Introduction
There are two types of land title in Malaysia as far as land tenure is concerned, that is freehold or leasehold.
A freehold land title gives the owner ownership in perpetuity whereas a leasehold land title gives the owner ownership up to a maximum of 99 years according to Section 76 of the National Land Code 1965 (‘the Code’).
It is important to bear in mind that the leasehold lands belong to the State, once the lease expired, the land will automatically be reverted to the State Authority in terms of ownership.
It is pertinent to note that Malaysia follows the Torrens system of land registration that ‘the register is everything’ which is assimilated into our National Land Code 1965, is our main source of land law applicable throughout the Peninsular of Malaysia.
What is the Extension of a Lease?
Basically, there is a legal process where the owner of the leasehold land may apply to the State Authority to extend the lease for a further period, e.g. 30, 60 or 99 years, normally.
The application should be made before the expiry of the term specified in the title, as most State Authority’s circular will mention.
Why do We Extend a Lease?
The utmost reason is to ensure the security of tenure in the occupation of the land should the owner have a family consist of the younger generation who may continue to stay on the piece of land with a property erected thereon.
Besides, even if the owners are planning to sell off the leasehold land with a property erected thereon, it is wise to extend the lease for a longer period before selling it off so that the potential buyer will not have an issue of securing a loan from the financial institution due to lease expiring.
This is mainly because properties with a shorter lease (less than 30 years) have lower market value as compared to those with a longer lease.
How to Apply for the Extension of a Lease?
Under the National Land Code (“the Code”), there are 2 ways to extend the lease, namely:-
(a) Section 197 and Section 76 of the Code; or
(b) Section 90A of the Code.
Section 90A of the Code, as amended by National Land Code (Amendment) Act 2016, is the exact provision for the extension of a lease subject to an application must be made before the expiry of the lease and provide the condition of land use remains the same and must not be violated during the tenure of lease.
This provision had started to be in operation from 1st June 2018 in the state of Selangor.
Section 197 and Section 76 of the Code, are technically not the provisions in the Code for the extension of a lease.
Both the applications need to be kicked start by submitting the relevant application form to the State Authority.
Once the approval has been granted, the applicant will be informed of which section under the Code will his or her application be processed as well as the premium payable.
What will be the Premium Payable for the Extension of a Lease?
It varies throughout the different state.
In Selangor, for example, once the application for the extension of a lease is approved, the applicant is required to pay an amount of premium calculated as follows in accordance to Pekeliling Pengarah Tanah Dan Galian Selangor Bilangan 6/2011:-
1/4 x 1/100 x adjudicated value of the land x (term of the new lease – the balance of existing lease) x area size
Payment of premium can be done in the following options:-
- Pay full premium with 30% discount within the stipulated time given by the State Authority; or
- Pay RM1000 with the condition that the owner shall not sell the property to others. Otherwise, the owner has to pay the full premium.
As land matters are under the jurisdiction of the State, the policies and regulations that should be observed might be varied from one State to another.
Therefore, it is best to find out the details prior to applying for an extension.
It is important to bear in mind that the State Authority has the full discretion to allow the extension or otherwise at the end of the day.
Conclusion
We opine the introduction of Section 90A to the Code is one of the most remarkable amendments ever introduced for the past decade. And it is now safe to say that the application to extend the lease shall be made before the expiry of the lease in order to secure the extension of the lease to a leasehold land title.
About the Author:
This article is written by Chia Swee Yik, Partner of this Firm (assisted by paralegal, Ooi Zhuang Hong) who has provided practical advice on property transaction.
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