CONVEYANCING PRACTICE

Things To Know When Buying A Property

In this day and age, many people are under the perception that, the transaction of buying a property merely consists of negotiating the purchase price, getting a loan or making cash payment, and obtaining keys. There are several legal procedures and timelines that most buyers do not take into account. It is a standard misconception that, once a Sale and Purchase Agreement is signed, the rights towards the Property; both legally and beneficially, pass to the Purchaser. This is not the case. It is pertinent to note that, there are legal procedures to be complied with; prior to the transfer of any property.

Ideally, the Vendor and the Purchaser should each seek separate legal representation in order to ensure that their respective rights and interests are fully protected. Nevertheless, there are several instances where Vendor(s) choose to “use” the same solicitor as the Purchaser(s). Please bear in mind that in instances such as these, the Vendor is NOT represented by the Purchaser’s solicitor but rather chooses to waive his/her rights to be represented; the Purchaser’s solicitor merely facilitating the transfer by the Vendor.

This article aims to provide a brief outline of the basic conveyancing practice procedure together with pointers that buyers should take into consideration when buying a Property. The outline provided below deals with residential properties and not commercial properties.

A Basic Understanding

Step 1: Letter of Offer

• It is always important to check the Property for any defaults and/or if repair work(s) is required to be rectified by the Vendor in order for the same to be noted on the Letter of Offer;
• It is also pertinent to double check timelines stated in the Offer Letter;
• It is standard practice for 2% of the Purchase Price to be paid upon execution of the Letter of Offer - this is commonly referred to as the "Earnest Deposit";
• The date of this document is important as normal practice demand that the Sale and Purchase Agreement ("SPA") be executed by parties within 14 working days thereof; failing which, the Earnest Deposit Sum may be forfeited by the Vendor;
• Always ensure that both the Vendor and Purchaser have signed the Letter of Offer.

Step 2: Drafting of the Sale and Purchase Agreement

• It is standard practice for lawyers to carry out a land search to obtain an indication as to whether the Property is freehold or leasehold; strata title or individual; held under a master title; charged to a financial institution; has caveats lodged against it; and/or whether any State Authority consent is required due to any restriction in interest;
• It also standard practice for the Purchaser’s solicitors to carry out a bankruptcy or winding up search on the Purchaser(s);
• The standard timeline under a typical SPA is for the balance purchase price to be paid within three (3) months from the date of the SPA [with an additional one (1) month extension period given with interest]. Do note that in situations where State Authority consent is required, this timeline may differ;
• Lawyers will have to be prudent in amending or removing certain clauses in the SPA in order to always protect their clients’ best interest;
• There are instances where negotiations, amendments, and/or variations of the SPA between the Vendor’s solicitors and Purchaser’s solicitors take a long time. In such instances, an extension of time; in writing, can be agreed to between parties.

Step 3: Execution of the SPA

• Once all terms under the SPA have been agreed to, it is common practice for the Purchaser(s) to execute the SPA first and thereafter, for the Purchaser(s) solicitors to forward the same to the Vendor’s solicitors for the Vendor(s) execution;
• It is standard practice for the balance 8% of the Purchase Price to be paid upon execution of the SPA (standard terms of an SPA would encompass a total deposit of 10% of the purchase price to be paid upon signing the SPA);
• Other documents to be executed together with the SPA include, but are not limited to, the Form 14A (Memorandum of Transfer form), CKHT forms to be submitted to LHDN for Real Property Gains Tax purposes, Private Caveat form (Form 19B), and the Withdrawal of Private Caveat (Form 19G).

Step 4: Stamping of the SPA

• Once all executed documents have been returned to the Purchaser’s solicitors, the SPA has to be stamped of which a nominal fee of RM10.00 per copy is charged by the stamp office;
• Out of four (4) copies of the SPA being duly executed and stamped, the original and duplicate is to be forwarded to the Purchaser to apply for any housing loan and a copy is to be forwarded to the Vendor’s solicitor.

Step 5: Entry of Private Caveat & Filing of CKHT forms

• A private caveat is normally filed to protect the Purchaser’s interest in the Property until legal and beneficial interest is transferred from the Vendor to the Purchaser;
• Forms CKHT 1A, 2A, and 3 are forms to be filed by the Vendor and Purchaser respectively, within 60 days from the date of the SPA;
• If a property has been held for more than five (5) years by the Vendor prior to the sale, no Real Property Gains Tax is payable and an exemption may be filed on behalf of the Vendor. However, the Purchaser is to retain 2% of the Purchase Price for Real Property Gains Tax (should it becomes payable).

Step 6: Purchaser's Loan & Adjudication of Memorandum of Transfer

• If the Purchaser is obtaining a loan to finance the purchase of the property, the Purchaser’s financier’s solicitors should issue a letter to the Purchaser’s solicitors once the loan has been approved; requesting for a letter of undertaking;
• There are several documents and/or information which the Purchaser's financier will request from both the Vendor’s and Purchaser's solicitors; prior to the Purchaser’s financier approving release of the Redemption Sum (if the Property is still charged under a previous financing) and the balance purchase price;
• Simultaneous with this and assuming there are no restriction-in-interests on the property, the Purchaser’s solicitors will normally submit the Memorandum of Transfer for adjudication when the Purchaser’s housing loan is approved. Adjudication is a process where the Memorandum of Transfer is submitted to the stamp office to get the market value of the Property assessed; in order for stamp duty ad valorem to be calculated;
• Once notice of stamp duty has been issued, the relevant stamp duty must be paid within fourteen (14) days thereof;
• Once stamp duty has been paid and the Memorandum of Transfer is stamped, all documents will be forwarded by the Purchaser's solicitors to the Purchaser’s financier’s solicitors (if purchase of property was via a bank loan than a cash buyer).

Step 7: Purchaser's Loan & Adjudication of Memorandum of Transfer

• The completion date or extended completion date (as the case may be) is the date when the purchase price must be paid in full;
• Once the full purchase price has been disbursed, vacant possession of the property will be delivered (within the amount of days stipulated in the SPA; which is normally 5 to 7 days);
• It is also at this date that the apportionment of outgoings for the property will have to be apportioned by the Vendor’s solicitors; wherein all current receipts for all outgoings shall be provided.

Step 8: Presentation of Memorandum of Transfer at the Land Office

• Most people think that, once keys to the property have been handed over, the transaction is complete. This is not entirely true. There is a final step where the presentation of the Memorandum of Transfer, together with all relevant documents such as the Original Title to the property, is to be presented to the relevant Land Office;
• By right, the Purchaser’s solicitors would present the transfer of the Property at the Land Office. However, when a loan is obtained to purchase the property, the financier’s solicitors will present the same together with a charge to be registered over the property; as security for the loan;
• The transaction is complete once the new Title in favour of the Purchaser is issued by the relevant Land Office.