While purchasing a property, one will not feel secure by merely signing only the Letter of Offer and Letter of Acceptance, notwithstanding the vendor or the purchaser. This insecure feeling of will persist until the signing of the formal agreement – Sale and Purchase Agreement (‘SPA’).
What is a Sale and Purchase Agreement?
The SPA is a legally binding contract which outlines the details of a sale between a buyer and a seller. It’s important that these conditions are mutually agreed upon between both parties too, hence the term “agreement.” The SPA protects the buyer by ensuring the seller cannot change the terms and conditions to their benefit. The buyer here can refer to anyone purchasing the property, whereas the seller can be the previous owner in the case of a sub-sale property, or the developer if you’re buying it brand new. If the property is received by means of inheritance or auction however, an SPA usually isn’t involved!
Note that upon signing your SPA, you’re essentially closing the deal. No further negotiations can take place and both parties need to respect the terms stated in the SPA.
Important Clauses to take note in a Sale and Purchase Agreement
As mentioned above, parties would be bound by the terms and conditions of the SPA that they’ve signed, so here are just some of the more common ones you need to pay attention to:
- Parties to the agreement
Parties here refers to those who signed the SPA, i.e. the Seller and the Buyer. The Seller, being the party that sells the property, has to own the property or has the legal authority to deal with the property. Whereas the Buyer, being the party that purchases that property, has to pay the purchase price that has been agreed upon.
- Agreement to sell and buy
The Seller should be willing to sell, and the Buyer should be 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.
- Consideration
The term ‘consideration’ refers to something of value that’s given to someone else, in exchange for goods, services, or some other promise.
In a conveyancing transaction, the Seller would transfer his/her home ownership (property is the consideration by the Seller) to the Buyer in exchange for money (payment is the consideration by the Buyer).
- Restrictive covenants
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.
For example: “Tanah ini tidak boleh diberi, dipindahmilik, dipajak atau digadai tanpa persetujuan pihak Berkuasa Negeri.”
- Warranties and indemnities
A warranty is defined as a contractual statement of assurance that’s given by the Seller to the Buyer. An indemnity on the other hand, 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).
- Conditions precedent
This is a clause that suspends the SPA, until certain specific events have happened/taken place. Essentially, these are conditions which must be followed through or carried out, before the SPA can be effective.
- Completion
This 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.
Other Key Clauses to Take Note
- Extension of The Completion Period/Extended Completion Period
Commonly, the period of time for completion of a transaction is usually three months from the date of the SPA, where the Seller is expected to receive the full purchase price from the Buyer. Vacant possession of the property would be delivered to the Buyer. In the event that the full purchase price is not paid within the three months, an extension of one month (subject to a certain percentage of interest) is normally given for the Buyer to pay the balance of the money.
However, there may be situations where the time frame can be extended, without incurring any interest, for example the failure by the Seller to deliver the property’s title, together with all the relevant documents for registration, within the prescribed time frame.
- Termination Clause/Non-Completion Clause
There are possibilities that one party may choose to breach the agreement or wish to end the SPA from their end due to unforeseen circumstances. When the contract is broken, and there’s no termination/non-completion clause that allows it, the party suffering from the breach would be entitled to exercise his/her rights under the SPA. The party suffering from the breach will also be allowed to take legal action against the other party in Court. Here, the Court would be bound by what’s written in the SPA and must look to the plain meaning of these termination clauses. Therefore, it’s important to clearly state and include clauses to regulate any terminations in the SPA, in order to safeguard the interests of both parties!
- Delivery of Vacant Possession
This is the very moment where the property is handed over 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. Some examples include:
- The property is subjected to an existing tenancy, and there are currently occupants in the property.
- There are squatters residing in the property.
To prevent this from happening, the SPA should state when and how the Buyer should receive vacant possession of the property. In addition, should the Seller fail to deliver vacant possession within the stated time frame, the consequences should also be inserted into the SPA. The Buyer may also request for a joint inspection, to allow him/her to check the state and condition of the property with the Seller, before accepting delivery of vacant possession.
In a nutshell, the SPA is a contract that will protects the buyer in the case when the deal turns sour. So, we have to be meticulous, and never to worry about being over-fussy. It’s not every day we buy a house, so make sure to do it right.
