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Appraising the new SPA
08/03/2003 NST-PROP By Salleh Buang

There was an e-mail message in my inbox recently from an old friend, NT of Shah Alam. In his e-mail to me, NT asked whether I had seen the new version of the standard sale and purchase agreement (SPA).

The standard SPA, as we all know, takes two forms. It either conforms to Schedule G or H of what was before the Housing Developers (Control & Licensing) Regulations 1989, recently updated by the 2002 Regulations. Form G is meant for houses built on terra firma, whilst Schedule H is for stratified housing.

In my reply to NT, I said that I have not done so, but I have done the next best thing. I have read the comments on the matter by Shamsulbahri Ibrahim, the Legal Adviser of the Housing Ministry, whom I personally know since the late 80s. His excellent comments were contained in a lengthy article now available in cyberspace.

In summary, the following represents the new features of the revamped SPA under Schedule G:

1. In the Preamble to the SPA, the developer is now required to state whether the property sold to the purchaser is freehold land or leasehold land. To me, whilst the terms “freehold land” and “leasehold land” are perfectly acceptable as employed in common usage, strictly speaking they do not conform to the terminology found in the National Land Code, 1965 which states that land is either “held in perpetuity” or “for a term of years”.

2. There is better protection for the purchaser in the event that the property sold by the developer to him is subsequently or “at any time” encumbered - i.e. charged by the developer to a bank as security for his bridging loan. In the event of foreclosure proceedings by the bridging financier (due to the developer’s default), the property is excluded from the order for sale granted to the bridging financier.

3. Greater flexibility is granted to the developer to carry out construction work on the housing project. It need not follow exactly the sequence stated in the Third Schedule to the SPA. The purchaser’s interest is, however, safeguarded. If any work certified for payment is then damaged by any subsequent work done by the developer, it shall be made good by the developer at his own cost before the purchaser takes vacant possession of the property.

4. A new way out is provided to the purchaser in the unfortunate event that he is unable to obtain a housing loan to complete the purchase. Under the revamped SPA, if the purchaser fails to obtain financing due to his ineligibility, he can terminate the SPA and ask for a refund of all monies already paid by him to the developer. The developer, however, is entitled to deduct a sum equivalent to one per cent of the purchase price.

5. The purchaser can now initiate and maintain an action “in his own name” against the developer in any court or tribunal, notwithstanding that the purchaser has assigned his rights and interests under the SPA to his end-financier. There is, however, a catch to this. That right exists only if there is no “contrary intention” expressed in the security documentation executed by the purchaser in favour of his end-financier.

6. Greater leeway is granted to the purchaser in respect of late payment. Under the revamped SPA, interest is payable only if the purchaser delays beyond 21 working days (formerly it was 14 days). The revamped SPA also spells out certain circumstances under which the developer cannot claim interest due to late payment.

7. The purchaser is only required to pay the developer RM500 or 0.5 per cent of the purchase price, whichever is lower, for his consent and as administrative fee should the purchaser subsequently sell the property to another party. Neither the purchaser nor the other party can be asked to pay the developer’s solicitor’s fee.

8. There is now a limit to the amount the developer can claim from the purchaser in cases where the purchase price is to be adjusted due to actual lot size. There is now a maximum of two per cent of the total area. In Shamsulbahari’s opinion, which I completely agree with, that limit “represents a reasonable accuracy tolerance for construction purposes, especially with respect to land sizes”. It is also intended “to prevent excessive claims by the Developer resulting from adjustment of purchase price in cases where the land area as shown in the final document of title when issued is much larger than the land area as shown in the layout plan, such claim being beyond the means and/or expectation of the Purchaser”.

9. The developer is now allowed to collect, from the purchaser, not more than six months’ advance in respect of the purchaser’s contribution for the maintenance of services (to be provided by the developer from the date of handing over of vacant possession to the purchaser until the same is taken over by the appropriate authority). This is to prevent the developer from continuing past practices, where some developers have been asking for a year’s advance payment for such services.

10. In cases where the developer has delayed completion beyond 24 or 36 months, he is now required to pay liquidated damages (at 10 per cent of the purchase price) to the purchaser on the day he hands over vacant possession of the completed property to the purchaser. The revamped SPA states: “For the avoidance of doubt, any cause of action to claim liquidated damages by the Purchaser under this clause shall accrue on the date the Purchaser takes vacant possession of the said Building.”

11. Under the new law, the revamped SPA now provides as follows: “For the purpose of claiming any liquidated damages in the Tribunal of Homebuyer Claims established under section 16B of the Housing Development Act 1966 [Act 118], such claim shall be made not later than twelve months from (a) the date of issuance of the certificate of fitness for occupation for the said Building; or (b) the expiry date of the defects liability period as set out in clause 26, whichever is the later.”

12. Greater protection is provided to the purchaser with regard to the delivery of vacant possession. The revamped SPA now requires the developer to provide the purchaser with “a letter of confirmation” from the appropriate authority “certifying that the Form E as prescribed under the Second Schedule to Uniform Building By-Laws, 1984” has been duly submitted by the developer and duly “checked and accepted” by such authority. The intention behind this revamped provision is to ensure the speedy issuance of Certificate of Fitness for Occupation for the purchaser.

13. Under the revamped SPA, the purchaser can now ask the solicitor (stakeholder of the purchase money) to release the sum of money representing his out of pocket expenses in cases where the purchaser is compelled by circumstances to carry out rectification work in respect of defects.

At face value, without a doubt, the revamped SPA is better than what it was before. Whether it will benefit purchasers will depend on the professionalism and goodwill of the housing industry as well as the vigilance of the purchasers themselves. Rights are meaningless if we sleep on them.


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