What is a Sale and Purchase Agreement (SPA)?

1. INTRODUCTION
A Sale and Purchase Agreement (SPA) is a legally binding contract outlining the agreed upon conditions between a buyer and seller of a property. It is the main legal document in any sale process. In essence, it sets out the agreed elements of the deal, includes a number of important clauses to all the parties involved and provides the legal framework to complete the sale. The SPA is therefore of critical importance to both sellers and buyers.

Essentially, the sale and purchase agreement spells out all the details of the transaction so that both parties share the same understanding. Among the terms typically included in the agreement are the purchase price, the completion date, the amount of earnest money that the buyer must pay as part of the deposit, and the list of items that are and are not included in the sale.

The sale and purchase agreement is one of the most important documents. For this reason, it should be approached carefully and rigorously, with legal experts guiding both the seller and the buyer.

 

Common features and provisions of a Sale and Purchase Agreement (SPA)

(a) Parties to the agreement
In the simplest form of a sale where a property being sold is wholly owned by a single person and is being bought by a single buyer, there are only two parties to the agreement.

 

(b) Agreement to sell and purchase
This is often the shortest and simplest provision in the SPA. However, it is one of the most important, as it ensures that full legal ownership of the property (also known as “title”) is properly transferred, together with all the relevant rights that is attached to the property. This provision also normally states that the property is free from any encumbrances, giving the buyer comfort that the seller has not pledged the property to any banks or other lenders.

 

(c) Consideration
Consideration for an acquired property is paid by the buyer to a seller in the form of cash, loan or a combination of these.

 

(d) Condition precedent
Simultaneous signing and completion of a deal is the preferred and simplest way of concluding a deal. Sometimes, however, there is a need for a time gap between signing and completion in order to satisfy certain final outstanding conditions. These are known as “condition precedent” and commonly include obtaining developer’s confirmation and/or consent to transfer and charge from the state authority.

It is therefore critical that the SPA sets out on how to determine when the condition precedent have been satisfied and what point of time the sale is no longer capable of being satisfied. It should also specify which of the parties is responsible for satisfying each particular condition precedent. The relevant party is obliged to use reasonable endeavors to satisfy the relevant conditions precedent impose on the property.

 

(e) Completion
Completion is when legal ownership of the property is transferred to the buyer, resulting in the buyer owning the property.

 

2. TYPES OF SPA

(a) Purchase Property from Developer Landed and Strata titled properties both require their own separate SPA. The SPA templates for each are provided for under the Housing Development (Control and Licensing) Regulations 1989. These are the two schedules.

 

(i) Schedule G – Landed Individual Title
Schedule G is for landed individual properties such as semi-D houses and terrace houses.

 

(ii) Schedule H – Strata Title
Schedule H is for Strata properties such as condominiums and flats. Strata titles are a little fussier and require a more detailed SPA because they involve common properties like swimming pools, parking spaces and other facilities.

 

(b) Purchase Property from Individual (Subsale)
This may involve property which is still under Master Title and also property where the Individual Title or Strata has been issued by the Government. The SPA may differ for property which is still under Master Title and also property where the Individual Title or Strata has been issued. However, the main features or clauses still remain except the instruments of transfer will be different between property which is still under the Master Title and also property where the Individual Title or Strata has been issued.

 

When buying a property where the Individual Title or Strata has been issued, you will need to submit the 14A form alongside the sales and purchase agreement. Form 14A is a memorandum of transfer, which transfers the interest of the owner to an assignee specifically on strata and individual title properties. Furthermore, you will need to submit the stamp duty form with both of the above documents. Likewise for property still under the Master title, you will need to sign the Deed of Assignment (DOA) as your instrument of transfer, pending issuance of the Individual Title or Strata title. This DOA needs to be stamped and a copy of the same shall be served to the Developer. This process is known as serving the Notice of Assignment.

 

3. CANCELLATION OR TERMINATION OF THE SPA

Any SPA can be cancelled at any time, but normally 10% of the purchase price will be forfeited under the termination and indemnity clause. However, if there is a specific performance clause that binds the vendor(s) or buyer(s), there may be a legal case involved to enforce the terms resulting from the breach of agreement.

 

4. CONCLUSION
The SPA can be a secured and enforceable document to smoothen the property transaction, provided that the terms are clear and the deal does not work against you. It is therefore mandatory that both parties pay keen attention to every bit of terms and conditions in the SPA. You can mutually agree on any terms negotiated with the other party.

 

Prepared by,
MOLINA MOHAMAD DAT
Messrs Misyail Othman & Co

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