Navigating the Legal Landscape: A Legal Perspective on EPU's Real Estate Acquisition Guidelines

Earlier this month, it was disclosed in the announcement filed by Scientex Berhad with Bursa Malaysia Securities Berhad ("Bursa Malaysia") that the conditional sale and purchase agreement (SPA) for the 960-acre land in Tebrau, intended for sale to Scientex Lestari Sdn Bhd by Pelangi Sdn Bhd, a private limited company ultimately owned by SP Setia Berhad has been terminated. The termination resulted from the non-fulfillment of a crucial condition precedent, specifically the approval from the Economic Planning Unit ("EPU") for the acquisition. Notably, this marks the second instance where the deal has failed to materialize, as widely reported in the public domain.

The reported news brought about a heightened awareness within the industry, prompting a realisation of the crucial significance of EPU approval in transactions of this nature. From a legal standpoint, the necessity for EPU approval in this kind of transaction arises as a mandated regulatory step, serving to validate and authenticate the acquisition within the framework of applicable laws and regulations pursuant to the Guideline on the Acquisition of Properties, issued by the EPU, Prime Minister's Department ("EPU Guidelines") which was revised and took effect from 1 March 2014.

Under the EPU Guidelines, approval of the EPU is required for all property acquisition (save for the properties that will further set out below) where there is.

2. direct acquisition of property valued at RM20 million and above, resulting in the dilution in the ownership of property held by Bumiputera interest and/or government agency; or

3. indirect acquisition of property by other than Bumiputera interest through acquisition of shares, resulting in a change of control of the company owned by Bumiputera interest and/or government agency, having property more than 50 percent of its total assets, and the said property is valued more than RM20 million.

Based on the requirements set out under the EPU Guidelines, it is worth highlighting that the Guidelines also capture any indirect acquisitions of property by other than Bumiputera facilitated through acquisition of shares of company owned by Bumiputera.

The acquisition conditions outlined in the EPU Guidelines for property acquisition encompass both equity and paid-up capital requirements, including:-

4. The acquirer must hold at least 30% equity ownership of Bumiputera interest;

5. If the acquirer is a local company with local ownership, it should have a minimum paid-up capital of RM100,000.00; and

6. If the acquirer is a foreign-owned local company, the minimum required paid-up capital is RM250,000.00.

Compliance of the equity and paid-up capital conditions

It is worth to note that for the direct property acquisitions, the equity and paid-up capital conditions imposed by the EPU must be complied with before the transfer of ownership of the property. For the indirect property acquisitions, the equity and paid-up capital conditions set by the EPU must be adhered to within one (1) year from the issuance of written approval.

In consideration of the aforementioned requirement, it is a common practice in property transactions requiring EPU approval for both parties to stipulate the inclusion of EPU approval as a fundamental condition precedent for the purchaser to fulfil. Consequently, the purchaser is obligated to provide the necessary documents and information required as outlined in the EPU Guidelines.

Instances where EPU Guidelines are not applicable

The EPU Guidelines however does not apply to the following property acquisition by foreign interest but fall within the jurisdiction of the relevant Ministry and/or Government Department:-

1. acquisition of commercial units valued at RM1,000,000 and above;

2. acquisition of agricultural land valued at RM1,000,000 and above or covering at least five (5) acres for the following purposes:

1. conducting commercial farming activities using high or modern technology;

2. undertaking agro-tourism projects; or

3. engaging in farming activities or agriculture-based industries to produce products for export,

3. acquisition of industrial land valued at RM1,000,000 and above or

4. the transfer of property to foreign nationals as a gesture of goodwill among immediate family members

The Guidelines also do not extend to cover the acquisition of a property not held by any Bumiputera interest.

In addition to the above, the following transactions are also exempted from complying with the EPU Guidelines:-

1. Any acquisition of residential unit under the "Malaysia My Second Home" Programm;

2. Multimedia Super Corridor (MSC) status companies are allowed to acquire any property in the MSC area provided that the property is only used for their operational activities including as residence for their employees;

3. Acquisition of properties in the approved area in any regional development corridor by companies that have been granted the status by the local authority as determined by Government;

4. Acquisition of properties by a company that has obtained the endorsement from the Secretariat of the Malaysian International Islamic Financial Centre (MIFC);

5. Acquisition of residential units to be occupied as a hostel for company's employees. However, local companies owned by foreign interest are only allowed to acquire residential units valued at RM100,000 and above and this matter is under the jurisdiction of the relevant state authorities; 

6. Transfer of property to a foreign interest pursuant to a will and court order;

7. Acquisition of industrial land by manufacturing company;

8. Acquisition of properties by Ministries and Government Departments (Federal and State). Ministry of Finance Incorporated, Menteri Besar incorporated or Chief Minister Incorporated. State Secretary Incorporated and listed Government Linked Companies;

9. Acquisition of properties under the privatization projects, whether at the Federal or State level, provided that it involves the companies that are the original signatories in the contracts for the privatized projects, and

10. Acquisition of properties by companies that have been granted the status of International Procurement Centres, Operational Headquarters, Representative Offices, Regional Offices, Labuan offshore companies and Bio-Nexus or other special status by the Ministry of Finance, Ministry of International Trade and Industry and other ministries.

Conclusion

Fundamentally, in alignment with the criteria delineated in the EPU Guidelines, the responsibility falls on the purchaser/ acquirer to actively pursue approval from the EPU. In the event the purchaser endeavors to seek an exemption from the equity conditions imposed by the EPU, the purchaser may opt to file an appeal. However, it is essential to recognize that the grant of such approval is entirely at the discretion of the EPU, as explicitly outlined in the EPU Guidelines.

Given the discretionary nature of EPU approval, it is customary for parties involved in the sale and purchase agreement for property acquisitions requiring EPU approval to stipulate that, should approval not materialise within the specified conditional period, the purchaser has the entitlement to rescind the agreement. As a result, any deposit or payment made by the purchaser shall be refunded. However, this contractual provision underscores the uncertainty associated with obtaining an unconditional EPU approval or waiver, thereby emphasizing potential risks that may disproportionately favor the vendor.