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Legal Considerations in an IPO (Real Properties)






As part of an Initial Public Offering (IPO) process, legal due diligence will be carried out on the listing group (Group) to ensure legal compliance prior to the submission of the application to the authorities for an approval.


This alert sets out the key legal matters to look out for during an IPO process in respect of the properties owned, tenanted and/or occupied by the Group. It is advisable to take note of these matters early on during the IPO process as a majority of the real property related non-compliances would take a longer duration to rectify.


A.Certificate Of Completion And Compliance / Certificate Of Fitness For Occupation


Certificate of Fitness for Occupation (CFO) is defined under the Street, Drainage and Building Act 1974 (SDBA) as such certificates given or granted under the Uniform Building By-Laws. Following the Street, Drainage and Building (Amendment) Act 2007, the CFO has been substituted with the Certificate of Completion and Compliance (CCC).


In short, the CFO or CCC serves as an official recognition to certify that the building has been well constructed and is suitable for occupation.


Pursuant to Section 70 of the SDBA, any person who occupies or permits to be occupied any building or any part thereof without a CCC shall be liable on conviction to a fine not exceeding RM250,000.00 or to imprisonment for a term not exceeding 10 years or to both.


It is important to ensure that all properties occupied by the Group has a valid CFO or CCC and is a requirement often overlooked by purchasers / tenants when acquiring or renting a property.


Hence, prior to acquiring or renting a property, it is recommended for the purchaser or tenant to request for a copy of the CFO or CCC from the owner, landlord or developer of the said property. In the event that the CFO or CCC cannot be located, it may be useful to make an application to the local city council to request for their assistance in retrieving the same.


In the event that there is no valid CFO or CCC for the property, it would be a non-compliance to continue occupying the premise and it is highly recommended for the Group to vacate the said premise and make an application for a fresh CCC prior to going for listing.


B.Fire Certificate


It is a requirement under Section 28 of the Fire Services Act 1988 (FSA) that all designated premises is to be certified with a valid fire certificate which is to be renewed annually. Pursuant to Section 33 of the FSA, it is an offence to not have a valid fire certificate in force in respect of any designated premises and in such scenario, the owner of the designated premises shall, on conviction, be liable to a fine not exceeding RM50,000.00 or to imprisonment for a term not exceeding five years or to both.


Further, the fire certificate will only be issued if the authorities are satisfied that the designated premises have adequate fire safety facilities upon their inspection.


Designated premises for the purpose of issuance of a fire certificate under the FSA are the premises of which, the use, size and location are specified in the Schedule of the Fire Services (Designated Premises) Order 1998 (amended by the Fire Services (Designated Premises) (Amendment) Order 2020) (FSO) as follows:


Schedule of the FSO


It should also be noted that under Section 28(3) of the FSA, the requirement for a fire certificate does not apply to premises appropriated to, and used solely or mainly for, public religious worship or premises consisting of or comprised in a house that is occupied as a single private dwelling.


In the event that there is no valid fire certificate for the property owned by the Group where required pursuant to the FSA, companies should promptly submit an application to obtain the same prior to embarking on the IPO process to prevent any delays as it is a time-consuming process. Companies are also recommended to engage a consultant to facilitate the application process due to the complexity of the same.


In addition, it would be prudent to request for a copy of the fire certificate from the landlord prior to renting any properties which are designated premises and companies are reminded to refrain from renting any designated premises with no valid fire certificate.


C.Category Of Land Use, Express Conditions And Restrictions In Interest Of Land


Pursuant to Section 52 of the National Land Code (Revised 2020) (NLC), all alienated land are divided into 3 categories of land use (i.e. agriculture, building and industry).


All alienated land that fall within the above categories are subject to the implied conditions under Section 114 (all alienated land), Section 115 (agriculture), Section 116 (building) and Section 117 (industry) of the NLC respectively. Such land is not to be used for any other purposes other than for their specified uses.

The State Authority may also impose, under Section 120 of the NLC, express conditions and restrictions in interest conformable to laws as it may think fit, upon alienation of the land. These said conditions and restrictions in interest will be endorsed on the land title and shall not be inconsistent with any implied condition(s) to which the land becomes subject to on alienation, by virtue of the NLC.


Pursuant to Section 127(1) of the NLC, upon any breach arising from any condition on the land, the land shall become liable to forfeiture to the State Authority, and except in a case where a fine is imposed under subsection (1A) of the same section, or where action for the purpose of causing the breach to be remedied is first required to be taken under section 128 of the NLC, the Land Administrator shall proceed with the enforcement of the forfeiture in accordance with section 129 of the NLC. Where a fine is paid upon an order made under Section 127(1A), no action shall be taken under Section 128 (summary action to secure remedying of breach of condition) or Section 129 (enforcement of forfeiture for breach of condition) of the NLC in respect of the land. Land which has become liable to forfeiture under this section for breach of any condition shall cease to be so liable if the breach is subsequently remedied.


However, it should be noted that Section 124 of the NLC allows landowners to apply for the alteration the category of land use accordingly as well as for the recission or amendment of the express conditions or restriction of interest endorsed on the land title.


As such, all companies going for listing should take note of the category of land use, express conditions as well restrictions-in-interest endorsed on the land title prior to utilising the land to prevent any breaches of the conditions of the land.


An application for the conversion of land use or amendment or rescission of express conditions or restrictions of interest is a time-consuming process and may cause delays to the IPO process if not done promptly. It is recommended for companies to engage a consultant to facilitate the application process as it is a complex process.


D.Renovations / Extensions To The Buildings


Pursuant to Section 79(1) of the SDBA, no person shall erect or cause or permit to be erected in any building any partition, compartment, gallery, loft, roof, ceiling or other structure (collectively, the Structures) without having the prior written permission of the local authority.


In the event any Structures have been erected without the prior written permission of the local authority, under Section 79(3) of the SDBA, the local authority, its agents or servants may enter any such building and remove any Structures erected of and which the costs and expenses shall be borne by the person in default or if the person in default is unknown or untraceable or even if traceable is unable to pay the expenses incurred, the owner.


Without prejudice to Section 79(3) of the SDBA above, any person who contravenes subsection (1) shall be liable on conviction to a fine not exceeding RM500.00 and shall also be liable to a further fine not exceeding RM100.00 for every day during which the offence is continued after conviction.


In addition to the above, Section 80 of the SDBA also states that any person who erects or causes or permits to be erected, keeps or permits to be kept on his land or the land which he occupies any movable shed or movable structure intended to act as a roof without the prior written permission of the local authority shall be guilty of an offence and shall on conviction be liable to a fine of RM1,000 and the Magistrate's Court shall on application of the local authority, make a mandatory order requiring such person to remove such movable shed or structure.


However, on the discretion of the local authority, they may on the receipt of an application in relation to any particular building or structure, and provided they are satisfied that such waiver or modification will not render the building or structure unsafe, modify or waive, upon and subject to such terms and conditions as it thinks fit, any of the requirements of any by-laws relating to the construction of buildings (Section 74(1) SDBA). In the event that substantial modifications will be made to the buildings or structures and the aforesaid waiver from the local authorities has not been obtained, a fresh CCC will be required to be issued to reflect the new modifications (and as approved by the local authority).


Prior to making any extensions or renovations to the buildings owned or occupied by the Group, it would be a requirement to first make an application to the local authorities to either obtain a waiver or written approval of the authorities prior to taking such actions.


E.Certificate For Accommodation


It is common for employers to provide accommodation to their employees and it is typically done by either housing their employees in an owned property, a rented property or an accommodation provided by a centralized accommodation provider. Companies going for listing are reminded to take note of the Certificate for Accommodation requirement when making such arrangements.


Pursuant to Section 24D(1) of the Employees’ Minimum Standards of Housing, Accommodations and Amenities Act 1990 (EMSA), no accommodation shall be provided to an employee unless certified with a Certificate for Accommodation (CFA).


An employer who contravenes Section 24D(1) of the EMSA commits an offence and shall, on conviction, be liable to a fine not exceeding RM50,000.00 for each of the workers’ quarters. A centralised accommodation provider who contravenes the same commits an offence and shall, on conviction, be liable to a fine not exceeding RM50,000.00 or to imprisonment for a term not exceeding one year or to both.


In addition to the above, pursuant to Section 24E of the EMSA, the employer shall also, within thirty days from the date an accommodation is occupied by his employee, inform the Director General of Labour of such occupation, failing which the employer shall, on conviction, be liable to a fine not exceeding RM10,000.


In order to obtain the CFA, the employer or a centralized accommodation provider shall ensure that every accommodation provided for employees complies with the minimum standards required under the EMSA and any regulations made thereunder.


In addition to the EMSA, further minimum standards / requirements in respect of the workers’ accommodation are also stated in the Employees’ Minimum Standards of Housing, Accommodations and Amenities (Accommodation and Centralised Accommodation) Regulations 2020 and it is highly recommended for the employers or centralised accommodation providers to refer to the same when preparing accommodations for the employees.

 Conclusion


Each IPO case has their distinctive features, and it should be noted that each company will have their own unique issues which would require attention or to be resolved. The above, although not exhaustive, summarises the common real property related issues that have arose during the course of our legal due diligence as we assist Groups in preparing for their IPO submission. Due to the time-consuming nature for the rectification of real property related non-compliances, companies going for listing are recommended to take prompt actions to resolve the same prior to embarking on an IPO journey.


19 October 2023

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