Malaysia Federal Court rules statutory lease not enforceable by private law

29 November 2021

YKK (Malaysia) Sdn Bhd v Pengarah Tanah dan Galian Johor [2021] 8 CLJ 179

The Malaysia Federal Court matter of YKK (Malaysia) Sdn Bhd v Pengarah Tanah dan Galian Johor concerned the alienation of a piece of land for a term of 60 years by the State Authority of Johor. The lease was issued in Form 11A of the National Land Code (“NLC”) and was later acquired by the appellant before the expiry of the lease. Clause 7 of the special conditions of the lease provided the appellant with an option to renew the lease for a new term of 30 years (“Clause 7”). In 2014, the respondent informed the appellant that the respondent would not be renewing the leases in the area to give effect to the State government’s future development plans. Despite this, the appellant gave notice to the respondent to exercise the option to renew under Clause 7. Alleging that the respondent refused to provide the relevant renewal forms despite the appellant’s various attempts to obtain them, the appellant brought an action against the respondent.

The High Court held that Clause 7 created a contractual right in favour of the appellant and there was a binding obligation on the respondent to grant a new lease for the new term upon the appellant giving notice, paying the appropriate premium and surrendering the current lease. On appeal by the respondent to the Court of Appeal, it was held that Clause 7 did not originate from a contractual bargain in the usual context of contract law, which relates to a private law remedy, and what the appellant had secured was a statutory lease and not a contractual lease subject to private law.

The appellant obtained leave to appeal to the Federal Court on the question of whether the alienation of a qualified title by way of a lease by the State Authority under the NLC gives rise to a contract of lease between the State Authority and the lessee that is enforceable in private law.

The Federal Court dismissed the appeal, finding that the lease secured by the appellant was a statutory lease and the power to renew the lease conferred on the respondent was derived from the NLC which was exercised under the authority of the State to alienate lands as provided for under the same. Hence, the appellants’ mode of approaching the court seeking a private law remedy was unsustainable in law.

The court explained its reasoning as follows: 

• A State Authority is empowered by section 76 of the NLC to alienate State land for a term of 99 years or in perpetuity. The subject land fell under the former term and, upon alienation, was a statutory lease. 
• Clause 7 of the lease did not originate from a contractual bargain in the usual context of contract law which relates to a private law remedy but was part of the conditions of the lease, which is subject to the provisions of the NLC.
• Clause 7 of the lease could not be binding on the State Authority as it was not in accordance with the NLC, namely section 90A which confers on the State Authority the discretion whether to approve or reject any application for the renewal of the lease.
• Clause 7 of the lease did not impose a mandatory obligation on the State Authority to grant an extension of the lease but merely provided the procedural administrative steps that would follow in the event there was an application for an extension of the term of the lease and the State Authority approves such application. However, as the State Authority had informed the appellant that it would not be renewing the lease and there was never an approval of the renewal of the lease, the administrative steps did not arise and the clause was not triggered.
• The proposition that clause 7 gave legitimate expectation to the appellant for a renewal of the lease had to be considered in light of provisions of the NLC which provide for a specific manner in which the extension of a lease may be granted. The State Authority could not contractually fetter its powers of discretion.