Section 340(1) of the National Land Code (Revised 2020) (“NLC”) establishes certainty of title by way of registration adopted from the Torrens System. It states that the title or interest of any person or body registered as the proprietor of a land, or in whose name any lease, charge, or easement is registered, is generally indefeasible, subject to the provisions mentioned in this section.
Section 5 of the NLC did not define the term “encumbrance” on a title but a bona fide purchaser for value would generally impose a condition on the proprietor in the sale and purchase agreement to dispose the title or the registered interest in the title free from caveats, encumbrances and prohibitory orders. As such, the proprietor would be required to deliver to his bona fide purchaser a clean title pursuant to the contract and not an encumbered one.
Interests in land that are capable of being registered are considered encumbrances.
The principle on what amounts to an ‘encumbrance’ in the context of the NLC was laid down by Gopal Sri Ram JCA in Mewah Plus Property Sdn Bhd v Kluang District Government Servants Co-Operative Housing Society Ltd [2000] 2 Mlj 456 (CA), by referring to 2 Privy Council case:-
The first is T Damodaran V Choe Kuan Him [1979] 2 MLJ 267, where Lord Diplock when delivering the advice of the Board said:
‘In the National Land Code it is s 340 that expressly provides that the title of a person registered as proprietor of any land shall be indefeasible. The only exceptions are where there has been fraud, misrepresentation, forgery or an ultra vires acquisition purporting to have been made under statutory authority. None of these exceptions apply to the instant case. Interests in land, short of proprietorship, which are capable of being registered are leases, charges and easements. If registered they would amount to encumbrances within the meaning of a covenant against encumbrances; but unless registered they do not derogate from the unencumbered title of the registered proprietor of the land…
Lord Templeman’s viewpoint in Letchumanan Chettiar v Palaniappa Chettier [1983] 1 MLJ 6 has expanded the scope of what could be considered an encumbrance. Lord Templeman’s had in this case referenced a caveat upon the register as “the only relevant encumbrance”, which gave a broader interpretation to the term compared to Lord Diplock’s interpretation in the case of T Damodaran v Choe Kuan Him.
On top of that, the scope of the term “encumbrances” was further extended in the Court of Appeal case of Lee Chin Cheng Dengkil Oil Palm v Kaplands Sdn Bhd [2003] 1 MLJ 177. Arifin Zakaria JCA articulated the term “encumbrances” has the widest possible meaning:-
‘The word ‘encumbrances’ as appearing in s 18 of the Act has the widest possible meaning. It obviously applies to such recognized interest as leases, subleases and mortgages. It also applies to lesser rights such as easements, right of way, profits a prendre, customary rights and trust rights. Even a mortgagee’s rights are removed from the land and affixed to the compensation money.’
Furthermore, in the recent case of Tan Sri William Cheng Heng Jem & Anor v Tan Sri Ngan Ching Wen & Ors [2013] 8 MLJ 417|(HC) it was established that a registered easement can be considered a registered interest and is thereby regarded as a registered encumbrance. The judgment highlighted the conclusive nature of primary registration, wherein it provides irrefutable evidence that registration has occurred and the recorded particulars are accurate. The aspects that enjoy conclusive proof include:
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- (i) The registered title or registered interest (registered encumbrance) held in the registered land as described in the relevant folio of the Torrens register;
(ii) The identification of the person named in the folio of the title as a registered proprietor or, in the case of an existing registered encumbrance, as a lessee, chargee, or holder of an easement of such registered interest;
(iii) The fact that the land comprised in the registered title has been brought under the provisions of the Torrens statute; and
(iv) The date and time of registration of the registered title.
The judgment also refers to the book ‘The Torrens system and Equitable Principles’ by Mr SY Kok, which supports the view that a registered easement constitutes a registered encumbrance from the characteristics of it being a registrable interest.
Conclusion, an encumbrance acts as a restraint or fetter on the proprietor to freely deal a title unless written consent of the encumbrancer has been obtained. In the event you are planning to acquire a real estate property, it is always wise to conduct a title search prior the purchase. A title search would help to provide you with further details on the property use and to determine if there are encumbrances that will affect the dealing of the title. A clear title will definitely help to save a lot of hassle in a transaction.
This article is intended to be informative and not intended to be nor should be relied upon as a substitute for legal or any other professional advice.
About the author
Hee Sue Ann
Associate
Real Estate, Banking & Finance
Halim Hong & Quek
sahee@hhq.com.my
