Changes in the Solicitors' Remuneration Order

Changes in the Solicitors’ Remuneration Order
Source: www.malaysianbar.org.my
Thursday, 19 April 2007, 03:53pm Contributed by Yang Pei Keng

1. Date of commencement - 1 January 2006

The Solicitors’ Remuneration Order 2005 (“the SRO 2005”) came into force at the beginning of last year, i.e. on 1 January 2006. It was gazetted on the last day of the previous year (i.e. 31 December 2005). That is why it is known as the SRO 2005 (and not SRO 2006).

The previous Solicitors’ Remuneration Order 1991 (“the SRO 1991”) had been in force effective from 1 January 1992, exactly 14 years before the commencement of the new SRO 2005. The SRO 1991 has since been revoked.

Under the new SRO 2005, not only the various schedules of scale fees have been amended, but the rules governing them have also been modified to a large extent. Below are some important changes which are worthy of note.

2. Scale fees for non-contentious matters

One of the most important features of the SRO 2005 is that it introduces new scale fees for non-contentious matters (such as transfers, charges, debentures, discharges, tenancies and leases). The new scale fees can be found in the First Schedule of the Order. It applies to all transactions taking place on or after 1 January 2006.

However, does it apply to a case where a sale and purchase agreement was signed before 1 January 2006? To answer these questions, one may refer to the saving provision of the SRO 2005. It says: “… any non-contentious business commenced before the coming into force of this Order shall be governed by the provisions of the Solicitors’ Remuneration Order 1991”: paragraph 9.

This would mean that the revoked SRO 1991 still applies to sale and purchase transactions, etc. commenced before 1 January 2006. But the question is: when does a non-contentious matter “commence”?

3. When does a non-contentious matter “commence”?

The SRO 2005 merely states that “…any non-contentious business commenced before the coming into force of this Order” must be governed by the previous SRO1991: paragraph 9.

A conveyancing matter, such as sale and purchase of a property, is deemed to have commenced as soon as a file has been opened for that particular matter.

There may be doubtful or ‘borderline’ cases, but there are few and far between. The benefit of the doubt ought to be given to the solicitors concerned. By adopting such a liberal attitude, the Bar Council will be spared the accusation of conducting a “witch-hunt”.

4. New scale fees

For ease of reference, a brief table of the new scale fees for transfers and charges is worked out as follows:

Sale and Transfer

Consideration or Adjudicated Value New scale of fees

First RM150 000 1% 1 500 [minimum RM300]

Next 850 000 0.7% 5 950

First 1 000 000 7 450

Next 2 000 000 0.6% 12 000

First 3 000 000 19 450

Next 2 000 000 0.5% 10 000

First 5 000 000 29 450

Next 2 500 000 0.4% 10 000

First 7 500 000 39 450

Excess above 7,500, 000 negotiable

(maximum: 0.4% of the excess)

5. The following observations may be made on the new scale fees:

(1) New scale fees are higher

The new scale fees are higher than the previous ones. For example, for the first million, the legal fee has been increased from RM5 500 to RM7 450. There is an increase of RM1 950.

To illustrate the difference between the two sets of scale fees, a comparison of some legal fees chargeable is given below:

Consideration new scale old scale increase

RM 200,000 1,850 1,500 350

RM 1 million 7,450 5,500 1,950

RM 3 million 19 450 15 500 3,950

RM 5 million 29 450 25 500 3,950

RM 7 million 39 450 31 750 7,700

(2) Computation of new scale fees - more complex

The computation of the scale fees under the SRO 2005 is rather complex, compared to that under the revoked SRO 1991.

It is time-consuming and cumbersome to compute the legal fee payable for any transaction above RM150,000 under the new scale of fees, especially in respect of housing developer’s transactions.

Obviously the computation under the previous scale fees was very much simpler. Under the revoked SRO 1991, for any transaction up to RM5 million, the formula for calculating the legal fee was: 0.5% of the adjudicated value + RM500. In most cases, without much difficulty a solicitor could advise his client of the legal fee payable. It is not so under the new SRO 2005: the legal fee payable for almost every transaction has to be worked out.

(3) Salient points of SRO 2005

Some of the following salient points of the new SRO 2005 are noteworthy:

(a) Minimum fee RM300 - A minimum fee of RM300 is payable for any normal transaction worth RM30 000 or below.

For other low-medium-cost houses, the scale fee for the transfer of any property worth RM150 000 and below is 1%. For example, a dwelling house worth RM150 000, the legal fee payable is RM1 500.

(b) Simple formula - For any property worth RM1 million or below (but above RM150 000), the following simple formula may be used for computing the scale fee: legal fee = price x 0.7% + RM450

Example

For the sale of a double-storey terraced house worth RM300 000, the scale fee is RM2,550 arrived at as follows: RM300 000 x 0.7% + 450 = RM2,550.

This is the simple formula (price x 0.7% + RM450) for any transaction of RM1 million or below. It is to be borne in mind that the simple formula applies only to any transaction worth RM1 million or below (but above RM150,000).

(4) Either “Consideration” or “Adjudicated Value” - why?

Under the SRO 2005, the legal fee for a transfer is based on the “consideration or adjudicated value” of a property. This is a departure from the previous SRO 1991. An uncertainty has therefore been created by this new provision.

The legal fee for the transfer is now based on either the “consideration” or “adjudicated value” of a property. A solicitor is at liberty to use either the purchase price (consideration) or the value (adjudicated by the Valuation Office) to work out the legal fee payable for any transaction.

The problem is: the purchase price and the adjudicated value may or may not be the same. The adjudicated value can be higher than the purchase price, especially in time of an economic boom. For example, the purchase price of a house may be RM500,000, but its value as adjudicated can be higher, e.g. RM600 000. Hence a difference of RM100 000.

If the purchase price is taken into account, the legal fee payable is based on RM500 000. But if it is computed on the value as adjudicated (RM600 000), the legal fee can be higher. One fails to understand the rationale behind the creation of such an uncertainty in the computation of legal fees.

When prices fluctuate

In time of an economic boom, the difference between the consideration and the adjudicated value of the property can be substantial. The adjudicated value may be much higher than the actual price.

For instance, if the purchase price is RM300 000, the adjudicated value could be RM400,000 as a result of fast appreciation in value of the property. The amount of the legal fee for such transaction therefore varies, depending on whether the purchase price (RM300,000) or the adjudicated value (RM400,000) of the property is taken as the basis of computation.

A solicitor may therefore charge his legal fee according to either the consideration or the adjudicated value of the property. Why is a solicitor given such a choice? Some may construe this as a veiled form of giving a discount, that is, the legal fee for the difference between the adjudicated value and the price of the property.

(Note: Under the previous SRO 1991, there was no such uncertainty. The scale fee for the transfer was based on the “consideration/adjudication value (whichever is the higher)”. The words “whichever is the higher” have been deleted in the new SRO 2005. Invariably, the legal fee was based on the higher amount of the two. The adjudicated value was always used as the basis for computing the legal fee payable.)

(5) Flat rate of RM250 fee for a developer’s low-medium-cost house

For the purchase of a low-cost or medium-cost house governed by the Housing Development (Control and Licensing) Act 1966 (“HDA 1966”), special concession is given to the lower-income group.

RM250 - for a developer’s transaction of RM45 000 and below

Under the new SRO 2005, a flat rate of legal fee of RM250 is payable for the purchase of a low-cost or medium-cost house governed by the HDA 1966, where the purchase price is RM45 000 or below. (Note: In this article, any sale and purchase transaction governed by the HDA 1966 is referred to as a “developer’s transaction”.)

However, such special rate of scale fees applies to developers’ transactions only. It does not apply to any sub-sale, for example, a transfer between the first purchaser and a subsequent purchaser, or a transfer between two individuals, even though the price is RM45 000 or below.

If you buy a house from an individual owner at the price of RM40,000, you are to pay the usual legal fee RM400 (i.e. 1% of RM40 000), and not the special rate of RM250, simply because it is not a developer’s transaction.

[Note: Under the revoked SRO 1991, you paid RM120 only for the purchase of a low-cost house from a developer, if its price is RM30 000 and below. In this sense, the legal fee of RM120 has been increased to RM250. But if the purchase price of a property was RM100 000 and below, a discount of 25% on the legal fee must be given to you.]

(6) Discounted legal fees for all developers’ transactions

The scale fee for any housing developer’s transaction is now always discounted, and it is therefore lower compared to that of a non-developer’s transaction (e.g. a sale and purchase) between individuals.

(Note: Any transaction between individuals or companies (that is, not a developers’ transaction), has often been described as a “sub-sale”. The transaction may not relate to any housing project.)

Discounted legal fees are payable for all developer’s transactions. There are 3 different rates of discount ranging from 25% to 35%, depending on the price of the property (except that a low-priced transaction of RM45 000 or below, attracts a legal fee of only RM250). The natural and logical conclusion that can be drawn from such provision is that every purchaser is entitled to a statutory discount when buying any housing developer’s transaction.

It is mandatory for every solicitor to give the prescribed discount for any developers’ transaction. If he fails to give the discount, he will be liable to disciplinary proceedings on grounds of ‘overcharging’. A complaint may be lodged with the Disciplinary Board against the solicitor concerned.

(7) Statutory rates of discount for developers’ transactions

Unfortunately, the provision in the SRO 2005 relating to the 3 different rates of discount is couched in a verbose language. You may have to take some time to grasp it. It could have been worded in a simpler language (as had been done in the revoked SRO 1991) For ease of understanding, it may be summarised as follows:

Consideration/adjudicated value Statutory discount

RM100 000 or below (but above RM45 000) 25%

RM500 000 or below (but above RM100,000) 30%

Above RM500 000 35%

In the revoked SRO 1991, the statutory discount is worded in the plain language, easily understood by all and sundry:

“Where the consideration is in excess of RM 30,000 but not more than RM100,000:

....

Vendor’s Solicitor Scale fees less 25%

Purchaser’s Solicitor Scale fees less 25%”

Such plain English is easily comprehensible. In fact, the 3 different statutory rates of discount given in the new SRO 2005 could have been similarly worded. The relevant part of the SRO may be re-worded in the following manner:

Consideration or adjudicated value (RM) scale of fees

45 000 or below RM250

100 000 or below (but above 45 000) Scale fees less 25%

500 000 or below (but above 100 000) Scale fees less 30%

Above 500,000 Scale fees less 35%

Such simple schedule can be grasped at a glance. It makes for easy reading and understanding.

(For your reference, the actual provision of the SRO 2005 is set down below:

“Notwithstanding the above rates, in the case of any transaction governed by the Housing Development (Control and Licensing) Act 1966 [Act 118] (or any subsidiary legislation made under that Act), the remuneration of the solicitor having the conduct of and completing the transaction, whether acting for the vendor or the purchaser, shall be-

(a) RM250, if the consideration is RM45,000 or below;
(b) 75% of the applicable scale fee specified, if the consideration is in excess of RM45,000 but not more than RM100,000;
(c) 70% of the applicable scale fee specified, if the consideration is in excess of RM100,000 but not more than RM500,000; or
(d) 65% of the applicable scale fee specified, if the consideration is in excess of RM500,000 .)

It is believed that most of the lawyers may find it difficulty to understand the provision at first glance.

8. Developers maximising profits at the expense of the legal profession?

Such discounted legal fees certainly are to the benefit of purchasers. However, viewed in the consumers’ perspective, some may feel that the different rates of statutory discount of legal fees given in developers’ transactions are designed to assist housing developers in promoting the sale of their products. Undeniably, the end result is certain purchasers benefit from such arrangements, because they are entitled to a maximum of 35% discount.

No blame can be attached to anyone who regards this as a special privilege bestowed upon developers with a view to assisting them in promoting the sale of houses built by them. Such privilege enjoyed by developers may give rise to misgiving that the legal profession is practising unfair discrimination against a certain class of purchasers.

Purchasers in sub-sales have yet to be convinced why they are not entitled to similar rates of discount. When a purchaser buys a house from an individual seller (i.e. not a developer’s transaction), he does not enjoy the benefit of any discount; he has to pay the full scale fee for the transfer.

As a consumer, the purchaser in a sub-sale may fail to understand the justification for such discrimination against him. Why is he not given the same benefit as enjoyed by the purchaser in a developer’s transaction?

He may feel that he is being treated differently in an unfair way, simply because he does not buy the property from a licensed developer governed by the HDA1966. He may want to know why he is not accorded similar preferential treatment. Is he to blame if he feels that he is a victim of unfair discrimination?

Obviously, housing developers are given preferential treatment. In the circumstances, if some developers still clamour for scrapping the no-discount rule practised by legal practitioners, one may be compelled to conclude that the developers concerned are seized with the insatiable obsession with the objective of maximising their profits, to the detriment of the legal profession. They show a callous disregard for the interests of the legal profession.

(9) Computing scale fees for developer’s transactions

Under the new SRO 2005, some may find it rather cumbersome to compute the legal fee for a developer’s transaction (if the purchase price is above RM45,000).

[Note: No such difficulty was encountered under the revoked SRO 1991. A statutory discount of 25% was given in a developer’s transaction of a medium-cost house of RM100 000 or below (subject to a flat rate of RM120 for any low-cost house priced at RM30 000 or below)].

The scale fee for a developer’s transaction has to be laboriously worked out before one can arrive at the legal fee payable for it. A solicitor will have to work out the normal scale fee first. Then deduct the discount which must be given before he can arrive at the actual legal fee payable by his client. Below are some examples:

Example 1 [price up to RM100,000 – less 25%]

In a developer’ transaction of RM100,000, the fee after discount is RM750 -

Normal scale fee = RM100,000 x 1% = RM1,000
Less 25% discount RM250
75% of scale fee = RM1,000 x 75%= RM750

Example 2 [price up to RM500,000 – less 30%]

In a developer’ transaction of RM250 000, the fee after discount is RM1 540 -

Normal scale fee = RM250 000 x 0.7% + 450 = RM2 200)
Less 30% discount 660
70% of scale fee = RM2 200 x 70% = RM1 540

Example 3 [price above RM500 000 – less 35%]

In a developer’ transaction of RM1 million, the fee after discount is RM4 842.50 -

Normal scale fee = RM1 000 000 x 0.7% + 450 = RM7 450.00
Less 35% discount 2 607.50
65% of scale fee = RM7 450 x 65% = RM 4 842.50

It is clear from the examples given above, the SRO 2005 provides a cumbersome process for computing the legal fee payable for a developer’s transaction. One wonders: why not devise a simpler process for computing legal fees, instead of such a cumbersome one? The time spent on computing legal fees could be more productively used to improve the professional services rendered to clients.

(10) Tenancies - scale fees revised

The new scale fees for tenancies may be summarised as follows:

Monthly rent legal fees

For the 1st RM10 000 25% RM2 500 (minimum – RM300)

For the next RM90 000 10% RM9 000

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For the 1st RM100 000 RM11 500

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Above RM100 000 negotiable on the excess
(up to 10% of such excess)

The minimum legal fee for a tenancy has been increased to RM300 (instead of RM200). Consequently, the legal fee for any tenancy with a monthly rental up to RM1 200 is a flat rate of RM300. Once the monthly rental exceeds RM1 200, the scale fees shown above have to be followed.

The monthly rental of a tenancy for an ordinary building (i.e. a dwelling house, shophouse, apartment, shoplot, etc.) is largely within the range of RM10 000 per month as far as Johor Bahru is concerned. The legal fee payable therefore is usually 25% of the monthly rent. For example, for a tenancy of RM2 000 per month, the scale fee is RM2 000 x 25% = RM500. (i.e. ¼ of monthly rent).

(11) Discharge of Charge / Deed of Reassignment

The scale fee for attending to a Discharge of Charge is RM300. However, if the Discharge of Charge involves more than one title, an additional sum of RM50 is payable for each additional title to be discharged.

The legal fee for the Discharge of Charge has been raised from RM200 to RM300, an increase of RM100. The additional fee for each additional title has been increased from RM30 to RM50, an increase of RM20.

Apportionment of legal fees by solicitors

New provisions are introduced to spell out the manner of apportioning legal fees between the borrower’s solicitor and the bank’s solicitor (or any financier’s solicitor) for attending to the Discharge of Charge. The apportionment of legal fees varies, depending on who prepares the Discharge:

i. If financier’s solicitor prepares the Discharge

If a borrower (or chargor) appoints his own solicitor to attend to the Discharge of Charge, but the bank’s solicitor prepares the Discharge of Charge and attests the signature of the bank’s attorney, the legal fee of RM300 is shared equally between the 2 solicitors [see 4th Schedule, rule 2(a)] -

• The Borrower’s solicitor gets ½ of the scale fee (RM150).
• The Bank’s solicitor gets the other ½ of the scale fee (RM150).

ii. If the borrower’s solicitor prepares the Discharge

If the borrower’s solicitor prepares the Discharge of Charge, but the bank’s solicitor attests the signature of the bank’s attorney, the respective solicitors’ fees are as follows [ see 4th Schedule, rule 2(b)]:

• The borrower’s solicitor is to charge the full fee (RM300).
• The bank’s solicitor can only charge the attestation fee (RM100).

All rules pertaining to the Discharge of Charge also apply to a Deed of Receipt and Reassignment where the property is without title.

Comment: From the consumer’s point of view, it is more economical for the borrower to appoint his own solicitor, but let the bank’s solicitor prepare and attend to the Discharge of Discharge. By adopting such approach, he enjoys the benefit of independent legal advice. The reasons are as follows:

i. If the consumer appoints his own solicitor, but the the bank’s solicitor prepares the Discharge and attests the signature of the bank’s attorney, the consumer needs to pay a total fee of RM300 only (i.e. RM150 to his own solicitor; the other RM150 to the bank’s solicitor). Under this arrangement, he enjoys the best of both worlds. His solicitor is spared the trouble of preparing the Discharge.
Both solicitors share the legal fee equally.

ii. If the consumer’s solicitor himself prepares the Discharge, but the bank’s solicitor attests the signature of the bank’s attorney, the consumer has to pay an extra sum of RM100 to the bank’s solicitor as attestation fee, in addition to the full fee of RM300 to be paid to his solicitor. The consumer has to pay a total sum of RM400. This arrangement is not to the benefit of the consumer.

iii. On the other hand, if the consumer’s solicitor himself prepares the Discharge and attests the signature of the bank’s attorney, the borrower needs only to pay the full fee of RM300 only to his solicitor. This was the most common process adopted under the previous SRO 1991. Solicitors would invariably prefer to adopt such procedure.

iv. Once the consumer has settled the full redemption sum, it is encumbent upon the bank to forward the document of title and the duplicate charge to any solicitor properly appointed by the consumer, since the bank has no more interests in the consumer’s property by then.

It is highly improper in the circumstances for the bank to forward the documents to its own solicitors, who have no instructions from the consumer to protect his interests. The bank has no authority “to protect the consumer’s interests”, particularly so when the consumer has appointed his own solicitor to protect his interests.

No witnessing or attesting fee re signature of unrepresented party

It is now specifically provided that, a solicitor acting for one party in the sale or purchase of a property, cannot charge any witnessing fee (or attestation fee) for witnessing and attesting the signature of the unrepresented party. For example, a purchaser’s solicitor cannot charge any fee for witnessing or attesting the vendor’s signature to the sale and purchase agreement.

(12) Revised scale fees re miscellaneous documents

The scale fees for preparing and filing “miscellaneous documents” are revised upwards, except that the witnessing fee and the attestation fee, and the application for consent for low-cost houses (priced up to RM45 000) remain the same.

New scale Previous scale

Witnessing fee RM50 + RM10 per copy the same

Attestation fee RM100 + RM10 per copy the same

ROC forms (s108-s113) RM300 per set RM200

RPGT form 1 (for vendor) RM300 RM200

RPGT form 2 (for purchaser) RM200 RM100

Application for consent -

(for price/loan up to RM45,000) RM200 RM200

(for price/loan above RM45,000) RM300 RM200

Filing any other form RM100 not fixed

Entry of caveat RM200 (+ RM50/add. Title) RM150 + RM20

Withdrawal of caveat RM150 (+ RM50/add.title) RM100 + RM20

[Note: An exemption order has been made on the Real Property Gains Tax (RPGT). RPGT is exempted in respect of any transaction taking place on or after 1 April 2007. No CKHT forms need to be filed, and therefore no fees (RM300 and RM200) are to be collected for such transaction.]

Conclusion

The changes made by the Solicitors’ Remuneration Order 2005 are substantial. On the whole, fees have been increased. One of the most significant changes is the introduction of various rates of statutory discount for the developers’ transactions. The purchasers concerned are given preferential treatment while other purchasers are not. This may be viewed by some as a veiled form of unfair discrimination. This may be viewed by some as a form of bias in favour of the housing developers.