Contributed by Messrs Eunice Tan & Partners founder Eunice Tan Mui Lee
Messrs & Partners founder Eunice Tan Mui Lee
Are you aware of the legal aspects that you need to take note when you sign a Sale and Purchase Agreement (SPA)? Will you read the SPA before signing it?
There are a few common legal aspects that should be noted by the seller and the buyer of the SPA in the secondary market.
Subject matter of the Property
The buyer should know what kind of property they are buying. There are two types of land titles, i.e. freehold or leasehold, regardless of whether it is a residential, commercial or agriculture land.
Freehold can be defined as the entitlement to hold property with a perpetual right. Leasehold can be defined as the right to hold or use the property for a fixed period at a mutually agreed price. The maximum period of a lease is 99 years.
If the subject matter of the property is a leasehold property, then the SPA is a conditional SPA because the seller’s lawyer has to apply and obtain the consent to transfer from the State Authority within a certain time frame before your SPA becomes unconditional.
A clear fulfilment of the conditions precedent within a specific and reasonable time should be spelt out, and an exit plan must be stipulated in the conditions cannot be fulfilled within the time frame. Therefore, it takes a longer time to complete an SPA transaction for a leasehold property than for a freehold property.
To Read More: Whether to purchase freehold or leasehold properties?
- Payment Term
A basic SPA must have a clause to stipulate the payment term of the purchase price. In the common terms of SPA, a deposit of 10% of the purchase price of the property will be paid to the buyer upon the execution of the SPA. The balance purchase price of the property will be paid to the buyer within three months from the SPA for the property without restriction in interest such as freehold property.
For those which have the conditions precedent to be fulfilled before the SPA becomes unconditional, the three months shall be calculated from the date the conditions precedent are fulfilled by the seller or the buyer.
- Registered or Beneficial owner
If the seller is a registered owner, a land search can be conducted to ensure that the seller is the registered owner. However, if your property is under the master title which means there is no issuance of separate individual or strata title yet, a confirmation letter from the developer is needed to ensure that the seller is a beneficial owner of the property. This is necessary to minimise the incidence of fraud.
- Bankruptcy/Winding Up
If any of the parties is bankrupt and execute the SPA, the SPA shall become invalid as the bankrupt has no legal capacity to execute the SPA. If the party is a wound-up company, the party who executes the SPA will be the appointed liquidator or Insolvency Department of Malaysia.
To Read More: 7 things to know about how bankruptcy impacts your real estate
To Read More: Nightmare to be a bankrupt?
To Read More: Bankruptcy and property ownership
- Default Terms
If the seller fails to complete the SPA transaction, the seller has to repay all the monies received from the buyer within the set time frame in the SPA together with the 10% of the purchase price of the property as the liquidated damages if the buyer opts to terminate the SPA. Alternatively, the buyer can opt to seek for specific performance from the court i.e. a court order to ensure that the property must be sold to the buyer.
If the buyer fails to complete the SPA transaction, the seller has the right to terminate the SPA and forfeit the 10% of the purchase price of the property that usually will be deemed as the deposit.
- Vacant Possession & Joint Inspection
Upon the full payment of the purchase price of the property from the buyer, the seller has to deliver the vacant possession of the property to the buyer. A joint inspection is encouraged to enable the parties to view the property together to ensure that the property is in the same condition as the date the buyer viewed the property before.
If the property is tenanted, the seller will give the notice of termination within the time as set in the tenancy agreement entered between the tenant and the seller to make sure the seller can deliver the vacant possession of the property upon the completion of the SPA.
If the seller fails to deliver the vacant possession of the property to the buyer within the time frame stated in the SPA, interest will be calculated until the actual delivery of the vacant possession of the property.
To Read More: What are the standard procedures during Vacant Possession of a new house?
- Private Caveat
Registration of private caveat is only applicable to the property with individual title cases. A private caveat is a legal notice which will be reflected in the title if you have registered your ‘caveatable’ interest in the property.
The registration of the private caveat will safeguard the interest of the buyer if the seller tries to sell the property to any third party and to prevent the seller to have any further dealings related to the property.
- Real and Property Gain Tax (RPGT)
RPGT is a form of capital gain tax imposed on the disposal of property in Malaysia, and it is payable to Inland Revenue Board of Malaysia. In 2018, the RPGT rates imposed on the disposal of the property are as follows:
| Disposal Period | RPGT rate for Companies | RPGT rate for individual (Citizen) | RPGT rate for individual (Non- Citizen) |
| For disposal within 3 years | 30% | 30% | 30% |
| For disposal in the 4th year | 20% | 20% | 30% |
| For disposal in the 5th year | 15% | 15% | 30% |
| For disposal in the 6th and subsequent years | 5% | 0% | 5% |
To Read More: Latest Real Property Gains Tax amendments that affect non-citizens and non-permanent residents
- Rejection of Transfer
If the property cannot be transferred for any reasons, the seller has to refund all the monies received from the buyer or the buyer’s financier because the transaction cannot be completed.
The above are some common legal jargons that the seller or the buyer should understand to enable them to fully understand the procedures of the SPA.
To Read More: How long does it take for a sale and purchase agreement of a property to be completed?
About the Contributor
Eunice Tan is the founder of both LegalMakeover and Messrs Eunice Tan & Partners.
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