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Importance of legal
representation
03/11/2006 The Sun - Law & Realty
By Nicole Tan
Don’t try to save on legal fees and end up paying more if your rights and
interests are somewhat compromised.
There are many pitfalls that await unsuspecting purchasers in sale and
purchase transactions. One of the most serious ones is the issue of legal
representation. Who does the solicitor represent in a sale and purchase
transaction or loan transaction? Before we explore the different scenarios,
just remember that the cardinal rules of conveyancing are “each party to a
transaction should engage his own solicitor” and "a solicitor shall not act
for more than one party in a particular transaction".
One Solicitor & Property Unencumbered
Very often in a case of purchase of a property which is unencumbered by the
vendor, a solicitor is engaged by the purchaser to act for him, and the
vendor chooses not to be represented in the sale transaction. It is common
for a vendor to choose not to be represented as he does not wish to pay
legal fees. In such cases, it is important for the vendor to know that the
solicitor is only representing the purchaser.
If consent from a State Authority/Statutory Body is required before the
vendor can sell the property, the vendor may appoint the purchaser's
solicitor to apply for such consent. In such a case, the vendor must
understand that the purchaser's solicitor may, where there is no conflict of
interest and upon payment of the appropriate legal fees by the vendor, act
for the vendor to obtain the necessary consent. This will not mean that the
solicitor is acting for the vendor in the sale transaction.
The vendor may also engage the purchaser's solicitor to submit the vendor's
real property gains tax returns, for which the vendor is liable to pay the
appropriate fees that will be charged.
If the vendor is not comfortable with this arrangement and feels that he
needs separate legal advice in respect of the sale or the application for
consent or the submission of tax returns, the vendor should engage his own
solicitor to act for him in these transactions.
One Solicitor & Property Encumbered
In a case whereby the property sold is encumbered by the vendor, for
example, charged to a financial institution, and the vendor is not
represented in the sale transaction, the vendor may engage the purchaser's
solicitors to act for the vendor in the discharge the property from the
financial institution. The vendor will have to bear the legal fees for the
discharge. In such a case, it does not mean that the purchaser's solicitor
is acting for the vendor in the sale and purchase transaction as he is only
acting for the vendor in the discharge transaction.
Two Solicitors
Ideally, the vendor and the purchaser should each seek separate legal
representation in order to ensure that their respective rights and interests
are fully protected. The vendor’s solicitor shall act for the vendor in the
sale transaction, the discharge transaction (if any), the application for
consent (if required), and the submission of the vendor's real property
gains tax returns.
The purchaser’s solicitor shall then act for the purchaser in the purchase
transaction and in the submission of the purchaser's real property gains tax
returns.
If a purchaser requires a loan, the purchaser's solicitor may act for the
purchaser's financier in the loan transaction.
Three Solicitors
If the purchaser's financier does not appoint the purchaser's solicitors to
act for the financier in the loan transaction, then three solicitors may be
involved in the transactions, that is, one for the vendor, one for the
purchaser and one for the purchaser's financier.
Estate Agents and Developers
A purchaser may be pressurised by an estate agent to appoint a firm of
solicitors recommended by the estate agent. A purchaser should not succumb
to such pressure. As purchaser will be responsible for paying the legal
fees, he should have the sole right to determine who should act for him.
Purchasers of property should beware of developers’ gimmicks like “free
legal fees” or “subsidised legal fees”. In some cases, the developer's panel
solicitor may be representing the developer and not the purchaser and that
is why the purchaser does not have to pay any legal fees. In other cases,
the developer's panel solicitor may be acting for the purchaser and his fees
are paid by the developer.
Every purchaser has a right not to use a solicitor on the developer's panel.
Of course this may mean that the purchaser may not be entitled to the "free
legal fees" or "subsidised legal fees".
The Financial Institution
Generally, all financial institutions in Malaysia, offer a loan to the
borrower on condition that the borrower pays the legal fees of the solicitor
appointed by the financial institution to complete the security
documentation. In such cases, the borrower must bear in mind that the
solicitor appointed by the financial institution is acting for the financial
institution and not for the borrower, even though the borrower is paying the
legal fees.
A borrower is entitled to seek independent legal representation for the loan
transaction but this will mean that the borrower may have to pay two sets of
legal fees, one for the financial institution's solicitor and one for his
own solicitor. Hence in most cases borrowers choose not to be represented in
the loan transaction.
Many legal practitioners are of the view that financial institutions should
pay their own legal fees on a widely accepted principle that the costs of
legal services should be paid by the recipient of those services. The
current trend of zero-moving cost loan packages offered by financial
institutions, where legal fees are borne by the financial institutions, is a
correct move towards that direction.
Conclusion
To sum up, every party to a transaction needs independent and separate legal
representation in order that his rights and interests are fully protected.
If you think that you cannot afford the services of your own solicitor, then
you should consider whether you can afford not to. The moral of the story is
“don’t be penny wise pound foolish”. Don’t try to save on legal fees and end
up paying more if your rights and interests are somewhat compromised.
The writer is a member of the Conveyancing Practice Committee, Bar Council,
Malaysia www.malaysianbar.org.my |
