Understanding an SPA - (Part 1)
©The Sun(Used by permission)
By Cheong Yoke Ping
In this Part 2, the writer continues to explain some additional terms and conditions of a normal and typical transaction relating to the purchase of a Property from a Vendor, other than a developer.
Memorandum of Transfer or Deed of Assignment
When the Vendor signs a SPA to sell his Property, he is normally required to simultaneously sign a Memorandum of Transfer (Form 14A) (Transfer), in a case of a Property with title, or a Deed of Assignment (Assignment), in a case of a Property without title.
The Transfer or Assignment is usually deposited with the Purchasers Solicitor as stakeholder. Sometimes the Assignment is kept by the Vendors Solicitor as stakeholder until the Purchaser banks (Purchasers Bank) has given a written undertaking to the Vendor to release the Loan to enable the Purchaser to complete the transaction.
In a case of a sale of Property without title, it has been the practice to require the Vendor to obtain the consent of the Developer to the sub-sale of the Property from the Vendor to the Purchaser (Developers Consent). The Developer will normally grant its consent when the conditions stipulated by the Developer are complied with, including the settlement of an administrative fee, all outstanding charges due in respect of the Property, and receipt of certain documents, e.g. the Receipt & Reassignment (R&R)(if applicable).
Delivery of documents by Vendor
The SPA will provide for the Vendor to deliver the following documents upon or after the signing of the SPA and payment of the Deposit of 10%:
Duly executed Transfer or Assignment
Quit rent and assessment receipts for the current year
Certified copy of Vendors NRIC, Income tax reference no. and place of assessment, if any
Redemption statement of the Vendors bank.
The purchase of a Property without title usually requires the Vendor to produce all documents tracing the transactions from the original purchaser to the Vendor, including all SPAs, loan agreements, Assignments and R&R.
Adjudication of Transfer or Assignment and Receipt and Reassignment (R&R)
Adjudication is the process of determining the stamp duty payable on the instrument of Transfer or Assignment. Stamp duty is payable on the relevant instrument based on its consideration or market value, whichever is higher.
The Transfer or Assignment is submitted by the Purchasers Solicitor to the Pejabat Duti Setem, Lembaga Hasil Dalam Negeri, and this will involve the valuation of the Property by the Valuation Department. Nowadays, the adjudication process has been computerised in some States, and computerised adjudication will normally take 2-3 weeks to be completed. The manual adjudication will take 2-3 months.
Once the Purchasers Solicitor has received the Stamping Notice (Notis Taksiran) from the Pejabat Duti Setem, he will proceed to stamp the Transfer provided that the Purchaser has deposited the correct amount of stamp duty with him. The stamp duty is usually deposited earlier by the Purchaser to avoid any delay in the payment of the same.
The ad valorem stamp duty must be paid within 30 days of the date of the notice, failing which, a penalty is chargeable.
Unlike a Transfer, an Assignment will not be dated or sent for adjudication, soon after the date of the SPA. Where the rights over the Property have been assigned by the Vendor as security to the Vendors Bank, such rights have to be reassigned by the Vendors Bank to the Vendor by way of the R&R. The R&R is to be signed by the Vendor and the Vendors Bank.
Once the Redemption Sum is paid by the Purchaser or the Purchasers Bank, as the case may be, and a copy of the R&R is received by the Purchasers Solicitor from the Bank, the Purchasers Solicitor will date the Assignment and submit the Assignment for adjudication and subsequent payment of ad valorem stamp duty. (This is one of the reasons why the purchase of a Property without title takes longer to complete than a Property with title). Based on the Purchasers Solicitors earlier undertaking to the Purchasers Bank, he will then forward the duly adjudicated and stamped Assignment to the Purchasers Banks or its Solicitor.
Redemption Statement from Vendors bank and release of documents
The Vendors Solicitor or the Purchasers Solicitor (in a case where the Vendor is not represented) will write to the Vendors Bank for a redemption statement, which will set out the amount owing by the Vendor (Redemption Sum). The Vendors Bank is usually requested to furnish an undertaking to refund the Redemption Sum in the event that (a) the discharge of the Vendors Bank cannot be registered for any reason (for Property with title) or (b) the R&R or the Assignment cannot be perfected for any reason.
The Vendors Bank is also required to give to the Purchaser or the Purchasers Bank a letter of undertaking that upon the receipt of the Redemption Sum by the Vendors Bank:
(1) it will release the original title, duplicate charge and instrument of discharge to the Purchasers Solicitor (in a case of Property with title); or
(2) it will deliver the duly executed R&R, original loan documents and other documents in its possession (in a case of Property without title).
Vendors undertaking to refund
The Vendor is usually required to furnish a written undertaking to the Purchasers Bank to refund the Loan in the event that the Transfer cannot be registered for any reason or in the event the Assignment cannot be perfected for any reason. This undertaking is to be delivered within 7-14 days, failing which additional time may have to given to the Purchaser to pay the balance purchase price without interest.
Part I appeared in the Law & Realty column a fornight ago.
The writer is a member of the Conveyancing Practice Committee, Bar Council, Malaysia www.malaysianbar.org.my.
Note: This column is brought to you by the Malaysian Bar Council for your information only. It does not constitute legal advice. You should therefore seek professional legal advice for your specific needs. Neither the Malaysian Bar nor the Sun Media Corporation Sdn Bhd shall be liable to any reader who suffers losses as a result of relying on this column.
Buying a property can be a daunting experience, be it for first-timers or even for second-timers. For those who are unsure of the various steps involved, StarProperty.my would like to give you this quick, simple guide to buying your dream property.
1. Figure out your budget
You probably have an area in mind already so all you have left to figure out is your budget. If it’s your first property, banks will usually give you 90% of the required amount, so long as the instalments come up to no more than ⅓ of your income (net of other instalments). If you have a good credit record though, the instalment may even come up to ½ of your net income.
Keep in mind that you would need several thousand more ringgit to pay for stamp duty (or memorandum of transfer) and other legal charges. For, say, a RM450,000 house, these costs can come up to nearly RM20,000.
Interest rates may also increase some time in the coming years, so don’t calculate monthly loan instalments which are too high a proportion of your monthly income.
2. Look for your property
To look for property on StarProperty.my, just type in the areas you are interested in, together with your budget. You can also search by built-up area, number of bedrooms or bathrooms, tenure, furnishing and age of listing.
Another way is to go to StarProperty.my’s Find Agent section, where you can get in touch with agents working in areas you are interested in. They can then guide you along the process.
You can even do more research on your favourite areas by clicking the Property News and Local Info tabs, where you will find a wealth of insights on living or investing in these areas.
Alternatively, you can go to The Star’s Star Search classifieds section, or tell everyone you know that you are looking for a new home in order to hear about word-of-mouth offers.
If it’s a developer property you are after, which is under construction, developers usually ask interested buyers to register on the developer’s website first, or within www.StarProperty.my’s “Featured Developments”.
When the developer is ready, it will have a sales preview or sales launch at its sales gallery, which may or may not be at the project’s site. Here, you can select your unit, and pay a booking fee for the unit. There may be some units or floors set aside for Bumiputra buyers–Bumiputra units or Bumi lots.
With a developer property, you will likely have to wait between two to four years for the property to be completed as most projects in Malaysia are under construction when sales are first opened to buyers. For residential properties which come under the purview of the Housing Development Act, properties need to be handed over to purchasers within 24 months from signing the sale and purchase agreement (SPA) for landed properties or 36 months for strata properties.
From 2015, however, the Government has proposed that buyers only completely pay for their properties when they are already built, under the build-then-sell model.
3. View the property
Once you spot something interesting, call the agent; he or she will set up a viewing. A good question to ask the agent is how long he or she has been marketing this property.
If it has just come on the market, there is a good chance you can get it at a good price. If it has been on the market for some time, the price may still be quite high and this would give you some bargaining power.
Other relevant questions include whether the property is freehold/leasehold, what the maintenance fees are (if any), how many car parking bays the property comes with, what rental the property can fetch, whether it is a residential or commercial property, etc.
If it is on a commercial title (eg a “service apartment” or SoHo), the utilities and assessment rates are probably charged with commercial rates, which can sometime be up to twice of residential rates.
Look out for defects, eg structural cracks or leaking roof from missing roof tiles, etc. Remedies may cost several tens of thousands of ringgit, which should be reflected in the price.
Ask the agent/owner for a copy of the property’s title. Scrutinise it for the owner’s name, the tenure, official address (is it really a Bangsar address, as the advertisement states?) and land size (is it really the size the advertisement states?). You would be amazed at how the official title may look different from the advertisement.
4. Research the price and site
You’re getting the exciting tremors of finding a property you like. Time to make an offer without giving away your excitement!
Before that, however, try to visit lots of homes before choosing one, however. Also, go back on another occasion to the property you’re interested in and speak to the neighbours. Find out if there has been any house transacted along the street or nearby, and for what price. Try to speak to the owners of the transacted house. This is also a good time to get the word on the ground on neighbourhood security, nasty neighbours, upcoming developments, etc.
You can also check out websites like http://jpph.info/index.php, and www.ipropertydata.com, where you can find transacted prices. This might save you tens of thousands of ringgit later on!
5. Get your loan and lawyer
Get an idea of how much you can borrow. Call a couple of bank officers or visit a branch near you to determine if you can get the loan you require, eg a 90% loan for the price you are thinking of.
They will ask for copies of your IC, last three months’ salary slips, last three months’ balances and transactions in your bank account, last EA form, property title, and maybe photos of the property. They will usually also arrange one or a few preliminary, verbal valuations for you.
For those who are EPF members and would like to make withdrawal from your EPF account, obtain the EPF Withdrawal Form from the EPF office or download it from www.kwsp.gov.my.
Make your offer
If your valuations come out lower than the negotiated prices, this is your chance to offer the vendor a lower price.
For example, the owner wants RM500,000 but the highest valuation obtained is RM450,000. This gives you grounds to offer around the vicinity of RM450,000 rather than submit to the vendor’s demands.
Even if you want to offer more, you can consider your upper limit to negotiate to by considering the amount of cash the bank would give you. If the highest valuation is RM450,000, a 90% loan would only come up to RM405,000. This means that even if you were to offer RM470,000, you would need to cough up a cash amount of RM65,000 to top up the purchase price, not to mention the amount to be paid for stamp duty and legal fees, which can come up to about RM20,000 for a property of that value.
Even if you can afford RM470,000, you might want to open your negotiations somewhere around the highest valuation of RM450,000.
If the owner needs to sell, he or she might accept it. If he or she is still holding out for a higher price, the vendor may make a counter-offer for a higher price, eg RM480,000, or for different terms. If you want, you can then come up to your maximum offer price of RM470,000, knowing that this is the most you can afford and he or she can then take it or leave it.
If the owner accepts within your well-researched budget, congratulations!
Get a lawyer
Of course, there are many steps left before you can crack out the champagne or caviar, but the first one has to be getting a lawyer to draft and get signed the sale and purchase agreement (SPA) and loan agreement.
Unless you have much time or experience on your side, you probably shouldn’t do it by yourself or with only a “runner”. Most people rely on a lawyer who is a relative or a friend.
Get someone you trust to keep your best interests at heart, whom you can contact at anytime through his/her mobile number, who has experience in conveyancing and who has time for you. You don’t want a lawyer who puts your transaction at the bottom of his in-tray, or a firm which goes bust midway through your transaction!
In terms of costs, legal fees to draft and handle a sale and purchase agreement and loan agreement are regulated by law to be calculated based on the price of the property. The legal fees for a RM450,000 property, for example, would come up to RM7,200.
If you are buying from a developer, many offer “free legal services” where the sale and purchase agreement is already drafted out for you by the developer’s lawyers. Keep in mind that they are acting in the best interest’s of the developer who is paying their fees however.
The lawyer will ask you to meet him or her at the lawyer’s office, or at the sales gallery, to sign the documents.
Get a loan
From the various banks spoken to, decide on which one you prefer. The one you decide on will usually offer the lowest interest rate, the highest amount you can get (which also depends on the valuation it gets), the fees it charges (try to get one without any one-off or recurring fees), and the best service (eg availability of online account maintenance, mobile phone number of loan officer).
Once you have decided on which to go with, the bank will arrange a physical valuation. The valuer will make an appointment with the agent/owner and physically visit the property. You will then have to pay for the valuation report, either before receiving the report or as charged to your loan.
Based on the valuation, the loan officer will then give you a loan offer letter to sign, spelling out the loan amount, terms, rate and monthly instalments. If the valuation is lower than expected, you may still bargain with the owner for a lower price.
6. Sign the Letter of Offer or Offer to Purchase form and pay 2%
Once you’ve reached a firm price, sign a Letter of Offer or Offer to Purchase form, where you are also usually required to pay an earnest deposit of 2% of the purchase price. The 2% is usually paid to the agent as a stakeholder account (a neutral party, also called “in escrow”) before the entire 10% down payment is paid upon signing the SPA.
The Letter of Offer would include the following details: legal names of vendor and buyer, legal address of property, price agreed upon, amount of deposit, any items such as fittings included in the sale and date before which the sale and purchase agreement must be signed.
Most Letters of Offer or Offers to Purchase state that the 2% cannot be returned to the buyer even if the valuation comes out lower than the purchase price, or if you change your mind.
Try to word it, however, so that your 2% may be returned if the valuation comes out lower than the purchase price, or if you are not able to obtain a home loan or if either party cannot come to agreement on any clause of the SPA. This way, you can walk away from the deal even if the seller/seller’s lawyer/your own lawyer become particularly sticky about the various terms of the SPA.
7. Sign the SPA
The Letter of Offer/Offer to Purchase usually spells out a period during which you must sign the SPA, which is usually two to three weeks.
During this time, your lawyer will do the relevant title searches, draft out the SPA, get both sides (seller and buyer) to agree on the various clauses, and stamp a few copies of the SPA for them to be signed.
Get ready the balance 8% cash for the down payment. If your cash is overseas, in fixed deposit or in EPF, transferring these funds might take some time.
When you sign, scrutinise that all spellings of names and IC numbers are correct, as most following documents use these spellings and numbers so even if just one digit or letter were wrong, much precious time and money could be wasted later!
8. Sign the loan agreement and other documents
Your lawyer will also draft out the loan agreement to be signed by both you and your bank. Even though the terms of the loan agreement are quite predictable with much protection given to the bank, you, the buyer, have to pay for the agreement.
The bank may ask you to take out an insurance policy, to make sure the loan is paid should any unfortunate circumstance occur.
Wherever necessary, sign the Deed of Mutual Covenant and the Memorandum of Transfer (if sub-divided title has been issued). If you are a foreigner, seek approval from the Economic Planning Unit (if applicable) and State Authority.
During this time, there may be certain things that need to be fulfilled before the balance 90% is paid, eg obtaining court orders for the vendor to sell the property if there is a minor involved (which happens when a mother is selling on behalf of a child).
9. Payment of balance purchase price by cash or loan
Pay your lawyer the Memorandum of Transfer (stamp duty), and other charges eg registration fees, search fees, service tax and other expenses.
Unless you’re paying the balance purchase price by cash, there is usually at this point an exchange-of-hostages dance involving your bank, the seller’s bank (if the seller still owes his/her bank a mortgage amount), the title, the redemption statement, undertaking letters, release of the redemption sum, discharge of charge, payments and caveats. Your lawyer will also ensure that the vendor pays off all assessment fees and quit rents before all payment is transferred to the vendor’s lawyer.
Even though your lawyer should handle it for you, you may have to keep tabs on this so that everything is paid up within the date stated in the SPA, which is usually three months’ from the date of SPA. If not, you may have to pay late payment charges.
Once the title has been put in your name, get your lawyer to give you a copy of the title in your name.
10. Delivery of Vacant Possession and keys
Lawyers on both sides will usually set a completion or closing day, when all payments have been made, and within the deadline set out in the SPA. Once the balance of the purchase price has been paid, the vendor must deliver vacant possession of the property, together with keys, within the number of days specified in the SPA.
Upon handover, make sure you get from the agent/owner statements or receipts for all the utilities (eg electricity bills, phone bills, water bills, sewage bills) showing all outstanding bills paid up to the handover date. Don’t accept the keys otherwise as the seller then pays late delivery charges until all bills are settled.
Now, you can crack out the champagne or caviar, congratulations!
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