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Given the large amount of money you put into the purchase of a property these days, it certainly pays to protect your legal interests. Familiarising yourself with property-related laws will help you better understand your basic responsibilities and rights as an investor, says property lawyer Khairul Anuar Shaharudin. This could also make consulting your lawyers a less time-consuming and costly affair, he adds.
We look at some of the legal basics you need to know when buying from the primary (buying from a developer) and secondary (buying from an existing owner) markets.
Primary market
Robert Tan, author of Buying Property from Developers: What You Need to Know and Do, says that people who buy from a developer need to understand the difference between the “sell-then-build” (STB) and “build-then-sell” (10:90 variant) (BTS) property.
STB is the more common practice among developers in Malaysia. A STB property, which makes buyers responsible for financing the building of the property in progressive stages, exposes buyers to big risks, particularly if the project is abandoned, says Tan (for more of this, see the December 2008 issue of Personal Money).
Another thing to note is that when you’re buying from developers, the terms and conditions in the sale and purchase (S&P) agreement are non-negotiable, says Khairul in his book 40 Questions You Should Ask Your Lawyer Before Buying a Residential Property in Malaysia. The terms and conditions appear in the form of Schedules G, H, I and J, the format of which is prescribed by the Housing Development (Control and Licensing) Regulation 1989. The schedules specify the developer’s and buyer’s obligations, including when the former should deliver the property and when the latter should make payment.
According to Wendy Koh, author of The Millionaire Real Estate School for Beginners, buyers will need to pay the deposit of 10% of the purchase price upon the execution of the S&P. The balance (90%) will be paid progressively based on the property’s construction progress.
Where the law is concerned, time is an important consideration. As a buyer, you will have to pay the progressive claims within 21 days, says Koh, failing which, the developer is entitled to charge interest on the outstanding sum. The interest is usually 10% a year, calculated daily.
What if you want to cancel your transaction? This will depend on your reasons for doing so. In his book, Khairul states that if you’re cancelling because you can’t find a financier to finance the property, the deposit will be returned to you without any penalty. However, if you do not intend to apply for financing and yet fail to make any payment according to the schedule set by the agreement, the developer is entitled to cancel the purchase and charge you a penalty, which is set at 10% (the initial deposit) of the purchase price. The developer can also claim additional costs incurred owing to your failure to make payment, Khairul writes.
Completion of the transaction is usually about 24 months (for landed property) and 36 months (for stratified property), says Tan. The terms are stated in Schedules G and H respectively, he says. “Within the 24 or 36 months, the balance purchase price is to be paid in full and the property must be handed over to the buyer with vacant possession and free from encumbrances. Water and electricity supply must be ready for connection, and the certificate of completion and compliance [CCC] should be issued,” says Tan. With the CCC, he adds, the buyer will be able to reside in the property.
Secondary market
If you’re buying from the secondary market, the first thing you need to do is to conduct an official search of the property title. You can do this on your own or appoint a lawyer to do it for you, advises Khairul.
“This will tell you whether the property has any caveat lodged on it, and you can ensure that the person who’s selling the property is the rightful owner. Some people claim that they own the property but they’re not actually the owner, or they don’t have the authority to sell the property,” he says.
Buyers and sellers need to appoint their own lawyers, stresses Tan. “Consult a lawyer right from the start, not after you have paid the deposit or signed the S&P.”
When furniture or fittings have been promised by the seller, whether a developer or a house owner, make sure that they are listed in the S&P, says Tan. “If the house is handed over and these items are missing, the buyer may sue the seller for breach of contract.”
When buying from the secondary market, the S&P is a negotiable private contract. Says Tan, the lawyers would ensure that the negotiations lead to a fair agreement, binding each party to the contract with no uncertainties. “For example, the buyer’s lawyer would ensure that his money is paid at the appropriate time and that he gets the house delivered with vacant possession and a proper title,” Tan says, adding that the amount of indebtedness to the bank over the property should also be identified.
Essentially, when buying from the secondary market, you should take note of details such as the status of the property (leasehold or freehold, any caveats and so on), the deadline for payment and the penalty for non-payment, and the rules pertaining to termination of the contract should you fail to get financing, says Khairul.
Buyers should know when the clock starts running and stops, stresses Khairul. “Even if you have a lawyer, you must check with him that the time frame is being observed.”
Property lawyer Raphael Tay summarises the buying procedure: When you are interested in buying a property, you will pay a 2% deposit prior to signing the S&P. Normally, you will be given 14 to 30 days to sign the S&P. At the end of the 30 days, if you decide that you don’t want the property, the deposit will be forfeited. Otherwise, upon signing the S&P, you will have to pay another 8% of the deposit, and you will have three plus one months to pay the balance (the first three months are interest-free; in the extended month, you will be charged a standard interest rate of 8% pa). The sale and purchase process is completed when the full amount is paid by the bank (if you are taking a loan). If you’re not able to do come up with the money, the vendor can forfeit the 10% and terminate the deal, and the agreement lapses.
Tay adds that above all, you should get your lawyers to do a bankruptcy search. “If the vendor is a bankrupt, all transactions signed by him are void.”
Upon full payment of the purchase price, vacant possession is normally given to the buyer, despite the fact that he is not the registered owner yet, Tay points out. “This means that you can start renovating the property and rent it out if you want, because your agreement with the vendor, which is a contractual agreement between two parties, has been fulfilled.”
Having said that, note that the title has not been transferred. “Once the financier has released the full purchase price, the bank’s lawyer will lodge a memorandum of transfer [MOT] and title deed at the land office, the latter having been deposited with the financier prior to the release of the purchase price,” explains Tay. “In most times, there will be a charge on the property at the same time. A charge is created so that the financier has the right to foreclose on the property if the borrower defaults on his loan repayments.”
In other words, you still do not have the right to sell your newly acquired property yet. “You don’t know when the title is coming out, and you’re not the registered owner yet,” Tay explains. “If you’re taking a loan from a bank, note that it’s very difficult for you to flip the property within six to 12 months.” Flipping a property quickly, he adds, can only happen in cash transactions. “Assuming that you’ve identified a cheap property and you know that someone is willing to buy it at double the price. You can pay for it in cash, take the title together with the MOT and sell it to the buyer.”
Sellers take note
If you’re a seller, your lawyer should also ensure that your rights are protected and preserved before the property title is handed over to the buyer, Tan says.
Tay discourages sellers from giving the keys to buyers after the signing of the S&P and the issuance of the 10% deposit. “The buyer may not pay you rent thereafter. If the buyer wants to move into the place, and you insist on giving him vacant possession upon signing the S&P and receiving 10% deposit, remember to come up with a tenancy agreement,” he says.
In Khairul’s experience, the seller is usually the party who enters into a contract without legal representation. He will leave things to the buyer’s lawyer, and forget to watch out for certain terms in the contract, he says. “For instance, if you’re the seller and your property is hot, it actually works to your interest to pay attention to the time frame as well. You can actually release your property to another interested buyer if you’ve not got your money within the time frame. Also, you should take note of when you can let go of the burden of paying your own loan instalments and bills.”
Hiring Lawyers
Robert Tan, author of Buying Property From Developers: What You Need to Know and Do, believes that it is necessary to have legal representation from start to finish. “While the property deal may be made to look easy, your rights and interests are to be safeguarded throughout the deal,” Tan says. “Anything can happen during the deal. If it goes sour, having a lawyer is like having a policeman when a crime has happened. Your lawyer would act to protect your rights and ensure that the deal goes through according to the terms of the agreement.”
Under the law, you are deemed to have read and understood every document that you sign, explains Tan. “Furthermore, promises made by the seller or someone else about the deal may not be enforceable if they are not put in writing.”
An important thing to note is that the same lawyer cannot represent both the seller and the buyer. Yet, it is common for both parties to have only one lawyer for the transaction, notes Tan. “This is very risky because the party without a lawyer may be given inadequate advice on what he or she is signing away. In some cases, where it involves buying from developers, buyers have been misled into believing that the lawyer for the sale contract is their lawyer, when in fact, he is the developer’s lawyer,” he says. “While you may think that you cannot afford the services of your own lawyer, consider whether you can afford not to.”
Property lawyer Raphael Tay agrees. “Although the S&P is standard in the primary market, there might be certain undertakings that you need from the lawyers. Developers’ lawyers cannot give you advice, and cannot act for you.”
Developers usually offer “free legal fees” as a perk. The developer would recommend to the purchaser a lawyer on its panel, who will then attend to the purchaser’s signing of the contract of sale, explains Tan. “If the purchaser appoints that lawyer, the developer will pay for his ‘legal fees’. Thus, the legal fees are ‘free’,” explains Tan, adding that the offer of free legal fees may not cover disbursements.
Developers, however, are prohibited by law to force purchasers to use a particular lawyer. “If the purchaser appoints his own lawyer instead, the developer may be required to pay his legal fees because it had promised ‘free legal fees’,” says Tan.
On the other hand, developers may advertise “free legal fees subject to terms and conditions”, notes Tan. These terms and conditions stipulate that the purchaser will get free legal fees if they appoint a lawyer on the developer’s panel.
Depending on the way in which you acquire your property, lawyers would play different roles. If you’re buying from a developer, which entails a fixed S&P, you would need a lawyer to ensure that the developer complies with the agreement, Tan says.
If you are buying from the secondary market and since the S&P is a private contract and open to negotiation, the lawyers are there to see that the negotiations mutually favour their clients, Tan says.
Are you represented?
How can you tell whether the lawyer is representing you? When you pay your lawyers, they must act for you and ensure that your rights are protected. This is regardless of how the lawyer was recommended to you, says Khairul in his book 40 Questions You Should Ask Your Lawyer Before Buying a Residential Property in Malaysia.
If your lawyers are acting for you, they will state so in their letters, adds Tay. “Verify with the Bar Council that they are genuine lawyers who hold valid practising certificates and have not been blacklisted.”
How much does it cost to hire a lawyer? All firms are governed by the same scale fees under the Solicitors Remuneration Order 2006, says Tan, adding that the cost will normally depend on the property purchase price (see table). Legal fees aside, buyers will also incur out-of-pocket expenses like disbursements and stamp duty. Furthermore, a 5% service tax is chargeable on the legal fees and is to be paid by the client, concludes Tan.
We look at some of the legal basics you need to know when buying from the primary (buying from a developer) and secondary (buying from an existing owner) markets.
Primary market
Robert Tan, author of Buying Property from Developers: What You Need to Know and Do, says that people who buy from a developer need to understand the difference between the “sell-then-build” (STB) and “build-then-sell” (10:90 variant) (BTS) property.
STB is the more common practice among developers in Malaysia. A STB property, which makes buyers responsible for financing the building of the property in progressive stages, exposes buyers to big risks, particularly if the project is abandoned, says Tan (for more of this, see the December 2008 issue of Personal Money).
Another thing to note is that when you’re buying from developers, the terms and conditions in the sale and purchase (S&P) agreement are non-negotiable, says Khairul in his book 40 Questions You Should Ask Your Lawyer Before Buying a Residential Property in Malaysia. The terms and conditions appear in the form of Schedules G, H, I and J, the format of which is prescribed by the Housing Development (Control and Licensing) Regulation 1989. The schedules specify the developer’s and buyer’s obligations, including when the former should deliver the property and when the latter should make payment.
According to Wendy Koh, author of The Millionaire Real Estate School for Beginners, buyers will need to pay the deposit of 10% of the purchase price upon the execution of the S&P. The balance (90%) will be paid progressively based on the property’s construction progress.
Where the law is concerned, time is an important consideration. As a buyer, you will have to pay the progressive claims within 21 days, says Koh, failing which, the developer is entitled to charge interest on the outstanding sum. The interest is usually 10% a year, calculated daily.
What if you want to cancel your transaction? This will depend on your reasons for doing so. In his book, Khairul states that if you’re cancelling because you can’t find a financier to finance the property, the deposit will be returned to you without any penalty. However, if you do not intend to apply for financing and yet fail to make any payment according to the schedule set by the agreement, the developer is entitled to cancel the purchase and charge you a penalty, which is set at 10% (the initial deposit) of the purchase price. The developer can also claim additional costs incurred owing to your failure to make payment, Khairul writes.
Completion of the transaction is usually about 24 months (for landed property) and 36 months (for stratified property), says Tan. The terms are stated in Schedules G and H respectively, he says. “Within the 24 or 36 months, the balance purchase price is to be paid in full and the property must be handed over to the buyer with vacant possession and free from encumbrances. Water and electricity supply must be ready for connection, and the certificate of completion and compliance [CCC] should be issued,” says Tan. With the CCC, he adds, the buyer will be able to reside in the property.
Secondary market
If you’re buying from the secondary market, the first thing you need to do is to conduct an official search of the property title. You can do this on your own or appoint a lawyer to do it for you, advises Khairul.
“This will tell you whether the property has any caveat lodged on it, and you can ensure that the person who’s selling the property is the rightful owner. Some people claim that they own the property but they’re not actually the owner, or they don’t have the authority to sell the property,” he says.
Buyers and sellers need to appoint their own lawyers, stresses Tan. “Consult a lawyer right from the start, not after you have paid the deposit or signed the S&P.”
When furniture or fittings have been promised by the seller, whether a developer or a house owner, make sure that they are listed in the S&P, says Tan. “If the house is handed over and these items are missing, the buyer may sue the seller for breach of contract.”
When buying from the secondary market, the S&P is a negotiable private contract. Says Tan, the lawyers would ensure that the negotiations lead to a fair agreement, binding each party to the contract with no uncertainties. “For example, the buyer’s lawyer would ensure that his money is paid at the appropriate time and that he gets the house delivered with vacant possession and a proper title,” Tan says, adding that the amount of indebtedness to the bank over the property should also be identified.
Essentially, when buying from the secondary market, you should take note of details such as the status of the property (leasehold or freehold, any caveats and so on), the deadline for payment and the penalty for non-payment, and the rules pertaining to termination of the contract should you fail to get financing, says Khairul.
Buyers should know when the clock starts running and stops, stresses Khairul. “Even if you have a lawyer, you must check with him that the time frame is being observed.”
Property lawyer Raphael Tay summarises the buying procedure: When you are interested in buying a property, you will pay a 2% deposit prior to signing the S&P. Normally, you will be given 14 to 30 days to sign the S&P. At the end of the 30 days, if you decide that you don’t want the property, the deposit will be forfeited. Otherwise, upon signing the S&P, you will have to pay another 8% of the deposit, and you will have three plus one months to pay the balance (the first three months are interest-free; in the extended month, you will be charged a standard interest rate of 8% pa). The sale and purchase process is completed when the full amount is paid by the bank (if you are taking a loan). If you’re not able to do come up with the money, the vendor can forfeit the 10% and terminate the deal, and the agreement lapses.
Tay adds that above all, you should get your lawyers to do a bankruptcy search. “If the vendor is a bankrupt, all transactions signed by him are void.”
Upon full payment of the purchase price, vacant possession is normally given to the buyer, despite the fact that he is not the registered owner yet, Tay points out. “This means that you can start renovating the property and rent it out if you want, because your agreement with the vendor, which is a contractual agreement between two parties, has been fulfilled.”
Having said that, note that the title has not been transferred. “Once the financier has released the full purchase price, the bank’s lawyer will lodge a memorandum of transfer [MOT] and title deed at the land office, the latter having been deposited with the financier prior to the release of the purchase price,” explains Tay. “In most times, there will be a charge on the property at the same time. A charge is created so that the financier has the right to foreclose on the property if the borrower defaults on his loan repayments.”
In other words, you still do not have the right to sell your newly acquired property yet. “You don’t know when the title is coming out, and you’re not the registered owner yet,” Tay explains. “If you’re taking a loan from a bank, note that it’s very difficult for you to flip the property within six to 12 months.” Flipping a property quickly, he adds, can only happen in cash transactions. “Assuming that you’ve identified a cheap property and you know that someone is willing to buy it at double the price. You can pay for it in cash, take the title together with the MOT and sell it to the buyer.”
Sellers take note
If you’re a seller, your lawyer should also ensure that your rights are protected and preserved before the property title is handed over to the buyer, Tan says.
Tay discourages sellers from giving the keys to buyers after the signing of the S&P and the issuance of the 10% deposit. “The buyer may not pay you rent thereafter. If the buyer wants to move into the place, and you insist on giving him vacant possession upon signing the S&P and receiving 10% deposit, remember to come up with a tenancy agreement,” he says.
In Khairul’s experience, the seller is usually the party who enters into a contract without legal representation. He will leave things to the buyer’s lawyer, and forget to watch out for certain terms in the contract, he says. “For instance, if you’re the seller and your property is hot, it actually works to your interest to pay attention to the time frame as well. You can actually release your property to another interested buyer if you’ve not got your money within the time frame. Also, you should take note of when you can let go of the burden of paying your own loan instalments and bills.”
Hiring Lawyers
Robert Tan, author of Buying Property From Developers: What You Need to Know and Do, believes that it is necessary to have legal representation from start to finish. “While the property deal may be made to look easy, your rights and interests are to be safeguarded throughout the deal,” Tan says. “Anything can happen during the deal. If it goes sour, having a lawyer is like having a policeman when a crime has happened. Your lawyer would act to protect your rights and ensure that the deal goes through according to the terms of the agreement.”
Under the law, you are deemed to have read and understood every document that you sign, explains Tan. “Furthermore, promises made by the seller or someone else about the deal may not be enforceable if they are not put in writing.”
An important thing to note is that the same lawyer cannot represent both the seller and the buyer. Yet, it is common for both parties to have only one lawyer for the transaction, notes Tan. “This is very risky because the party without a lawyer may be given inadequate advice on what he or she is signing away. In some cases, where it involves buying from developers, buyers have been misled into believing that the lawyer for the sale contract is their lawyer, when in fact, he is the developer’s lawyer,” he says. “While you may think that you cannot afford the services of your own lawyer, consider whether you can afford not to.”
Property lawyer Raphael Tay agrees. “Although the S&P is standard in the primary market, there might be certain undertakings that you need from the lawyers. Developers’ lawyers cannot give you advice, and cannot act for you.”
Developers usually offer “free legal fees” as a perk. The developer would recommend to the purchaser a lawyer on its panel, who will then attend to the purchaser’s signing of the contract of sale, explains Tan. “If the purchaser appoints that lawyer, the developer will pay for his ‘legal fees’. Thus, the legal fees are ‘free’,” explains Tan, adding that the offer of free legal fees may not cover disbursements.
Developers, however, are prohibited by law to force purchasers to use a particular lawyer. “If the purchaser appoints his own lawyer instead, the developer may be required to pay his legal fees because it had promised ‘free legal fees’,” says Tan.
On the other hand, developers may advertise “free legal fees subject to terms and conditions”, notes Tan. These terms and conditions stipulate that the purchaser will get free legal fees if they appoint a lawyer on the developer’s panel.
Depending on the way in which you acquire your property, lawyers would play different roles. If you’re buying from a developer, which entails a fixed S&P, you would need a lawyer to ensure that the developer complies with the agreement, Tan says.
If you are buying from the secondary market and since the S&P is a private contract and open to negotiation, the lawyers are there to see that the negotiations mutually favour their clients, Tan says.
Are you represented?
How can you tell whether the lawyer is representing you? When you pay your lawyers, they must act for you and ensure that your rights are protected. This is regardless of how the lawyer was recommended to you, says Khairul in his book 40 Questions You Should Ask Your Lawyer Before Buying a Residential Property in Malaysia.
If your lawyers are acting for you, they will state so in their letters, adds Tay. “Verify with the Bar Council that they are genuine lawyers who hold valid practising certificates and have not been blacklisted.”
How much does it cost to hire a lawyer? All firms are governed by the same scale fees under the Solicitors Remuneration Order 2006, says Tan, adding that the cost will normally depend on the property purchase price (see table). Legal fees aside, buyers will also incur out-of-pocket expenses like disbursements and stamp duty. Furthermore, a 5% service tax is chargeable on the legal fees and is to be paid by the client, concludes Tan.
This article first appeared in the June 2010 issue of Personal Money
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