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The Importance of Perfection of Transfer and Charge

posted 7 months ago

Many purchasers have mistakenly assumed that once they signed the Sale and Purchase Agreement with the Developer, they are officially the registered and beneficial owner of the property. This situation arises for a property that is purchased before the issuance of a separate individual or strata title, the property remains held under a master title. At this stage, the purchaser is in law the beneficial owner of the property. However, the registered proprietor endorsed on the master title of the property is still the developer.

According to section 340 of the National Land Code, the title is indefeasible for the proprietor whose the title or interest is being registered. The general rule in NLC is that the registration of land serves as the conclusive evidence of ownership of a person who is recorded as the proprietor (owner) in respect of the land/property. The concept of indefeasibility wherein all registered title and interests are guaranteed to be good against the whole world in the absence of fraud or forgery or as the immunity from attack by adverse claim to the land or interest in which a registered proprietor enjoys.

The exceptions from the general rule in Section 340 of the NLC are fraud and forgery. The title or interest can be set aside under section 340(2) if it has been obtained by, inter alia, fraud or forgery. In the case of fraud, section 340(2)(a) provides for the title or interest obtained to be defeasible where the proprietor or his agent is a party or privy to the fraud. In the case of forgery, section 340(2)(b) provides for the title or interest so acquired by the proprietor or transferee immediately to the forgery to be defeasible and liable to be set aside. This is so irrespective of whether the said proprietor or transferee acted in good faith in acquiring the title or interest.

However, in the case of fraud, where the subsequent proprietor or transferee acts in good faith and gives valuable consideration for the title or interest in question, a subsequent proprietor or transferee such that his title or interest will be indefeasible. The vitiating factor of fraud is that either the proprietor or his agent was a party to or had colluded in the fraud or forgery. In contrast, the vitiating factor of forgery is sufficient in itself to render the registered title or interest defeasible notwithstanding that the immediate registered proprietor or transferee is innocent and has acted in good faith in addition to giving valuable consideration.

In the event of a sale of the property, when the perfection of the transfer and charge process has not been done, the sale and purchase transaction would incur an additional delay. It will require the Developer’s confirmation of the said property details and the Developer’s consent for direct transfer in favour of the potential Purchaser. Furthermore, most financial institutions are reluctant to approve loans to finance the purchase or offer refinancing facilities to properties with titles that are still have not been perfected especially when the individual/strata title has been issued. Thus, the potential purchaser may undergo quite some difficulties getting financiers to finance the purchase of the property or to facilitate the refinancing of the existing loan facilities of the property.

Moreover, another problematic scenario that may arise is when the Developer is wound up or liquidated before the perfection process is completed. In this situation, instead of dealing with the Developer, the beneficial owner is now required to deal with the appointed liquidator to perfect the transfer and charge. This process not only will waste the time but the beneficial owner also need to pay additional fees and costs to the appointed liquidator to undergo the perfection of transfer process.

Moreover, where the purchase of property is facilitated by loan, the financial institution may exercise their rights under the power of attorney executed with the purchaser to sign the requisite documents for the perfection of transfer and perfection of charge as the beneficial owner’s Attorney after the owner failed to respond to the notice of reminders for the perfection of transfer and charge. In this scenario, all the fees and costs incurred by the bank will be credited to the borrower’s existing financing which will affect the length of the loan term and the interest in the loan.

Nonetheless, the beneficial owner’s rights and interests over the property are protected and secured by the terms and conditions stated in the principal sale and purchase agreement, pending the issuance of the separate individual or strata title of the property. Therefore, for the owner of the property it is important to perfect their title once the strata or individual title is issued in order to protect their interest or property against any adverse claim on the property.

About the Author
Wan Nur Farihin binti Meor Anuar Shuhaili
Real Estate, Banking and Finance
Halim Hong & Quek
[email protected]

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