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The Difference between Leasehold and Freehold Property

The land laws of Malaysia are governed by the National Land Code, 1965 (Act 56 of 1965). Section 40 of the National Land Code, 1965 mentioned that all states land belongs to the state authority. There are several major differences between a leasehold and freehold property.

When state land is disposed off by the state authority to an individual in perpetuity for an indefinite period, this land is now granted as freehold title. When a buyer purchases a freehold property from a developer, the developer will execute a Memorandum of Transfer (“MOT”) to transfer the property to the purchaser.

Nevertheless, the government can still take back any freehold land under the Land Acquisition Act 1960 to be developed for public purposes (infrastructure projects such as the MRT) or for economic development. The term ‘economic development’ is a gray area and the government has the discretion to take over any private property at any time. If such acquisition occurs, the property owner will have to be compensated at the market value of the property.

When the state land is disposed off by the state authority to an individual for a term of years, by virtue of law, not exceeding a term of 99 years, this land is now granted as leasehold title. An owner of a leasehold property is not the ultimate owner of the land upon which the building is erected, but is a lessee of the land only.

Upon expiry of the period of the lease, the land should be reverted to the state authority. The owner will then have to either apply for a renewal of the lease before its expiry, or apply for a fresh alienation if the lease has expired. These will involve the payment of a hefty conversion premium which would be between 15%-30% of the land’s market value at the time of conversion.

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