If you’re embarking on your journey of purchasing your first piece of real estate, you’ll come across the term “Sale and Purchase Agreement” or “SPA”. Before you seal the deal on that dream home, let us walk you through some things you should know about the SPA.
The Sale and Purchase Agreement (“SPA”) (we have heard some refer to it as purchase and sale agreement) is a legally binding contract between the seller and purchaser governing the sale and purchase of the property. As such, the SPA describes the property in detail and contains all the terms and conditions that bind both parties.
Most importantly, an SPA protects both parties to the transaction. It is a legally binding agreement that can be enforced by the innocent party in the event of a breach by the other. You may also be interested to know that signing an SPA gives you a right to certain protections afforded by law. Additionally, as a result of having an SPA, both parties are aware of their obligations and of the terms and conditions of the transaction. This avoids any confusion or unwanted changes by a single party. Finally, in most cases, the SPA is required by the bank in order to apply for a housing loan.
This depends on whether you are buying a brand new property or under subsale (i.e. from another owner).
These are properties that are purchased directly from a developer. For such properties, the Housing Developers (Control and Licensing) Regulations 1989 prescribes mandatory sale and purchase terms to be adopted by developers. The format of the SPA is prescribed in the form of schedules G, H, I and J of the Regulations. Click here to learn more about Schedule G, H, I & J. In other words, there is a standard form for such SPAs.
There is no mandatory form for the SPA under subsale. Usually, the seller’s lawyer will draft the SPA according to established and relevant terms and conditions. After that, the draft SPA is reviewed by the purchaser’s lawyers to ensure that the terms and conditions are fair to the purchaser and can be mutually agreed on. At this stage, the purchaser or his lawyer may also propose any amendments to the SPA. The discussion below will be mainly applicable to SPA for property under subsale.
It is common practice that upon signing the SPA, a deposit of 10% is payable by the purchaser to the seller. Prior to signing the SPA, if the Purchaser has paid an earnest deposit (usually 2 – 3%), only the remaining sum (7 – 8%) is payable to the seller. Parties will have to sign four copies of the SPA – one copy is marked “ORIGINAL” while the remaining three are marked as “COPY”. After signing, the SPAs will be stamped at the Inland Revenue Board of Malaysia (IRB/LHDN). Once the documents are stamped, the purchaser retains the original SPA to be used to secure a loan from the bank. Upon successfully obtaining a loan, the original SPA will be eventually kept by the purchaser’s bank.
This list is not in any particular order nor is it exhaustive. You are advised to always read the entire SPA and consult your lawyer should any questions arise.
This is perhaps one of the most important clauses to look at. At the time of signing the SPA, the purchaser would have paid 10% to the seller. In the event that the SPA is terminated, who gets to keep the 10%?
This depends on the terms and conditions of the SPA. We will explore a couple of common termination scenarios below.
We hope the above clarifies the importance of having a Sale and Purchase Agreement that is valid and well drafted. It not only gives you peace of mind, but may even save you from being caught up in a nasty property-buying transaction. Purchasing a home is a daunting process that comes with a certain level of complexity, one that may be best overcomed with the help of a conveyancing lawyer.
