CHARGE

Yee Sin Cheang v UMBC [1992] 2CLJ 1298 Section 242 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. A dealing where 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 3 rd party Chargor- The person who offers his land or lease as security Chargee- The lender who accept the land as security

Elements of Charge Borrower & Lender Loan Both parties entered/executed into a loan agreement In the loan agreement: (i) (ii) Borrower offers land as a security Both parties execute charge documents (as provided under NLC)

Charge document is presented for registration and thus Statutory Charge is created Upon registration, a charge is created which confers the charge an indefeasibility of interest over that particular property As security, the charged property will be utilised to recover any outstanding amount or any debt due (in the event that the borrower fails to pay the loan). The chargee will be eligible to opt for remedies available under NLC 1965

Kim Lin Housing Development Sdn Bhd v BBMB [1997] 2MLJ 805 For a charge, the rights and powers of chargee are provided in NLC. Chargee cannot get away from the provision of NLC. In the event of default in payment, chargee can apply for order for sale but the chargee cannot sell through private treaty.

For mortgage, the rights and powers of mortgagee are those which are incidental to the legal and equitable rights vested in him in his role as mortgagee

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BBMB 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.

CHARGE Security transaction under NLC (S.241) Does not involve the passing of the legal ownership from registered owner to the charge. No transfer of property to lender. The chargee only possess an interest over the land with a statutory right to enforce the security In the event of default, charge can either apply for OFS (auction) or take possession Security Common Law

MORTGAGE transaction under English

Involve the passing of legal ownership by the mortgagor to mortgagee. Hence, the legal title over the land is with mortgagee (chargees name on IDT as proprietor and the mortgagor will have an equitable title (equity of redemption) In the event of default in repayment, the equity of redemption remain with the mortgagor i.e. the right to redeem was extended beyond the stipulated time and would be lost on foreclosure or sale

What can be charged? Section 241(1) NLC a) Whole piece of land b) 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 c) Lease including sub lease -not popular because it is subject to forfeiture (Section 234 & 236 NLC). Existence of charge is depending on the existence of lease

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Power to create charge Section 241(3) NLC, subjected to:(a) Any limitation imposed by NLC or any other written law Examples: (i) Under Malay Reservation Land Enactment, MR Land cannot be charged to non Malay- Ho Giok Choy v Nik Aishah A charge can be created over MR Land in favour of non-Malay (effective so long as there has been no default). On default, the land can be sold only to Malay. This rule was confirmed in Sime Securities Sdn Bhd v Tetuan Projek Langkawi Sdn Bhd

(ii) Companies Act, 1965 Director cannot use the companys property as a security for his own loan(S.133CA) Harta Empat Sdn Bhd v Koperasi Rakyat Berhad (1997) 2 CLJ 94 The charge is not valid when the director charged the companys property for his own loan

(iii) Section 43, NLC Minors are unable to own land or deal with alienated land.

(b) Any limitation imposed by restriction in interest of the land UMBC v Syarikat Perumahan Luas The charger apply to set aside an order for sale of certain land charged to UMBC on the ground that it was void (the charge was registered in breach of an expressed RII endorsed on IDT- without consent to charge) Held: The charge of the title or interest of the charge is defeasible since registration thereof had been obtained by means of an insufficient or void instrument (S.340(2)(b)). Registrar of Title in registering the charge had acted ultra vires the power conferred upon him

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(c) In relation to lease, must comply with the express condition stipulated in the lease agreement as well as implied condition under NLC. E.g. S.231(d)consent from lessor UMBC v Syarikat Perumahan Luas

Types of Charge (a) 1st Party Charge: When the borrower and the chargor is the same person (b) 3rd Party charge: When the borrower and the chargor are different persons

Creation of Statutory Charge

Preparation of charge document (Form 16A)-must comply with provisions in section 207208 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

Effect of Registered Charge Chargee acquired an interest in the land that is capable of assignment. He can transfer the charge- Sec 214(1)(d) NLC Every charge shall take effect upon registration, Chargee can rely on all the remedies provided in NLC in case of default by the Chargor: (a) Remedies of sale (Sec 253 NLC) (b) Taking possession (Sec 271 NLC) S.215(2) NLC- A charged land can be sold/transferred by charger (the land is sold subject to the charge) Chargee merely acquires an interest on the land. No transfer of land is done unlike mortgage. Once charge is registered, NLC acknowledged the existence of the lenders interest over the land. Hence,

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(a) Charger still possess the rights over the land as registered proprietor (b) S.241(3)- Chargor may create more than one charge over the same land S.251- If Chargor wants to lease the land, he must get consent from Chargee

Unregistered Charge/ Equitable 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 for registration, the law regards the chargee as unregistered chargee or equitable chargee The general rule is that the charge is not valid because registration is a mandatory procedure (S.206(1)(a) and (b) NLC) However, if the parties have entered into a loan agreement, the transaction is valid as a contract (S.206(3) NLC) Instances where equitable charge may exist: (i) Lender holds an instrument of charge in statutory form & IDT has been deposited by the Borrower with him but he failed to register the charge at the Land Office. (ii) Lender holds IDT which has been deposited by the Borrower with him but he failed to enter LHC at the Land Office. (iii) Not supported by an instrument in statutory form, existence of loan agreement (basis of his interest in contract)

The effect of unregistered Charge is that the charge is invalid but the agreement to create charge is valid and can be enforced by specific performance i.e contract Mahadevan s/o Mahalingam v Manilai & Sons (M) Sdn Bhd It was held that agreement to secure a debt in favour of the creditor in respect of the debtors 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 Standard Chartered Bank v Yap Sing Yoke 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 chargee has the right to lodge a caveat and may do so at any time under the provisions of the NLC

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Rights & Duties (Express- in the charge agreement, Implied- in NLC) Chargor S.249(1)(b)- To pay principal sum and interest, express provision and pay all rent S.249(2)(b)- Observe and performs all conditions When Defaults S.266- To tender payment of loan before sale is done S.215- To dispose/ sell the land subj. to the provision/ charge agreement. Chargor has the right to enter into private treaty even though the land is subject to public auction S.253-To obtain statutory remedies in the event of default and subj. to all the procedures of NLC Enhancement of priority of charge via doctrine of consolidation/ tacking. S.244-The 1st chargee shall have the right to take possession of title deed (if the land is subject to more than a charge) S.249-To demand payment/ receive principal sum and interest of the loan To obtain best price during auction Chargee To comply strictly with NLC to enforce security

Discharge of Charge 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: (i) A duly stamped Form 16N (ii) Duplicate Charge (iii) Original IDT (iv) Prescribed fee

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