Understanding the sub-sale contract

Introduction: The first rule of conveyancing is ‘buyer and seller must engage own lawyer’. Consult a lawyer right from the start and not after you have paid the deposit. Reasons to use your own lawyer:
Under the law you are deemed to have read and understood every document you have signed.

Furthermore, promises made by the seller or someone else about the deal may not be enforceable if the promises are not in writing unless you are able to provide proof of the same.

A lawyer cannot represent both the Vendor and Purchaser - if you are using the Vendor‘s panel lawyer, often, when disputes happen, the lawyer is unlikely to represent you against their bigger client.

A lawyer in general practice will be able to complete your purchase; however, lawyers with a focused real estate/conveyancing practice may prove a better choice if you are unsure of what to do, or have complications in your purchase agreement or mortgage. While you may think that you cannot afford the services of your own lawyer, consider whether you can afford not to.

Check out the FAQ on the HBA website: www.hba.org.my

Typical Sub-Sale transaction: 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. 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 per cent (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:

• three months from the date of signing; or
• three 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
• three months from the date of the receipt of the confirmation 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 a time extension of one month or more for the Purchaser to settle the Balance Sum. When an extension of time is granted, interest at an agreed rate, for example eight per cent, 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 three and six 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 co-operation with his Solicitor.

Inventory of fixtures, fittings, etc: It is the 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 the SPA to avoid any misunderstanding on the completion of the transaction. Fixtures and fittings include lights, air conditioners, 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.

Inspection of Property: It is important to note that the sale of Property is sold on a ‘as is where is basis’ and that the purchaser must be aware of the present state and condition of the subject property.

In such an event, the Purchaser shall be deemed to have inspected the Property and have satisfied himself by examination and inspection of the Property in every respect and the Purchaser shall be deemed to have full knowledge of the nature and effect thereof.

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 will be in the form of an assignment of the rights, title and interest of the Vendor in the Property (Deed of Assignment) 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, 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 per cent 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 SPAs do 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 to a typical sale and purchase transaction.

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