Kebenaran Merancang (KM) in a Joint Development Agreement: Who Controls the Approval and Who Bears the Risk?

A joint development can look profitable long before it is legally approvable.

The landowner and developer may negotiate on the basis of an assumed use, density, layout, access arrangement and development yield. Those assumptions drive the landowner's entitlement and the developer's feasibility model. They may even drive the price of exclusivity or the amount the developer is willing to spend before construction starts.

Then the Kebenaran Merancang process begins.

If the approved development is materially different from the project both sides priced into the joint development agreement, the problem is no longer just a planning issue. It becomes a contract issue: who controls the approval strategy, who pays for the consequences, and what happens if the project that can legally be approved is not the project the parties agreed to develop?

What is Kebenaran Merancang?

Kebenaran Merancang, commonly shortened to KM, is planning permission. Under the Peninsular Malaysia framework, PLANMalaysia describes it as permission granted, with or without conditions, to carry out development under the Town and Country Planning Act 1976.

That statutory framework is not uniform across every Malaysian jurisdiction. Act 172 applies through the Peninsular Malaysia planning system; Kuala Lumpur, Sabah and Sarawak operate under their own planning legislation. A JDA should therefore be drafted around the actual planning regime governing the site rather than treating "KM" as though one identical process applies nationwide.

The commercial point is the same in any jurisdiction: the development concept in the heads of terms is not yet the development the planning authority has approved.

The feasibility plan is not the approved development

Many JDA negotiations start with a concept plan or feasibility study. That document may assume a particular residential density, plot ratio, building height, access point, commercial component, phasing strategy or mix of units.

Those assumptions can be essential to the economics. A landowner agreeing to a percentage of gross revenue may care deeply about the number of saleable units. A developer agreeing to a minimum guaranteed entitlement may have modelled that guarantee on a particular yield and construction profile. Our dedicated guide to landowner entitlement under a JDA covers how those assumptions should be turned into a workable formula.

Planning permission can alter those assumptions. Approval conditions or technical requirements can affect layout, access, infrastructure, phasing, usable area or the cost of delivering the project.

The JDA should therefore distinguish between:

• the proposed development concept used to negotiate the commercial deal; and

• the approved development that the relevant planning authority ultimately permits.

If the agreement treats those two as the same thing, the parties may discover too late that they priced different risks.

Who should control the KM application?

In most commercial developments, the developer needs practical control over the planning process. It is usually the developer that is managing the architect, planner, engineer and other consultants, testing the feasibility and coordinating the development programme.

But practical control does not mean the landowner disappears from the process. The registered proprietor may need to provide title documents, authorisations, signatures or other cooperation required by the relevant authority or application process.

A sensible JDA therefore separates submission control from proprietor cooperation.

The developer can be given responsibility for preparing the application, instructing consultants, responding to ordinary authority comments and managing design iterations. The landowner can be required to provide the documents and signatures reasonably needed to progress that process within defined response times.

At the same time, the developer should not be able to make a material planning change that rewrites the landowner's economics without an agreed approval mechanism.

Make the landowner's cooperation specific

"The landowner shall cooperate with the developer" sounds reassuring until the first urgent submission needs a document nobody has identified.

Current OSC materials illustrate why the document flow matters. Depending on the local authority and application category, KM submissions can require title or search documents, company documents, fees, plans, technical reports and, in some cases, documents connected with an existing bank or other land interest. The exact checklist varies by PBT and application type.

The JDA should therefore identify the categories of cooperation the project is likely to require:

• providing copies or originals of title and proprietor documents where required;

• signing or authorising planning and technical submissions that require proprietor involvement;

• providing company resolutions or corporate information where the owner is a company;

• dealing with a chargee, caveator or other party where its consent is genuinely required;

• allowing survey, investigation and consultant access to the site;

• responding to authority queries that depend on information held by the landowner; and

• not taking steps over the land that undermine the pending application.

Response times and escalation matter. A seven-day delay repeated across ten submissions can become a meaningful project delay even if no single failure looks serious on its own. Our dedicated guide to power of attorney in a JDA covers one common way developers try to solve this bottleneck, and the risk that comes with it.

Should KM be a condition precedent?

Sometimes yes. Sometimes the better structure is a milestone. The answer depends on how much risk each side is prepared to take before an acceptable planning outcome exists.

If the entire transaction depends on obtaining permission for a particular type or scale of development, the parties may decide that an acceptable KM is a condition precedent before the JDA becomes fully unconditional or before major payments and obligations are released.

In other transactions, the parties may sign the JDA earlier so the developer has the authority and exclusivity needed to pursue the approval, while making KM one of several project milestones.

The more important drafting question is not the label. It is: what counts as acceptable KM?

"KM obtained" may be too low a threshold

A planning authority can grant permission subject to conditions. An approval may technically exist while being commercially unacceptable to the project model.

For example, the development may be approved with a materially lower yield than assumed. Access conditions may require expensive infrastructure. A key component may be refused. The authority may require redesign or impose a condition that changes project phasing or cost.

If the JDA says only that "KM shall be obtained", one party may argue that the condition has been satisfied even though the approved project no longer supports the bargain.

Where the economics genuinely depend on minimum parameters, the agreement should identify them. Depending on the project, that may involve the permitted use, an acceptable development yield or density range, material access arrangements, phasing, or limits on conditions that fundamentally change the landowner's entitlement or the developer's feasibility.

The drafting should still leave room for normal planning refinement. A condition so rigid that every technical change becomes a termination event can make the JDA unworkable.

Who pays for the KM process and redesign?

The first application cost is usually the easy part. The harder issue is who pays when the process changes the project.

The JDA should address professional fees and application costs, but it should also distinguish between ordinary development expenditure and costs caused by a problem that one party agreed to carry.

If redesign is part of the ordinary planning process, it may sit with the developer as project cost. If the redesign is required because the landowner failed to disclose a title restriction or an existing commitment affecting the site, the allocation may be different.

The same discipline applies to authority-driven premiums, contributions or infrastructure obligations. The agreement should state whether these are general project costs, developer costs, deductions before the landowner's entitlement is calculated, or matters that trigger a commercial adjustment if they exceed an agreed assumption.

What if KM is approved with conditions that change the economics?

A good JDA needs a materiality mechanism.

Ordinary planning conditions should not force the parties back to the negotiating table every time. The developer needs room to manage the process. But a condition that materially changes the project economics should not be accepted automatically if it also changes the landowner's bargain.

The agreement can therefore distinguish between:

• conditions the developer may accept in the ordinary course;

• conditions requiring consultation because they materially affect project cost, yield or timing; and

• conditions so significant that the parties must revise the feasibility, adjust the entitlement or consider whether the project should proceed.

This is particularly important where the landowner receives a minimum return or a percentage tied to project revenue. A planning change can affect both sides, but not necessarily in the same way.

What if KM is refused?

The JDA should not wait until refusal to decide whether the developer must try again.

Before signing, the parties should agree the expected response to an unsuccessful application. Should the developer redesign and resubmit? How many material attempts are required? Who controls the decision to challenge or vary the outcome where the applicable planning process allows it? Who pays the additional consultant cost?

There should also be a long-stop date.

Without one, a landowner can remain tied to a development that is not progressing while the developer keeps trying to rescue an approval. On the other side, a developer can lose substantial sunk cost if the landowner can terminate immediately after the first setback.

The long-stop mechanism should therefore work together with agreed extension rights, landowner-caused delay, authority delay and any resubmission process. Our dedicated guide to developer delay, abandonment and insolvency covers what happens once the project has actually stalled.

Control changes to the approved KM after approval

Planning risk does not disappear the day KM is obtained.

The developer may later identify a more efficient layout, different phasing, a different product mix or another change that requires a planning amendment or fresh approval.

The JDA should specify when the developer can manage that process without renewed landowner approval and when a proposed change is material enough to require consent.

The materiality threshold should focus on the bargain: does the change reduce the landowner's entitlement, materially increase its exposure, alter the use it agreed to, extend the development period substantially or change a reserved commercial parameter?

Minor technical refinements should not become a veto point. Material economic changes should not be disguised as project administration.

KM is not the same thing as every other development approval

One of the most dangerous drafting shortcuts is a clause that refers simply to "all approvals".

Planning permission, land-office or State Authority processes, land-use matters, building plans, engineering approvals and other technical approvals are different steps. They may interact, but they are not interchangeable.

The JDA should map the critical dependencies instead of pretending one approval automatically produces the next.

For a developer-side view of how approvals fit into the wider transaction, see our guide to development rights agreements for developers. The core JDA structure is covered separately in our joint development agreement guide.

Allocate delay by cause, not merely by the calendar

Three different things can all produce the same result: the KM is late.

The developer may have delayed the design. The landowner may have failed to provide a necessary document. Or the application may simply be moving through the authority process despite both parties doing what they are supposed to do.

A JDA should not treat those situations identically.

Developer-controlled delay may count against the developer's long-stop obligations. Landowner-controlled delay may justify an extension and, depending on the bargain, other contractual consequences. Genuine authority delay may trigger a neutral extension mechanism rather than automatically putting either party in default.

This causal approach is more useful than a single date followed by an argument over blame.

What happens to money and exclusivity if KM fails?

The planning failure clause should also deal with the commercial residue of the project.

If a deposit or upfront payment has been made, is it refundable when acceptable KM cannot be obtained? Does the answer change if the failure was caused by a landowner title problem rather than an ordinary planning outcome?

When does exclusivity end? Can the landowner immediately appoint another developer? Who owns the concept plans, reports and technical materials paid for by the developer? Can the landowner use them after termination?

Those questions should be answered while the parties still expect the project to succeed.

KM checklist for a joint development agreement

• Identify the planning jurisdiction governing the site.

• Record the key planning assumptions used in the commercial feasibility.

• State who appoints and controls the planning consultants.

• Define the landowner's document, signature and cooperation obligations.

• Decide whether acceptable KM is a condition precedent, milestone or both.

• Define what makes the approval commercially acceptable where minimum parameters genuinely matter.

• Allocate application, redesign, premium, contribution and authority-driven costs.

• Create a process for material approval conditions.

• Set the resubmission, variation and long-stop strategy.

• Allocate delay according to who controls its cause.

• Control material amendments to an approved development.

• Define what happens to deposits, exclusivity and project documents if the planning outcome makes the JDA unviable.

Frequently asked questions

What does Kebenaran Merancang mean?

Kebenaran Merancang means planning permission. In the Act 172 framework, PLANMalaysia describes it as permission, with or without conditions, to carry out development.

Can the JDA be signed before KM is obtained?

Yes, a transaction can be structured so the JDA gives the developer the authority, cooperation and exclusivity needed to pursue planning permission. The agreement should then define what happens if an acceptable approval is not obtained.

Should KM always be a condition precedent?

Not necessarily. It depends on the deal sequence and how much pre-approval risk the parties are prepared to take. What matters is that the JDA clearly states the consequences of the planning outcome.

What if KM is approved at a lower density than the feasibility assumed?

The result depends on the JDA. A well-drafted agreement should identify whether the change is within an acceptable planning range, requires a revised feasibility or entitlement adjustment, or gives a party a right not to proceed.

Who should pay for a second KM submission?

The agreement should allocate this rather than assume one answer. Ordinary redesign may be a project/developer cost, while additional work caused by a landowner-controlled title or disclosure problem may be treated differently.

Does the Town and Country Planning Act 1976 apply in Kuala Lumpur, Sabah and Sarawak?

No. PLANMalaysia's current guidance states that Kuala Lumpur, Sabah and Sarawak use their own planning legislation. The correct planning regime must be checked for the location of the land.

Does getting KM mean the developer has all approvals needed to build?

No. Planning permission is one part of the development approval pathway. Other land, building, technical and regulatory requirements may still need to be satisfied.

This article is for general information only and does not constitute legal advice. Every transaction and every set of facts is different. Obtain specific advice from a qualified adviser before acting on any part of it.

Legal That Works advises landowners and developers on allocating planning, approval, entitlement and project-risk issues in joint development agreements.