held: The lease of the equipment was for 36 months which is synonymous with three years and payment

registered charge: 1) The land becomes a security.

to secure the payment of a periodic sum and falls within the

2) The charge gets indefeasibility of title (refer s.340)

description

3) The charge is entitled to statutory remedies to

of

‘other

periodic

sum’

appearing

in

Even if the defendant used the wrong form, which the court did not think it did, the charge cannot be said to be null and void. Assuming the Form 16A was the proper form, applying section 62 of the interpretation Acts 1948 and 1967, the deviation from it by using Form 16B could not be said to have any substantial effect or be calculated to mislead.



By virtue of section 243 NLC, upon registration of a

of rent was on a monthly basis. The charge was, therefore,

subsection(2) of section 242 of the Code. 



The Forms are flexible enough, therefore, the use of the wrong Form will not invalidate the charge created. (IOW, boleh guna mana2 form either 16A or 16B)

enforce the charge under the NLC. 4) Creates interest in land or lease 5) Creates priority over the subsequent charge 6) Becomes encumbrance on the land and the owner (chargor) cannot deal with the land without the consent of charge, even that he has ownership of the land. 7) Section 215 – Chargor can still sell the land or lease (subject to the provision in the charge) 8) Section 215 – Chargor can only lease or sub-lease the land with the consent of the charge in which the charge cannot unreasonably withhold.

EFFECT OF A CHARGE 7

9) Remedies available in the event of default under

obtained an order for sale on the chargor’s default. Later,

section 253 -269 (sale) and section 270 – 278

the chargor objected on the ground that the charge was void

(possession) – only available for registered charge.

as having been registered in breach of a restriction in interest to which the land was subject under section 120.

10) Section 218- Chargee can assign his interest in land. WHEN IS REGISTRATION AFFECTED? 





memorial on the IDT

since registration had been obtained by means of an

Section 304(4) – memorial of registration is the conclusive

insufficient or void instrument. 

Principle: A charge, once registered had indefeasibility of



BANK BUMIPUTERA MALAYSIA BHD V KUCHING

title within the terms of section 340.

Registration of charge confers the indefeasibility of title to

MOHAMMAD B BUYONG V PEMUNGUT HASIL TANAH,

PLAZE (1990): it was held that upon registration of a

GOMBAK & ORS (1982): “Under NLC, it is the making of a

charge, the party in whose favour the registration had been

prescribed memorial of the dealing in the register document

effected, would obtain an indefeasible title to or interest in

of title under the hand and seal of the registering authority.

the land.

Therefore, if any such memorial is made without the registering authority signing and sealing it or only under his hand and seal without the other there would be no

UNREGISTERED CHARGE 

Before registration, the unregistered chargee has no right to



If unregistered charge has custody of IDT – may claim lien

enforce the charge under NLC.

registration.” 

The registration of charge in breach of an explicit statutory prohibition…the title or interest of the charge is defeasible

the chargee. 

the registration of the charge.

Section 304(2)(a)(b) – the Registrar sign and seal the

evidence of registration. 

Under section 124, the application to the State Authority to rescind the restriction had been made successfully but after

Section 304(1) – time and date of presentation of charge document.





UMBC BHD V SYARIKAT PERUMAHAN LUAS SDN BHD (NO.2) (1988): The fact of the case is the chargee had

over the land. 8



HAJI ABDUL RAHMAN & ANOR V MAHOMED HASSAN (1917): an agreement to secure a debt by which the debtor transferred his land to the creditor and upon repayment the

EQUITABLE CHARGE i.

Where charge instrument has been executed but not presented for registration.

land would be transferred back to the debtor was valueless 

as a transfer or burdening instrument, but was good as a

BANK V YAP SING YOKE, it was held that by virtue of the

contract. The right so created was not a legal right in the

unregistered charge dated 1st April 1985 in favour of the P,

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