Tenancy Agreement – Legality of Tenancy Agreement – Recovery of rental – Express condition of land – Whether tenancy for commercial use of land which is by condition for residential use is illegal and void – National Land Code 1965

CME Group Berhad v Bellajade Sdn Bhd & Another Appeal
[2018] 1 LNS 1372, Federal Court

see the grounds of judgment here

Facts The first respondent, Bellajade Sdn Bhd (“Bellajade”) is the registered owner of a 23 storey office building called Plaza Palas located in Kuala Lumpur (“the Premises”). Bellajade entered into a tenancy agreement (“the Tenancy Agreement”) with the first appellant, CME Group Berhad (“CME”) for a fixed term of three years. The second respondent, Tan Sri Dato’ Lim Cheng Pow stood as guarantor. The appellant paid six months rental only and subsequently failed and defaulted in payment. The first respondent filed an action seeking recovery of rentals and interests including the remainder rental of the 3-year tenancy. The first appellant argued that the respondent had assigned the Tenancy Agreement to its financier, OCBC Bank (Malaysia) Berhad, thus had no locus to commence and maintain the action. It was further argued that (i) since there was a dispute between Orion Choice Sdn Bhd, the previous owner of the Premises, and Bellajade on the additional price payable under the sale and purchase agreement (“the SPA”), the SPA was not completed and the Tenancy Agreement had not commenced, and (ii) the land searches over the Premises revealed the express condition of title was for residential purposes only, thus the Tenancy Agreement was null and void. The High Court dismissed the claim. The Court of Appeal allowed the appeal. Hence, this appeal.

Issue The main issue is whether a tenancy for commercial use of land which is by condition for residential use is illegal and void having regard to the Federal Court decision in Singma Sawmill Co Sdn Bhd v Asian Holdings (Industrialised Buildings) Sdn Bhd

Held In allowing the appeal, the Federal Court held that the fact that the process of conversion had been commenced did not change the fact that the express condition of land title prohibited the use of the Premises for the purposes specified in the Tenancy Agreement and although no action was taken by the State Authority in respect of the contravention, the Tenancy Agreement nonetheless remained illegal for contravention.

[1] [1980] 1 MLJ 21