THERE are several major distinctions between a freehold property and a leasehold property, among which are:-
(a) an owner of a freehold property holds the title of the property in perpetuity. He is the owner of the land and the building erected thereon. When a buyer purchases a freehold property from a developer, the developer will execute a memorandum of transfer to transfer the property to the purchaser;
(b) an owner of a leasehold property is not the owner of the land upon which the building is erected, but is a lessee of the land for a period varying from three years to 99 years (the maximum period of lease permitted by the National Land Code). Usually, when a purchaser purchases a leasehold property from a developer, the developer will construct and sell the building to the purchaser and the landowner will create a lease in favour of the purchaser by way of a memorandum of lease;
(c) in the case of a freehold property, there is no restriction in law on the number of owners who can be registered as proprietors; and
(d) in the case of a leasehold property, the National Land Code does not permit land to be leased to two or more persons or bodies, unless they are trustees, or executors or administrators of an estate. This would mean that in the event there is more than one purchaser of a leasehold property, only one of them can be registered at the land registry or land office as lessee of the land. However, they may agree between themselves as to who shall hold the land as trustee for both of them or they may even agree that both of them shall hold the land jointly as trustees for both of them, to overcome the restriction in law.
Terms and conditions of lease
Unless otherwise provided in the lease, the National Land Code provides that it shall be implied that, among others, the landowner shall pay the quit rent of the leasehold property and that so long as the lessee observes and performs the provisions of the lease, express or implied, the lessee shall enjoy peaceable and quiet possession of the leasehold property without any interruption or disturbance from the landowner.
On the other hand, it shall be implied that the lessee shall pay the rental for the lease at the times and in the manner specified in the lease and observe and perform all the conditions, express or implied, to which the land is subject, including but not restricted to payment of assessment and other outgoings falling due in respect of the leasehold property.
Reasons for selling and purchasing leasehold properties
There are various reasons why parties may opt for a ground lease transaction rather than an outright sale of the land. From the landowner’s perspective, the reason to opt for a lease transaction may be that the landowner wishes to retain the ownership of the land, which is high in value and the landowner may wish to reserve the right to develop or change the usage of the land upon expiry of the lease or in future.
From the lessee’s prospective, the reason to opt for purchasing a leasehold property may be that the purchase price of a leasehold property is usually less and more affordable than a freehold property.
Dealing with leasehold properties
Unless there are restrictions imposed by the State Authority on the land or by the landowner in the lease, a lessee shall be entitled to transfer and charge his leasehold property and create a sub-lease to his leasehold property.
What will happen when the lease expires?
A lessee is always concerned about his rights when the lease expires.
Upon the expiry of the lease, the lessee will be faced with three alternatives:
(i) to negotiate with the landowner to grant the lessee a further term of the lease, subject to payment of revised rental; or
(ii) to negotiate with the landowner to sell to the lessee the land at a purchase price to be agreed upon; or
(iii) to quit and yield up the leasehold property and, in that event, the lessee will lose the building and all the improvements he has made to the land.
Forfeiture
Every lease shall, subject to any express provision therein to the contrary, be liable to forfeiture if the lessee breaches any of the express or implied provisions thereof, or if the lessee being an individual person is adjudicated a bankrupt, or if the lessee being a company, goes into liquidation.
Before the landowner enforces the forfeiture of any lease, he is required to serve on the lessee a written notice specifying the particular breach complained of, and if the breach is capable of remedy, requiring the lessee to remedy it, and in any case, other than non-payment of rent, requiring the lessee to make compensation in money for the breach. If the lessee fails to comply with such a notice within a reasonable time after such notice is served on him, the landowner may forfeit the lease.
The forfeiture of any lease will also extinguish the entire interest dependent thereon, that is, any charge on the lease and any sub-lease or any tenancy granted over the lease.
The writer is a member of the Conveyancing Practice Committee, Bar Council, Malaysia www.malaysianbar.org.my
