1. LAND LAW II
(CHARGE)

2. Definition & Nature of Charge
• Charge is defines as
registered charge (Sec 5
NLC)
2

3. 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.”
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4. • 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
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5. • The person who
offers his land
or lease as security is known as
chargor
• The lender who accept the land
as security is known as chargee.
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6. Modus Operandi
• Borrower & Lender
• Loan
• Both parties entered/executed into a loan
agreement
• In the loan agreement:
• 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
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7. • Borrower • Borrower
• + • -
• Lender • Land
• + • +
• Loan Agreement • Lender
• = • =
• Loan • Charge
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8. • 16 A presented
• =
• Valid charge
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9. • a “charge” is created upon registration
• A registerd charge confers the chargee 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 to the chargee.
The chargee will be eligible to opt for
remedies available under NLC 1965.
9

10. 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.
10

11. 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.
11

12. What can be charged?
• Section 241(1) NLC
– Whole piece of land
– 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
– 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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13. Power to create charge
 Section 241(3) NLC, subjected to:-
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-
13

14. Power to create charge
• 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.
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15. 2) Any limitation imposed by
restriction in interest of the land
for eg: “Tanah tidak boleh
dipindahmilik, dicagar melainkan
dgn kebenaran pihak berkuasa”
15

16. 3) In relation to lease, must comply with
the express condition stipulated in the
lease agreement as well as implied
condition under NLC
• UMBC v Syarikat Perumahan Luas
[1998] 3MLJ 352
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17. Types of Charge
• First Party Charge:- when the
BORROWER and the CHARGOR is the
same person
• Third Party Charge:- when the
BORROWER and the CHARGOR are
different persons
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18. 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
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19. Effect of Registered Charge
• Every charge shall take effect upon registration,
SO THAT 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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20. 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 for registration, the law regards the
chargee as unregistered chargee or equitable
chargee
20

21. 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(30 NLC)
21

22. 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.
22

23. • (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.
23

24. • (3) x supported by an instrument in statutory
form, existence of loan agreement (basis of his
interest in contract)
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25. Effect of unregistered Charge
Charge is invalid BUT
agreement to create charge is valid
and can be enforced by specific
performance i.e contract
25

26. • Mahadevan s/o Mahalingam 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
26

27. – Malayan Banking Bhd v Zahari Ahmad [1950] MLJ 255
– Oriental Bank v Chup Seng [1953] 19 MLJ 12
– Standard Chartered Bank v Yap Sing Yoke [1972] 2 MLJ
166
• “There is 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)
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28. 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:
1.A duly stamped Form 16N
2.Duplicate Charge
3.Original IDT
4.Prescribed fee
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29. 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
owner to the chargee/ mortgagee
lender-x transfer of – In the event of default in
property to Lender repayment, the equity of
(endorsement on IDT) redemption remain with
– In the event of default, the mortgagor i.e the right
chargee can either apply to redeem was extended
for OFS (auction)/ take beyond the stipulated time
possession/ assign the and would be lost on
land to Danaharta. foreclosure or sale.
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