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Know what you're signing
18/09/2004 NST-PROP By Salleh Buang

A quick tour through the laws governing the sale and purchase of a house

Having considered the general principles of the Sale and Purchase Agreement (SPA) last week, let us now focus our attention on Schedule G which involves landed residential units.

Prior to the introduction of amendments to the Housing Development (Control & Licensing) Act, the legislation governing the SPA, which came into being on Dec 1, 2002, a developer's duties to its purchasers were as follows:

a) To sell the property free from any restrictions and encumbrances, other than those expressed or implied conditions that affect the title;

b) Upon signing of an SPA, the developer shall not encumber the property unless it has the prior approval of the purchasers. If the property is then encumbered, the developer must undertake to render it free from any encumbrance before handing over vacant possession to the purchasers;

c) To complete the construction of the house on time. This duty is expressed in both Schedules G and H (which applies to stratified property) that time shall be the essence of the contract. The period of completion and handing over of vacant possession for landed property is
24 months, while for sub-divided buildings, it is 36 months;

d) To obtain a separate document of title, and in the case of a sub-divided building, to obtain a separate strata title;

e) To execute a valid and registrable memorandum of transfer of the property to purchasers (subject to their payment of the purchase price);

f) To construct the building in a good and workmanlike manner in accordance with the description set out in the Fourth Schedule of the agreement and in accordance with the plans approved by the relevant authorities;

g) To construct the infrastructure, including roads, driveways, drains, culverts, water mains and sewerage plants, in the housing project in accordance with the requirements and standards of the relevant authorities. These are also to be maintained, with the developer having to contribute to the costs of such upkeep, until they are taken over by the relevant authorities;

h) To provide services, including refuse collection, cleaning of public drains and grass cutting on the road reserves, from the time of handing over of vacant possession until these tasks are taken over by the relevant authorities (with purchasers having to contribute a fair proportion of the cost);

No law can guarantee completion

i) To lay all necessary water, electricity and sewerage mains to serve the housing project, and to apply for the connection of internal water, electricity, sanitary and gas installations (if any) of the buildings to the mains;

j) To comply with any written law for the time being in force. In the past, a number of developers had been taken to court for contravening several provisions of the Environmental Quality Act 1974 and the Occupational Safety and Health Act 1994;

k) To apply for Certificates of Fitness for Occupation (CF) and ensure that there is no delay in the issuance of such certificates. To achieve this, the developer had to duly comply with the requirements of the relevant authorities;

l) To remedy defects, shrinkage and other faults during the defects liability period, which is 18 months after vacant possession of the building is handed over to the purchasers. With the amendments, some dramatic changes were brought to Schedule G, and these include:

a) The SPA now states whether the land (upon which the house is built) is freehold or leasehold;

b) The developer can no longer encumber the land at any time after the SPA has been signed, not just immediately after its execution. Even if purchasers agree to let the developer do so, it can only be done after the purchasers have received an undertaking from the bridging financier that the latter will exclude their properties from any foreclosure proceedings. If the property has been encumbered, the developer must deliver a copy of the redemption statement from the bank to the purchasers. This is to protect them from losing their entire investment should the developer default in repaying the bridging loan, resulting in the property being auctioned off.

c) The developer is no longer bound to commence or complete the works in the order referred to in the Third Schedule. Instead, it is given the flexibility to manage its construction schedule.

d) If purchasers, having signed their SPAs and paid the 10 per cent deposit, subsequently fail to get a housing loan, the SPA can be terminated. However, the failure to secure the end financing must be due to the 'ineligibility of income' and not for any other reason. Upon termination, purchasers only lose one per cent of the purchase price and the developer must refund the balance within 21 days of the termination.

e) Purchasers can initiate and maintain an action in their own names against the developer, even though they had assigned their interest under the SPA to their end financiers. However, this right is subject to a ?contrary intention? expressed in any agreement between the purchasers and their financiers (Purchasers who are not sure where they stand in regard to this matter should seek the advice of their solicitors) italics within brackets.

f) Purchasers are shielded from paying interest to the developer (for late payment of instalments) in respect of certain cases, such as in matters where the cause is not directly their fault.

g) Purchasers can only be charged 0.5 per cent of the purchase price or RM500 (whichever is the lower) in cases where a developer's consent to an assignment or sub-sale is required. This clause owes its origin to a case handed down by the High Court in Kuala Lumpur a decade ago, in Lim Seang Mee v. Keepahead Holdings Sdn Bhd [1993] (2 AMR 3553).

h) Purchasers will have to pay a six-month advance contribution in respect of maintenance of service charges commencing from the date of vacant possession.

i) Any action to claim liquidated damages by purchasers 'shall accrue on the date the purchaser takes vacant possession of the said building'. Furthermore, claims for liquidated damages before the Tribunal for Homebuyer's Claims must be made not later than 12 months from the date CF has been issued or the expiry date of the defects liability period.

j) Delivery of vacant possession must now be accompanied by a certificate signed by the vendor's architect that the building has been constructed in accordance with the law, and a letter of confirmation from the relevant local authority that Form E (as prescribed under the Uniform Building Bylaws 1984) has been duly submitted, checked and accepted by it.

On paper, the amendments affecting the Act and the standard SPA look impressive. Purchasers seem to be better protected than before. However, the sad thing is that no law can guarantee that a housing project will be competed. Nor can it guarantee, if the project is indeed completed, that all its units will be free from defects.

That should be the best argument for the build-then-sell concept. Under the existing law, what you see in a glossy brochure and what you might eventually receive may be worlds apart.

Salleh Buang is senior advisor of a company specialising in competitive intelligence. He is also active in training and public speaking and can be reached at sallehbuang@hotmail.com

 

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