Malaysia Federal Court clarifies effective date for approval of change in condition of land title and legality of tenancy for commercial use of residential land

20 December 2021

Tan Sri Dato’ Lim Cheng Pow v Bellajade Sdn Bhd & Another Appeal [2021] 10 CLJ 183

In Tan Sri Dato’ Lim Cheng Pow v Bellajade Sdn Bhd & Another Appeal, Bellajade Sdn Bhd (“Bellajade”), the registered owner of a 23-storey office building called Plaza Palas (“Building”) entered into a tenancy agreement (“TA”) with CME Group Berhad (“CME”) for a tenancy of the Building for a fixed term of three years from 20 March 2013, being the date of completion of a sale and purchase agreement (“SPA”) between Orion Choice Sdn Bhd (“OC”), the previous owner of the Building and Bellajade. Tan Sri Dato’ Lim Cheng Pow (“TS Lim”) was named as CME’s guarantor. Kris Angsana Sdn Bhd (“Kris”) initially had ownership of the Building’s land (“Land”) but when it went into liquidation, OC was named in the SPA as the beneficial owner. At the time, the category of use for the title to the Land was “Building” with “Residential” as its express condition (“express condition”).

In 2011, Kris applied to the Land Administrator (“LA”) for a surrender, re-alienation and change of the express condition from “Residential” to “Commercial” and “Mixed Development” under section 204D of the National Land Code (“NLC”) (“Application”). In 2012, Bellajade applied and on 27 November 2012 was granted a certificate for occupation (“CFO”) for the Building by the Kuala Lumpur City Council (“Council”) to use it for commercial purposes. Following full payment of the premium imposed by the LA, a certificate dated 18 February 2013 was issued by the Department of Land and Mines, Kuala Lumpur, acknowledging the payment and stating that the Application had been approved.

When CME only paid six months’ rent, Bellajade filed an action for the outstanding rent. In response, CME argued, inter alia, that the TA was void for flouting the express condition.

The Federal Court held, among other things, that:

• The NLC does not provide the effective date for the approval of the change in condition unlike for alienation of land as provided in section 78(3) of the NLC and change in category of land use in section 124(1)(a) of the NLC. In the absence of such specific provision, that effective date, would be when the same was similarly endorsed on the title to the Land. 
• The Council, being a public entity, must be presumed to have made a diligent search of the condition of the title to the Land before issuing the CFO. It could not be, unless there was evidence to the contrary, that one arm of the public authority was oblivious to what the other was doing. Thus, at the time the TA was entered into by Bellajade, the change in condition was effectively in place though not yet formally endorsed on the title to the Land. 
• While a tenancy for commercial use of land which was by condition for residential use is indeed illegal and void, with the approval of the Application and full satisfaction of the condition imposed to effect the change of land use, what was left to be done at that material time was the administrative act of endorsing the change on the title to the Land. Thus, the TA was not void ab initio. The question of knowledge of the alleged illegality on the part of CME was immaterial to the issue of its liability to pay the rentals as claimed.