Going through an agreement and signing it is not something everyone enjoys doing, as it is time consuming and most of us can hardly understand the legal terms.
However, we all know how important it is to thoroughly read and understand an agreement before signing it, as that will save you from future headaches.
For example, the Sale and Purchase Agreement (SPA)
, which is to be signed by the seller and the buyer, before a transaction is finalised. That means both parties will be bound, as well as protected.
There’s a certain process for it, and without understanding it fully, you might lead yourself towards a sticky situation.
As such, we’ve decided to dive into one of the most common issues buyers face – what to do if the seller delays the SPA’s completion – and what can be done! But first…
How Does A Sale And Purchase Agreement (SPA) Protect You?
As the SPA is a mutual agreement between both parties, once it has been signed, it cannot be further negotiated or amended, and cancelling it will result in a 10% penalty of the purchase price.
According to Datuk Chang Kim Loong, Honorary Secretary-General, National House Buyers Association (HBA), the SPA is a binding legal contract that describes all the terms and condition to be agreed upon, by the buyer and seller of a given property.
“Every detail will be contained in the forms that are specified in Schedule G (Land & Building), Schedule H (Stratified Property), Schedule I (Land & Building – 10:90 concept), or Schedule J (Stratified Property – 10:90 concept) of the Housing Development (Control & Licensing) Regulations 1989 (HDR),” he said.
However, he went on to add that the HDR does provide an exemption to the rule:
HD Regulations 11(1B) states that, “…….such (contract of sale) shall not apply if at the time of the execution of the contract of sale, the Certificate of Completion and Compliance (‘CCC’) of the housing accommodation has been issued and a certified true copy of which has been forwarded to the purchaser”.
This means, the required contracts of sales (Schedules: G, H, I & J
) do not apply to a ‘subsale’ or a ‘secondary market’ property after the issuance of the CCC.
are not within the purview of the Ministry of Housing and Local Government, thus they do not enjoy the protection accorded to purchasers who buy properties under construction,” Chang said.
He said that although the Housing Development (Control and Licensing) Act 1966 (HDA) or Act 118 does not cover subsale purchases, there are elements in the SPA that protect the buyer against any delay in completion by the seller or vendor.
“It will be constituted as a ‘vendor default’ as per the agreement, and the buyer can take the seller/vendor to court,” Chang stated.
It’s important to know that your SPA will be considered as completed upon the delivery of vacant possession (VP) of your purchased subsale property (it basically means your property is fully ready for you to move in)!
Delivery of VP is confirmed once the seller hands over the keys to the buyer, either personally or through a lawyer appointed by the buyer.
The date of VP, as stated in the agreement, happens when the buyer makes payment of the balance purchase price for the property.
In addition, there also needs to be the settlement of other costs which have been prepaid by the previous owner, such as the sinking fund, water bills, and management fees.
The timeline for the completion of a SPA varies according to the parties, but normally, it will be about 3 months from the date of agreement, with an extension of 1 month, in case of any delays due to unforeseen circumstances.
This provides sufficient time for both parties to get financial management, moving out and for the process of ownership transfer.
What Can You Do, As A Buyer, If The Seller Delays?
According to Joyce Lau Yu Chai, Advocate & Solicitor, Joyce Lau & Partners, in the event of a seller delaying the completion of SPA, the buyer can take certain actions, as stated in the agreement.
“The consequences of a seller’s delay will normally be stated in the SPA, which constitute that it is the seller’s default. With this, the buyer can bring the matter to court and get due compensation,” she said.
Chang noted that the compensations are usually similar to transaction of properties under HDA: “Payment for the party suffering from the delay will usually be 10% of the purchase price,” he said.
Lau concurred to this, confirming that the penalty for the late delivery of a VP for subsale properties will be similar to Schedule G and H of the HDA.
However, she said, the terms may be varied as it will be based on the clauses which both parties have agreed upon in the SPA.
What Can Be Done To Avoid Any Delays?
As a purchaser of a property, you should be consulting a lawyer who is well-versed with the clauses that MUST be added in the SPA to protect you.
Make sure the agreement has all the suitable requirements in case of any unforeseen circumstances. Lau advices that buyers should insist on the terms and conditions that can protect them.
“Try to insist on the time of completion so that you can take legal action on the seller if he/she is delaying the transaction,” she said.
Buyers can also insist on including clauses that allow them to cancel or back-out in situations where they have waited for too long to obtain the property, even though the home loan has already started, due to the seller’s fault.
What Clauses Should You Look Out For?
There are several clauses in the SPA
which will be revised by lawyers as per the request of the buyer and seller. These are the main ones to look out for:
1) Parties to the agreement – the seller (owner) and the buyer
This is referring to the seller (being the owner that sells the property), and the buyer (being the party that purchases that property for an agreed price).
2) Agreement to sell and buy
The seller is willing to sell, and the buyer is willing to buy. The parties may also sign pre-contract documents, such as a Letter of Offer/Offer to Purchase
or Booking Form.
Here, the buyer would normally pay an earnest deposit
to express his/her interest in buying, before they proceed to draw up and carry out a SPA.
This refers to a transaction, as the seller transfer the ownership of the property, while the buyer pays the agreed price.
Commonly referred to as “Restriction in Interest”, these are the limitations imposed by a State Authority on the seller, before he/she can do anything with his/her property. These restrictions are expressly stated on the property’s title.
5) Warranties and indemnities
A warranty is a contractual statement of assurance that’s given by the seller to the buyer, while an indemnity is an agreement by the Seller to pay the Buyer IF there are any damages or loss that the buyer may suffer (in case a particular negative event takes place).
Completion is the point at which the property changes hands. This is the transfer of ownership of the property to the buyer, and the payment of any unpaid balance of the purchase price to the Seller.
It refers to the period of time after the date of completion. After the completion of the SPA, the buyer will be reminded to notify the local council/authority and the utilities suppliers/services providers that the property is now under a new owner.
8) Extension of the completion period/extended completion period
As mentioned, an extension will be given for the completion of SPA in case either parties could not fulfil their requirements.
9) Termination clause/non-completion clause
Due to an unforeseen change of circumstances, it’s possible that one party may choose to breach the agreement, or wish to end the SPA from their end.
This clause is very important for the topic we are discussion here. This is the clause that will determine how you can take the Buyer to court and make them pay for the delay accordingly.
10) Delivery of VP
As explained above, this refers to handing over of the property to the buyer.
However, there are also several possible scenarios where the buyer is unable to enjoy or use the property after receiving the keys from the seller.
To prevent this, the SPA should state the time and condition on how the VP will be handed over, as well as when and how the buyer should receive the property.
Failure to do so and the consequences should also be stipulated in the SPA.
Be Smart And Vigilant With Your SPA
Lau noted that some buyers come to her to consult when they face delays by the seller, but it is too late to do anything as they have already signed the SPA with no particular clauses to protect them.
She advises buyers to choose their lawyers wisely and read the agreement thoroughly to make sure all the clauses suit them.
“Don’t just get cheap, discounted lawyers, as they normally just ‘copy & paste’ the SPA and would not know how to properly advise the buyers in case something does happen,” she said.
As a responsible buyer, you have to do the needful and make sure your interest is protected at all costs. Be smart, be vigilant!