I wrote the following legal opinion in reply to a banker client’s letter…
In terms of (1): legality
Please be advised that the requirement by the Government for the Developer to allot certain quota of the developed properties to bumiputra is a Government policy aimed at securing property ownership by the bumiputras. Such policy requires that any property labeled as “bumi lot” be sold by the Developer to a bumiputra purchaser. Subsequently, when the individual title of the “bumi lot” is issued, it usually carries a term/condition that stipulates that the transfer of the title to a non-bumiputra is prohibited within the period of five (5) years unless permission has been obtained from the Government.
Such Government policy, however, does not affect legality of documents. As such, the 2nd Sale and Purchase Agreement and the Deed of Assignment entered between the Borrower and the Vendor (although entered within the five (5) years limitation) remain legal and enforceable. This follows that the Deed of Assignment and Power of Attorney to be entered between the Borrower and your Bank would also be legal and enforceable.
As long as the original document of title to the Property has yet to be issued, your Bank’s interest would be fully protected by virtue of the Facilities Agreement, Deed of Assignment and Power of Attorney entered between your Bank and the Borrower (“the said Loan Documents”). Albeit, upon default of payment by the Borrower followed by a foreclosure of the Property, your Bank may only auction the Property as a “bumi lot”.
In terms (2): transfer and charge
We have spoke to the Land Officer in Central Land Office, Mr Kevin Joibi, on 07.04.2011 concerning this matter. Mr Kevin stated that if the 2nd Purchaser had bought the “bumi lot” from the 1st Purchaser after the 1st Purchaser has bought the “bumi lot” from the Developer for more than five (5) years, despite the fact that the individual title has only been issued for less than five (5) years, the Land Office would accept the registration of transfer of the “bumi lot” to a non-bumiputra provided that the 1st Sale and Purchase Agreement and the 2nd Sale and Purchase Agreement be shown to the Land Office revealing the fact that the 1st Purchaser has sold the Property (without title then) to the 2nd Purchaser after the lapse of five (5) years.
Regrettably in our case, the 1st Sale and Purchase Agreement is dated 18.12.2000 while the 2nd Sale and Purchase Agreement is dated 13.10.2004 which means the 1st Purchaser has sold the Property to a non‑bumiputra within the five (5) years limitation.
Mr Kevin has confirmed to us verbally that under such circumstance, a transfer could still be accepted by the Land Office subject to the relevant approval being obtained and a land premium being paid.
However, we are unable to advise your Bank how much the land premium would be. In the event the Borrower could not obtain the relevant approval or pay the required premium for the transfer, it would not be possible to register your Bank’s charge against the individual title.
Mitigation of Risk
Upon issuance of the document of title but pending registration of the title to the Borrower’s name, your Bank’s interest would still be protected under the said Loan Documents as the status of the Property will remain as a Property without title although it would no longer be possible for the lodgment of a caveat against the Master Title (which has been surrendered for subdivision) to further secure your Bank’s interest.