1. Booking Fee
The deposit or booking fee is generally 2% or 3% of the transaction price. This deposit or booking fee is paid by the buyer to the Agent (Company of the agent) and the buyer will also sign the booking forms simultaneously.
For those who want to use a loan to buy property must ask the Agent to write down special conditions, which is the loan must be approved by the bank before the transaction can proceed and take effect. Since the Agent is appointed by the seller, the deposit will be regarded as the seller’s remuneration to the Agent.
2. Letter of Offer
If the buyer does not purchase the property with cash, he must borrow a loan from the bank to pay part of the purchase price.
In the process of the loan procedures, the first document is the Letter of Offer. The Letter of Offer will write down the loan amount, interest, special conditions, whether there is a need for a guarantor, etc. At this stage, no loan lawyer is involved.
3. Down Payment / Deposit
This would usually be 10% of the purchase price stated in the SPA. Generally, the buyer can only borrow 90% of the loan, so the remaining 10% must be paid with the buyer’s cash.
4. Sale and Purchase Agreement (SPA)
The SPA is a legal document between the buyer and the seller which binds both parties. In the SPA, the purchase price will be stated and clearly written down, when the deposit (10%) and sale price (90%) shall be paid and when to hand the keys over.
5. Loan Agreement
After signing the Letter of Offer, you can request to bank to choose the law firm you wish to engage in order to complete the loan procedures.
The lawyer will then prepare the loan agreement for you to sign. Once signed, the lawyer will prepare the relevant documents required by the bank, and instruct the bank to release loan sum to the seller’s law firm.
6. Legal Fees
Property transfers and loan agreements require lawyers to prepare and complete, hence legal fees would be incurred.
Lawyers mainly prepare contracts and protect the rights and interests of buyers and sellers, to persuade banks to release money and contact / to liaise with relevant government stakeholders to complete the transfer procedures. Legal fees are divided into legal fees for SPA and legal fees for loan agreements. The SPA and Loan documentation can be from the same lawyer to handle.
7. Stamp Duty
This is tax or fee collected by the government when the transaction documents are stamped. These transaction documents include the memorandum of transfer (MOT) and loan agreement. The amount of stamp duty is also not a small amount.
8. Real Property Gains Tax (RPGT)
When the seller sells the property, if the selling price is higher than the price he bought previously acquired, then the government will impose tax on the profit made by the seller.
This tax amount shall be borne by the seller but will be paid with a portion of the down payment by the buyer to the seller.
However, from 1st June 2020 till the end of 2021, the government will not impose any real property gain tax on the seller but this is only limited to the first three residential properties only.
9. Balance Purchase Price (BPP)
Generally, the balance purchase price is 90% of the sale price, which is generally paid by loans. Buyers usually have 3 months as stated in the SPA to pay or settle the Balance Purchase price.
10. Redemption Sum
If the seller still has not fully settled the previous bank loan to the seller upon signing the SPA, then this amount owed is the amount for the redemption of the property.
The buyer must then use a portion of the balance purchase price to pay for this redemption sum. In this way, the seller’s bank will return the title deed and security documents to the seller’s lawyer to complete the transfer procedure.
Caveat is a declaration made in the Land Office to declare that the caveator has an interest in the land.
For example, before the transfer procedure is completed, due to the buyer had already paid the down payment to the seller, the buyer would lodge a caveat in order to protect his own interests.
For a land that has a caveat on it, the seller cannot complete the transfer procedures. Before a buyer really wants to buy a property, it is advisable to do a land search first to ensure that the property is “clean” and there is no caveat from a third party.
12. State Consent
In KL/Selangor, generally, Leasehold Land must obtain the consent of the state government before changing the ownership of the land (not necessarily in other states).
To apply and obtain the consent of the state government, it usually takes around 1 to 3 months, however this period of time will not be taken into account as the period of time in the Sale and Purchase Agreement. The time period (3+1) would only start to run when the state consent is obtained.
13. Developer’s Letter of Confirmation
For properties that do not have an individual strata title, at the initial stage, the Sale and Purchase lawyer will ask the developer to give a confirmation letter to confirm the information of the property, such as the owner of the property, address, and whether there is a loan, etc.
The role of the developer for properties without any individual title issued is equivalent to the Land Office, which is the database of all units.
14. Memorandum of Transfer (MOT)
If the property has an individual title, then in the transfer procedure, the lawyer must submit the MOT (documents to transfer the property) to the relevant land office for the title name to be transferred to the buyer.
The government will collect stamp duty on the transfer. The good news is that until the end of 2025, first homebuyer can apply for an exemption of stamp duty on their MOT and loan agreements (Charge documents) provided that the sale of property is less than RM500k.
15. Deed of Assignment (DOA)
This transfer document is very similar to the MOT, except that the DOA is for property without an individual title or strata title.
If the property does not have an individual title or strata title, the transfer procedure cannot be completed in the Land Office. The seller must sign a DOA to confirm that the seller has transferred all the rights and interests in the property to the buyer.
16. Valuation Fee
After signing the Letter of Offer and loan agreement, the bank will ask the valuer to write a valuation report of the property to ensure that the market price of the property is consistent or more than the value of property stated in the Letter of Offer. Of course, valuation fee will generally be paid by the buyer/lender.
17. Passing of Risks
As mentioned above, the procedures for buying and selling properties will take several months. During this period, if there are fire, flood and etc, who must bear the losses of property?
In general, we regard it as the day of delivery of vacant possession (handling of the keys). After the delivery of vacant possession, the buyer must bear all risks of the property.
18. Force Majeure
During the agreement period, if some force majeure (the events that beyond both parties’ control) occur, such as the current government’s full MCO, then the contractual duties of both parties will be suspended, as all relevant government departments and law firms are closed for business during this period.
In other words, the three-month contract period will be extended by the time lost due to the movement control order. Since the outbreak of the COVID-19 only began in 2020, the current SPA will clearly state that the government’s movement control order as one of the force majeure factors.
19. Delivery of Vacant Possession
The delivery of Vacant Possession is very important for those buyers who are planning to reside in the property. Before signing the Sale and Purchase Agreement, you must ask the lawyer and the seller when will you be able to get vacant possession.
Be aware that some sellers are still renting the property to tenants when they enter into the Sale and Purchase Agreement. Generally, as long as the buyer pays the purchase prices to the seller’s lawyer, the seller must give the buyer the vacant possession and keys within a few days.
BY WINSON TAN
Note: This article is for reference only and does not constitute legal advice. Therefore, if readers have any legal questions or needs, they should seek professional legal advice. If the reader suffers any loss by relying on this article, the author will not be held responsible.