Purchasing properties in Malaysia has caused various psychological barriers on many purchasers even though the price of the said property is said to be cheaper than market value.

The auctioning process is one of the factors that deters many interested parties as you are not allowed to view the property and the property will be sold on an ‘as is where is’ basis. ‘As is where is’ indeed has a far reaching interpretations as it will absolve the Seller from any structural defects, any contract particularly tenancy agreement between the Seller and any 3rd party (the premises could be tenanted) and arrears of utility or other bills regards to the Premises.

During an auction proceeding, all the terms and conditions are entailed in the Proclamation of Sale and cardinal terms include the following:

• The Completion of the date of the Sale & Purchase Agreement with the Financial Institution will be 90 days from the Date of Auction (unlike conventional terms i.e 3 + 1 months from the Date of execution of Sale & Purchase Agreement). The Purchaser will pay 10% deposit to the Financial Institution on the Auction Date and the said deposit will be forfeited subject to the discretion of the Financial Institutions on the expiration of the completion date; and
• The Financial Institution (The Seller) will bear for all outstanding maintenance arrears, quit rent and assessment up till the date of Auction Date; and
• The Purchaser will bear for all other bills (if any) such as utility bills due and owing by previous owner/occupiers as the Seller will not be liable for such bills if any; and
• The Land may be subjected to caveat by any third party and the Financial Institution will not be responsible to remove the caveat.
• The Premises may be tenanted by a tenant and/or the defaulter may be staying in the said Premises and the Financial Institution will not be responsible to remove the tenant.

The above sums up the meaning of ‘as is where is’ basis.

However, all is not lost. There are various legal remedies to encounter the above-said challenges. If the intending bidder/purchaser is genuinely interested to purchase the said property, below are the points that one needs to take note to ensure all the intricacies required have been complied.

• Regards to the compliance of 90 days completion period, it is indeed a challenging task to ensure all documentations are done on or before the said period. It is common that the intending bidder/purchaser will apply for a housing loan facilities to purchase the property and the loans of the said person have to be approved by the said banks, all necessary loan documentations will have to be prepared by appointed solicitors and the banks require some time to disburse the loan monies to the Seller to complete the sale.

• If strata title has not been issued, the Purchaser has to apply for developer consent which the Purchaser has to complete within the said completion period. It is important to note that there shall be a payment for administrative charges to be payable by the Purchaser to the Developer (the said sum can range from RM 500 to RM 4000) and it is important to constantly remind the Developer to return the auction documents as soon as possible to the solicitor preparing the auction in order to ensure that said documents can be submitted for adjudication to governmental departments. Sometimes developer may take approximately 2 weeks to return the Deed of Assignment – a document that is required to be executed by the Developer after the Developer has received the administrative charges and return the same to the solicitor for further action.

• After the purchaser/intending bidder paid the sum of 10% to the Financial Institutions, the purchaser will start to bear all maintenance charges, quit rent and assessments even though the Purchaser has not obtained vacant possession of the premises and/or are not allowed to reside at the premises until full/balance purchase price paid. Though the difference will only be 3 months (90 days) in comparison to conventional terms in typical Sales & Purchase Agreement.

• Regards to any outstanding utility bills due and owing by previous occupiers/tenants, it is important to note that whenever you have executed the Sales & Purchase Agreement, the solicitor will forward you a duly stamped copy and the purchaser shall use the said Agreement to relevant utilities companies for disconnection of old utility connections and apply for new connection under the new purchaser’s name. Therefore, it is the law that that the utility company shall not hold the purchaser in ransom in the event they found out that the previous tenant/occupier has outstanding bills and refused re-connection of meter pending payment of arrears which is of no concern of the new purchaser. In addition, a letter and/or explanatory note to all relevant departments (inclusive of Indah Water) enclosing all relevant documents to indicate the new purchaser and change of legal status on the property would be sufficient.

• Caveat is one of the encumbrances on the title in which the intending bidder needs to watch out for as it is important to re-iterate the concept of ‘as is where is’ basis. It is always prudent for intended bidder to conduct a land search on the land before the auction date though any encumbrances will be expressly stated as part of the terms and conditions in the Proclamation of Sale. Caveat has a life-span of 6 years and it is important to check whether the said Caveat has lapsed otherwise conduct a caveat search on the property. Your solicitor will advise you on the nature of the caveat and whether there is a good chance of you removing the said caveat or otherwise it is not advisable to proceed with the purchase.

What if the said Premises is tenanted?

This poses a rather difficult practical problems. It is a general rule that the Purchaser shall be responsible to evict the tenant by normal process of law that is issuance of notice of demand and subsequent filling of summons in court seeking from the vacant possession of the premises. Though the said application is not really an expensive procedure, it is nevertheless time-consuming (6 to 9 months).

Therefore, the intending bidder should purchase the property first and will proceed to evict the tenant at a later stage after completion of the purchase of the property. There are alternatives whereby purchaser served a notice of demand on the occupier/tenant and upon the expiration thereof, the purchaser will disconnect utility supplies at the premises.

It is important to note that such remedies are not advisable from legal point of view as it exposes the purchaser/landlord to some element of risk of the tenant suing the Landlord for any potential loss of business opportunities (assuming the said premises is a small household supermarket).

Therefore, it is in our opinion fine to purchase auction and/or distress properties so long as you are aware of all the above-said points and take precautions to ensure that there are no delays and/or pure oversight in the strict compliance of the above.