If you have purchased a property or intend to purchase one, coming across a Sale and Purchase Agreement (“the SPA“) is inevitable. The question is, who should draft the SPA, and what are the salient terms in an SPA?
The conveyancing practice is that when the vendor has appointed a solicitor, the purchaser’s solicitor will contact the vendor’s solicitor to agree as to who will prepare the SPA. This is because Paragraph 16 of the Conveyancing Practice Rulings by the Bar Council states that the vendor’s solicitor shall prepare and supply the Sale and Purchase Agreement unless otherwise mutually agreed by the parties.
When representing vendors in sale and purchase transactions, I have had cases where the first draft of the SPA was provided to me by the purchaser’s solicitor; of course, this was agreed by me as the vendor’s solicitor. Upon payment of the earnest deposit, the purchasers are usually eager to finalize the SPA, urging their solicitors to produce the first draft of the agreement at lightning speed.
However, purchasers will usually have very limited information about the property that they are purchasing. This leads to the purchaser’s solicitors producing a generic SPA which, as can be expected, may not be able to address all relevant matters pertaining to the transaction, especially those involving conditions precedent (more on this later in the article).
In order for the parties to have a more comprehensive draft SPA, the vendor’s solicitor, being the one with more knowledge and relevant facts of the property should be the one to draft the SPA. Hence, the logic behind Para 16 of the Bar Council’s Conveyancing Practice Rulings.
In the event that the vendor is not represented, the purchaser’s solicitor shall prepare and finalize the SPA.
The purchaser’s solicitor may witness or attest vendor’s signature without charge. The purchaser’s solicitor can also explain the terms of the SPA to the unrepresented vendor but must practice caution when doing so to avoid from being seen as advising the unrepresented vendor which will put the purchaser’s solicitor in conflict of interest.
Note: Paragraph 19 of the Conveyancing Practice Rulings of the Bar Council states that a solicitor shall only act for one party in the sale and purchase transaction.
Specify the parties involved under this term. Always insert the full and accurate details of the vendor and purchaser, i.e. full name as per the National Registration Identity Card (NRIC) or passport details for foreigner, for individuals.
As for companies, to insert the company name and company registration number as per Form 9 (Certificate of Incorporation) or Section 14 & 15 of the Companies Act 2016.
Remember to insert full description of the property, i.e. property type, postal address and property title. The way in which you write the details really depends on the type of the property being transacted. Here is an example on how the property details can be written if it is a condominium:-
All that parcel of condominium held under Strata Title (hereinafter referred to as “the Strata Title”) No. Hakmilik Geran Mukim 1234/M1-A/3/345, No. Bangunan M1-A, No. Tingkat 3, No. Petak 345, No. Lot 66778, Mukim Petaling, Negeri Wilayah Persekutuan Kuala Lumpur, measuring approximately 2,110 sq ft/190 square meters in area, together with one Petak Aksesori/Car Park Bay No. A654, in the housing development known as KL Kosa Nostra, with postal address at A-3-345 Kosa Nostra (Block A), No. 8 Jalan Kosa 9, 54321 Wilayah Persekutuan Kuala Lumpur.
The above property details are fictional, created for illustration purposes only.
Note: To obtain a copy of the IDT/Strata Title and to conduct a land search. If the land search report reveals that restriction in interest is imposed on the property – for example “Tanah ini tidak boleh dipindahmiik, dipajak atau di gadai tanpa kebenaran Pihak Berkuasa Negeri”, a clause on conditions precedent should be added into the SPA.
When a property is imposed with a restriction in interest, the vendor is required to apply for the approval of state authority before any transfer can be registered onto the property’s IDT/Strata title.
The clause on conditions precedent provides that the SPA is conditional upon the approval by the state authority.
This means that the SPA shall not take effect unless and until the condition is fulfilled. The non-fulfillment of such condition shall not render either party liable in damages to the other. This is stated in National Land Finance Co-Operative Society Ltd v Sharidal Sdn Bhd [1983] 2 MLJ 211 as follows:-
“…where parties had entered into a sale with a condition that such sale is contingent upon the approval from another authority over which the parties have no control, such condition is a condition which is known in the law of contract as a ‘contingent condition’ the effect of which is that the contract shall not take effect unless and until the condition is fulfilled.“
The purchase price is usually paid in the following manner:-
Balance purchase price (if the purchase intends to apply for loan to part-finance the purchase of the property, shall consists of:-
The normal completion period is three (3) months, i.e. the three (3) months immediately following from the date of the SPA (“Completion Date”). If the SPA is subject to conditions precedent, the completion period should run from the date of fulfillment of the conditions precedent and not from the date of the SPA.
The time for vendor to deliver vacant possession to the purchaser is either within three (3) working days or five (5) working days from the date of the vendor’s receipt of the balance of purchase price together with late payment interest (if any).
To provide in the SPA, a one-month extension period (“Extended Completion Date”) for the purchaser to fully settle the balance of purchase price. Normally, the extension period will be charged with interest at a mutually agreed percentage (common rate is 10% per annum calculated on daily basis on the balance of purchase price or any part thereof).
If the purchaser defaulted in the payment of the purchase price, fails to pay after the expiry of the Extended Completion Date, the vendor has the right to forfeit the 10% deposit paid by the purchaser at the earlier stage of the SPA. The vendor is not required to prove that it had suffered any damage before forfeiting the deposit considering that the failure to pay purchase price is a fundamental breach by the purchaser. This can be seen in the case of Morello Sdn Bhd v Jaques (International) Sdn Bhd [1995] 1 MLJ 577 where it was held that:-
“…the effect in law of the contractual obligation to pay a deposit is to vest an indubitable right in the vendor to receive the deposit upon the contract coming into existence notwithstanding subsequent termination.”
The fundamental breach by the vendor will normally be on failure to pass good title or to deliver vacant possession to the purchaser. In a default by vendor, the purchaser can either:-
Before drafting the SPA, you must be clear of all facts and issues involving the property. Communicate with your client to ensure that his intentions and requirements are covered in the SPA. Remember to be meticulous when drafting the SPA because a well drafted SPA can definitely smoothen the sale and property transaction. I hope that this guide will provide a general overview on how SPA is to be drafted.
This section is normally where authors tell people about their achievements, life aspirations, etc. I'm Effa; a land law expert, and an organized, highly logical corporate lawyer who loves to run and hike. Oh, and I occasionally lie in my bio.
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