CONDITION: Pretam Singh discusses whether the State Government of Kedah has a legitimate right to impose upon developers conditions restricting sales to non-Kedahans and raising the quota of affordable homes to 60 per cent from the current 30 per cent
Recently, the Minister of Housing and Local Government Datuk Seri Chor Chee Heung expressed his concern over the proposed housing policy in Kedah which purportedly seeks to limit sales of housing projects in Sungai Petani and Kulim to only Kedahans as well as raise the quota of affordable homes to 60 per cent from the current 30 per cent.
The first question that comes to my mind is does the Kedah State Government has an unfettered discretion to impose any condition that they deem fit just because land is a state matter or are there limitations on this power?
The power of the State Authority to impose conditions et cetera is found in section 124(5)(c) of the National Land Code 1965 which states that developers have to “comply with such other requirements as the State Authority may think fit.” On a cursory reading it seems to suggest that the power is unlimited but this is not so.
Every exercise of such discretion must be a real exercise of the discretion. If, in the statute conferring the discretion, there is to be found, expressly or by implication, matters to which the authority exercising the discretion ought to have regard, then in exercising the discretion they must have regard to those matters. Any unreasonable exercise of the discretion or failure to exercise fairness or an error of law in interpreting these powers is certainly frowned upon by our courts as shown by these landmark cases in Malaysia.
The cases are:
1. Pengarah Tanah dan Galian Wilayah Persekutuan Sri Lembah Enterprise Sdn Bhd  1 MLJ 135
This case dealt with whether the Land Executive Committee, Federal Territory, had the right to make the applicant give up his title in perpetuity (freehold) and receive in place of it a 99-year lease.
The Court held that the committee must act reasonably and may only impose conditions relevant to the permitted development and that it does not have the drastic right to make the applicant give up its freehold title and receive in exchange a 99-year lease. It was unreasonable and was used for an ulterior object, the object being to bring developed land in line with newly alienated land to which only leases not titles in perpetuity were granted.
The Court enunciated the following principles:
1) The approving authority does not have an uncontrolled discretion to impose whatever condition it likes.
2) The conditions, to be valid, must fairly and reasonably relate to the permitted development.
3) The approving authority must act reasonably and planning conditions must be reasonable.
4) The approving authority is not at liberty to use its power for an ulterior object, however desirable that object may seem to it in the public interest.
“Unfettered discretion is a contradiction in terms. Every legal power must have legal limits, otherwise there is dictatorship. In particular, it is a stringent requirement that discretion should be exercised for a proper purpose,” held the court.
Further, the Land Executive Committee is a creature of statute, and therefore possesses only such power as may have been conferred on it by Parliament. Therefore when a power vested in it is exceeded, any act done in excess of the power is invalid as being ultra vires.
The Land Executive Committee had exceeded its power and the decision was therefore unlawful as being an unreasonable exercise of power not related to the permitted development and for an ulterior purpose that no reasonable authority, properly directing itself, could have arrived at.
2. Majlis Perbandaran Pulau Pinang v Syarikat Bekerjasama-sama Serbaguna Sungai Gelugor Dengan Tanggungan  3 MLJ 51;  3 CLJ 65
The issue here was whether the local council had the power to impose a condition that 30 per cent of the low -cost houses have to be sold at not more than RM25,000 per unit.
The Court rightly held that the council’s condition was wholly null, void and of no effect. It held that local authorities are creatures of statute and their qualities and powers can only be derived by reference to what is express or implicit in the statutes under which they function.
3. Cayman Development (K) Sdn Bhd v Mohd Saad Bin Long  MLJU 290;  3 AMR 3382
The question arises as to whether under section 124 of the National Land Code, the State Authority of Kedah, in approving the application for conversion, has the power to require Cayman to sell to the public each unit of the low-cost houses at a discount of 5 per cent of the price of RM25,000. It was held that the state authority does not have such power as the discount is not the kind of requirements envisaged by the Code. Further, the Court was of the view that Parliament had never intended to confer onto the state authority such a wide power so as to empower it to even fix the price of the low-cost units.
“The fixing of the selling price and the discount by the Kedah State Authority are acts that have nothing to do with either land use, or the imposition of premium or rent pursuant to the conversion. The requirement relates more to the sale of the low cost units, which are commercial in nature.
“The State Authority, being a regulatory body on matters pertaining to land, should avoid entering into the commercial arena; instead, it should only confine itself to matters directly pertaining to the usage of the land and the imposition of rent and premium (consequential to the conversion),” the Court held.
Conclusion : The golden thread that runs through these cases, as stated by the two Federal Court Cases which is adopted by the High Court, is that:
“The condition or requirement imposed must fairly and reasonably relate to the permitted development. The words ‘relate to the permitted development’ must be fully understood and one must avoid giving them a far-fetched interpretation.”
It is my humble view that the condition relating to minimum sale of units to locals and raising the quota of affordable houses to 60 per cent certainly is unreasonable and “an error of law” in the interpretation of section 124 (5)(c) of the National Land Code by the State Government of Kedah.
This is because the condition is not related to the permitted development as it has nothing to do with either land use or the imposition of premium or rent pursuant to the conversion.
There is a presumption that the state’s action is valid and the burden is on the person challenging it to prove that the state had acted unreasonably. However, where it is shown that the challenged state action is on the face of it arbitrary, the burden is discharged, thus shifting the onus back on the State to justify its action as fair and reasonable. If the state is unable to produce material to justify its action, the burden on the person alleging arbitrariness must be held to be discharged.
Pretam Singh Darshan Singh can be contacted at email@example.com