1) What is a charge?
A charge is a transaction entered between a registered proprietor of land and a financier whereby in consideration for a loan from the financier the registered proprietor provides his interest in the land as security for the loan. The registered proprietor’s interest in the land could be that of a freehold title holder or a lessee. The owner of the land or lease is known as the Chargor whilst the financier is known as the Chargee.
2) A charge is not a mortgage
A charge is created under the National Land Code (“NLC”) using the prescribed statutory form (i.e. Form 16A). The Chargee does not own the land. Ownership will remain with the registered proprietor. The Chargee only has the right to enforce the sale of the land with a court order or to take possession of the land in the event of a default in the repayment of the loan.
On the other hand, a mortgage is created by contract. The land is used as a security to pledge against borrowings. The borrower is the Mortgagor and the Lender is the Mortgagee. The ownership of the land is vested in the mortgagee with the mortgagor having only a right in equity to redeem the land from the mortgagee upon repayment of the loan to the latter. Though there is no prescribed form to create a mortgage, there is however a deed of conveyance.
3) Types of land that can be charged
S241(1) NLC specifies the following types of land that may be charged:
(a) the whole, but not a part only, of any alienated land;
(b) the whole, but not a part only, of any undivided share in alienated land; and
(c) any lease of alienated land
4) How is a charge created?
It is created under the NLC using the prescribed statutory form. It should be noted that a charge means a registered charge as per s5 NLC. This is supported by s243 NLC which states that a charge can only be enforceable if it is registered. Also, according to the case of Yee Sin Cheong v UMBC, a charge can only be created to secure a debt. There can be no charge of land where there is no loan as it would defeat the purpose of the charge.
5) What if there is a 2nd or subsequent charge?
As per s245, 246 and 247 NLC, it can be seen that a charge is given priority in the order of creation. As such, the 1st chargee will have priority over the land as compared to any subsequent chargee.
6) Remedies for breach
According to the case of J. Raju v Kwong Yik Bank Bhd, it was held that the statutory remedy under the NLC is only available to a registered chargee. This means that if a charge is not registered, the chargee will never be able to avail himself of the statutory remedies provided in s253 (sale by way of public auction) and s254 NLC (taking possession).
It should be noted that the power to seek the sale of the property can be exercised even if the chargee has taken possession of the land. Although the most effective remedy is that of sale, if the proceeds from the said property are not enough then the chargee can always sue on the personal covenant to cover the loan.
