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08/06/2004 The Star Articles of Law with Bhag Singh

LIKE other forms of property, land can be transferred from one person to another. In the process terms such as Sale and Purchase Agreement (SPA), Transfer and Deed of Assignment are used.

A reader wants to know which is the correct document and at what point of time does the property change hands. In order to understand the difference it is necessary to set out a brief explanation of each of these words to show what they involve and also what the effect of each of the documents is.

An SPA generally records the terms and conditions on which a property is to be transacted between the buyer and the seller. It constitutes a commitment which would create a binding obligation.

As a matter of general practice an SPA provides for a 10% downpayment on the signing of the agreement and the balance to be paid within three months or a period agreed to between the parties.

By entering into such an agreement the buyer acquires a right to become the owner of the property subject to his fulfilling his obligations. These would be matters such as paying the balance of purchase price within the stipulated time as well as fulfilling other obligations in the agreement. Upon fulfilment of these obligations the buyer becomes entitled to the property,

The word “transfer” is used in a somewhat different sense. This refers to the formalities that have to be complied with to have the ownership of the property legally moved from the seller to the buyer.

Where there is a title to the land a register of titles will be maintained at the registry. The process involves having the name of the seller on the title deed changed to the name of the buyer.

This is done by means of completing a document called a transfer which is signed by the seller and the buyer and duly attested, stamped and submitted to the appropriate land registry which then endorses the name of the owner on the title deed and its duplicate in the register.

It is said that once the name of the buyer appears on the register, his title is indefeasible subject to certain exceptions. This is provided for by Section 340 of the National Land Code. The use of the word “assignment” on the other hand has developed from the word “assign” which simply means to make over a right or interest to another. It is basically a word of general application.

Where an individual title exists, the question of an assignment does not apply. However, the term has relevance when an individual title for the property in question has not been issued and therefore the person who has entered into an SPA to acquire the property is actually only transferring his rights under the agreement.

House buyers who entered into an SPA but were not issued an individual title will recollect signing a Deed of Assignment when they dispose of their rights under the SPA. Similarly when they obtain a loan they have to assign all their rights to the lender as a security for the loan.

It will therefore be seen that an SPA serves the purpose of recording the terms on which the parties have agreed to and the manner in which these terms are to be fulfilled. On the other hand the transfer process, whether through registration or assignment, is the actual moving of the legal ownership from one person to another.

Therefore the rights that a person has under an SPA depend on the obligations provided for and to what extent these have been acquired and to what extent the rights have been fulfilled. The SPA, without regard to the actual contents, does go very far.

Thus a person may sign an SPA to purchase a property for RM100,000 but has only paid RM10,000 as deposit. Unless the balance is paid, the right exists only on paper.

In a different scenario a purchaser may have paid up the entire purchase price and may only be waiting for a third party approval. Here, subject to such consent, the buyer is as good as the owner of the property.

What then is the difference between a person who merely has an SPA and has fulfilled all his obligations and is therefore for all practical purposes the owner and another who has land transferred to him?

In legal terms the former is referred to as the “equitable” owner and the latter a “legal owner”. An equitable owner may lose his rights to the property if unknown to him the earlier owner who sold the property to the buyer then proceeds to sell the property to another and that other person registers himself as the owner.

Of course such conduct would amount to cheating. However, if the subsequent purchaser is unaware of the earlier transaction and has paid the full purchase price, he acquires a superior right to the person who has paid for the property but not have it transferred to his name.

Such occurrences are rare these days. This is because all measures are adopted such as filing a caveat as soon as the SPA is signed and by requiring the original title deed to be handed over. However, given the various steps involved things can still go wrong when there is an an oversight.

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