If you have purchased a home before, you would know by now that buying a property requires you to deal with a plethora of documents, such as Memorandum of Transfer, Loan Agreement, Letter of Offer, Deed of Assignment etc. But we’re sure that the one documentation you will remember the most would be the Sale and Purchase Agreement (SPA/S&P), because this particular document would have been much emphasised by your lawyer during your purchasing process. So, why is SPA so important? Read on to find out.

What Is SPA?

Sale and purchase agreement is the contract containing the terms and conditions of the sale and purchase and in particular laying out the obligations of the respective party, events that would lead to a breach or default and the consequences in the event any of the party breach or default.

The term ‘purchaser’ or ‘buyer’ refers to the party purchasing or acquiring the property, whereas the term ‘vendor’ or ‘seller’ refers to the party selling or disposing of the property.

In a SPA of property from the developer in a housing development project, the developer is the seller.

In almost all transactions, the parties begin with informal discussion, negotiations and bargain between parties. When the parties are able to come to a meeting of the mind with the common purpose of one party wishing to sell and another party wishing to buy, the SPA will be prepared to reflect the terms and conditions agreed between the parties (purchaser and Vendor) reduced into writing to avoid confusion and misunderstanding.

Once the SPA is executed (signed), you are essentially sealing the deal. Both parties are obliged to abide by the terms and conditions stated in the SPA, and no further negotiations can take place unless mutually agreed by both parties.

For avoidance of doubt, a contract need not be in writing. Even a verbal confirmation between 2 parties can be a valid contract. The issue with non-written contracts will be how do you prove or determine what are the terms agreed upon between the parties. Therefore, it is pertinent to have a properly and professionally drafted contract or SPA to make sure the terms and conditions are clear and not misunderstood.

Who Prepares The SPA?

The person or professional qualified and competent to prepare and draft SPA is the lawyer (Advocate & Solicitor). In more particular, in Malaysia lawyers that practice or major in drafting of agreements are called Conveyancing Lawyers.

Who should appoint lawyers ?

As said earlier SPA is a contract between the vendor and the purchaser. It is advisable that each party should engage their own lawyer to represent them. It is never a good idea to appoint 1 lawyer to act for both. You are either buying a house with your hard earned money and the seller is selling a house where thousands or perhaps hundreds of thousand ringgit will be transacted and change hands. You would want to make sure that you appoint a lawyer that will take care of your interest and ensure you are fully protected.

Only in limited circumstances can a lawyer act for more than 1 party, that is your SPA lawyer acting for you in the preparation of the SPA also act for the preparation of loan documentation with the bank. But do be advised that when your SPA lawyer also acts for you for the loan preparation the lawyer is actually acting for the bank.

For the buyer, the SPA lawyer will prepare numerous documents, undertakings and more importantly memorandum of transfer (“MOT”) or deed of assignment (“DOA”) for the eventual transfer or assignment of the property to the buyer.

For the seller, the SPA lawyer will also need to prepare numerous documents, undertakings, and liaising with the bank for redemption (if the property is still subject to a bank loan) and more importantly to act as stakeholders for the purchase price that will be paid by the buyer and/or the buyer’s bank.

In most transactions, where there is only 1 lawyer in the transaction, that lawyer only acts for the buyer and not the seller. Therefore, in the event of any disagreement, issue or dispute the seller will be unrepresented and the lawyer is duty bound to protect and act for the buyer only and in this situation the seller will be unrepresented and at a disadvantage.

Similarly, if a buyer is advised to appoint a lawyer introduced by the seller, though the lawyer may act for the buyer, the lawyer may be in a position of conflict and may be seen as trying to protect the seller more than the buyer.

You are entering into a transaction involving hundreds of thousand ringgit, do not save on legal fees. Get yourself represented by a good lawyer. The lawyer is there to protect your interest

What is MOT and DOA?

MOT is known as Memorandum of Transfer, a form prescribed under the National Land Code for the purpose of transferring title of property. This MOT will be subject to ad valorem stamp duty.

DOA is known as Deed of Assignment, is prepared and used in situations whether the title to the property has not been issued by the land office or the developer has not applied for the subdivision of title. The Deed of Assignment is documents evidencing the assignment of the ownership by the seller to the buyer. Similarly DOA will be subject to ad valorem stamp duty. When the title is issued in the future the duly stamped DOA will be used as the document to prove the ownership and the MOT will then be prepared for the eventual transfer of the title. You do not need to pay the ad valorem stamp duty again on the MOT, as the stamp duty endorsed on the DOA will be re-endorsed on the MOT.

Ad valorem stamp duty is the stamp duty payable for the conveyance of property levied by the Inland Revenue Department. The rate is as follow:-

Property Price	Percentage
First RM100,000 of the property price	1%
The Subsequent RM100,001 to RM500,000	2%
The Subsequent RM500,001 to RM1 million	3%
The Subsequent above RM1 million	4%

What Are The Clauses In SPA That I Should Take Note Of?

1. Parties To The Agreement

   This refers to the parties who are entering into the SPA, which is the seller and the buyer. The seller, who intends to sell the property has to either own the property or has the legal rights to deal with the property.

   The buyer on the other hand, who intends to purchase that property, has to pay the price that has been agreed upon for the purchase.

2. Agreement To Sell And Buy

   This states that one party is a willing seller and the other is a willing buyer.

3. Consideration

   This is an important aspect of the SPA which states the amount or value of the purchase price as consideration to be paid by the purchaser for the purchase of the property and in return the consideration on part of the seller to sell and transfer the property to the buyer.

4.  Condition Precedent

   Some sale and purchase of property may be subject to certain pre-condition to be complied before the property can be transferred or sold to a buyer. This pre-condition is usually known as Condition Precedent which may be in the form of: –

   1. Restriction in interest stipulated in the title. Depending on the terms of the restriction, usually the seller will be required to apply for the consent from the state authority;
   2. Restriction on foreigner. Depending on the local rules and law of the local government of each state in Malaysia, Non-Malaysian or non-permanent resident of Malaysia may not be allowed to purchase certain types of property such as agricultural land and landed houses. In general, any foreigner intending to buy property in Malaysia would require first to obtain consent from the state authority; or
   3. Consent or confirmation from developer or liquidator. Where the title to the property has not been issued, any sale and purchase of property would require the confirmation or sometime the consent of the developer (or liquidator, if the developer is in liquidation).

   If there is such condition precedent, upon signing the parties are required to first apply and obtain the necessary consent and after the consent has been obtained only then the SPA may proceed for completion. If the consent cannot be obtained or rejected, (not due to any party’s fault) the seller will be required to affect a full refund of any money paid to the purchase price including the deposit.

5. Warranties And Indemnities

   The SPA would usually contain terms on warranty and indemnity that provides assurance from the seller to the buyer. An indemnity is a promise by the seller to compensate the buyer in the event the buyer suffers any damages or losses due to the representation or act of the seller.

   An important warranty is the seller declaring that he/she is the legal/beneficial owner of the property with full authority to sell the property to the buyer.

6. Completion

   It is commonly known in the market as the “3+1 months” to complete (popularly known as Completion Date or Completion Period). This is the term which stipulates that the buyer has 3 months to pay the purchase price. If the buyer is not able to pay within 3 months, there is an automatic extension of 1 month for the buyer to pay but payment made during the 4th month will be subject to late payment interest (usually 8%) (popularly known as Extended Completion Date or Extended Completion Period).

   This is a market practice and not a legal requirement, and the parties are at liberty to negotiate for a shorter or longer period for completion. If you are buying property and you are aware that you may need longer time to raise money, for example you need time to sell your shares in the stock market, you are waiting for fund from overseas, you are waiting for fund from the sale of other property, you need to take out the money in the fixed deposit account, you may negotiate with the seller for longer completion period.

7. Vacant Possession

   This is the term imposed upon the seller to deliver vacant possession of the property (usually the key) to the buyer when the buyer has fully pay the purchase price and all other money to be paid to the seller (if any) within a certain period of time such as within 5 days or 7 days from the date of the buyer having paid the purchase price.

   If the seller refused or unable to deliver vacant possession the seller may be liable to pay interest to the buyer for every each day delayed.

   If the house is tenanted, legal possession will be delivered instead of vacant possession, and upon the delivery of legal possession, the buyer will take over as the landlord to colect rental from the tenant.

8. Outgoings

   The seller is under obligation to ensure all outgoings such as water bill, electricity bill, sewerage bills, quit rent, assessment for the property are fully settled and not in arrears. If the seller has paid any of the outgoings in advance for example the seller has paid the assessment and quit rent for the entire year, the buyer to reimburse the seller the apportioned outgoings for the period after the completion date or date of delivery of vacant possession.

   If the buyer refused to pay the apportioned outgoings, the seller may refuse to deliver vacant possession of the property.

   If the seller fails or refuses to pay and settle the outgoings, part of the purchase price may be used to pay for the outstanding or arrears.

9. Termination

   There may be occasions where 1 party breached or defaulted. Most SPA will contain such clauses in the event of breach.

   If the seller breached or refused to complete the SPA, the buyer will have the option to seek the relief of specific performance from the court to force the seller to continue and complete the intended transaction OR the seller may be required to cause a full refund and pay an additional sum of 10% (usually) as compensation.

   If the buyer defaults and refuses or is unable to pay the balance purchase price, the seller may forfeit the deposit paid earlier.

10. Post-Completion

    This refers to the period of time after the date of completion. Once the SPA is completed, the buyer will have to submit the relevant application and form to the local council or other relevant authorities of the change of ownership to enable the local council to issue the assessment in the name of the buyer and the changes of utilities billings name and account.

We hope that the above information gives you a simple layout on the importance of SPA and what are the clauses you need to pay attention to. There are other clauses or terms and conditions in the SPA, and always remember to seek clarification and advise from your lawyer!

The statement and information in the articles are the opinion of the writer and meant only as a guide. Any property purchase, rental or lease involve many legal issues and other complication depending on the individual facts and circumstances. Readers and Users are strongly advised to seek professional advise including from qualified and competent lawyers, bankers and/or real estate agent to verify the information and the statement before embarking on any purchase, rent or lease of any property. To the fullest extent permitted by law, we exclude and disclaim liability for any losses and damages of whatever nature and howsoever cause and arising including without limitation, any direct, indirect, general, special, punitive, incidental or consequential.