What Can Go Wrong When Buying Land: Title, Caveats and Price Certainty

Authored by Radhia Razali

A sale and purchase agreement for land is, in form, a straightforward exchange of price for title. In practice, several recurring legal issues can undermine that exchange, some visible only after completion. This note sets out the principal issues purchasers and vendors should be alert to, illustrated by two Court of Appeal decisions: Farlim Group (Malaysia) Berhad v Ayer Itam Properties Sdn Bhd (formerly known as 1MDB Re (Ayer Itam) Sdn Bhd) [2026] MLJU 2998, concerning a shortfall in the vendor's own title, and Master Strike Sdn Bhd v Sterling Heights Sdn Bhd [2005] 3 MLJ 585; [2005] 2 CLJ 596, concerning deposit forfeiture and third party financing caveats.

Title Verification Goes Beyond the Register

A sale and purchase agreement can only transfer what the vendor actually owns. This is the doctrine of nemo dat quod non habet, no one gives what he does not have, and it applies with particular force to undivided shares in land held under a master title. The register may show a party as proprietor of a fractional share without disclosing that portions of that share have already been carved out and sold to third parties, whose interests are protected only by caveats rather than by separate documents of title.

In Farlim, the vendor had agreed to sell its 1/4 undivided share in a parcel of land for a global price calculated at RM110 per square foot. Unknown to the purchaser, the vendor's own acquisition of that share had earlier been subject to a settlement agreement excluding portions already sold to five caveators, representing 76,255 square feet, from what was transferred to the vendor. The purchase price had nonetheless been calculated on the full area, and the settlement agreement was never disclosed. Applying nemo dat quod non habet and following the Federal Court's approach in Sia Hiong Tee & Ors v Chong Su Kong & Ors [2015] 8 CLJ 1173, the Court of Appeal held that the vendor could not convey, and the purchaser could not acquire, the excluded acreage, regardless of how the transaction had been documented or priced. A clean-looking master title is not conclusive. Tracing the chain of transactions behind a vendor's registered interest, and not merely the register entry itself, is frequently the only way to detect a shortfall of this kind before completion.

Caveats Are Not All Equal

Caveats protect competing interests in land, but they take different forms and carry different risks for a purchaser. A private caveat, of the kind in Farlim, signals a third party claim that may affect the vendor's true entitlement. A lien holder's caveat, by contrast, is typically requested by a purchaser's own financier as security, and its creation can expose the vendor to risk if not addressed in the sale and purchase agreement.

In Master Strike, the purchaser's financier required the vendor to consent to a lien holder's caveat over the land, pending creation of a charge, to secure a credit facility granted to an associated company that was not party to the agreement. The Court of Appeal held that the vendor was entitled to refuse. The agreement's good faith clause was confined to cooperation on matters authorised or permitted under its own terms, and did not extend to exposing the vendor to the risk of its land standing as security for a third party's borrowing when the vendor might never be paid. Purchasers who intend to finance a purchase through arrangements affecting the vendor's title, such as a lien holder's caveat, should provide for this expressly in the agreement rather than assume cooperation will be implied.

Price Certainty and the Entire Agreement Clause

Where a price is expressed both as a global sum and by reference to a rate per unit area, disputes can arise as to which figure governs if the underlying area or entitlement later proves incorrect. In Farlim, the vendor argued that the RM110 per square foot figure was merely a reference point used to arrive at a negotiated global price, never intended to permit a post-completion adjustment once the shortfall came to light. The Court rejected this: the express terms of the agreement, including an appendix setting out the computation for the parcel, left no room for that construction, and an entire agreement clause precluded reliance on prior oral discussions to contradict the written bargain.

The entire agreement clause was also central in Master Strike, where the Court of Appeal, following Innterpreneur Pub Co v East Crown Ltd [2000] 3 EGLR 31 and Macronet Sdn Bhd v RHB Bank Sdn Bhd [2002] 3 MLJ 11, held that such a clause excludes reliance on collateral terms or prior negotiations to vary the parties' written bargain. Parties who intend a price to be a fixed, non-adjustable global sum should say so expressly, and should be cautious about also stating a per-unit rate with detailed area computations, since the latter will ordinarily be read as the operative pricing mechanism.

Time, Completion and Forfeiture of Deposit

Where time is stated to be of the essence, a purchaser's failure to pay the balance of the purchase price by the due date can be a fundamental breach entitling the vendor to terminate and forfeit the deposit, without proof of loss. This was the outcome in Master Strike, where the purchaser failed to settle a balance payment on the due date, citing an economic slowdown, and the Court of Appeal upheld forfeiture of a ten percent deposit following Siah Kwee Mow & Anor v Kulim Rubber Plantations Ltd [1979] 2 MLJ 190 and Sun Properties Sdn Bhd & Ors v Happy Shopping Plaza Sdn Bhd [1987] 2 MLJ 711. A subsequent meeting between the parties did not amount to a negotiation capable of displacing time as being of the essence, and a clause requiring variations to be in writing meant the agreement's terms remained fully enforceable. Delay in exercising the right to forfeit, of itself, did not amount to waiver where the agreement expressly preserved that right notwithstanding delay. Purchasers facing genuine payment difficulty should seek an express written extension rather than assume that discussion with the vendor, without more, has altered the completion date.

Waiver, Mistake and Discovery After Completion

A vendor facing a claim discovered after completion may argue that the purchaser, by completing with knowledge of some irregularity, affirmed the transaction and waived any complaint, or that no operative mistake occurred. In Farlim, the vendor raised both arguments, relying also on sections 21 and 23 of the Contracts Act 1950. The Court rejected them: knowledge of a caveat on the register is not knowledge of the underlying settlement agreement determining whether the vendor validly held the caveated portion at all, and the purchaser only discovered the true position years later through unrelated litigation. Proceeding to complete despite a known caveat does not, without more, forfeit a later claim founded on a title defect that only comes to light afterwards.

Remedies: Restitution Rather Than Rescission

Where a vendor has been paid for land it could not lawfully convey, the remedy need not be rescission of the entire transaction. In Farlim, the Court of Appeal upheld an order for the vendor to refund the price attributable to the area it never owned, applying the restitutionary principles in Dream Property Sdn Bhd v Atlas Housing Sdn Bhd [2015] 2 CLJ 453. The purchaser retained the land validly acquired, and the refund was calculated at the same contractual rate applied to the shortfall. A title defect discovered after completion need not unwind an entire transaction; restitution can instead correct the price to reflect what was actually delivered.

Practical Guidance

Purchasers of undivided shares should investigate the history of dealings behind a vendor's registered share, not merely the register entry, and should specifically request settlement agreements or prior transfer arrangements affecting the vendor's own acquisition. Financing arrangements requiring a lien holder's caveat or similar third party security should be addressed expressly in the sale and purchase agreement rather than assumed. Where a price is expressed both as a global sum and a rate per unit area, the agreement should state clearly whether that rate is adjustable against actual entitlement. Completion dates and deposit forfeiture clauses should be treated as strictly enforceable absent a written variation, and any request for extension should be recorded in writing. Finally, completing in the face of a known caveat or irregularity does not itself extinguish a right to later relief where its true significance was concealed by an undisclosed underlying document.

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