People buying their home for the first time will come across a legal document called the Sales and Purchase Agreement (SPA). As much as it is a prerequisite to gaining ownership over your home, there are other reasons why you need to understand about this document.

What is a SPA?

It is a binding legal contract obligating a buyer to buy and a seller to sell a product or service. The agreement finalises all the terms and conditions, which culminates the negotiation between these two parties.

Here, the buyer is you, while the seller can be either the developer (if you are purchasing your home in a primary market), or the house owner in the secondary market. Want to know the difference between the primary and secondary market? Check out our previous article here. As the buyer, you need to make sure that the conditions are fair towards you before signing.

Simplifying the SPA

With all the legal lingo, it can be challenging for people to understand the SPA, let alone the chore of going through the long paragraphs that spell out the terms and conditions. To keep it simple, the SPA details that homebuyers need to be wary of includes:

1/Defect liability period: During the time frame specified in the SPA, the developer has to make good any defects in your home. Note that this is only applicable if you are buying your home in the primary market.

2/Vacant possession: It also tells when you are able to get the keys and move in to occupy the property. 

3/House plan: The sq ft of your house, layout, materials used and measurements are specified in detail. Unscrupulous developers may use materials of a lower grade to build your home, or they can also subtly alter the measurements. You are not supposed to be getting anything other than what has been specified in the SPA.

What happens if the terms are not followed?

Here, the SPA functions by protecting the interest of both parties. As a buyer, you need to be aware that a standard SPA has a clause stating that the party who cancels the agreement is subject to a penalty of 10% of the purchase price. If you purchase a property priced at RM1mil, then the penalty is RM100,000.

On the developer’s end, they need to observe the date of delivery of vacant possession as stated in the SPA. Any developer failing to deliver the property within the stipulated time need to pay liquidated damage (LAD) to the buyer. The standard rate is at 10% per annum of the property price.

Calculating your LAD:

(Total No of delayed days X cost of house X 10% ) / 365 days

Scenario:

The cost of the house is at RM1,000,000 and has been delayed by 30 days

(30 X RM1,000,000 X 10%) / 365 = RM8,219

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