Procedure in Buying a House

Submission of Legal Opinion to Property buyers & explanation of the steps to be taken by a conveyancing lawyer (including instruction to land office clerk or carry out himself/herself) from the signing of the SPA, loan agreement and charge/LACA till registration.

Submission of Legal Opinion to Property buyers

Landed properties are held under Issue Document of Title (IDT). Examples of such properties include bungalows, semi-detached terrace houses and clusters. These examples can also fall under the stratified category, held in the form of sub-divided land parcels whereas condominiums, townhouses, and walk-up apartments are held under strata titles.

Before purchasing a property, it must be ascertained as to the nature of the land title (freehold/leasehold) and with restriction-in-interest or not; whether it is a landed or strata property; whether it is a residential or commercial property; whether its construction has been completed or halfway through; whether a Certificate of Completion and Compliance or Certificate of Fitness for Occupation has been issued; the applicable laws to the transaction; nature of the contract; and issuance of title to the property.

Be it whether it is the developer for a newly developed property, or the seller or purchaser for a sub-sale property, a solicitor owes a list of duties to the clients. He advises them on the preparation of the terms of the contract, understands the nature of the property or/and the development before drafting any agreements, ensures that the purchasers understand the contents of the agreements prior to signing, ensures the proper preparation of the legal documents in accordance with the agreed terms and requirements of the clients, and discharges his duties towards his clients diligently and professionally. 

For sale and purchase of new developed landed property, a residential property still under construction is governed by the Housing Development (Control & Licensing) Act 1966 and the HD Regulations 1989, which both had been amended in 2015. On the other hand, a private contract of SPA can be entered between the purchaser and developer in instances where a commercial property is still under construction or for properties which had been issued with the necessary certificates. If the title has been issued to the property at the time of purchase, the Memorandum of Transfer (MOT) must be prepared to be executed by both the purchaser and developer together with the execution of the SPA. In the event that the title to the property is issued only after the completion of the construction and completion of purchase from the developer, the MOT must be executed in the same way as it had been if issued at the time of purchase. However, the MOT can only prepared after notification is received from the developer.

For most of sub-sale transactions, since the construction of the property has already been completed, the contract applicable will be private in nature, in relation to the terms and conditions between the vendor and the purchaser. If the title has been issued to the property at the time or before its purchase, the MOT must be prepared and executed by both the purchaser and developer at the time of the execution of the SPA. It is in the best interest of the purchaser to lodge a private caveat against the title. However, the purchaser must withdraw the caveat if the sub-sale contract is terminated or when he obtains a financing to assist him in the purchase of the property. If the title is issued after the completion of the sub-sale contract, the procedure is similar to that of newly developed property after its construction and purchase has been completed. A purchaser who obtains financing to assist him in the purchase of the property must give the security/collateral to the end-financier to create a legal charge in favour of the end-financier. If the property has been charged to a bank by the vendor prior to the sub-sale transaction, the purchaser’s bank will need to redeem the property from the vendor’s bank by entering a private caveat against the title prior to the release of partial of the loan sum.

1.       Procedure to enter into sale and purchase of sub-sale property

Sub-sale is the purchase of property from an individual owner, involving a contract of sale between a vendor and a purchaser, rather than purchasing directly from developer. It is also known as the secondary market in property arena. In order for sub-sale to happen, the IDT for freehold title must have been issued and registered in favour of the vendor.

At the pre-contract stage, the lawyer needs to advise the purchaser to inspect the property of any defects. Next, the purchase price and the manner of payment such as earnest deposit, balance of deposit and balance of purchase price must be decided upon. In order to ensure a smooth dealing of the purchase process, a completion date of SPA should be set, as well as an extended completion date in case of any hindrances. The manner of delivery of vacant possession is also to be specified. The period of acquisition of the property by the vendor before the date of delivery of the property to the purchaser has to be determined in order to ascertaine the Real Property Gain Tax (RPGT) rates. For the RPGT, the longer the holding period of the property, the lower the rate imposed on the gain from selling the property. The rate goes as low as 0% for holding period by the vendor beyond 5 years and as high as 30% if the property is disposed within 1 year.

The preliminary steps that must be done by the conveyancing lawyer is preparing the drafting of the SPA, making a land search, a bankruptcy search on vendor and checking on the vendor’s latest loan statement of account, quit rent and assessment. In reality, these can be done easily by the officer clerk.

When terms of contract have been agreed by the vendor and purchaser, they then reach the stage of the execution of documents. When the SPA has been submitted for stamping, a private caveat is lodged by the SPA solicitor on behalf of the purchaser, whereby a land search should have been conducted by the lawyer/clerk to check if it is free from any encumbrances. Next, the SPA solicitor should forward the payment of retention sum paid by purchaser to the Inland Revenue Board (LHDN) on behalf of vendor. Then, the RPGT forms are to be submitted to the Cukai Keuntungan Harta Tanah (CKHT) department together with a copy of the proof of payment of retention sum earlier. The redemption statement is to be requested from vendor’s bank once the SPA solicitor is notified that purchaser’s loan is passed. After that, he is to request for payment of the differential sum, which is the difference between the loan sum and the purchase price from the purchaser, to allow the vendor’s loaned property to be redeemed. The next step to be taken by the lawyer is submission of the Memorandum of Transfer (MOT) in Form 14A to the Collector of Stamp Duty for adjudication. The MOT is stamped with the ad valorem stamp duty (valued duty) after the notice of assessment has been received from the stamp office. Subsequently, the redemption statement, undertaking and confirmation is forwarded to the loan solicitor. The discharge of the charge is forwarded to the vendor’s bank for execution and also to request for the return of the original IDT and other original documents evidencing the property held by the vendor’s bank earlier when the vendor obtained loan. After obtaining the necessary documents, the SPA solicitor should forward the original IDT, stamped MOT, stamped Discharge of Charge, Form 19G, certified true copy (CTC) of vendor’s and purchaser’s IC, CTC of the current quit rent and assessment payment receipts together with the required registration fees to the loan solicitor. When the IBG transfer has been made to vendor’s solicitor’s client account or vendor’s account, signifying the completion of the loan procedures, the vendor and purchaser must be informed of this notification. Then the SPA lawyer requests for keys, access cards, proof of payment of utilities, service charge, sinking fund and insurance of house from the vendor. He should also calculate the apportionment of quit rent, assessment, service change, sinking fund and insurance and request for reimbursement of the apportionment sum from the purchaser in favour of the vendor. The next stage is delivery of vacant possession to the purchase, with the keys and all the documents showing the property now belongs to the purchaser. Lastly, the balance of purchase price is released to the vendor, signifying the completion of the SPA transaction.

All the steps mentioned above must go hand in hand with the actions of a loan lawyer which helps the purchaser in obtaining 80% of loan or financing to assist him in the purchase of the property. The duties of the appointed loan solicitor is to prepare the loan documentation (Facility Agreement, Memorandum of Charge (MOC) and statutory declaration by the vendor), conduct land search, bankruptcy search on the chargor(s), write to the SPA’s solicitor for confirmation, undertaking and vendor’s redemption statement, fix appointment with the borrower for the execution of loan documentation and forward the executed loan documents to the bank for their execution. Then, the loan solicitor stamps the Facility Agreement duly executed by the bank with the ad valorem stamp duty. Next, he lodges a private caveat on behalf of the bank and advises the bank to release the redemption sum once the MOT had been duly stamped and received by loan solicitor. After the redemption sum has been released via IBG, the loan solicitor then stamps the Memorandum of Charge as subsidiary document to the loan transaction. Upon receiving the necessary documents for registration from the SPA lawyer, the loan solicitor must present them to the land registry in the following sequence: the purchaser’s Form 19G, the bank’s Form 19G, the original IDT, the stamped discharge of charge and the vendor’s bank’s duplicate charge, the stamped MOT together with CTC of the current quit rent and assessment payment receipts, and the stamped MOC. The loan solicitor duty doesn’t just end here. There are a few more steps to be followed up, namely, advising the bank to release the balance of loan in favour of the vendor’s solicitor or vendor himself, in accordance with the terms of the SPA and forwarding the bank’s notification of IBG transfer to the vendor’s side. He then has to forward to the purchaser’s bank for safe-keeping purposes, the original IDT duly registered in the purchaser’s favour and the bank’s legal charge duly registered in the bank’s favour. Finally, the loan solicitor should also forward those documents to the purchaser or borrower, together with the CTC of the Facility Agreement.