Free legal fees
14/09/2001 By Nicholas Mun
PROPERTY development is a competitive game and unfortunately for the
industry, it can no longer just build and wait for the buyers to come like
they did in the past.
Choice is in abundance now and the buying process has as a result slowed,
tying up developers' cash in the bricks and mortar of their projects. To
stimulate sales, industry players are adopting strategies to make the
buying process as financially painless as possible for prospective buyers.
One such strategy that has emerged is where developers proclaim free or
subsidised legal fees for those who purchase their properties. The
question is: are buyers really enjoying a waiver of such fees?
According to Bar Council chairman Mah Weng Kwai, such a strategy may be a
gimmick to generate sales. "Such an offer of `free' or `subsidised legal
fees' is misleading as it may not represent the actual situation," said
"The solicitors on the developer's panel may be acting for it (the
developer) and not the buyer. So the fees due are to be paid by the
developer and not the purchaser. Therefore there is nothing free about it
as far as the buyer is concerned. It can only be considered free if the
buyer receives legal representation and does not have to pay for it."
The concern of the Bar Council is not misplaced. An industry source who
wished to remain anonymous admitted that such strategies are indeed
gimmicks to entice buyers.
"The solicitors on the developer's panel do not represent the buyers and
the fees involved is a matter to be resolved between them and the
developer. In fact, buyers are often required by such solicitors to sign a
document stating that he or she (the solicitor) is acting for the
developer," he explained.
Such documents may in fact be an attempt by solicitors to come within the
proviso of section 84 of the Legal Profession Act, 1976. "The general rule
(of section 84) is that the developer and purchaser should each engage
their own solicitors," Mah said.
"But where the purchaser is unrepresented, the solicitor in question
should secure a written certificate from the buyer confirming the fact
that he or she does not intend to engage a solicitor to scrutinise the
agreement," he explained of the proviso.
Mah said when a developer assembles a panel of solicitors for the
convenience of its buyers, it should be made clear at the outset that the
solicitor will be representing the buyer though the fees will be paid by
the developer. However, this is rarely the case.
"In most cases, panel solicitors have represented the developer in other
matters. Some may even have represented the developer in the acquisition
of the land upon which the development is being conducted, its conversion
and payment of the relevant premiums and maybe even the eviction of
squatters as well," Mah said.
The industry source confirmed that it is a norm for panel solicitors to
have represented the developer in other matters. Mah explained that for
the offer of "free legal fees" to be really that and nothing else, the
solicitor in question must be prepared to give the purchaser written
confirmation that he or she is indeed acting for the purchaser.
This need for legal representation is understandably downplayed in the
industry. The industry source said off-the-plan sales of residential
properties come within the standard sale and purchase agreements of the
Housing Developers (Control and Licensing) Act, 1996, which neither party
is entitled to depart from. Under such circumstances, the industry quite
obviously takes the view that such arrangements represent a cost-saving to
However, Mah explained that the rationale for alerting prospective
buyers about this is not to make purchasing more difficult or expensive.
"Prospective buyers need to be made aware of the fact that an offer of
free legal fees may not be a true reflection of the situation. So that
which is touted as free may not be so after all as the buyer receives no
"Purchasing a house is a big investment and buyers should make a
provision for legal fees so that they receive legal advice on the
transaction," he added.
Buyers who appoint their own solicitors also avoid problems of conflict
of interest that usually arise when there is only one solicitor for the
transaction. The initial cost-savings of buyers may well be offset by
problems that could arise due to conflict of interest.
Mah highlighted the seriousness of the problem in the profession where
lawyers will be subject to a conflict of interest provision in their
insurance coverage as of next year. This could as much as triple the
policy's excess in the event of conflict of interest claims. The new
provision is being introduced due to the high number of such claims, which
make up 40 per cent of the total claims made against lawyers.