Acquiring of land involves a complex process that differs substantially from purchasing a residential or commercial property. The complexities arise from factors such as the nature of the land, its intended use and regulatory requirements that must be satisfied before ownership transfer.
The purpose of acquiring land is a key factor in shaping the terms of a sale and purchase agreement (“SPA”). Purchasers may seek land for various reasons, including the construction of residential, commercial, or industrial properties, land banking, long-term investment, potential resale, or for operational purposes, such as setting up factories, warehouses, or other essential infrastructure that supports the purchaser’s business objectives.
Each of these purposes requires tailored considerations and obligations within the SPA to meet the purchaser’s specific needs, as well as to establish the necessary conditions precedent, and the overall timeline for completion.
Condition precedent is an event or condition that must be satisfied before the SPA become effective or before any obligations are required from either party involved, these conditions ensure adherence to legal, regulatory, and practical requirements.
Here are some conditions precedent you might find in a SPA:
1. Restriction in interest (Sekatan Kepentingan)
Restriction in interest is defined under Section 5 of the National Land Code (Revised-2020) (“NLC”). It refers to the limitations imposed by the State Authority on dealings involving the land. If a land title is subject to restrictions in interest, prior written consent from the State Authority shall be obtained before proceeding with any transactions. Typical consent include consent to transfer the land, consent to charge the land, and/or consent to lease the land.
2. Acquisition by a non-citizen or a foreign company
Section 433B of the NLC provides that a non-citizen or a foreign company may acquire land only after obtaining prior approval from the State Authority. The approval may be granted subject to the payment of a prescribed levy. The non-citizen or foreign company is required to pay the levy within the stipulated timeframe. State Authority shall not exempt the payment of the levy unless in accordance with the direction of the National Land Council.
3. Economic Planning Unit (EPU) Approval
EPU Approval may be required for certain property acquisitions pursuant to the EPU’s Guideline on the Acquisition of Properties (effective 1 March 2014) (“Guideline”). The transaction subject to EPU Approval are direct acquisition of property valued at RM20 million and above, resulting in the dilution of the ownership of property held by Bumiputera interest and/or Government agency and indirect acquisition of property by other than Bumiputera interest through the acquisition of shares, resulting in a change of control of the company owned by Bumiputera interest and/or Government agency, having property more than 50 percent of its total assets, and the said property is valued at more than RM20 million.
4. Estate Land Borad approval
Section 214A (1) of the NLC provides that no estate land can be transferred, conveyed or disposed of in any manner whatsoever unless approval for such transfer, conveyance or disposal is first obtained from the Estate Land Board. Estate land is defined as any agricultural land held under one or more than one title the area or the aggregate area of which is not less than 40 hectares and the alienated lands constituting such area are contiguous.
5. Change of land use or conditions
If the land is intended for a use different from what is endorsed on the land title, the developer or landowner must obtain approval to convert the land use category or amend the express conditions to align with the purchaser’s intended purpose.
6. Surrender and re-alienation
Surrender and re-alienation is a land development mechanism that enables the changes of conditions, restrictions, and land categories. This land exercise can be carried out simultaneously with land subdivision or amalgamation, allowing for the restructuring of land use or conditions to meet development requirements.
7. Consent from the interested party
If the land is charged, assigned, or caveated by a financial institution or any third party having an interest in a land, prior written consent from the caveator or relevant party is required. This consent is required for submitting certain applications to the authorities or for the commencement of the SPA.
8. Withdrawal of existing approval, development order and termination of services of the consultants and contractors
To withdraw all and any existing approvals and applications submitted to the authorities related to the land, to terminate the services of, settling all fees, expenses and claims of the consultants, contractors and/or subcontractors in relation to the land, to deliver to the purchaser the relevant letters of withdrawal of the existing applications and orders in relation to the land and relevant letters of discharge of the said consultants, contractors and/or subcontractors.
9. State and Condition of the Land
To ensure the land is free of tenants, squatters, or unauthorized occupants or structures and that it is delivered with the infrastructure aligned with the intended purpose of the acquisition.
Conclusion
Acquiring land, especially for development purposes, often requires careful analysis, thorough consideration, and meticulous negotiation. Conditions precedent can be a strategy for acquirers to ensure that certain conditions must be met before the transaction can proceed. It is therefore advisable for each party to engage their own legal advisors to navigate the complexities of the acquisition, the drafting of the agreement, and all related legal aspects. This approach ensures that both parties gain a comprehensive understanding of the benefits and potential challenges, and that all agreed-upon terms are precisely and accurately captured in the SPA.
About the author
Lim Yoke Wah
Partner
Real Estate
Halim Hong & Quek
yokewah@hhq.com.my
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