Leasehold Agreement

A leasehold property is land or property owned by the state government that is leased to the public for a certain number of years. Leasehold tenures in Malaysia are typically between 30 and 60 years.

When the lease expires, the owner will be required to return ownership to the state government. Owners can, however, choose to prolong or renew the lease with the agreement of the state government. Following the acceptance of the extension, the owner is required to pay a set fee.

It is the tenant’s responsibility to properly care for the land. The lease itself has requirements and limits that must be followed. If the state determines that the renter is unsuitable, they have the authority to jeopardize the tenant’s tenure security. Furthermore, if the tenant’s performance is not adequate, the state may lose the lease.

The pricing is one of the most obvious advantages of owning a leasehold property. A leasehold property is less expensive than a freehold home. It may be advantageous for people who have a certain budget in mind while purchasing a home. Aside from that, leasehold homes are outfitted with features and amenities, as well as being designed to be more appealing to renters.

Because the owners do not have complete authority over their properties, you may only transfer ownership with approval from the state government. The permission approval process might take up to 6 months or a year. This might cause major issues when it comes to selling the houses in the future. Another downside of having a leasehold property is that its value may fall after 30 years when compared to its initial worth. As a result, the owners may suffer a significant financial loss.

Malaysian land laws are controlled by the National Land Code, 1965. (Act 56 of 1965). According to Section 40 of the National Land Code of 1965, all state land belongs to the State Authority. When the State Authority transfers state land to an individual in perpetuity for an undetermined duration, the land is now given as freehold title. When the State Authority transfers state land to an individual for a period of years not exceeding 99 years, the land is now given as Leasehold title. The land should be returned to the State Authority when the lease time expires.

The buyer of a freehold home owns the ground on which the property is built. In contrast, with leasehold property, the buyer owns the property but not the ground on which it is built. Simply explained, leasehold property is a long-term tenancy in which you can occupy the property for the duration of the lease.

In the long term, freehold properties appreciate in value more. During the first 20 to 30 years, prices may be lower or equal to similar freehold homes. However, the value of leasehold properties often depreciates over time when the lease period expires and there is uncertainty about securing an extension or renewal of the lease, which diminishes the property’s marketability. The value of freehold properties is lower than that of leasehold ones, owing to the greater entrance cost. Purchasing and selling leasehold property takes longer since state authorization and approval are required.

One obvious concern is whether or not you will be allowed to maintain a leasehold property once the lease expires. If you wait for it to expire, the property or land will immediately revert to state possession and be offered for purchase by anybody else. Any renewal request at this time may be refused. If the lease has ended and you still want the land/property, you must file for a new alienation, which will cost nearly as much as purchasing it again.

The National Land Code has two provisions for renewal:

1. Section 90A of the National Land Code (Amendment) Act 2016, as modified, defines the conditions for renewing a lease, which include applying before the lease ends and ensuring that the land use remains intact and is not infringed during the lease period.

2. Sections 197 and 76 of the Code prohibit the extension of a lease. As a result, you must apply to the State Authority under both sections. The applicant will then be informed of the Code provision under which their application will be handled, as well as the leasehold premium required.

A premium is the whole amount of coverage that homeowners must pay in order to keep their lease on the property. Leasehold properties, unlike freehold apartments, do not carry a premium, thus they must be renewed on a regular basis once a certain term has elapsed.