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Understanding an SPA - (Part
1)
08/12/2006 The Sun-Law & Realty By Cheong Yoke Ping
A SUB-SALE of a property (“Property”) occurs when a Purchaser purchases a
Property from a Vendor who is not a developer. Many purchasers sign sale and
purchase agreements (“SPA”) without understanding the legal implications of
the terms and conditions of the SPA.
A Purchaser should not hesitate to seek explanation from his Solicitor at
all times, especially prior to the signing of the SPA and whenever
amendments are to be made to the SPA, so that he is informed of the terms
and conditions of the SPA, and the Solicitor should and is expected to
explain the terms and conditions of the SPA to his client.
Purchase Price and completion date
Besides the name and particulars of the Vendor and Purchaser, the SPA sets
out the Purchase Price. It is usual for a deposit of 10% (less any earnest
deposit paid earlier, if any) to be paid upon the signing of the SPA by the
Purchaser. The SPA will set out the date of the payment (“Completion Date”)
of the balance purchase price (“Balance Sum”), which is usually:
• 3 months from the date of signing; or
• 3 months from the date of receipt by the Purchaser’s Solicitors of the
consent from the relevant authority if the Property is subject to a
restriction in interest; or
• 3 months from the date of the receipt of the consent of the developer in
the case where the individual or strata title to the Property is not issued
yet.
The SPA will, in most cases, provide an extension of time of 1 month or more
for the Purchaser to settle the Balance Sum. When an extension of time is
granted, interest at an agreed rate will normally be charged by the Vendor
on the unpaid Balance Sum. This interest is usually charged on a daily basis
from the day after the Completion Date until the date of full payment of the
unpaid Balance Sum.
In a case where the Property is subject to a restriction in interest, the
time for obtaining the relevant consent is usually agreed at between 4-12
months, and the time for obtaining the relevant consent may be extended.
The Purchaser should be aware that if he fails for any reason to pay the
Balance Sum on the Completion Date or the extended date, as the case may be,
the Vendor has a right to forfeit the Deposit as liquidated damages. The SPA
normally provides for the Vendor to refund any money paid by the Purchaser
which is in excess of the Deposit. To avoid the forfeiture of his Deposit, a
Purchaser has to monitor the progress of his payment of his Balance Sum
closely in cooperation with his Solicitor.
Inventory of fixtures, fittings, etc
It is responsibility of the Purchaser to give his Solicitor an inventory of
fixtures, fittings, furniture and other items which may be included in the
purchase of the Property and such inventory should be attached to SPA to
avoid any misunderstanding on the completion of the transaction. Fixtures
and fittings include lights, air conditioners and fans and other items that
are affixed to the Property. It is common, however, for the Vendor not to
charge extra for normal lightings and fans.
Encumbrances and redemption sum
A Property sold by the Vendor may be encumbered, i.e. the Vendor may have
charged the Property to a bank to secure a loan granted by the bank to the
Vendor. Where no individual title or strata title has been issued for the
Property, the security taken by the bank is an assignment of the rights,
title and interest of the Vendor in the Property and the Vendor's agreement
with the Developer.
It is the Purchaser’s Solicitor’s duty to ascertain the amount owing to the
Vendor’s bank (“Redemption Sum”). Where the Redemption Sum exceeds the
Purchase Price or the Balance Sum, additional provisions are required to be
made for payment of the amount in excess by the Vendor.
Purchaser’s loan and difference sum
The SPA will normally provide that the Purchaser will require a loan
(“Loan”) to assist in the payment of the Balance Sum. Once the Purchaser has
obtained his Loan, his bank (“Purchaser’s Bank”) will appoint a solicitor to
prepare and complete the loan documentation for the release of the Loan.
Sometimes the Purchaser’s Solicitor may be appointed by the Purchaser's Bank
to attend to the loan documentation. It should be borne in mind that when
the Purchaser's Bank appoints the solicitor, that solicitor is acting for
the Purchaser's Bank in the Loan transaction, and that solicitor does not
act for the Purchaser in the Loan transaction even though the Purchaser may
have to pay the legal fees due to that solicitor.
Where there is a title to the Property, the loan documents to be signed by
the Purchaser are usually the loan or facility agreement, and a charge to be
registered over the Property in favour of the bank.
Where there is no individual or strata title to the Property, then the loan
documents to be signed by the Purchaser are usually the loan or facility
agreement, and an assignment of the Property from the Purchaser to the bank
as security, together with the grant of a power of attorney to the bank.
If the Purchaser's Loan is less than 90% of the Purchase Price, there will
be a difference between the balance purchase price and loan amount to be
paid by the Purchaser. This is usually referred to as the Difference Sum.
Although most SPA will not specify an exact date for payment of the
Difference Sum, the Purchaser should not delay the payment of the Difference
Sum as this will delay the release of his Loan. When in doubt as to when he
should pay, the Purchaser should contact his Solicitor. The Difference Sum
must be paid by the Purchaser before the Purchaser's Bank will release his
Loan.
Conclusion
The Purchaser should be well informed and advised of the terms and
conditions of the SPA, with the assistance of his Solicitor, so that he is
able to appreciate the process of purchasing a Property in his best
interests.
Terms and conditions of a SPA may vary from case to case, and in a
forthcoming Part 2 of this article, the writer will cover more terms and
conditions relevant in a typical sale and purchase transaction.
Part 2 will appear in the
next Law & Realty a fortnight from today.
The writer is a member of the Conveyancing Practice Committee, Bar
Council, Malaysia www.malaysianbar.org.my |
