Land Law II Study Notes (Security Dealings) PDF

Preview

Summary

Land Law II Study Security are dealings in respect of alienated land where the RP will be able to in the land in favour of a lender to secure or guarantee the repayment of given to the borrower defaults, the lender will be entitled to commence foreclosure obtain an order for sale to recover the loan...

Description

Land Law II Study Notes

2. Security Dealings 2.1 Introduction •

They are dealings in respect of alienated land where the RP will be able to confer interests in the land in favour of a lender to secure or guarantee the repayment of the loan given to the landowner

•

If borrower defaults, the lender will be entitled to commence foreclosure proceedings to obtain an order for sale to recover the loan granted

•

The recognized security dealings under NLC are charges and liens [s205(1)]

•

JualJanji is not regulated by NLC as it is a customary security transaction andis recognized by the courts as having effect only as a pure contract of sale

•

Loan Agreement Cum Assignment (LACA) is another type of security dealing in respect of which no IDT had been issued by the appropriate authority and this is not regulated by NLC

2.2 Torrens Land Charge •

Charge is entered into by between the proprietor of the land and a lender wherein the proprietor provides security in consideration of the loan advanced by the lender

•

Charge is created when a RP or a lessee who when in need of case, uses his land as a collateral or security to guarantee the repayment of the loan given by the lender

•

Land can be used as a security as a loan, because it is permanent, durable, and its value is never lost

•

If the borrower fails to repay the loan with interest, the lender can recover his money by selling the land conferred as security by way of public auction or by way of private treaty subject to consent from the chargor

2.3 Differences between Torrens Charge and Mortgage •

The Torrens charge is a creation of statute, ie NLC and its characteristics are different from the common law deed of mortgage

•

Mortgage:

(a) Is a mechanism to create a lien on real estate by contract

(b) Individuals or businesses can buy residential or commercial property without paying the full value upfront (c) Mortgagor uses a mortgage to pledge real property to the lender as security against the debt for the rest of the value of the property (d) The legal title (exists as a security for a debt) is transferred to the mortgagee while mortgagor has an equitable title (e) Mortgagor only has a right in equity to redeem the land from the mortgagee upon repayment of the loan •

Charge:

(a) The person in favour the charge acquires only an interest in the land (b) Has statutory right to enforce his security by way of a sale of the land with an order from the court or land office or to take the possession in case the borrower defaults the repayment (c) The legal title to ownership of the said land remains vested in the name of the RP

2.4 Creation of Charge •

S241(1) provides for powers of charging and also speaks of what type of property should be charged

•

The power to create a charge available to RP irrespective as to whether it is an individual or a body whether held as final or qualified title or strata title

•

S214(3) provides that the power to charge must be executed in any particular case subject to any prohibitions laid down by the Code or any written law then in force. Any person seeking to create a charge must be those prescribed s43and s205

•

For non-citizen, they must conform to the requirements specified in s433B that must obtain the approval of SA first

•

The power of a corporation to charge land or a lease depends on the powers given by the Companies Act 1965

2.5 Subject matter of Charge •

A charge can only be created over the whole, but not part of land or a lease

•

J Raju v KwongYik Bank Berhad H: It is possible to charge part of land but only by way of an equitable charge, as the statutory form did not provide for registration of such transaction

•

A co-proprietor is empowered to charge his undivided share in an alienated land provided its over the whole of the undivided share in the land and not on a part only, this is to avoid difficulties in identification of the quantification and on default, in the chargee enforcing his remedies

•

Mahadevan s/o Mahalingam v Manilal& Sons (M) Sdn Bhd H: An agreement to secure a debt in favour of the credit in respect of the debtor’s land may create an equitable charge giving rise to an equitable right in favour of the creditor although no charge within the provisions of NLC has been executed. However, such charge may not have the benefit of obtaining the remedy prescribing in the statute, which is order for sale or taking possession of the charged property

•

The creation of charge is only to secure the repayment of loan or debt or the payment of any sum other than a debt

•

R&I Securities Sdn Bhd v Golden Castle Finance Corp (M) Ltd H: There is no possible for the creation of a charge where there is no loan transactions, as it defeats the essence of a charge, which is to secure the repayment of a loan

•

Yee Sin Cheong v UMBC H: unless there is a loan in existence, no security is required

•

A charge duly registered, amounts to an interest in land. The RP still has title over his land, what he confers upon the chargee is merely an interest. Thus, he still can create subsequent charges subject to obtaining consent from the prior registered chargee. The charges however take priority in accordance with the date of registration

•

A charge constitutes an interest in land, and it renders the land liable as a security where the chargee could enforce by way of the sale of the land in the event of default by the chargor, this was rightly concluded in HoGiakChay v NikAisyak

•

For Malay Reservation land, the land can only be sold to Malays in the event of default by the Malay proprietor under the charge, this is ensure that the reservation land would remain in the hands of the Malays

•

Co-operative Central Bank Ltd v Y&W Development Sdn Bhd H: a registered charge is not even a contract. It is a statutory instrument, a dealing authorized to be created by the NLC. The default giving rise to remedies under the charge is always, statutorily, the default of the chargor. For third-party charge, it is statutorily a bipartite situation between the chargorand the chargee. Two sections are relevant: s253(1) charge obtaining the sale of the land charged, and

s271(1)chargee’sright to enter into possession of the land charged. The remedy is against the property but not the person, thus a charge is not a contract of guarantee and the chargor is not a surety

2.6 Express and implied conditions imposed on charge •

Express conditions to a charge are prescribed in the charge agreement and the annexure itself which is annexed to the Statutory Form 16A or 16B

•

The implied conditions are those provided in s249-252

•

Failure on the part the charge to comply with the express or implied conditions provided in NLC, the chargor faces the risk of the chargee instituting foreclosure proceedings

2.7 Restriction on powers of charging •

The powers of creating charges are subject to further restrictions as specified in s241(3) as:

•

(i)

limitation for Malay Reservation Enactment

(ii)

written consent of SA

(iii)

the express and implied conditions of the lease

A charge cannot be granted to 2 or more persons or bodies, but it can be created in favour of them as trustees or representatives so that it can held by them jointly [s241(4)]

•

The first chargee is entitled to the custody of RDT in absence of any agreement to the contrary. However, the said charge is required to produce the documents at any Registry or Land Office on the written request of the RP or lessee within reasonable time for the purpose for which the documents are required under NLC [s244(1)-(2)]

•

Any charge created without complying the stipulated restrictions and requirements can be held to be void ab initioand unenforceable

2.8 Prerequisite or Requirements to create a Torrens Charge •

•

2 important requirements that must be fulfilled: i.

Using Form 16A or 16B to create the charge, s242(1)

ii.

Registration of the instrument of dealing in relevant land office

Form 16A – to secure the repayment of a debt or the payment of any sum other than a debt

•

Form 16B – for charges providing for the payment of an annuity or other periodic sum

Position of charge created using the wrong form •

The court held that the forms are flexible enough, and wrong use of form will not invalidate the charge created

•

V Letchumanan v Central Malaysian Finance Bhd F: chargor objected on the basis that the charge should not use Form 16A because it provided for payment in instalments H: the use of Form 16A was correct as the statutory form is flexible enough. The court rejected the contention that Form 16A for repayment of principal sum, while Form 16B for payment of periodic sums

•

Tan Yee Yee v Equity Finance Corp Bhd H: for payment of rent on a monthly basis, it falls within the description of ‘other periodic sum’ appearing in s242(2). Even Form 16A was the proper form to be used, the deviation from it using Form 16B according s62 of the Interpretation Acts could not be said to have any substantial effect or be calculated to mislead

Registration of Charge •

S243 states that the charge must be duly registered, and upon registration, the chargee acquires an interest in the land or the lease

•

It confers upon the chargee the priority over all other dealings that may be created by chargor after the registration

•

The charge becomes an encumbrance of land and proprietor is prevented from dealing with land without the prior consent of chargee

•

A charge created over property belonging to companies will not function as a charge under the Code nor will an assignment

•

The immediate effects of registration: (i)

chargor still can sell the land, but subject to charge itself[s215]

(ii)

chargor can only lease the land with consent of chargee[s251]

(iii)

the remedies of charges on obtaining order for sale and taking possession[s253-269, s270-278]

(iv) •

chargee can assign his interest in the charge [s218]

However, there is no statutory power authorizing the chargee to create a charge over his charge

•

Yet until registration, the chargee have certain contractual rights, and right to enter a caveat pending registration. The chargee will also have a right to recover the amount of debt, in accordance with contract [s319-329]

•

For unregistered charge, it ultimately can involve the process of execution against the land on default or repayment of debt which require the chargee to obtain a judgment debt, and on further default, to attach the debt to land and seek an order for sale [O45&83 RHC, s335-337]

•

For land which the subject matter of charge is held by a company, the chargee should register the charge with Registrar of Companies to gives the chargee to have priority against unsecured or subsequent secured creditors of company on insolvency. The chargee still needs to register the charge under NLC to secure the land

•

If the charge is register under Companies Act but not under NLC, the chargee will be a secured creditor in relation to the debt on the liquidation of company, but the chargee will not be able to make use of remedies provided by the Code that is public auction and taking possession [O45 RHC]

•

S304(1) – the date of registration means the date of presentation for registration, thus priority of chargee is guaranteed upon presentation of the instrument [s292]

•

Upon registration the chargee is conferred with the indefeasible interest as against the whole wide world

Position of unregistered charge •

It has no right to enforce the charge, although recourse under contract may still be available

•

In Southern Bank Bhd v Chuah Beng Hock, it was held that no charge is effective unless registered

•

Chuah Eng Khong v Malayan Banking Bhd H: an equitable mortgage could exist, because NLC does not have provisions which would render it null and void. However, such a charge does not entitle the chargee the benefits of the registered charge under the Code. The decision of Haji Abdul Rahman should not be used as an authority to negative any equitable mortgage, as the agreement was void because of contravention of s4 of the Selangor Registration of Titles Regulation 1891

•

Mahadevan s/o Mahalingam v Manilal H:

(i) An agreement to secure a debt in favour of the creditor over the debtor’s

land may create an equitable charge, although no charge within the provisions of NLC has been executed [s206(3)] (ii) the creation of equitable charge depends upon the intention and conduct of parties at the time when the payments were made; (iii) the provision in NLC is silent and does not prohibit the creation of equitable charges and liens •

In situations where parties fail to proceed with registration despite the completion of the instrument of charge, and the title is available, the lender can seek equitable recognition of the charge and obtain contractual relief

•

There are 3 popular ways of effecting a charge over a piece of land in Malaysia: i.

Legal charge – the charger executes a formal instrument of charge in statutory form. IDT would be handed over to the chargee; [s243]

ii.

Equitable charge – same with the legal charge but the instrument have not registered. The chargee is allowed to enter a caveat to protect his interest[s206(3)]

iii.

Lien – not any formal instrument but IDT would be deposited with the lender as a pledge, entry of lien-holder’s caveat may be necessary[s281]

•

Tun Salleh Abas: Malaysian Law does not recognize a mortgage in the sense of English land law whereby the ownership of land is transferred to mortgagee while mortgagor only has an equitable right to redeem. For our country, it must follow the sense of Torrens system, which the mortgagor retains the legal ownership whilst the mortgagee acquires a statutory right to enforce his security. Our NLC drops the word mortgage and use the word charge to avoid confusion

•

The right under the contract would be preserved under s206(3) where the court, in the exercise of its equitable jurisdiction, grant the creditor specific performance of contract

Custody of IDT •

The chargee registered first in time is entitled to retain IDT to the land or the duplicate lease whilst the charge remains in existence[s244(1)]

•

A co-proprietor of land can obtain a copy of IDT for the purposes of charging his share in the land, and the charge will be entitled to hold such copy

•

Required to deliver it where required under NLC [s244(2)] i.

Forfeiture to SA

•

ii.

Subdivision or amalgamation

iii.

S164 & s189

iv.

Surrender under s195

v.

Creation of Land Administrator’s right of way

The chargee does not lose the security during the time he departs with the IDT whilst the loan remains unsettled

2.9 Subsequent Dealings with Charged Property •

For registered proprietor, he has the right to also create second and subsequent charges, but generally, it is subject to any prohibition or limitation imposed by NLC or any written law [s241(2)]

•

RP can create subsequent charges over the land with same or other chargees, after he obtains prior written consent of all existing chargees to the creation of subsequent charge

•

RP or lessee must subject to: (i)

s241(3) of NLC

(ii)

any agreement contrary between the chargor and prior chargee

(iii)

any restriction resulting from consolidation of charges, tacking or postponement

•

RP or lessee must apply in writing to the person lawfully holding the IDT or duplicate lease requesting the release of relevant document to enable the subsequent charge to be effected. If without the prior consent, then the subsequent dealing cannot be validly created. The chargee however must not withhold consent unreasonably

•

LA is required to apply the purchase money arising on any sale in the repayment of the subsequent charges [s268(1)(e)]

Priority of charges •

A charge is given priority in order of creation

•

The principle of 1st in time will get 1st priority is applicable

•

Under NLC, the priority of charge may be affected by using the following mechanisms:

(i) Consolidation as provided in s245 •

In common law, consolidation takes place where the chargor had charged two pieces of land, A & B. Normally relief would only be given if money is paid for both pieces.

A chargee who is registered over different properties belonging to the same chargor can refuse to discharge one charge without the chargor simultaneously discharging all the other existing charges •

Under modified Torrens System in Malaysia, s245 allows consolidation only if both parties consents to the consolidation, thus it is only permitted if expressly provided for by the charge

•

It is different because of the difference of the nature of Torrens Mortgage

•

The effect of consolidation is to alter the priority of a subsequent chargee by restricting its priority in respect of land, by giving the consolidation chargee an advantage

(ii) Tacking as provided in s246 •

Tacking means the chargor’s loan will increase and the chargee will obtain priority over other chargees

•

Whenever there is a tacking transaction, the chargee offering taking facilities will gain priority in respect of the original sum and further advances

•

This tacking will take place only in accordance to s246(2), which the making of the advance must expressly be authorized by the prior charge

(iii)Postponement as provided in s247 •

It operates to alter the priority of prior charge by placing it on la lower level or priority. This may allow the subsequent charge to take the place of the prior charge •

It must be registered by using Form 16C

2.10 Remedies for Registered Chargee •

NLC provides 2 remedies to a chargee in the event the chargor fails to repay the loan: 1. Order for sale by way of public auction 2. Taking possession of the charged property •

Kimlin Housing Development Sdn Bhd v Bank Bumiputra (M) Sdn Bhd H: the provisions of Code setting out the right and remedies of the parties under a statutory charge over land are exhaustive and exclusiv...