Overview of Private Lease Scheme in Malaysia

Overview of Private Lease Scheme in Malaysia

In 2012, a developer company known as Iskandar Investment Berhad introduced a unique arrangement that seems like a normal property purchase. However, in reality, it only granted their purchasers a long-term leasehold interest instead of full ownership. This arrangement has become popularly known as the Private Lease Scheme (“PLS”).

Buyers, often unaware of the true nature of the scheme, were led to believe they were securing a traditional property purchase, only to later discover that their legal rights were significantly different from what they had expected. This led 63 purchasers to initiate legal action against Iskandar Investment Berhad, alleging that they were misrepresented into thinking that they were to get full ownership over their properties.[1]

This is not the first instance: in 2018, 107 buyers of The Meridin@Medini sued developer Tropika Istimewa Development Sdn Bhd, claiming misrepresentation and breach of the Housing & Development (Control & Licensing) Act 1966 (“HDA”) and the Housing Development (Control and Licensing) Regulations 1989 (“HDR”), where the Court ruled in favour of the developers.[2]

Likewise, in 2019, the Court of Appeal in the case of Loh Tina & Ors v Kemuning Setia Sdn Bhd & Ors and another appeal[3] held that PLS is a breach of the HDA and HDR.

This article provides an overview of the PLS, highlights key legal concerns, and outlines crucial considerations for both buyers and developers.

What is PLS and How Does It Work?

A PLS may be defined as an arrangement in which a developer confers a long-term lease of a housing unit—rather than transferring an outright freehold title—through a seemingly standard sale-and-purchase mechanism.

The key difference between a PLS (Private Lease Scheme) and typical leasehold ownership is that in a PLS, buyers do not own the property. In the case of Medini, for instance, Iskandar Investment Berhad (IIB) is the landowner and lessor, who then leases the land to a developer. The lease term typically ranges from 30 to 99 years, with an option to extend for an additional 30 years. The developer, as the first lessee, constructs properties such as high-rise condominiums, which are then sold to homebuyers on a leasehold basis, making them the second lessees in the arrangement.

It typically involves the use of an SPA-like document instead of the statutory Schedule G or H, under the HDA, or an amended version of the Schedule G or H of the SPA. The developer may attempt to introduce special clauses to convert what would otherwise be a sale into a long-term lease.

Legal Issues Surrounding PLS

  1. Contravention of Schedule G or H of the HDR

Under regulation 11(1) of the HDR, any “contract of sale” involving the sale and purchase of a housing accommodation must conform strictly to the standard form in Schedule G (for landed properties) or Schedule H (for subdivided buildings):

“(1) Every contract of sale for the sale and purchase of a housing accommodation … shall be in the form prescribed in Schedule G…”

The Court of Appeal decision in Loh Tina (supra) underscores that any deviation from the prescribed Schedule G or H requires written approval (often referenced as a “certificate” from the Controller), and even that avenue has been curtailed by the subsequent Federal Court decision in Ang Ming Lee & Ors v Menteri Kesejahteraan Bandar, Perumahan dan Kerajaan Tempatan & Anor[4] (holding that the Controller does not in fact have lawful power to waive or modify those standard terms).

Accordingly, attempts to restructure a standard sale into a “lease” within the same document will almost inevitably contravene Schedule G/H, because they alter or remove key purchaser protections guaranteed by the HDA/HDR.

  1. Consequences of Breach: Does It Void the Entire Contract?

The Court of Appeal in Loh Tina clarified that not all breaches of Schedule G/H automatically void the entire contract. The intention of Parliament, as interpreted by the courts, is to ensure that purchasers receive what the statutory scheme guarantees—namely, a proper transfer of ownership (in a landed context) or strata title (in a subdivided context).

As the Court of Appeal explained, the illegal clauses (e.g., those converting a sale into a lease) might be deemed null and void, but it does not void the whole contract. Thus, the valid parts of the SPA (conforming to Schedule G/H) remain enforceable, and the offending clauses are struck down.

  1. Binding on Proprietor

The HDA/HDR framework extends to both the developer and proprietor. In a joint-venture arrangement, where the landowner signs the sale-and-purchase agreement together with the developer, both are subject to statutory obligations. Purchasers may seek relief against both parties for failure to transfer title in accordance with the standard Schedule G/H.

  1. Purchasers Can Claim Specific Performance

In Loh Tina, the Court of Appeal affirmed that purchasers have the right to specific performance to enforce the actual Schedule G or Schedule H obligations—ie, to receive ownership of the title as if the standard SPA had been used. The Court stressed:

“… the statutory prohibition against modifying Schedule G … would be lost altogether if purchasers cannot enforce what would have been their entitlement … a sale and transfer to them of the whole of the freehold title …”

This right to specific performance effectively prevents developers from profiting by offering only a private long-term lease to the purchaser.

Undecided Issues / Gaps

Certain questions remain unanswered:

  1. When (If Ever) Could a Private Lease Arrangement Avoid the HDA?

The Court of Appeal in Loh Tina confirmed the mandatory nature of Schedule G and H unless there is a valid exemption. In Ang Ming Lee, the Federal Court held that even the Controller of Housing lacks statutory authority to grant such waiver or modification. This begs the question:

If the developer truly never intends to collect a purchase price—only rental payments—perhaps it is not governed by the HDA. Yet which factual elements conclusively tip the balance from “genuine lease” to “disguised sale”? Courts are likely to scrutinise the structure of payments, the overall marketing, and whether the occupant is led to believe they are acquiring ownership.

Moving Forward

Given the emerging popularity (and controversies) surrounding PLS, legislators may want to consider whether certain forms of “build-to-rent” or “long-term lease” housing schemes should be expressly regulated under the HDA or permitted via amendments to the National Land Code (“NLC”).

A PLS can, in some cases, address specific developer/landowner needs—eg, retaining reversionary interests or circumventing certain restrictions on foreign ownership. However, from the purchaser’s standpoint, it introduces uncertainty over reversion, financing obstacles, and possible contravention of consumer-protection laws.

Both buyers and developers must understand that simply labelling an agreement as a “lease” does not override the mandatory Schedule G and H requirements under the HDR. Courts apply the substance over form principle when interpreting contracts, meaning they will look beyond the name or wording of an agreement to assess its true nature. If a transaction operates in substance as a sale—for instance, where buyers make payments equivalent to a purchase price and are granted long-term possession—the HDA and HDR apply regardless of how the contract is framed.

Conclusion

The Private Lease Scheme emerged as a mechanism to navigate (or bypass) certain regulatory constraints, but Loh Tina, Ang Ming Lee, and other recent court decisions have underscored the strict, mandatory nature of the HAD and HDR to protect the rights of purchasers. Labelling the contract a “lease” (or adopting creative drafting) does not absolve developers from using Schedule G and H where the core transaction is really a sale of housing accommodation.

Moving forward, clarity from Parliament or the Housing Ministry might be required—especially if Malaysia wishes to accommodate genuine “build-and-lease” residential models. Until then, any arrangement that involves more than four units of “housing accommodation” for sale is likely subject to the HDA, and attempts to circumvent Schedule G/H risk running afoul of the law. For purchasers, the bottom line is that they remain protected under the HDA/HDR.

If you have any questions, please contact our Head of Advisory & Compliance, Mr. Fakhrul Fadzilah (fakhrul@nzchambers.com), or our Pupil-in-Chambers, Mr. Alif Mustaqim.

Authors:

  1. Fakhrul Fadzilah
  2. Alif Mustaqim

References:

[1] “The end of private lease scheme in Medini?” The Edge Malaysia, January 28, 2025. Available at: https://theedgemalaysia.com/node/741668.

[2] Wong Hang Foh & Ors v Tropika Istimewa Development Sdn Bhd (KL High Court Civil Suit No: WA-22NCVC-120-03/2018)

[3] [2020] 6 MLJ 191

[4] [2020] 1 MLJ 281

Published on 25 February 2025