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.
