NOR ASYIKIN MANSOR (G1519104)

5th Assignment

1 What is the effect of registering a charge document?

.

Under the National Land Code 1965, registration play a vital part in determining
whether an individual reserve the rights for protection under the Code or merely
on the basis of equitable justice. Once a person register his right in accordance
with the provisions of the Code, such person’s interest or title is indefeasible in
the eyes of law and nobody has the right to claim otherwise except in the case
of fraud, misrepresentation, registration obtained by forgery and titles obtained
unlawfully.

Procedurally, a person is required to execute the respective form provided

under the Code for registration of charge. Once it is executed, the form needs
to be stamped and registered with the appropriate Land Registry or Land Office
in order to be effective. Any other subsequent registration will rank next in
priority and the law regards the chargee in this case as having only equitable
interest.

Upon the registration of charge, the lender is fully secured and the effect of
charge would be an encumbrance on the land which prevents any further
dealings whether by way of sale and transfer of that land or the grant of second
charge without the consent of the first registered chargee.

2 What are the different types of land that can be accepted as security?
.

Under the National Land Code, all lands belong to the State Authority. The State
Authority may after due consideration of the application grant to the successful
interested applicant the ownership over the land that he had applied for. This is
commonly referred to as alienation of land. And under the National Land Code,
only alienated land may be accepted as security and it can be differentiated
according to its type.

The first type is a freehold land/freehold title; when state land is disposed of by
a state authority to an individual in perpetuity, the land vests in such individual
and his successors in title for an indefinite period. Since the duration s
indefinite, a freehold title would presumably command a better market value as
compared to a land tenure for a fixed term of years.

The second type is a leasehold land/leasehold title; when state and is disposed
of by a state authority to an individual for a term of years, the land vests in

1
 NOR ASYIKIN MANSOR (G1519104)
5th Assignment

such individual and his successors in title for that period of years as originally
granted. Under the National Land Code, the duration of the lease cannot exceed
99 years and upon expiry of the period, the land should revert to the State.

There is another type of land that is differentiated based on its status namely
Malay Reserve Land, Customary Land and Native Land. For creation of charge
over this type of land, certain conditions need to be fulfilled depending on the
respective State law. For example, for Malay Reserve Land, the chargee need to
obtain status as ‘ malay’ first for creation of charge failing which may render the
charge as null and void thus prejudice the right and interest of the chargee over
the land as security.

3 What instruction would you give a solicitor preparing documentation

. for a housing loan where the property has been issued with a title
deed?

Assuming that the property is to be purchased direct from the Developer.

1. Firstly, solicitors must ensure that the Customer has signed the Sale and
Purchase Agreement (SPA) with the developer.

2. In order for solicitors to prepare the necessary documents, the Purchaser

must have first been approved with a financing/loan with any financing
institution (‘FI’). This can be evidenced by signing of the Letter of Offer as
issued by the FI.

3. The solicitor will then proceed with preparation of Financing/Loan

Agreement together with Memorandum of Transfer and a charge document.
In the meantime, the solicitors will lodge a private caveat on behalf of the
Purchaser, in order to prevent the developer or vendor from sub-sale
transaction from fraudulently selling to another person at a higher price.

4. In order to further protect the interest of the Purchaser, the solicitors will
require to get undertaking from the developer’s solicitors to do the
following:

- Forward the title of the Property together with the registrable

memorandum of transfer to the Purchaser’s FI;

- Refund the loan/financing amount in the event the transfer of the land
title cannot be effected or Certificate of Fitness cannot be issued;

2
 NOR ASYIKIN MANSOR (G1519104)
5th Assignment

- Refund of the loan amount in the event the project is abandoned and
cannot be completed; and

- Obtain a letter of undertaking cum redemption from the developer’s FI.

5. Once the documents are ready, the Purchaser is required to execute the
Loan/Financing Agreement together with the charge document. Thereafter,
the Loan/Financing Agreement and charge document will be sent for
stamping at ad valorem.

6. The solicitor will have to conduct a land search to ensure there are no
encumbrances over the Property and lodge a private caveat for cases if
there is a redemption sum to be paid to the Developer’s FI.

7. The solicitors will then issue a legal opinion and inform the FI to release
redemption amount to the Developer’s FI. After full redemption, the Solicitor
will proceed with presentation of memorandum of transfer and charge at
the relevant land office for registration. This will be done simultaneously
with withdrawal of private caveat at the relevant land office.

4 What is the purpose of conducting a land search and bankruptcy

. search?

Land Searches
Prior to creating a legal charge, it is important to conduct a search at the
relevant land office. The purpose is to:

a) Determine the registered owner of the land;

b) Ascertain the registered interests in the land;

The search over the land will help to look for restrictions in interest and
conditions affecting the document of title to the land, e.g. land restricted to
industrial use when the loan is for housing; and
The search on the land is also vital in order to ensure that the land is free from
encumbrances, e.g. other charges and caveats or that there is no government
restriction endorsed on the title. E.g. the government’s intention to build a
highway.
Aside from that, in order to ensure that there is no prohibitory order endorsed
over the particular land, the land search is definitely a must. Sometimes,

3
 NOR ASYIKIN MANSOR (G1519104)
5th Assignment

depending on the land, the consent of the state authority is required to transfer
the property, such a letter of consent must be obtained and such information
may only be obtained via Land Search.

Bankruptcy Search

A bankruptcy search is conducted to determine whether the client is a bankrupt.

Though the law does not prohibit the bankrupt from transacting or charging the
land to the financial institution, it becomes a criminal offence if he does not
surrender the land to the official assignee.

The lender’s view is that once a person is declared a bankrupt, his ability to
repay becomes questionable thus may substantially affect the Customer’s credit
standing with the Bank which lead to the Bank’s discretion whether to continue
with granting of the Facility or to decide otherwise.

5 Explain the process of how you take documentation for finance

. against shares including what to do when releasing the documents on
settlement of debt.

Stocks and shares are also widely use as securities in loans and advances by the
lender. Shares as securities differ in value depending on whether these are from
a public listed or an unlisted company which may be public or private. The
former type of shares are more sought after as there is a market for such
securities and they are easier to dispose of when the lender wants to realise
them.

For creation of charge against stocks and shares, apart from the acceptance of
the actual certificates of the shares, it can also be done by way of Memorandum
of Deposit (‘MOD’). The MOD contains a clause giving the lender a power of sale
in case of default.

The memorandum will also stated that in consideration of the lender granting
the financing facility, the shares described in the schedule have been charged
as security for all moneys owing by the Customer. Since the purpose of the
MOD is as security for event of default, the normal practise is that a power of
attorney will be obtained from the Customer in favour of the lender so as to
give the lender the right to sell and transfer the shares pledged. The Power of
Attorney has to be registered with the High Court Registry before the power
may be exercised.

4
 NOR ASYIKIN MANSOR (G1519104)
5th Assignment

Normally, the lender requires for a ‘blanket’ transfer form to be executed by the
Customer which state the Lender’s nominee as transferee. If the customer
defaults, the lender will fill in the date and have the transfer form stamped. The
transfer will then be registered and in due course the shares will be sold out of
the name of the lender’s nominee.

And as for realization of the MOD, for shares that have been transferred to the
nominee’s name, the nominee company will have to execute a stock transfer
form showing the Customer as transferee. This will be sent to the company’s
registrar who will transfer the shares to the Customer’ account. The MOD and
the Power of Attorney are then to be cancelled.